Gaming Expansion in New Jersey Assessing the Impacts on the Atlantic City Region
Prepared At The Request Of: Resorts Casino Hotel, Atlantic City, NJ
Prepared By: Morowitz Gaming Advisors, LLC & Global Gaming & Hospitality, LLC
January 22, 2016
Gaming Expansion in New Jersey
January 2016
This Economic Impact Assessment and Financial Analysis (the “Report”) has been prepared by Morowitz Gaming Advisors, LLC and Global Gaming & Hospitality LLC (collectively hereinafter referred to as “GGH” or the “Advisors”), including its subsidiaries, affiliates, and independent contractors, which include Leisure Dynamics Research, LLC, at the request of Resorts Casino Hotel (the “Company”). The sole purpose of the Report is to assess the impacts of gaming expansion in northern New Jersey on the gaming industry and economies of the Atlantic City region and State of New Jersey. This Report does not purport to contain information that a prospective interested party may rely upon to evaluate any investment related to a potential transaction involving anything associated with Atlantic City. This Report has been prepared for informational purposes only. All information set forth in this Report has been prepared by GGH based upon information furnished by various third‐party sources. GGH does not assume any responsibility for such information, including the estimates and projections of future financial and operating performance of any of the companies or entities mentioned in this report, if any, and other forward‐looking statements, or of any additional evaluation material made available in connection with any further investigation of the market or the impacts of northern New Jersey gaming expansion. Any estimates, projections and forward‐looking statements contained herein have been prepared and based on information currently available to GGH and involve subjective assumptions, judgments and analyses, which may or may not be correct. GGH or the Company undertake no obligation to update any such estimates, projections or forward‐looking statements or to provide access to any additional information. Neither GGH nor the Company make any express or implied representation or warranty as to the accuracy or completeness of the information contained in, or for any omissions from, the Report or any additional evaluation material made available in connection with any further investigation of the impacts of northern New Jersey gaming expansion. Each of GGH and the Company expressly disclaims any and all liability which may be based on such information, errors therein or omissions therefrom. . Neither the receipt of this Report by any person nor any information contained herein or supplied herewith or subsequently communicated to any person in connection herewith is to be taken as providing legal, tax, accounting, or investment advice by GGH to any such person. Further, the information contained herein, as well as any other communications or information provided by GGH is not intended to be, and shall not be regarded or construed as, a recommendation to participate in a transaction or to make any investment. GGH does not provide tax, legal or accounting advice. You should conduct a thorough and independent review of the legal, tax and accounting aspects of any information contained in this report and an independent assessment of the merits of pursuing a transaction related to Atlantic City or the potential northern New Jersey gaming expansion and should consult your own professional advisors in light of your particular circumstances. This Report does not constitute a solicitation of funds, an offer to sell a financial interest in the Company or anything else related to the potential northern New Jersey gaming expansion or any other entity, or an offer to accept any proposal, nor does it constitute an offer to sell, or a solicitation of offers to buy, securities of the Company or any other entity. In furnishing this Report, neither GGH nor the Company undertake any obligation to provide the recipient with access to any evaluation material. This Report shall neither be deemed an indication of the state of affairs of the Company or other casinos or businesses in New Jersey nor constitute an indication that there has been no change in the business affairs of the Company or New Jersey since the date hereof or since the dates as of which information is provided herein. All communications, inquiries and requests for information relating to this Report should be addressed directly to GGH at the contact information listed below.
i | P a g e
Gaming Expansion in New Jersey
January 2016
GGH Contact Information:
Cory Morowitz Morowitz Gaming Advisors, LLC Chairman & Managing Member 248 South New York Road Galloway, NJ 8205 T 609.652.6472 F 609.652.6473
[email protected] www.morowitzgaming.com
Michael S. Kim Global Gaming & Hospitality LLC Managing Partner, New York 299 Park Avenue, 6th Floor New York, NY 10171 T 646.719.1096 F 702.823.1926
[email protected] www.gghsp.com
ii | P a g e
Gaming Expansion in New Jersey
January 2016
Gaming Expansion in New Jersey – Impacts on Atlantic City Region
TABLE OF CONTENTS
I.
EXECUTIVE SUMMARY ................................................................................... 4
II.
BACKGROUND, METHODOLOGY & SIGNIFICANT ASSUMPTIONS .................. 7
III.
ATLANTIC CITY – AN EVOLVING GAMING MARKET ..................................... 10
IV.
THE REGIONAL ECONOMY ........................................................................... 24
V.
THE FUTURE OF ATLANTIC CITY WITHOUT NEW JERSEY EXPANSION .......... 43
VI.
NON‐GAMING AND CONVENTIONS ............................................................. 59
VII. THE IMPACT OF NORTH JERSEY GAMING EXPANSION ON ATLANTIC CITY CASINOS ....................................................................................................... 65 VIII. THE FLOW THROUGH IMPACTS TO THE REGION FROM NORTH JERSEY GAMING EXPANSION ................................................................................... 82 IX.
LIMITING CONDITIONS .............................................................................. 109
X.
APPENDIX – ABOUT THE AUTHORS OF THIS REPORT ................................ 110
iii | P a g e
Gaming Expansion in New Jersey
I.
January 2016
EXECUTIVE SUMMARY
The State of New Jersey is considering the expansion of casino gaming into northern New Jersey. Recent proposed legislation calls for no more than two casinos, each to be located in a different county in municipalities more than 72 miles from Atlantic City. This expansion comes at a time that Atlantic City’s gaming industry, after several years of decline owing to an increasingly competitive northeast gaming market, is finally finding its footing. Atlantic City has right sized its gaming industry, is in the middle of several strategic investments and despite potential new out‐ of‐state competition, has stabilized and is poised for new growth. Expansion of gaming to Northern New Jersey could jeopardize Atlantic City’s recovery and negatively impact not only the gaming industry, but the entire region. GGH (Morowitz Gaming Advisors and Global Gaming & Hospitality) was requested by Resorts Casino Hotel (the “Company”) to prepare an analysis of the expansion of gaming in New Jersey. Specifically, GGH analyzed the impact of two large scale casino investments in northern New Jersey on the competitive environment impacting New Jersey and Atlantic City and quantified the potential impacts on the casinos in Atlantic City and the overall economy of the Atlantic City region. We did not analyze or quantify the offsetting economic impacts of casino expansion in northern New Jersey because there is simply not enough detail in the proposed legislation to determine those impacts. This analysis therefore focuses solely on the impacts to the Atlantic City region. Our analysis and conclusions are based on a number of analytical techniques including an in depth qualitative and quantitative analysis of the trends through the date of this report impacting the gaming industry in Atlantic City as well as governmental spending and trends in the region. Our analysis also relies on the development and utilization of a gravity model, which is a modeling technique used throughout the gaming industry to measure the impacts of new gaming supply on existing competitors and the market as a whole. Atlantic County has grown significantly during the casino era in terms of population and almost all of that growth has been confined to the municipalities and towns in the mainland communities surrounding Atlantic City. This growth was catalyzed and supported by the gaming industry and necessitated much in the way of infrastructure to support this growth including roads, schools and government services. As the industry has contracted, the area has come under considerable stress. As of September 2015, the casino industry generated $2.6 billion of net revenue, $404 million of EBITDA, employed 24,431 employees, over $590 million in wages (not including tips) and was paying approximately $381 million in State and local taxes (including property taxes). On a pro forma basis, those amounts are expected to decline marginally with the opening of new out‐of‐ state competitors anticipated in Pennsylvania, Maryland, New York and Massachusetts to $2.45 billion of gaming revenue, $356 million of EBITDA, 23,029 employees, $557 million in wages and $363 million in taxes. At this point, due to saturation of the U.S. market, it is highly unlikely that 4 | P a g e
Gaming Expansion in New Jersey
January 2016
there will be additional out‐of‐state expansion and the Atlantic City casino industry should stabilize and even potentially grow. However, if casinos expand to northern New Jersey, Atlantic City’s casino industry will contract significantly, losing net revenue ranging from $624 million to $1.4 billion with industry EBITDA declining to anywhere from $162 million to $195 million. However, the more likely result is that anywhere from three to five casinos will close, causing a spiral downward with net revenues declining by a range of $1.0 billion to $1.4 billion, EBITDA declining by between $162 million and $170 million, employment declining by between 11,800 and 15,000, wages (not including tips) declining by between $285 million and $365 million and industry tax payments declining by between $128 million and $158 million. Impacts of North Jersey Expansion on Atlantic City Casinos (in 000's except Employees TTM 9/15
Baseline
No Closures
3 Closures
Impact
%
4 Closures
Impact
%
5 Closures
Impact
%
$ 2,474,066 999,387 3,473,453 860,232 2,613,221 404,545 15.5%
$ 2,285,898 964,683 3,250,581 797,443 2,453,138 356,226 14.5%
$ 1,594,254 790,253 2,384,507 556,161 1,828,346 161,108 8.8%
$ 1,194,844 641,193 1,836,037 406,222 1,429,815 186,283 13.0%
$ (1,091,055) (323,490) (1,414,544) (391,221) (1,023,323) (169,943)
(47.7%) (33.5%) (43.5%) (49.1%) (41.7%)
$ (1,279,427) (402,289) (1,681,716) (444,458) (1,237,259) (169,697)
(56.0%) (41.7%) (51.7%) (55.7%) (50.4%) (47.6%) 5.6%
$ 856,580 521,453 1,378,034 302,595 1,075,439 193,942 18.0%
$ (1,429,318) (443,230) (1,872,548) (494,848) (1,377,700) (162,284)
(62.5%) (45.9%) (57.6%) (62.1%) (56.2%)
(47.7%) (10.3%)
$ 1,006,471 562,394 1,568,865 352,985 1,215,880 186,529 15.3%
Gaming as % of Gross Occupancy ADR # of Employees Salaries & Wages Average Salary
71.2% 80.9% $ 102.37 24,431 $ 590,710 24.18
70.3% 81.6% $ 102.26 23,029 $ 556,675 24.17
66.9% 80.3% $ 96.95 16,318 $ 394,907 24.20
65.1% 85.5% $ 107.79 11,205 $ 271,619 24.24
(5.2%) 3.9%
(7.5%) 4.7% $ 5.52 5.4% (11,824) (51.3%) $ (285,056) (51.2%) 0.07 0.3%
64.2% 88.6% $ 113.93 9,353 $ 227,341 24.31
(6.2%) 7.0%
(8.8%) 8.6% $ 11.67 11.4% (13,676) (59.4%) $ (329,334) (59.2%) 0.13 0.6%
62.2% 90.4% $ 120.65 7,990 $ 192,156 24.05
(8.2%) 8.8%
(11.6%) 10.8% $ 18.39 18.0% (15,039) (65.3%) $ (364,520) (65.5%) (0.12) (0.5%)
Taxes Gaming Tax CRDA Fee Property Tax Parking Fee Room Fee Total
$ 175,322 19,390 151,162 3,620 11,897 $ 361,391
$ 165,667 28,574 124,979 3,344 11,997 $ 334,561
$ 117,720 19,928 90,000 2,332 11,809 $ 241,789
$ 90,740 14,936 90,000 1,748 8,706 $ 206,130
$ (74,927) (13,638) (34,979) (1,596) (3,290) $ (128,430)
$ 78,082 12,581 90,000 1,473 7,009 $ 189,144
$ (87,585) (15,993) (34,979) (1,872) (4,988) $ (145,416)
$ 67,883 10,707 90,000 1,253 6,433 $ 176,276
$ (97,784) (17,866) (34,979) (2,091) (5,564) $ (158,284)
Revenues Gaming Non‐gaming Gross Revenue Promo Net Revenue EBITDA % Margin
(1.5%)
(45.2%) (47.7%) (28.0%) (47.7%) (27.4%) (38.4%)
0.8%
(52.9%) (56.0%) (28.0%) (56.0%) (41.6%) (43.5%)
3.5%
(45.6%) 24.2%
(59.0%) (62.5%) (28.0%) (62.5%) (46.4%) (47.3%)
Based on our analysis we have concluded that the expansion of gaming in northern New Jersey will have significant and far reaching impacts on the Atlantic City region. The major impacts are summarized as follows: Gaming revenue declines of $691 million to $1.4 billion Three to five additional casino closures Total job losses to the region ranging from 23,000 to 30,000 and regional unemployment rates of 25% to 30% Foreclosure rates (already among the highest in the nation) increasing significantly Lost regional and state economic output of $1.5 billion to $2.0 billion Potential increases in New Jersey State transitional and school subsidies to municipalities and school districts of $134 million to $367 million Reductions in Atlantic City Expressway tolls of $11 to $15 million Reductions in state tax payments by Atlantic City casinos of $86 million to $111 million Potential for $100 million of reduced spending at Boardwalk based small businesses 5 | P a g e
Gaming Expansion in New Jersey
January 2016
These impacts are summarized in the following tables. Summary of Regional Impacts on Jobs, Income and Economic Output
Job Losses
Income Loss
Loss in Economic Output
Direct Casino Impacts
12,500 to 16,000 jobs
$372 million to $490 million
5,000 to 7,000 jobs
$185 million to $242 million
17,500 to 23,000
$556 million to $733 million
$664 million to $888 million
20% to 25%
5,600 to 7,300
$153 million to $201 million
$364 million to $477 million
23,000 to 30,000
$709 million to $934 million
$1.0 billion to $1.36 billion
25% to 30%
Vendor Impacts
Total Regional Economic Impact from Casino
Spending Outside Casinos Total Regional Economic Impact with Casinos and Boardwalk
Unemployment Rate
Summary of Direct Casino Toll and Tax Related Impacts
SJTA Tolls $11.4 million to $14.9 million
Total Impact
Gaming Revenue Tax $75 million to $98 million
Luxury Tax $5.6 million
Room Tax $3.3 million to $5.6 million
Parking Tax $1.6 million to $2.1 million
Summary of Potential Government Impacts
Transitional Aid Range
Government Impacts
$31 million to $54 million
School Aid Range $103 million to $313 million
Total $134 million to $367 million Annually
Potential Reduced Economic Output Beyond Atlantic County Region
Decline in Economic Output Outside Atlantic County
Annual Impact Per Non‐Atlantic County Resident
Multiplier Impacts of Atlantic City Economic Decline to Rest of State
$275 million to $369 million
$32 to $43
$185 million
$21
$460 million to $554 million
$53 to $64
Direct, Indirect and Induced Impacts of Vendor Spending Declines Outside of Atlantic County Total Decline Outside Atlantic County
Our analysis, methodology and conclusions are detailed in the accompanying report and economic impact study and magnify the importance of studying the overall impact of gaming expansion in New Jersey. The key issue is that casinos in northern New Jersey will not just impact Atlantic City. They will impact the wellbeing of an entire region of the State of New Jersey. In the absence of other significant economic catalysts, the Atlantic County region could become a significant and permanent ward of the state of New Jersey.
6 | P a g e
Gaming Expansion in New Jersey
II.
January 2016
BACKGROUND, METHODOLOGY & SIGNIFICANT ASSUMPTIONS
Background The State of New Jersey is considering the expansion of casino gaming into northern New Jersey. Recent proposed legislation calls for no more than two casinos, each to be located in a different county in municipalities more than 72 miles from Atlantic City. Potential locations include Bergen County and Hudson County. Gaming in northern New Jersey carries risks for the gaming industry in Atlantic City and will impact revenues and profitability. The issue facing New Jersey is not so much the impact on the individual casino operators. Rather, it is the potential impact on an entire region. The greater Atlantic City region is already in crisis. The regional workforce has already shed almost 13,000 jobs since 2007 (approximately 9%) representing over $500 million of economic output for a region in dire need. This has resulted in unemployment still hovering near 9% and a foreclosure rate over 4 times the national average (and among the highest in the country). This is not just an Atlantic City issue, it is an issue that impacts the entire region including the towns surrounding Atlantic City. Interestingly, the gaming industry in Atlantic City is finally finding its footing. The Atlantic City casinos are gaining profitability and the tourism economy of the city is diversifying. Gaming expansion into northern New Jersey will negatively impact this recovery. GGH was requested by Resorts Casino Hotel (the “Company”) to prepare an analysis of the expansion of gaming in New Jersey. Specifically, GGH analyzed the impact of two large scale casino investments in northern New Jersey on the competitive environment impacting New Jersey and Atlantic City and quantified the potential impacts on the casinos in Atlantic City and the overall economy of the Atlantic City region. We did not analyze or quantify the offsetting economic impacts of casino expansion in northern New Jersey because there is simply not enough detail in the proposed legislation to determine those impacts. For instance, it is unknown exactly where the casinos will be located, what the tax rate will be, what kind of amenities they will have, their total investment or other details that would be required to develop a fulsome analysis of the positive impacts. Therefore, this analysis focuses specifically on the impacts of adding two large scale casinos to northern New Jersey to the Atlantic City casino industry and the regional economy. Methodology
Our conclusions are based on the following analyses and tasks.
Assessed the market for casino gaming in New Jersey in order to provide an assessment of the impacts of proposed new casinos in Northern New Jersey on the economy of the Atlantic City region. Interviewed regional business and government officials including officials from Atlantic City, Egg Harbor Township, Galloway Township and Atlantic County. 7 | P a g e
Gaming Expansion in New Jersey
January 2016
Evaluated the Atlantic City gaming and entertainment market, its evolution and current trends, and developed a baseline of potential future gaming revenue, other revenue, and casino profitability (“Baseline Scenario”). Our analysis included the development of a regional gravity model calibrated to current gaming revenues and other econometric models and trend analyses of current casino based‐gaming revenues. Provided qualitative and quantitative analyses of the Atlantic City gaming industry and analysis of its current financial health and likely future if gaming is not expanded in New Jersey. This included applying the gravity model and trend models to a future scenario without expanded gaming in New Jersey. Quantified the impact on the Atlantic City gaming market (using the gravity model methodology) if gaming expands to Northern New Jersey. Analyzed and quantified the potential revenue and resulting profitability impacts on Atlantic City casinos and the likelihood of additional casino closures. Analyzed the prior impact of casino closures on the greater Atlantic City region including the impacts on regional macroeconomic factors such as employment, real estate values (including property tax revenue trends), foreclosure rates, and other economic statistics. Qualitatively and quantitatively analyzed the flow through economic impacts on the Atlantic City regional economy (including both Atlantic City individually and the surrounding towns and county) of additional potential casino closures including the following: a. Employment and unemployment b. Regional Economic Output and Impacts on the rest of New Jersey c. Foreclosure rates d. Regional tax generation
Assumptions
The following assumptions are an integral part of this study:
While the final form of legislation is at this time unknown, this study assumes there will be two casinos in northern New Jersey. For purposes of our analyses, we assumed the casinos would be located in Bergen County and Hudson County. However, as the report will show, any location in New Jersey within a 90 to 180 minute drive of Atlantic City will have a significant negative impact on Atlantic City.
The casinos in northern New Jersey would each have up to 5,000 gaming positions, significant non‐gaming amenities such as hotels, retail, dining and entertainment and over $1 billion of investment.
The tax rate applied to casino revenues in northern New Jersey is unknown at this time but it is assumed it will be similar to those proposed for resort casinos in New York and Massachusetts.
Both properties will: o Have management personnel with extensive experience operating comparable casino and resort operations 8 | P a g e
Gaming Expansion in New Jersey
January 2016
o Utilize comprehensive accounting and gaming control systems capable of providing management with accurate and timely performance data o Be properly maintained and annual capital expenditures required to keep them at a competitive level will be made o Develop a marketing and advertising campaign and a promotional plan to ensure adequate patronage from local and regional customers
9 | P a g e
Gaming Expansion in New Jersey
III.
January 2016
ATLANTIC CITY – AN EVOLVING GAMING MARKET
The Growth Era Atlantic City was the first jurisdiction outside of Las Vegas to implement gaming during the modern era (post ‐ World War II) of the casino industry. Upon the opening of Resorts International Casino Hotel in 1978 through the early 1990’s Atlantic City enjoyed a monopoly on gaming on the east coast. In the early 1990’s Tribal gaming came to Connecticut in the form of two large Native American casinos (Foxwoods and Mohegan Sun) followed by the implementation of racinos (casinos at race tracks) in Delaware, Rhode Island and West Virginia. During the 1990’s casinos were also opened on Indian reservations in upstate New York. Even with this expansion, the demand for gaming still far outpaced supply and each new jurisdiction grew the overall gaming market. From 1996 through 2003 the market (in terms of supply) stabilized with no new gaming venues entering the market. The Borgata opened in July 2003, and four new racinos opened in upstate New York in 2005. Still, Atlantic City’s main feeder markets (eastern Pennsylvania and metro New York) stayed unaffected. In late 2006, gaming came to eastern Pennsylvania and to Yonkers raceway in the heart of metro New York. This changed the competitive balance in Atlantic City. The following chart details the growth of the northeast gaming market including Atlantic City until the advent of significant competition toward the end of 2006 and shows the decline in revenue in Atlantic City resulting from this new competition post 2006 and through the recession of 2009. Northeast Gaming Revenues $14,000,000,000 $12,000,000,000
Atlantic City Connecticut
$10,000,000,000
Delaware New York
$8,000,000,000
Rhode Island
$6,000,000,000
West Virginia Maine
$4,000,000,000
PA
$2,000,000,000
Total Demand
$-
Source: Various state agencies, company reports, GGH research
Before the change in the competitive dynamic, Atlantic City’s gaming market grew annually through the end of 2006. Atlantic City’s growth prior to 2007 was accomplished through a combination of additional casino venues and the expansion of existing casinos. 10 | P a g e
Gaming Expansion in New Jersey
January 2016
During this period of continuous gaming growth, a combination of factors including, but not limited to regulatory constraints, inertia and a lack of competition resulted in the industry looking inward and a focus on high frequency gamers took hold. While Las Vegas was diversifying its business and non‐gaming was becoming a larger part of its revenue base1, Atlantic City remained dependent on gaming revenue. We can see this dichotomy in the following chart. Atlantic City realized over 80% of its revenues from gaming throughout the 1990s and up to the mid‐2000s before seeing that percentage decline to around 70%. During this period, large Las Vegas Strip properties became less reliant on gaming revenues as their percentage of total revenues declined from 57% in 1990 to 37% in 2015. Gaming as % of Total Revenue
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 TTM 2015
90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0%
LV % Gaming
AC % Gaming
Source: NJCCC, NJDGE and Nevada Gaming Control Board
Interestingly, Atlantic City and Las Vegas Strip revenue per property rose in lockstep with each other until 2007. This is when Atlantic City’s reliance on gaming became apparent. As a result of several years of investment and diversification, Las Vegas casinos continued on an upward trajectory (aside from a recession induced trough). Atlantic City casinos however saw their average revenues decline to $317 million per casino before heading upward in 2015 (with less casinos) to $437 million. Coupled with the increase in the percentage of non‐gaming revenue, this indicates a strategic shift is occurring in Atlantic City.
1
Based on study of Las Vegas Strip large property ($72 million and over gaming revenues) and profit and loss statements included in Nevada Gaming Abstract (Nevada Gaming Control Board publication) 11 | P a g e
Gaming Expansion in New Jersey
January 2016
Revenue Per Location $700,000,000 $600,000,000 $500,000,000 $400,000,000 $300,000,000 $200,000,000 $100,000,000
LV
TTM 2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
$‐
AC
Source: NJCCC, NJDGE and Nevada Gaming Control Board
Atlantic City’s dependence on gaming revenue resulted in an overreliance on the regional gaming market. While the gaming industry expanded during the 1990s and early 2000s, there was no supply conveniently serving Atlantic City’s feeder markets in eastern Pennsylvania and the New York metro area. With over 45 million adults living within 6 hours of Atlantic City and a total market of over $10 billion, the casinos in Atlantic City, Connecticut, West Virginia and Delaware could effectively serve these markets with little impact on each other. With a ready and convenient market nearby, there was never any need for Atlantic City’s casinos to develop beyond their existing drive‐in markets. During these growth years Atlantic City served some fly‐ in customers but they were limited mostly to charters and junkets.2 Over the years there were some attempts to create major fly‐in markets but for various reasons, including the casinos’ focus on frequent customers, those efforts were unsuccessful. This can be seen in the following chart. From 1990 to 2006, annual passenger enplanements at McCarran Airport in Las Vegas increased from 7.8 million to over 22 million, while annual passenger enplanements at Atlantic City International Airport increased from approximately 377,000 annually to approximately 458,000 or about 2.1% of the volume of Las Vegas3.
2 3
Based on discussion with casino industry executives and Atlantic City International Airport statistics Federal Aviation Administration of US Department of Transportation 12 | P a g e
Gaming Expansion in New Jersey
January 2016
Passenger Emplanements 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 ‐
Atlantic City
Las Vegas
Source: Federal Aviation Administration of US Department of Transportation
Despite this lack of air service and reliance on a regional market, Atlantic City’s casinos flourished. From 1990 through 2006 industry Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) increased from $500 million to $1.2 billion4, a compound annual growth rate (CAGR) of 5.7%. Atlantic City 1990‐2006 ‐ EBITDA Trends ($ Billion) $1.4 $1.2 $1.0 $0.8 $0.6 $0.4 $0.2 $‐ 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: NJCCC
In 2006, competition loomed in Atlantic City’s feeder markets. New gaming legislation and expansion would bring casino gaming to eastern Pennsylvania and the New York metro market. At the time, the general consensus was that Atlantic City would survive this onslaught because high tax rates in the new jurisdictions would limit investment in those new casinos. However, 4
Atlantic City casinos industry quarterly reports and individual casinos quarterly reports supplies by NJ Casino Control Commission (NJCCC) 13 | P a g e
Gaming Expansion in New Jersey
January 2016
despite significant investment in Atlantic City, the casinos there were still dependent on convenience oriented, high frequency gamers and those gamers would switch their allegiance to more conveniently located competitors. Atlantic City was thus unprepared for the changing dynamics of a newly competitive market. Competition and Decline Competition in the northeast heated up in 2006 and 2007 with the expansion of gaming in Pennsylvania and New York. During this period casinos opened along the border in Pennsylvania in Chester, Philadelphia, Bensalem, Bethlehem, Mount Airy and Scranton – Wilkes Barre. In New York during the same period a racino opened at Yonkers Raceway just north of New York City, followed by another in 2011 at Aqueduct Racetrack (now Resorts World) in Queens. Casinos also opened in Maryland in 2012 through 2014. This new competition in Atlantic City’s previously underserved feeder markets effectively encircled Atlantic City and combined with Atlantic City’s focus on high frequency gaming customers, caused the industry to decline. New Casinos Impacting Atlantic City 2007‐2014
The timeline on the following page depicts the downward trend of Atlantic City gaming revenues as various events occurred starting in 20075.
5
Based on GGH/MGA analysis of news archives, gaming regulatory filings, proprietary database, company news releases and company public filings 14 | P a g e
Gaming Expansion in New Jersey
January 2016
Timeline of Events Impacting Atlantic City and Gaming Revenue by Year Developments Financial markets Lehman Brothers turn negative mid Bankruptcy Sep '08 2007 Harrahs Pool and major expansion Casinos close for opens in Spring; three days for Borgata opens budget impasse in Water Club Jun '08; Jul '06 Taj Mahal hotel tow er opens in Q4 Yonkers expands Yonkers opens Oct to 5,000 slots by '06 end of Mar
Econom y
AC
NY
Mohegan Pocono opens Nov '06; Phila. Park opens Dec '06
PA
Mohegan opens Harrahs Chester permanent facility opens Jan '07; Mt Aug '08; Penn Nat'l Airy opens Oct '07 opens Feb '08
Small recovery
Recovery Continues
Resorts sale closes Dec '10
Landry's acquires Trump Marina May '11; Casinos close for three days in August for Hurricane Irene
Casinos close for 5 days due to Hurricane Sandy Oct. 2012; Revel opens Apr '12
Resorts World opens Oct '11
Resorts World expands to 5,000 slots by Jan '12
Phila.Park opens permanent facility Jan '10; Table Sands Bethlehem Games Jul '10; opens May '09 SugarHouse opens Sep '10
Online Gambling Nov '13
Sands Bethlehem Valley Forge opens opens hotel May Mar '12 '11
Four casinos close in 2014: Atlantic Club Jan; Show boat Aug; Plaza and Revel Sep
Mohegan Pocono opens new hotel
Foxw oods MGM opens May '08; Mohegan expansion opens in Sep '08;
CT
Sports Wagering Sep '09
DE
MD
Table Games Jun '10 Hollyw ood Perryville opens Sep '10
Online Gambling Ocean Dow ns opens Jan '11
Perryville and Live! Horseshoe opens Live! opens Jun '12 offer table games Aug '14 Mar/Apr '13
Atlantic City Gaming Revenues $6,000,000,000 $5,018,276,523
$5,217,877,474 $4,920,786,970
$5,000,000,000
$4,545,235,597 $3,943,171,237
$4,000,000,000
$3,564,330,358 $3,317,720,532 $3,051,335,548
$3,000,000,000
$2,862,068,918 $2,619,250,906
$2,425,177,507
$2,000,000,000
$1,000,000,000
$0 2005
2006
2007
2008
2009
2010
15 | P a g e
2011
2012
2013
2014
TTM Sep '15
Gaming Expansion in New Jersey
January 2016
From 2006 through 2013, gaming industry net revenues declined from $5.1 billion to $3.0 billion while industry operating profits (EBITDA) declined from $1.2 billion to $0.1 billion during the same period. As a result, and despite the opening of Revel casino in 2012, several casinos closed in 2014 (Atlantic Club, Showboat, Revel and Trump Plaza), leading to further revenue declines, down to $2.6 billion as of September 2015. However, the closure of those casinos in 2014 led to the right sizing of the industry and profits have recovered from their low of $83.9 million in 2013, to $183.5 million in 2014 and $400.5 million for the trailing twelve months ended September 2015. The right sizing of the industry and increased profits clearly indicates the industry has stabilized. Atlantic City Casino Industry Net Revenue and EBITDA Trend ($Billion) $6.0
$1.4 $1.2 $1.1
$5.0
EBITDA
$1.0
$4.0
$0.8 $0.8
$3.0
$0.6
$0.6
$0.4
$0.4
$0.4
$0.3 $0.2
$0.2
$0.2
$2.0
Net Revenue
$1.2
$1.0
$0.1
$‐
$‐ 2006
2007
2008
2009
2010
EBITDA
2011
2012
2013
2014
2015
Net Revenue
Source: NJDGE, GGH analysis
Stabilization The trend in profits by individual casinos reveals how the industry has stabilized and is trending upward. Since the industry’s nadir in 2013 when EBITDA hit $83.9 million, EBITDA has recovered to $400.5 million. Essentially, the weakest casinos have closed, taking their losses with them. What is left are eight casinos who are beginning to re‐invest and diversify their revenue and are on a significantly positive trajectory, as well as two purely digital companies in start‐up mode that are heading toward profitability. Only the Taj Mahal is operating at negative EBITDA and that is principally due to its ongoing bankruptcy and labor issues that presumably will be resolved once they emerge from bankruptcy and new leadership takes control. The table below depicts EBITDA by casino from 2013 through the most recent twelve month period ending in September of 2015. EBITDA at remaining casinos (those still open) rose by $147.9 million since the end of 2014 and $173.9 million since 2013. All land based casinos6 (except the Taj Mahal) saw increases since 2013.7 6
Caesars Interactive and Resorts Digital have no land based operations Individual company results also impacted by real estate tax appeals and refunds, some of which may be nonrecurring. 7
16 | P a g e
Gaming Expansion in New Jersey
January 2016
Atlantic City Casinos – EBITDA Trends ($ Million) % % Change Change from from Change Change from 2013 2013 from 2014 2014
TTM Sept 2015
2013
2014
Bally's Borgata Caesars Caesars Interactive Golden Nugget Harrah's Resorts Resort's Digital Tropicana Taj Mahal ACH Showboat Trump Plaza Revel Total All Casinos
$ 4,968 $ 119,413 $ 41,015 $ (1,534) $ (10,886) $ 55,711 $ (12,625) $ ‐ $ 17,555 $ 13,016 $ (13,295) $ 13,769 $ (11,763) $ (131,428) $ 83,916
$ (6,722) $ 156,076 $ 32,045 $ (13,297) $ 2,256 $ 47,276 $ 517 $ (1,664) $ 52,224 $ (16,048) $ (1,853) $ (2,492) $ (15,118) $ (49,747) $ 183,453
Remaining Casinos
$ 226,633 $ 252,663 $ 400,534 $ 173,901
Former Casinos
$ 13,326 $ 194,319 $ 56,300 $ 914 $ 18,449 $ 82,413 $ 9,703 $ (4,925) $ 35,442 $ (5,407)
$ 8,358 $ 74,906 $ 15,285 $ 2,448 $ 29,335 $ 26,702 $ 22,328 $ (4,925) $ 17,887 $ (18,423) $ ‐ $ 13,295 $ ‐ $ (13,769) $ ‐ $ 11,763 $ ‐ $ 131,428 $ 400,534 $ 316,618
168.2% 62.7% 37.3% 159.6% 269.5% 47.9% 176.9% N/A 101.9% ‐141.5% 100.0% ‐100.0% 100.0% 100.0% 377.3%
$ 20,048 298.2% $ 38,243 24.5% $ 24,255 75.7% $ 14,211 106.9% $ 16,193 717.8% $ 35,137 74.3% $ 9,186 1776.8% $ (3,261) N/A $ (16,782) ‐32.1% $ 10,641 66.3% $ 1,853 100.0% $ 2,492 ‐100.0% $ 15,118 100.0% $ 49,747 100.0% $ 217,081 118.3%
76.7% $ 147,871
58.5%
$ (142,717) $ (69,210) $ ‐ $ 142,717 100.0% $ 69,210 Source: NJDGE and GGH analysis, Resorts Digital still in start‐up mode
100.0%
At $400 million, industry EBITDA is at its highest point since before 2010 and is trending upward. Atlantic City Casino Industry EBITDA Trend ($Billion) $1.4 $1.2
$1.2
$1.1
EBITDA
$1.0 $0.8
$0.8
$0.6
$0.6
$0.4
$0.4
$0.4
$0.3
$0.2
$0.2 $0.1
$‐ 2006
2007
2008
2009
2010
2011
2012
2013
2014
$0.2 2015
EBITDA
Source: NJDGE and GGH analysis
The improvement in industry profitability can be explained by several factors. First, the market has right sized. In 2014, there simply was too much capacity for the market as it is currently configured. Atlantic City’s casinos are undergoing fundamental change. Whereby the industry was previously laser focused on high frequency casino gamers, it is now evolving into one more 17 | P a g e
Gaming Expansion in New Jersey
January 2016
like that of Las Vegas or even Reno where non‐gaming revenues are over 51%, more diversified and more reliant on non‐gaming and entertainment to drive profitability. Second and along these lines, the remaining casinos have made several investments in non‐ gaming amenities to enhance their facilities and appeal to a more diverse audience. Recent investments include the following: Resorts Casino Hotel invested in a Margaritaville themed destination dining and entertainment facility, added several quick serve dining options, added conference space and upgraded its rooms, casino floor and public areas. The Borgata developed an outdoor entertainment facility and is improving its nightlife offering. The Tropicana added a high end health club, improved its boardwalk retail offering and façade, added a high tech light show and improved its room product. Harrah’s added a 100,000 square‐foot meeting space expansion including two 50,000 square‐foot ballrooms. The conference center has been deemed the largest hotel‐ conference center complex from Baltimore to Boston and will expand Atlantic City’s meeting and convention market. The Golden Nugget received approval to add two luxury suites that should draw high end gamers from its other properties, allow it to expand its entertainment offerings and attract higher end acts and act as a mid‐week meeting space and hospitality space to attract additional meetings to the property. Finally, the City’s non‐gaming offerings have made Atlantic City a true destination resort. The City offers a critical mass of attractions that together lead to over 23 million visitors annually. The following table lists the non‐gaming offerings at Atlantic City casinos. 18 | P a g e
Gaming Expansion in New Jersey
January 2016
Atlantic City Tourist Attractions ‐ Casinos Attraction
Dining
Venues
Bally’s
Johnny Rocket’s (Hamburgers), Walt’s Primo Pizza (Pizza), Sack O’Subs (Subs), Harry’s Oyster Bar (Casual Seafood), Gold Tooth Gertie’s (bagels), Corner Café (coffee/pastries), Noodle Village (Casual Asian), Boardwalk Cupcakes (pastries), Guy Fieri’s Chophouse (Upscale Steakhouse), Buca Di Beppo
Mountain Bar (Lounge), Bally’s Beach Bar, The Bar at Harry’s, Lobby Bar, Mountain Bar, Blue Martini (Lounge), Main Ballroom (Convention Center), retail shops
Borgata
Bobby Flay Steak (Steakhouse), Borgata Buffet (American), Bread + Butter (American), The Cafeteria (Fast Food), Fornelletto (Italian), Izakaya (Japanese), The Metropolitan (American Contemporary), N.O.W. (Asian), Old Homestead Steakhouse(Steak), Sunbar, Wolfgang Puck American Grille, Starbucks, 28 West, Borgata Baking company (pastries), Sunroom (Tapas)
Mur.Mur (Night Club), The Music Box (Theatre), retail shops, MIXX Nightclub, Long Bar, Gypsy Bar, Bar at Wolfgang Puck, The Bar at Bobby Flay, 28 West, Fornelletto Wine Bar, Izakaya Sake Bar, The Wine Bar at Old Homestead, Sunroom Lounge and Sunbar, Boot and Whip (simulcast), Theater, meeting rooms, Ballroom (Convention Center), The Water Club, new outdoor entertainment venue
Caesar’s
Caesars Sunday Brunch, Café Roma, KWI Restaurant and Noodle Bar (Asian), Palace Court Buffet, Morton's Steakhouse, Tazza, Gordon Ramsay Pub and Grill, Nero’s Italian Steakhouse, Continental at the Pier, Phillip’s Seafood, Piazza di Giorgio, Souzai Sushi, Buddakan at the Pier (Chinese), Cinnabon, Auntie Anne’s
Forum Lounge, Palladium Ballroom (Convention Center), Toga Bar, Retro’s Nightclub, Dusk Nightclub, The Backyard Bar, The Playground (Retail shops), Circus Maximus Theater
Golden Nugget
Bayside Cafe and Buffet, Chart House (Seafood, The Deck, DJ's Steakhouse, Vic & Anthony’s, Grotto, Michael Patrick’s Bratisserie, Deck Bayfront, H20 Grill, Lillie’s, Bean & Bread, Chocolate Box, Starbucks
The Grand (Ballroom), The Showroom, The Deck, Bar 46, Wine and Wifi, H20 Pool and Bar, Rush Lounge
Harrah’s
McCormick and Schmick's Seafood, Steakhouse (American Traditional), Waterfront Buffet (American, Dim Sum, Italian, Seafood, Sushi), Dos Caminos, Sammy D’s, Bill’s Bar & Burger, Café Tazza, Oshi Sushi & Sake, Martorano’s (Itallian), Lunch at the Pool, Food Court
Eden Lounge, The Pool (Night Club), Xhibition Bar, Dos Caminos Tequila Bar, #BarWithNoName, Sammy D’s Bar, Waterfront Conference Center, Viking Cooking School
Resorts Casino Hotel
Capricco (Italian), Gallagher's Steakhouse, East Wind (Chinese), East Wind Express, Breadsticks, Margaritaville Café, LandShark Bar and Grill, Quick Bites (Food Court), Cielo Wine Bar, Gallagher’s Burger Bar, Margaritaville Coffee Shop
Superstar Theatre, Screening Room, 64,000 Sq. Ft. of Meeting Space including Five Ballrooms and a new Conference Center, Margaritaville, LandShark Bar and Grill, LandShark Beach Ba
Tropicana
Broadway Burger Bar, Chickie’s and Pete’s, FIN, Tony Lukes, Casa Taco & Tequila, Perry’s Pizza, A Dam Good Deli, Carmine's (Italian), Create‐A‐Cone (Ice Cream), Cuba Libre Restaurant & Rum Bar, Fiesta Buffet, Golden Dynasty (Chinese), Hooters (American), Il Verdi Italian Restaurant, P.F. Chang’s China Bistro (Chinese), The Palm (American), Ri Ra Irish Pub & Restaurant (American), Seaside Café (American), Starbucks, Zeytinia NY's Gourmet Choice, Goyogo ( Dessert), Mrs. Fields, A Dam Good Sports Bar, Marketplace Express, the bar at Fin
Wet Willies, Boogie Nights, The Bar at FIN, The Comedy Stop Cabaret & Cafe (Comedy Club), Grand Exhibition Center (Convention Center), IMAX Theatre at Tropicana, Planet Rose Karaoke Bar (Showroom), The Providence (Night Club), Rumba Lounge, The Show Room at Tropicana (Showroom), Tango's Lounge, The Quarter shops, 10 North Lounge, A Dam Good Sports Bar, Cuba Libre, Chickie and Pete’s, Firewater’s, Missile Bar, Tropicana Showroom, Family Fun Station, retail shops
Trump Taj Mahal
Beriyo, Burger (American), Dynasty (Cantonese, Chinese, Sushi), Ego Bar & Lounge (Latin American), Go (American), Hard Rock Café (American), Il Mulino New York (Italian), Lobby Bar, Moon at Dynasty (Sushi), Plate American Cafe, The Rim Noodle Bar (Asian), Royal Albert's Palace (Indian), Roberts Steakhouse, Sbarro (Italian), Spice Road, Starbucks, Sultan's Feast Buffet, Trattoria Il Mulino (Italian), White House Sub
Ego Bar & Lounge, Mark G. Etess Arena, Xanadu Theater (Theatre)
Source: Company websites, GGH survey and research
19 | P a g e
Gaming Expansion in New Jersey
January 2016
In addition to the casino offerings, the City has several non‐casino related attractions including major retail offerings, timeshare resorts and several existing and proposed family oriented attractions. The following table summarizes major non‐tourist attractions. Atlantic City Tourist Attractions – Non Casinos Attraction
Dining
Venues
Tanger Outlets‐The Walk
Applebees, Cravo Crepe, Longhorn Steakhouse, Starbucks, Ruby Tuesday, Ruth's Chris, Subway, The Melting Pot, Wing Craft, Beef Jerky Outlet
Over 140 retail outlet stores incl. Bass Pro Shop
The Playground
Boardwalk Favorites, Buddakan, Empire Burger, Phillips Seafood and Seafood Express, Piazza di Giorgio Café, Souzi Soushi and Saki, Starbucks, The Continental, Auntie Anne’s
Over 25 retail shops and water show
Steel Pier
Steel Pier Pub, Ocean Reef Bar, Food Court
More than 25 rides, other attractions
Atlantic City Aquarium
N/A
25,000 gallon tank, minor attraction
Central Pier Arcade
N/A
Family entertainment center, go karts
Atlantic City Convention Center
N/A
486,600 square feet of meeting space, 45 meeting rooms
Boardwalk Hall
N/A
Major entertainment venue
Independent Restaurants and Other Attractions
Several independent restaurants including Dock's, Knife & Fork, Café 2825, Girasole, Irish Pub, Tony's Baltimore Grill, Los Amigo's, White House Subs, Harry’s Seafood and many more
Beach and Boardwalk, Ripley’s Believe it or Not Museum
Gardner’s Basin
Back Bay Ale House, Gilchrist, Scales Grill & Deck Bar
Waterfront venue, festivals
Flagship FantaSea Resort
Restaurant, soon to be upgraded lobby bar and coffee shop, outdoor deck adjacent to Boardwalk
436 room vacation resort, pool facilities, year round vacation resort
Other Timeshare Resorts ‐ Atlantic Palace Wyndham Skyline Tower La Renaissance
Atlantic Palace (300 room), Wyndham (296 room) and La Renaissance (48) room ocean or near oceanfront resorts with associated amenities
Proposed Attraction – 300 foot tall vertical roller coaster
Bar and related restaurant
Proposed 300 foot tall vertical roller coaster (only one of its kind in northeast) to include multiple rides, food and beverage and retail. Will act as destination similar to major family attractions in Wildwood and at Six Flags
Proposed Attraction – Indoor Waterpark Hotel and Entertainment Complex
Bar and restaurants as part of proposed complex
A Pennsylvania development firm plans to transform the former Atlantic Club Casino Hotel into an entertainment complex that would include an indoor water park and a beach bar.
Source: Company websites, GGH survey and research
20 | P a g e
Gaming Expansion in New Jersey
January 2016
The strategic shift from gaming centric to a tourist destination coupled with the non‐casino offerings is fundamentally changing the visitor profile of Atlantic City. The following table summarizes the visitor profile in 2013 vs. 2004. It shows how the primary purpose of visiting Atlantic City has shifted from gaming to more of a leisure orientation. In 2004, 85% of visitors to Atlantic City reported gambling as the primary purpose of their trip. As of 2013 that percentage had declined to 27% and had been replaced mostly by people looking for a getaway or visiting friends and family8. Visitor Profile Survey ‐ Primary Purpose of Trip Conv/Trade Show Business Meeting Gamble Vacation/Getaway Special Event Visit friends/Family Other 0%
10%
20%
30%
40%
2004
2013
50%
Source: ACCVA, Stockton University
60%
70%
80%
90%
Atlantic City’s Gaming Industry Today Atlantic City’s casinos today are a $3.5 billion industry (gross revenue), featuring 13,424 hotel rooms and employing over 23,750 people in a region with total employment of 133,0009, with total wages (not including tips) of over $590 million10. The Atlantic City casinos spent over $1.2 billion on goods and services in 2014, approximately 41% of which was spent in Atlantic County and 58% in New Jersey. The casinos collectively have taxable value of $3.9 billion (54% of the City’s ratable base)11. Despite their decline, they remain the most viable and important industry in the region. As of September 30, 2015 the industry earned operating profits of $523.0 million and EBITDA of $400.5 million, up from $339.5 million and $183.5 million respectively at the end of 2014. 8
Visitor surveys for 2004 and 2013 were completed by two different entities and reporting categories are slightly different. Although the methodology for these two surveys was somewhat different, potentially inflating the percentage in 2003, the essential point remains; the core reason for visiting Atlantic City is changing. 9 Bureau of Labor Statistics data for Atlantic City‐Hammonton MSA as of September 2015 10 Estimate based on 2014 data at remaining casinos. Tips by casino operator estimates adds another 15% or approximately $90 million. 11 GGH research and information gleaned from Atlantic City 2015 – Series A Bond Offering Memorandum
21 | P a g e
Gaming Expansion in New Jersey
January 2016
Key Atlantic City Statistics ($000) 2014
TTM Sept 2015
$ 2,669,976 472,409 485,210 180,383 $ 3,807,978 982,382 $ 2,825,596
$ 2,497,703 405,931 442,782 152,377 $ 3,498,793 862,164 $ 2,636,629
1,163,855 344,793 977,479 $ 2,486,127
1,048,804 292,943 771,911 $ 2,113,658
Gross Operating Profit Industry EBITDA
$ 339,469 $ 183,453
$ 522,971 $ 400,534
Total Employees Wages and Salaries
28,259 $ 684,032
23,753 $ 591,000
Revenue: Casino Rooms Food and Beverage Other Total Revenue Less: Promotional Allowances Net Revenue Costs and Expenses: Casino Rooms, Food & Beverage General, Administrative & Other Total Costs and Expenses
1 2
1 Based on November employment report 2 Estimate based on 2014 wages at remaining casinos
Source: NJDGE and GGH research
While the gaming industry has declined, it remains vibrant and is still a vital part of the local economy. It accounts for approximately 60% of the leisure and hospitality employment base12 with jobs that are generally considered well paying for the area and in most cases include benefits. The leisure and hospitality industry is the largest employment segment for the Atlantic City‐Hammonton MSA (which covers all of Atlantic County as defined by the Bureau of Labor Statistics), representing approximately 30% of all employment. ATLANTIC CITY‐HAMMONTON MSA EMPLOYMENT BY INDUSTRY (000) Information
0.7
Manufacturing
2.2
Financial Activities
3.8
Mining, Logging, and Construction
5.6
Other Services
6.3
Professional and Business Services
9.9
Education and Health Services
19.2
Trade, Transportation, and Utilities
21.7
Government
23.6
Leisure and Hospitality
39.8 ‐
5.0
10.0
15.0
20.0
25.0
30.0
35.0
12 Based on Bureau of Labor Statistics data for Atlantic City‐Hammonton MSA employment by industry
22 | P a g e
40.0
45.0
Gaming Expansion in New Jersey
January 2016
Source: Bureau of Labor Statistics
Source: Bureau of Labor Statistics
This is a defining moment for Atlantic City, its gaming industry and the region. Atlantic City is changing. Through its various phases (growth, decline and stabilization) it is evolving from a gaming centric city to a multi‐faceted entertainment destination, with gaming as a crucial part of its appeal. After several years of turmoil the gaming industry has stabilized, and it remains the largest regional employer. The industry has rightsized and has made crucial investments to reposition itself. This repositioning appears to be working as profits have increased and are trending upward. The single most important issue facing the region is whether this industry will be allowed to continue its recovery.
23 | P a g e
Gaming Expansion in New Jersey
January 2016
IV. THE REGIONAL ECONOMY
Historical Overview
The history of economic growth in Atlantic County, New Jersey (and to a lesser degree surrounding counties) between the late‐1970’s and the early/mid‐ 2000’s combines the issues of the development of casino resorts as a backbone industry and the creation of communities to provide the labor to service the casino resorts, their vendors, as well as businesses to cater to the expanding local population bases. The casino resort industry, along with related retail, food and beverage and other hospitality industries, fueled the South Jersey economy with revenue and supply growth from the 1980’s through the early 2000’s.
Total Nonfarm Employment
Jul‐06
Aug‐05
Oct‐03
Sep‐04
Dec‐01
Nov‐02
Jan‐01
Feb‐00
Apr‐98
Mar‐99
May‐97
Jul‐95
Jun‐96
Sep‐93
Aug‐94
Oct‐92
Nov‐91
Jan‐90
60 59 58 57 56 55 54 53 52 51 50
Liesure and Hospitality
160 155 150 145 140 135 130 125 120 115
Dec‐90
Total Nonfarm
Atlantic City Hammonton MSA TTM Annual Employment (000)
Liesure & Hospitality
Source: United States Department of Labor, Bureau of Labor Statistics
Atlantic City was obviously the epicenter of the economic impacts, but significant impacts were also felt in surrounding towns in Atlantic County, notably some of the sizable neighboring population masses (as a share of the Atlantic county total) to Atlantic City, such as Egg Harbor Township and Galloway Township.13 Egg Harbor Township in particular became a bedroom community feeding the casino resort labor supply, in large part master‐planned as such by the state government as part of the Pinelands legislation in the 1970’s with the aim of providing for over 30,000 additional homes to support the development of the casino gaming industry. This growth necessitated school development and major expansions of other public services in anticipation that this industry would be a long term catalyst for the region. Galloway Township experienced a similar population explosion during this period.14 13 According to State of New Jersey Office of the Attorney General, Department of Law and Public Safety, Division of Gaming
Enforcement data for October 6, 2015, Atlantic County residents account for approximately 88% of employees at Atlantic City casino resorts; Ocean County accounts for the second highest share (2.8 percent), followed by Camden County (2.6 percent) and Cape May County (2.1 percent); http://www.nj.gov/oag/ge/docs/Reports/zipcodereport.pdf, accessed November 9, 2015. 14 In 1970 the population of Egg Harbor Township was less than 10,000. By 1980 it had grown to 19,381, further increasing to 24,544 in 1990, to 30,726 in 2000 and 43,323 in 2010. In 1970 the population of Galloway Township was 8,276. By 1980 it had grown to 12,176, further increasing to 23,330 in 1990, to 31,209 in 2000 and 37,349 in 2010; Source US Census.
24 | P a g e
Gaming Expansion in New Jersey
January 2016
The increased competition from out of state casinos documented in the prior section of this report has led to market saturation, resulting in a sharp gaming revenue and patronage decline for casinos in Atlantic City, as well as revenues and patronage for affiliated hospitality industries. The sustained decline led to the closure of four Atlantic City casino resorts in 2014, as well as many other businesses outside of the casino resort establishments, as fewer gamer visits equates to a decline in tourist dollars being spent throughout the economy. Industries providing services to the casino resorts have also suffered as their client base has shrunk with the casino resort closures. Additionally, the casino hotel workforce in the region has declined by more than 20,000 since 2005, meaning that there has been a significant decline in regional consumer spending outside of the resort environment as well, along with pressure on the housing market that has resulted in/from Atlantic County having one of the highest foreclosure rate in the country.15
Demographic Overview
According to the US Census the population of Atlantic County in 2010 was 274,549.16 The Census further estimated for 2014 a population of 275,209, of which an estimated 43,851 lived in Egg Harbor Township, 39,415 lived in Atlantic City and 37,583 lived in Galloway Township.17 Egg Harbor Township, Galloway Township and Hamilton Township collectively were responsible for over 80% of the growth in the Atlantic County population from 1970 to 2010, each growing at close to 3.8% annually compared to a 0.5% rate for the state of New Jersey and a negative 0.5% rate for Atlantic City. This growth was fueled in large part by an influx of casino workers and spinoff growth. Atlantic County Population Trends Key Municipalities 60,000 50,000 40,000 30,000 20,000 10,000 ‐ Galloway
EHT 1970
1980
Hamilton 1990
2000
Atlantic City
2010
Source: Table 6. New Jersey Resident Population by Municipality: 1930 ‐ 1990, New Jersey Department of Labor and Workforce Development, 2000 and 2010 US Census Bureau.
15 According to RealtyTrac, the foreclosure rate in Atlantic County in November 2015 was 1 in every 306 properties, the second
highest rate for any county in the country, after Camden County, NJ. Atlantic County’s rate was the nation’s highest in October, 2015. The statewide average in November 2015 was 1 in every 553 housing units, while the national average was 1 in every 1,269 units; http://www.realtytrac.com/statsandtrends/foreclosuretrends/nj/atlantic‐county, accessed December 4, 2015. 16 U.S. Census, www.census.gov. 17 Ibid.
25 | P a g e
Gaming Expansion in New Jersey
January 2016
A notable assumption by the US Census between 2010 and 2014 for Atlantic County, as well as each of these four jurisdictions within Atlantic County (as can be surmised by the 2010 and 2014 figures), was that population growth was relatively flat between 2010 and 2014 despite the continued economic decline. It is worth noting that the 2014 figures would not capture the impact of the September closures of three casino resorts, or possibly the early‐2014 closure of the Atlantic Club Casino. Those that lost their jobs late in the year likely would not have immediately relocated, or would have been recognized by Census estimators as being a source of potential mass exodus, which appears to have been occurring given the fact that the industry and overall macroeconomic downturn resulted in foreclosure rates in these communities that are amongst the highest in the country. Some former casino resort employees (or others in Atlantic County that have lost their jobs) have left as a result of having their homes foreclosed on or have found job opportunities elsewhere, but many others remain in the area despite losing their jobs, as the prospect of selling one’s home is unattractive when faced with a glut of foreclosed‐upon homes for sale in the market at depressed prices. As a result, regional unemployment rates are much higher than they were prior to the recession, while statewide the unemployment rate is back down to 2008 levels. The size of the Atlantic County and city/township labor forces are smaller than they were prior to the casino‐resort closures, but have not nearly declined at the same level as the regional hospitality industry job decline. Regional unemployment can best be defined as structural, i.e. these former hospitality industry employees may need to learn new skills to find good, new jobs, which could be especially difficult and long‐term as a result of there being few regional developed industry alternatives to transition to. For example, the remaining major employers in Galloway Township and Egg Harbor Township are Stockton University and the Atlanticare Regional Medical Center, neither of which are easy job transitions for people whose work experience has been in the hospitality industry. Similarly, major non‐casino resort employers in Atlantic City include the Atlanticare hospital complex or at The Tanger Outlets, which are large‐scale retail venues along Atlantic Avenue. These retail jobs are the ones that are the easiest transition for those with the skill set of former casino‐resort workers, but they are also at close to minimum wage, much lower than they, on average, historically earned. Based on the US Census’ County Business Patterns data from 2011 to 2013 for the Atlantic City‐Hammonton MSA, it is evident that this is where much of the transition has been, as retail trade has been the largest sector demonstrating employment growth in the metropolitan area (the Census has a lengthy lag in preparing data, as it is currently only available through 2013).18
Further examination of comparative unemployment rates, as well as the hospitality industry’s share of employment declines, will be addressed later in this analysis. The prospect of additional hospitality industry job declines in the face of additional competition, and its other macroeconomic implications, will also be addressed.
18 County Business Patterns, http://censtats.census.gov/cgi‐bin/msanaic/msasect.pl
26 | P a g e
Gaming Expansion in New Jersey
January 2016
Macroeconomic and Microeconomic Labor Overviews
Casino Resort Employment Overview
Employment at casino resorts in Atlantic City peaked during the period from 1992 to 2005, generally being in the range of 44,000 to 49,000 employees, declining slightly during the latter years as technology made slot operations more efficient.19 Competitive factors that drove the Atlantic City market downturn brought the employment total down below 40,000 in 2008 and below 35,000 in 2010.20 As a result of the closure of the Atlantic Club in January 2014 and Revel, Showboat and Trump Plaza in September 2014 the total has fallen to less than 24,000, approximately half of the peak total.21 Casino Resort Employment, 2004‐2015 Year 2004 year end 2005 year end 2006 year end 2007 year end 2008 year end 2009 year end
Casino employees 45,501 44,542 42,456 40,788 38,585 36,377
2010 year end 2011 year end 2012 year end 2013 year end 2014 year end
34,145 32,827 34,698 32,427 24,817
LTM average (12/2014‐11/2015) 24,314 2015 November 23,764 Source: http://www.nj.gov/oag/ge/employee_licensing.html and NJ Casino Control Commission. The 2014 year‐end figure includes 104 employees at Revel and 26 employees at Trump Plaza, despite both no longer being operational. Similarly, the November 2015 total includes 20 employees at Trump Plaza.
The current (November 2015) employment figures total 23,744 for the remaining eight casinos and are as follows:
Current Casino Employee Figures (November 2015) Casino
Employment
Bally's AC
2,653
Borgata
5,805
Caesars
2,911
Golden Nugget
2,141
Harrah's Marina
3,314
Resorts Casino Hotel
1,823
19 State of New Jersey Casino Control Commission; http://www.state.nj.us/casinos/financia/histori/, accessed November 9,
2015. 20 Ibid. 21 State of New Jersey Office of the Attorney General, Department of Law and Public Safety, Division of Gaming Enforcement;
http://www.nj.gov/oag/ge/casinohotelempfigures.html, accessed December 15, 2015.
27 | P a g e
Gaming Expansion in New Jersey
January 2016
Tropicana
2,846
Trump Taj Mahal
2,251
Source: State of New Jersey Office of the Attorney General, Division of Gaming Enforcement casino hotel employment figures; http://www.nj.gov/oag/ge/casinohotelempfigures.html. Note: the reported totals do not differentiate between full‐time and part‐time employment.
At present approximately 88% of the Atlantic City casino resort employees reside in Atlantic County, or nearly 21,000 employees.22 Ocean County provides the next largest share, approximately 2.8% of the total (667 employees), followed by Camden County with approximately 2.6% (613 employees) and Cape May County with 2.1% (500 employees).23 The nearly 21,000 jobs in Atlantic County is a significant percentage of the Atlantic County labor force (132,457, as of the third quarter 2015) and employed population (121,308, as of the third quarter 2015), such that any sizable industry layoff in the future will have significant ripple effects on regional consumer spending.24 These ripple effects also are a function of changes in vendor spending by the casino resorts, as any cutback in casino resort spending may result in a decline in revenues by Atlantic County‐based vendors. We provide later in this analysis the historical relationships between casino closures and overall economic activity in Atlantic County, demonstrating that it is not just the Atlantic City casino industry that is at risk if casinos are added in North Jersey, but the entirety of an already fragile South Jersey economy. State and Atlantic County Labor Overview Atlantic County has a labor force of approximately 132,000, down from over 140,000 a decade ago.25 Atlantic City, Egg Harbor Township and Galloway Township are the major population centers in Atlantic County, each accounting for between 16,000 and 22,000 labor force participants. However, that still amounts to nearly 80,000 persons residing elsewhere in Atlantic County. The labor force in Atlantic City is slowly declining, but reached 16,032 in September, 2015, its lowest monthly total in over 25 years (data was only available for the last 25 years).26
22 State of New Jersey, Office of the Attorney General, Division of Gaming Enforcement, as at October 6, 2015;
http://www.nj.gov/oag/ge/docs/Reports/zipcodereport.pdf, accessed December 15, 2015. We note that this is a slightly higher percentage than the reported share of those employed in Atlantic County in all industries also being from within the county (based on Census estimates from 2009‐2013) – according to the US Census Bureau Local Employment Dynamics approximately 80% of those employed in Atlantic County also lived there, followed by Cape May County at 4.4%.
23 Ibid. 24 U.S. Bureau of Labor Statistics non‐seasonally adjusted data, from economagic.com.
25
U.S. Bureau of Labor Statistics
26
Ibid. 28 | P a g e
Gaming Expansion in New Jersey
January 2016
Quarterly Labor Force Totals 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 ‐
Atl County Other
Atlantic City
Egg Harbor Twp
Galloway Twp
Source: U.S. Bureau of Labor Statistics
As noted in the preceding paragraph, casino resort employment has fallen from approximately 45,000 a decade ago to less than 24,000 in 2015. The middle years of this decline coincided with the largest macroeconomic downturn in several generations, but clearly the trajectory here has not corrected itself in concert with the macroeconomic recovery. As demonstrated in the following chart, regional unemployment rates were generally close to statewide unemployment rates before the increased competition and recession, but now average approximately 2% more than the statewide rate. The exception is Atlantic City, where the unemployment rate in the mid‐ 2000s was approximately 3 to 4% greater than the statewide average. The gap grew during the recession, after which the differential grew to approximately 7% during the summer months and 10% during the winter months. State, Atlantic County and Local Unemployment Rates
Quarterly Unemployment Rates 20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0%
State
Atl County
Atl City
Egg Harbor
Galloway
Source: U.S. Bureau of Labor Statistics. Note: State data is seasonally adjusted; County, City and Township data is not seasonally adjusted.
29 | P a g e
Gaming Expansion in New Jersey
January 2016
Due to the fact that there was some economic recovery from 2010 to 2015, it is not possible to graphically depict a clear relationship between the casino resort job losses and the regional employment level impacts on a broader macroeconomic level. Some of those who have lost their casino jobs or casino service jobs have moved to other regions, some have changed careers and moved into other industries, some work in other regions and some no longer work. But with otherwise macroeconomic stability, any new job losses attributable to casino closures or downsizing may not be as easily transitioned into alternative employment as they had during the macroeconomic recovery years. Regional Public Finance and Public Service The regional governments, at both the Atlantic County level and for the municipalities, primarily are funded through property taxes. The majority of these taxes are then spent on schools, along with public works, public safety, health insurance and other fringe benefits (including pensions), municipal bond debt service and public assistance programs. According to the Atlantic County Administration, approximately 40% of Atlantic County residents receive some sort of public assistance. Public school enrolments have not changed significantly over the past decade, but the cost per student has steadily increased as a result of keeping student/teacher ratios consistent and an increasing percentage of students receiving subsidized meals. Health insurance costs are also rapidly increasing, at a much higher rate than the 2% ceiling on tax revenue growth, such that fringe benefits account for an increasing percentage of municipal budgets. The economic downturn has also resulted in a high, and continuously growing, share of the population relying on public assistance. As a result, there has been a need to cut back on other services, freeze salaries or downsize other departments, in order to maintain balanced budgets. Moreover, as a result of new assessment levels for casinos, homeowners and other commercial businesses are experiencing increasing tax bills, providing a disincentive to bring business to the area and for homeowners to stay in the area. This has a snowball effect, as outward migration of residents and businesses simply means higher taxes for those that remain. And those that do remain are experiencing cutbacks in the provision of public services. The situation therefore is already bad for governments and taxpayers. If the economy faces a further downturn with the closure of additional casinos and/or large‐scale labor cutbacks, it is unclear how the municipal governments can continue to function. The current proposed legislation (and potential referendum to voters) suggests that some portion of gaming taxes from north Jersey casinos would provide some public finance assistance to Atlantic City. But as we note below, as well as from the demographic overview above, Atlantic County and Atlantic City’s neighboring townships are directly impacted by anything that happens to the Atlantic City economy. At present these jurisdictions are excluded in the proposed legislation from receiving any support. The following section provides some detail on the financial health of the Atlantic County and municipal governments analyzed for this report. 30 | P a g e
Gaming Expansion in New Jersey
January 2016
Atlantic County
Atlantic County operates on an approximate $200 million annual budget, not including dedicated tax programs for public health and libraries. From 2010 to 2015 County expenditures have increased at a compound average annual growth rate of 1.3%. Tax revenues have increased at an annual rate of 1.9% during this period, as revenues from other sources, along with surplus funds, have declined over the past six years. Notable changes in the budget have been increased costs for Law and Public Safety for the past two years and rising insurance and pension costs (fringe benefits). In order to annually increase tax revenues it has been necessary to increase the property tax millage rates, increasing the burden on residents and small commercial businesses. The anticipated PILOT tax program for the casino resorts will likely mean a fixed ceiling (adjusted upward by 2% annually) on the taxes paid by the casino resorts, but they could also pay as much as $30 million less if new North Jersey competition arises, further eroding Atlantic City’s Gross Gaming Revenue, one of the factors which determines the amount Atlantic City casinos are required to contribute to the PILOT program each year. In that event, Atlantic County would have to figure a way to make up the budget shortfall by raising taxes on homeowners and other businesses, which currently only makes up a fraction of the revenues received. As a result, there would likely need to be some combination of major spending cuts and tax hikes.
31 | P a g e
Gaming Expansion in New Jersey
January 2016 Atlantic County Budget Summaries, 2010‐2015
Atlantic County Budget Total Expenditures Support Services Direct Services (Planning, Public Works and Human Services) Law & Public Safety State Programs Fringe Benefits Group Insurance* Educational Institutions State Mandates Debt Service Major Accounts Grants Total Revenues County Taxes Surplus General Revenues Dedicated Tax Programs Public Health Expenditure Public Health Revenues Surplus Anticipated Revenues Public Health Tax Library Expenditures Library Revenues Surplus Library Tax
2010 $188,750,380 $7,988,826
2011 $190,739,294 $8,118,833
2012 $194,091,547 $7,905,316
2013 $193,837,030 $8,053,372
2014 2015 $196,133,473 $201,101,721 $8,090,263 $7,892,680
$29,125,914
$29,001,744
$29,451,468
$29,935,975
$50,378,024 $10,894,786 $42,364,809 $21,614,556 $12,562,000 $2,843,779 $21,780,607 $8,108,324 $2,703,311 $188,750,380 $146,224,156 $7,722,000 $34,804,224
$50,603,828 $10,737,696 $44,327,067 $21,900,000 $12,701,620 $2,987,376 $21,780,823 $8,277,092 $2,203,216 $190,739,294 $149,777,167 $7,752,000 $33,210,127
$50,470,724 $11,184,142 $45,710,670 $22,853,600 $12,790,258 $2,965,150 $21,770,714 $8,641,288 $3,201,817 $194,091,547 $152,745,744 $7,743,000 $33,602,803
$50,729,349 $10,968,367 $45,697,012 $23,822,000 $13,093,764 $3,081,042 $21,770,962 $8,697,271 $1,809,916 $193,837,030 $155,598,082 $7,155,000 $31,083,948
$9,584,769
$9,267,534
$9,192,750
$9,078,592
$9,157,135
$9,188,080
‐0.8%
$577,000 $2,813,314 $6,194,455 $9,363,043
$500,000 $2,410,584 $6,356,950 $9,344,927
$600,000 $2,283,207 $6,309,543 $8,953,635
$550,000 $2,328,123 $6,200,469 $8,979,000
$609,000 $2,306,055 $6,242,080 $8,943,180
$700,000 $2,314,913 $6,173,167 $8,679,189
3.9% ‐3.8% ‐0.1% ‐1.5%
$1,300,000 $8,063,043
$1,200,000 $8,144,927
$982,000 $7,971,635
$1,075,000 $7,904,000
$1,075,000 $7,868,180
$1,042,008 $7,637,181
‐4.3% ‐1.1%
$30,343,209
$30,623,158
1.0%
$52,537,721 $54,485,708 $11,173,711 $11,736,860 $46,597,055 $47,565,526 $23,909,242 $24,376,814 $13,088,393 $13,091,393 $2,636,698 $3,134,697 $21,770,962 $21,850,962 $7,835,871 $8,652,583 $2,059,590 $2,068,154 $196,133,473 $201,101,721 $156,500,165 $160,646,006 $7,644,000 $7,474,000 $31,989,307 $32,981,714
1.6% 1.5% 2.3% 2.4% 0.8% 2.0% 0.1% 1.3% ‐5.2% 1.3% 1.9% ‐0.7% ‐1.1%
Source: Atlantic County Annual Budget Summaries, http://www.aclink.org/Budget/index.asp. * Group insurance figure provided as a major component of Fringe.
32 | P a g e
CAGR 1.3% ‐0.2%
Gaming Expansion in New Jersey
January 2016
One of the major challenges facing Atlantic County is that it currently has one of the highest foreclosure rates in the country, with approximately 1 in every 306 housing units in foreclosure. This may make some population estimates unreliable, as residents have been forced out of their homes, with the only reliable measures of inter‐Census populations being school student populations and senior subsidies – in between (the working age population) it is likely that the population has fallen below Census estimates given the increasing number of foreclosures. The chart below depicts foreclosure rates (in percentage terms) for National, New Jersey, Atlantic City, Atlantic County, Absecon/Galloway and Egg Harbor Township and shows the concentration of foreclosure activity in surrounding towns where rates are as much as five times the national average and over two times the New Jersey average.
Foreclosure Rates National Average NJ
0.08% 0.18%
Atlantic City
0.27%
Atlantic County
0.33%
Absecon/Galloway
0.38%
EHT
0.40%
0.00% 0.05% 0.10% 0.15% 0.20% 0.25% 0.30% 0.35% 0.40% 0.45%
Source: RealtyTrac; http://www.realtytrac.com/statsandtrends/
The foreclosure issue is problematic for a myriad of reasons. The actual foreclosure process takes well over a year to go through the notice cycle and a bank’s ability to put it back on the market. Given that there were several casino closures in September 2014, there are likely many imminent foreclosures not reflected in the November 2015 rate (most recent data available). If banks put foreclosed properties on the market, given the decreasing number of job opportunities, there is limited demand, other than possibly for speculators. The difficulty in selling a home essentially has meant that many people who have lost jobs have simply moved away and stopped paying their mortgages, recognizing that there are few buyers in the market. This in turn has resulted in excess supply in the market of homes for sale, making it even harder to sell homes for near their initial purchase price. Foreclosure also essentially means extra work by municipalities of trying to collect property taxes. As municipalities operate with a lean staffing levels, the increased workload of trying to collect taxes on foreclosed homes increases as the number of foreclosed properties increases. This also creates a lag in collections. If the commercial tax base declines or has fixed payments, maintaining steady tax revenues would mean higher taxes paid by homeowners. This, even without casino 33 | P a g e
Gaming Expansion in New Jersey
January 2016
closures, will induce residents to move, or abandon their properties (pushing them into the foreclosure pool). This issue is one that has no clear remedy if there is additional New Jersey casino competition that could result in additional Atlantic City casino closures. While there may be monies provided to assist Atlantic County and/or Atlantic City financially, they would stay in public coffers; there is no mechanism for avoidance of foreclosures and the related misery for area residents (we note that the current bills proposing North Jersey casinos have no financial assistance earmarked for Atlantic County. We also note and analyze later in this study that amounts proposed as the share of tax revenues earmarked for Atlantic City will likely be well below the economic impacts expected from the closure of several casinos and thus unlikely to mitigate those impacts).
Atlantic City
The annual operating budget for the City of Atlantic City is slightly larger than that of Atlantic County, at $262 million for 2015. The gaming industry transformed Atlantic City into one of America’s largest gaming destinations, providing job opportunities and fiscal benefits for the City and its residents. But as a result of the combined timing of the recession and the downturn of the gaming industry in Atlantic City, the tax impacts on local businesses and residents have become increasingly onerous in order to maintain basic public services. The total assessed value of private and commercial property has declined from $20.5 billion in 2010 to $7.35 billion in 2015, such that it has been necessary to nearly double the property tax rates between 2010 ($1.809/$100 of net valuation taxable) and 2015 ($3.422/$100 of net valuation taxable).27 Even with the tax rate increases, it has been necessary to incur cuts or other staffing adjustments in many city departments over the past several years. For example, several departments had relatively constant budgets from 2010 to 2014, but were sharply cut in 2015. Public Works had a budget ranging from $16.0 million to $16.4 million annually from 2010 to 2014, but was cut to $13.4 million in 2015.28 Health and Human Services budgets increased from $6.4 million to $7.5 million from 2010 to 2014, but declined to $5.1 million in 2015.29 This coincided with a decline in spending for the License and Inspections department, as they now fall under a single directorship, but also included a significant drop in funding for recreation. The City Council and Clerk budget has declined from $1.5 million in 2010 to $0.8 million in 2015.30 Even with these changes the increasing tax rates has meant voluminous tax appeals and tax credit settlements, resulting in revenues below expectations and the need for additional bond financing, putting the City on shakier ground. Additionally, Atlantic City, like Atlantic County, has a foreclosure problem, but the rate currently is not as bad as it is at the Atlantic County level or in some of the surrounding townships. This may be attributable to the fact that real estate values in Atlantic City did not appreciate as high as in the townships, such that as a result of the economic downturn not as many homeowners had negative equity on their homes. Additionally, many Atlantic City residents are renters or have 27 City of Atlantic City General Obligation Bond Offering document (Bank of America Merrill Lynch) Dated May 21, 2015 28 City of Atlantic City adopted budgets, 2010 to 2015; http://www.cityofatlanticcity.org/doclib.aspx. 29 Ibid. 30 Ibid.
34 | P a g e
Gaming Expansion in New Jersey
January 2016
resided there for a long time/lifetime, such that outstanding mortgage amounts may not be as onerous. Nevertheless, according to RealtyTrac, the city foreclosure rate, at 1 in every 369 for November 2015, is still well above the statewide rate (1 in every 553) and nearly four times the national average (1 in every 1,269).31 Moreover, the problem is getting worse. The number of properties that received a foreclosure filing in Atlantic City in October 2015 was 4% higher than in September 2015 and 192% higher than in October 2014.32 Additionally, a change in the ratable property tax base that results from casino hotels involved in a PILOT program means that small businesses and homeowners will feel the burden of growing City financial needs, or would need to make up the difference if the PILOT funds decline (which will be the case if North Jersey competition is permitted as it will assuredly result in declining casino resort revenues or closures). If more of these homeowners are unemployed as a result of the closure of the casino resorts, it is reasonable to assume that the foreclosure rate will increase substantially without substantial State assistance to make up the potential shortfall in the City budget.
31 RealtyTrac; http://www.realtytrac.com/statsandtrends/ 32 Ibid.
35 | P a g e
Gaming Expansion in New Jersey
January 2016 City of Atlantic City Annual Budget Appropriations, 2010‐2015
2010 Total Expenditure $216,671,481 Administration $46,997,451 Human Resources $964,118 Planning & Development $341,877 Revenue & Finance $2,639,641 Public Safety $72,719,323 Public Works $16,399,036 Health & Human Services $6,384,273 License & Inspection $1,602,911 City Council & Clerk $1,486,468 Construction Officials $1,941,312 Utilities $6,525,000 Reserve for Tax Appeal Deferred Charges/Payments $14,451,119 Library Maintenance $7,032,661 Misc. Public and Private Programs $2,455,821 offset by Revenues Reserve for Uncollected Taxes $1,075,181 Misc. Other $13,266,158 Debt Service $20,389,131 Total General Revenues $216,671,481 Anticipated Surplus Local Revenues $8,952,518 State Aid $6,262,050 Other Miscellaneous Revenues $11,313,293 Delinquent Taxes $150,000 Local Taxes for Muni Purposes $189,993,620 Minimum Library Tax
2011 $243,836,830 $48,222,227 $985,453 $847,908 $2,520,087 $70,901,441 $15,987,486 $6,784,171 $1,666,762 $1,082,971 $2,022,806 $6,710,000 $700,000 $27,007,751 $5,388,115
2012 $244,307,262 $47,041,969 $913,702 $874,330 $2,529,736 $72,348,956 $16,199,285 $7,016,739 $1,719,674 $1,101,587 $2,084,027 $7,127,000 $700,000 $26,318,100 $5,921,880
2013 2014 $257,653,895 $265,212,382 $50,601,248 $52,665,572 $876,086 $916,066 $942,829 $1,698,078 $2,264,099 $2,398,455 $73,814,776 $81,274,364 $16,051,403 $16,343,572 $7,157,951 $7,476,901 $1,538,072 $1,627,904 $975,252 $894,091 $1,959,855 $2,134,022 $7,125,000 $7,175,000 $35,409,431 $27,921,850 $5,008,492 $5,030,736
2015 $262,445,114 $37,026,664 $779,178 $1,791,109 $2,080,975 $86,421,972 $13,395,815 $5,079,397 $1,448,468 $807,486 $1,826,210 $6,750,000 $27,500,000 $9,172,406 $3,755,692
CAGR 3.9% ‐4.7% ‐4.2% 39.3% ‐4.6% 3.5% ‐4.0% ‐4.5% ‐2.0% ‐11.5% ‐1.2% 0.7% n/a ‐8.7% ‐11.8%
$20,040,051
$12,575,912
$9,963,781
$7,057,591
$17,239,087
47.7%
$2,708,386 $8,591,398 $21,669,817 $243,836,830 $100,000 $10,125,516 $6,260,714 $28,887,747 $600,000 $192,474,738 $5,388,115
$2,721,323 $4,602,860 $32,510,182 $244,307,262 $8,892,111 $6,260,714 $24,169,508 $500,000 $198,563,049 $5,921,880
$4,328,290 $2,885,000 $36,752,330 $257,653,895
$5,062,400 $8,639,955 $36,895,825 $265,212,382
$5,037,209 $7,636,082 $34,697,364 $262,445,114
36.2% ‐10.5% 11.2% 3.9%
$9,280,184 $6,260,714 $38,759,068 $4,000,000 $194,345,437 $5,008,492
$8,544,321 $19,260,714 $34,251,946 $1,000,000 $197,124,665 $5,030,736
$8,981,323 $29,260,714 $89,536,739 $2,500,000 $128,410,646 $3,755,692
0.1% 36.1% 51.2% 75.5% ‐7.5% n/a
Source: City of Atlantic City Adopted Annual Budgets, http://www.cityofatlanticcity.org/doclib.aspx. Note: Figures for 2010 to 2014 are based on the subsequent years’ reports. The growth in spending for the Planning and Development department is attributable to it being new in 2010 and adding a city engineer and CDGB economic development spending in 2014. The decline in Administration spending in 2015 is attributable to a $20 million insurance benefits payment owed to the State being deferred. Public Safety expenses combine departmental expenses under CAPS as well as grant money.
36 | P a g e
Gaming Expansion in New Jersey
January 2016
Egg Harbor Township Egg Harbor Township boomed with the development of the casino resort industry in Atlantic City, but has been hit hard by the loss of jobs and spending attributable to the casino closures. While Census estimates have the population of the Township remaining relatively steady through 2015, foreclosure figures suggest that this is unlikely to be the case. In November 2015 the foreclosure rate in Egg Harbor Township was 1 in every 248 properties, well over twice the statewide rate (1 in every 553 properties) and more than 5 times the national average (1 in every 1,269).33 The Township has made an effort to maintain its public services and school quality, but it has meant increased taxes and an increased tax rate. The police department has slowly downsized its staff from 101 officers a decade ago to 85 currently. But continually escalating property tax rates have resulted in an increasing foreclosure rate, and there is little incentive for people or businesses to move into the market with such onerous property taxes. The Township deals with a large number of tax appeals, as property values have fallen by approximately 25% and homeowners are incapable of selling them when they try.34 The following table provides budget summaries for Egg Harbor Township from 2010 to 2015. In 2015 the Township is operating on an approximate $38.5 million annual budget, with a compound annual growth rate of approximately 2.7% since 2010. There have been steady increases in the spending on debt service, as well as steady growth in local tax collections.
33 RealtyTrac; http://www.realtytrac.com/statsandtrends/ 34 Phone interview with Egg Harbor Township Mayor Sonny McCollough, November 17, 2015.
37 | P a g e
Gaming Expansion in New Jersey
January 2016
Egg Harbor Township Adopted Annual Budgets, 2010‐2015 Total Expenditures General Appropriations for Municipal Services within CAPS Operations Excluded from CAPS Other Operations Shared Service Agreements Public/Private Programs Offset by Revenues Capital Improvements Debt Service Deferred Charges Reserve for Uncollected Taxes
2010 2011 2012 2013 2014 $33,715,340 $35,803,058 $34,936,228 $36,691,231 $37,801,762
2015 $38,512,282
CAGR 2.7%
$25,598,450 $27,977,230 $27,704,592 $28,967,476 $30,129,986
$30,936,006
3.9%
$287,802 $913,272 $591,126 $590,000 $4,339,576 $300,000 $650,000
$328,183 $936,622 $310,176 $331,000 $4,625,784 $306,170 $738,341
‐28.5% 10.3% ‐3.5% ‐14.6% 2.3% 25.1% 10.1%
$33,715,340 $35,803,058 $34,936,228 $36,691,231 $37,801,763 $648,753 $1,065,000 $900,000 $402,943 $350,000 $3,691,103 $3,474,889 $3,497,369 $3,787,376 $3,988,879 $6,026,787 $6,039,065 $6,039,065 $6,039,065 $6,039,065 $5,594,788 $6,200,513 $5,479,285 $5,715,918 $5,976,783 $82,041 $84,100 $152,294 $359,108 $308,162 $17,671,868 $18,939,491 $18,868,215 $20,386,821 $21,138,874
$38,512,282 $300,000 $4,028,813 $6,039,065 $6,323,057 $210,000 $21,611,347
2.7% ‐14.3% 1.8% 0.0% 2.5% 20.7% 4.1%
$1,752,236 $574,950 $370,083 $730,000 $4,133,378 $100,000 $456,243
$321,548 $430,634 $1,511,803 $580,000 $3,988,843 $300,000 $693,000
$373,772 $625,499 $432,499 $710,000 $3,891,591 $505,275 $693,000
$359,929 $889,851 $445,900 $450,000 $4,390,475 $552,600 $635,000
Total General Revenues Anticipated Surplus Local Revenues State Aid without Offsetting Appropriations Other Miscellaneous Receipts from Delinquent Taxes Local Tax
Source: Egg Harbor Township Adopted Annual Budgets, http://www.ehtgov.org/Budgets/index.cfm. Note: Figures for 2010 to 2014 are based on the subsequent year budget documents.
38 | P a g e
Gaming Expansion in New Jersey
January 2016
Galloway Township
Like the surrounding jurisdictions, the tax base for Galloway Township is shrinking and mandatory expenditures for some departments and line items have made some departments face cuts. The local police department has had to cut its staff, through attrition, from 79 down to 51 over the past five years. Public Works expenditures have fallen by 30%. There has been a mandatory furlough at the municipal complex on Fridays (since ended), along with layoffs. This has all been necessary since there are some unavoidable costs that are increasing at a relatively rapid rate, such as pension contributions and health care costs.35 Stockton University and the Atlanticare hospital system are the major area employers and commercial operations in the area (although they are both exempt from real estate taxes and operate under PILOT agreements), but the planning and development department is working to bring business to the area since the ratable base is predominantly residential; less than 20% of the ratable property is commercial. A major, recent addition to the commercial mix was the acquisition of the former Lenox porcelain company plant by Railing Dynamics, Inc., providing 250 jobs. But additions of companies like Railing Dynamics are infrequent, such that the burden of increasing Township budgets falls almost entirely on homeowners. Moreover, Galloway Township at one time enjoyed a sizable amount of annual revenues from construction permits; the construction industry is now virtually non‐existent since there is no migration to the area, providing additional burdens on homeowners and higher tax rates. The result, like the neighboring jurisdictions, are a large number of vacant properties and foreclosures.36 In November 2015 the foreclosure rate in Absecon (which includes Galloway Township) had a foreclosure rate of 1 in every 264 properties. The following table provides budget summaries for Galloway Township from 2010 to 2015. In 2015 the Township is operating on an approximately $27.3 million annual budget, with a compound annual growth rate of approximately 3.7% since 2010. There have been steady increases in the spending on debt service, as well as steady growth in local tax collections.
35 Interview with Township officials, November 17, 2015. 36 RealtyTrac does not list the ratio of foreclosures to properties in Galloway Township
39 | P a g e
Gaming Expansion in New Jersey
January 2016 Galloway Township Adopted Annual Budgets, 2010‐2015
Total Expenditures General Appropriations for Municipal Services within CAPS Operations Excluded from CAPS Other Operations Uniform Construction Code Appropriation Shared Service Agreements Public/Private Programs Offset by Revenues Capital Improvements Debt Service Deferred Charges Reserve for Uncollected Taxes Total General Revenues Anticipated Surplus Local Revenues State Aid without Offsetting Appropriations Other Miscellaneous Receipts from Delinquent Taxes Local Tax
2010 2011 2012 2013 2014 $22,807,480 $23,382,958 $24,723,542 $25,426,736 $26,144,415
2015 $27,309,410
CAGR 3.7%
$18,069,109 $18,373,089 $18,446,191 $17,760,353 $17,929,600
$18,671,591
0.7%
$123,250 $45,000 $0 $592,928 $0 $3,069,092 $240,000 $668,101
$125,367 $45,000 $0 $792,360 $58,000 $3,074,142 $240,000 $675,000
$131,655 $45,000 $0 $1,118,090 $158,000 $3,119,315 $640,000 $1,065,291
$135,000 $45,000 $0 $1,764,986 $58,000 $3,614,871 $356,000 $1,692,526
$206,617 $35,000 $52,459 $272,203 $290,000 $4,860,200 $689,790 $1,808,546
$22,807,480 $23,382,958 $24,723,542 $25,426,736 $26,144,415 $2,535,000 $2,000,000 $2,460,000 $1,490,000 $2,000,000 $1,638,000 $1,561,000 $1,536,200 $1,504,600 $1,530,000 $2,577,193 $2,581,284 $2,581,284 $2,581,284 $2,590,948 $955,356 $1,384,518 $1,804,018 $2,878,368 $1,457,349 $20,165 $20,000 $20,000 $20,000 $20,000 $15,081,766 $15,836,156 $16,322,040 $16,952,484 $18,546,118
Source: Galloway Township Adopted Annual Budgets, http://www.gallowaytwp‐nj.gov/finance.html Note: Figures for 2010 to 2014 are based on the subsequent year budget documents.
40 | P a g e
$135,338 1.9% $0 $53,000 $305,746 ‐12.4% $1,195,000 $4,734,671 9.1% $190,000 ‐4.6% $2,024,064 24.8% $27,309,410 $3,929,664 $1,420,000 $2,581,284 $1,095,891 $20,000 $18,262,571
3.7% 9.2% ‐2.8% 0.0% 2.8% ‐0.2% 3.9%
Gaming Expansion in New Jersey
January 2016
Other Regional Data The recent casino closures have caused additional disruptions among the Atlantic County population. From 2011 to 2014, the number of households receiving Food Stamp assistance has risen from 6,623 to 12,627 (an increase of over 6,000 households or over 90%). The percentage of households on Food Stamp assistance has risen from 8% to 12.5% during that same period. This does not include 2015 data and there could be a lag between casino layoffs in September 2014 and the date on which those affected received assistance indicating that this statistic could have risen in 2015. Households Receiving Food Stamp Assistance 12.5%
14,000 11.6%
13,000
12.0%
12,000
7,000 6,000 5,000
10.0% 9.0%
8.0%
9,000 8,000
11.0%
9.7%
11,000 10,000
13.0%
8.0% 6.5%
7.0% 6.0%
6,623
8,116
9,776
11,740
12,627
2010
2011
2012
2013
2014
4,000
5.0% 4.0%
Households With Food Stamp
% of Households with Food Stamp
Source: U.S. Census data and estimates for 2010‐2014
Regional Economy Conclusion The gaming industry in Atlantic City has been largely responsible for the outsized growth of the populations of the region and the towns surrounding Atlantic City. For the four decades since gaming was enacted, the mainland towns of Atlantic County, notably Egg Harbor Township and Galloway Township have accommodated much of this growth, resulting in increased government services, school construction and infrastructure. Since peaking at close to 50,000 employees, the casino industry has shed over 25,000 jobs including over 10,000 most recently in 2014 when four casinos closed. With the downsizing of the casino industry, the Atlantic County region has come under considerable stress. The mainland municipalities have some of the highest foreclosure rates in the country, dragging down real estate values and causing numerous tax appeals. High unemployment rates exacerbate these problems and towns have reacted by cutting some services including public safety. Atlantic County has also experienced a significant increase in the number of households on Food Stamp assistance and the Atlantic County Administration reports that 40% of all residents receive some sort of state or Federal assistance. 41 | P a g e
Gaming Expansion in New Jersey
January 2016
However, despite the significant losses of casino jobs, the casino industry remains the largest employer in the region. One of the most significant issues facing the regional economy is the lack of alternative employment in the region and the inability of laid off casino workers to migrate to other employment outside the region with similar wage and benefit levels. The recent stabilization of the industry has put the local economy on a better footing for the time being. However, a further decline in casino industry employment would have an extremely detrimental, if not catastrophic, impact.
42 | P a g e
Gaming Expansion in New Jersey
V.
January 2016
THE FUTURE OF ATLANTIC CITY WITHOUT NEW JERSEY EXPANSION
Regional Gaming Trends A review of the Mid‐Atlantic and Northeast gaming markets is particularly important to understanding the potential dynamics of gaming throughout these regions. While the State of New Jersey has no control over the expansion of gaming outside of New Jersey, it can control added competition with Atlantic City from within New Jersey. The regional market includes a total of 52 existing casinos in New York, Connecticut, New Jersey, Pennsylvania, West Virginia, Delaware, Maryland and Ohio (which will potentially increase to 64 after expansion in PA, NY, MA, CT and MD). We have identified five separate sub‐groupings for these gaming markets/casinos (although there is overlap among several of these) as follows: Regional Market Competitors Market Current Participants Potential Future Participants Mid‐Atlantic
New England
Upstate NY
Western NY Western PA
8 Atlantic City casinos; 4 Maryland casinos; Philadelphia casino; MGM National 3 Delaware racinos; 8 Pennsylvania casinos; Harbor (MD); 2 Slot Parlors in Long Island; Montreign (Sullivan County, 1 WV racino; 3 New York racinos NY) 2 Native American casinos in CT; 2 casinos Three resort casinos in MA (Boston, in RI (with proposal to relocate Newport Springfield and Taunton); Potential casino in Hartford, CT Grand to Tiverton); 1 racino in MA 3 racinos (with proposed Tioga Downs Proposed resort casinos (Lago and expansion); 2 Native American casinos Rivers) (Turning Stone and Yellow Brick Road) 3 racinos; 4 Native American casinos (Seneca); 1 PA racino 3 PA casinos; 2 WV racinos; 1 MD casino; 1 Proposed PA racino (Lawrence OH racino Downs)
43 | P a g e
Gaming Expansion in New Jersey
January 2016
The following map depicts these markets and the Mid‐Atlantic and Northeast casino market place. Atlantic City and Competitors (Current & Future) and Competitive Sub‐Markets Upstate New York Saratoga Turning Stone Vernon Downs Yellow Brick Road Tioga Downs Lago (proposed) Rivers (proposed)
Western NY Finger Lakes Batavia Hamburg Seneca Niagara Seneca Buffalo Creek Seneca Irving Seneca Allegany Presque Isle
New England Mohegan Sun Foxwoods Twin River Newport Grand (Proposed relocation to Tiverton included) Plainridge MGM Springfield (proposed) Wynn Everett (proposed) Mashpee (proposed) MMCT Hartford (proposed)
Mid‐Atlantic Monticello Montreign (proposed) Yonkers Resorts World Long Island slot parlors in Westbury & Medford (proposed) Mount Airy Mohegan Pocono Downs Sands Bethlehem Penn National Harrisburg Parx Sugar House Harrah’s Chester Valley Forge Stadium Live! (proposed) Delaware Park Atlantic City (8 casinos) Hollywood Perryville Horseshoe Baltimore National Harbor (proposed) Maryland Live Penn National Charles Town Dover Downs Harrington Raceway & Casino Ocean Downs
Western PA Rivers Pittsburgh Meadows Mountaineer Wheeling Nemacolin Rocky Gap Lawrence Downs (proposed) Hollywood Mahoning
Total gaming revenues in this region peaked in 2012 at $11.8 billion, declined to $11.6 billion in 2014 and has since increased slightly up to $11.7 billion as of the trailing twelve months ended September 2015. The decline for the last two years has been due to weakness in the slot market with most of the losses in the Mid‐Atlantic region affecting Atlantic City. 44 | P a g e
Gaming Expansion in New Jersey
January 2016
Reported Gaming Revenues in Regional Markets ($Million) Mid‐Atlantic/Metro NYC Monitcello Atlantic City Delaware Park Harrahs Chester Sugar House Parx Valley Forge Sands Bethlehem Mount Airy Mohegan Pocono Penn Hollywood PA Resorts World (Aqueduct) Empire Slots (Yonkers Raceway) Ocean Downs Penn Perryville Midway Dover Penn National Charles Town Horseshoe Baltimore Maryland Live Total Mid‐Atlantic/Metro NYC New England Mohegan Sun Foxwoods table games‐estimated) Twin River Newport Grand Plainridge Total New England Upstate New York Tioga Downs Saratoga Vernon Downs Turning Stone (Does not report) Yellow Brick Road (Does not report) Total Upstate New York Western New York Finger Lakes Batavia Fairgrounds Seneca Casinos (stopped reporting) Presque Isle Total Western New York Western PA Rivers The Meadows Mountaineer Wheeling Nemacolin Rocky Gap Hollywood Mahoning Total Western PA Total
2007
2008
2009
2010
2011
2012
2013
2014
TTM 9/2015
$ 64.3 $ 4,920.8 $ 272.6 $ 286.0 $ ‐ $ 285.0 $ ‐ $ ‐ $ 25.7 $ 175.5 $ ‐ $ ‐ $ 394.3 $ ‐ $ ‐ $ 122.9 $ 216.9 $ 465.3 $ ‐ $ ‐ $ 7,229.3
$ 58.1 $ 4,545.2 $ 253.3 $ 328.4 $ ‐ $ 345.5 $ ‐ $ ‐ $ 176.4 $ 185.6 $ 171.1 $ ‐ $ 486.5 $ ‐ $ ‐ $ 122.1 $ 213.6 $ 444.8 $ ‐ $ ‐ $ 7,330.6
$ 53.8 $ 3,943.2 $ 235.0 $ 315.9 $ ‐ $ 359.3 $ ‐ $ 142.3 $ 164.6 $ 220.8 $ 237.7 $ ‐ $ 540.5 $ ‐ $ ‐ $ 121.5 $ 207.7 $ 426.8 $ ‐ $ ‐ $ 6,969.1
$ 57.4 $ 3,565.0 $ 236.2 $ 326.5 $ 54.2 $ 432.6 $ ‐ $ 286.1 $ 163.3 $ 243.2 $ 268.5 $ ‐ $ 581.2 $ ‐ $ 27.6 $ 125.0 $ 210.1 $ 458.1 $ ‐ $ ‐ $ 7,035.1
$ 60.9 $ 3,317.7 $ 222.6 $ 349.1 $ 245.2 $ 491.2 $ ‐ $ 377.3 $ 185.4 $ 274.8 $ 287.3 $ 89.3 $ 624.4 $ 44.9 $ 110.8 $ 115.1 $ 209.6 $ 553.2 $ ‐ $ ‐ $ 7,558.9
$ 63.9 $ 3,051.3 $ 211.8 $ 340.8 $ 274.1 $ 494.5 $ 58.0 $ 438.0 $ 189.5 $ 274.9 $ 282.6 $ 672.6 $ 544.7 $ 49.9 $ 98.6 $ 107.2 $ 201.5 $ 543.4 $ ‐ $ 229.3 $ 8,126.8
$ 62.8 $ 2,862.4 $ 167.8 $ 311.2 $ 265.6 $ 487.7 $ 96.3 $ 465.0 $ 183.4 $ 263.4 $ 266.8 $ 785.1 $ 559.9 $ 51.9 $ 87.5 $ 97.7 $ 166.6 $ 456.2 $ ‐ $ 586.0 $ 8,223.2
$ 59.1 $ 2,619.3 $ 156.7 $ 286.8 $ 265.1 $ 490.6 $ 106.7 $ 470.0 $ 183.7 $ 262.8 $ 247.4 $ 808.0 $ 537.5 $ 51.8 $ 82.9 $ 92.7 $ 154.3 $ 392.4 $ 96.9 $ 655.7 $ 8,020.4
$ 59.6 $ 2,425.2 $ 158.0 $ 282.6 $ 269.5 $ 515.6 $ 111.4 $ 507.9 $ 184.7 $ 262.4 $ 250.3 $ 825.4 $ 553.1 $ 54.3 $ 77.0 $ 91.6 $ 153.3 $ 389.4 $ 281.7 $ 623.2 $ 8,076.2
$ 1,293.3 $ 783.4 $ 375.8 $ 72.7
$ 1,197.5 $ 728.0 $ 407.5 $ 67.5
$ 1,077.3 $ 684.4 $ 399.7 $ 61.5
$ 1,041.1 $ 649.0 $ 423.8 $ 53.3
$ 1,032.2 $ 633.8 $ 462.8 $ 50.1
$ 955.6 $ 576.8 $ 477.8 $ 50.1
$ 914.4 $ 530.6 $ 511.7 $ 46.4
$ 880.3 $ 483.6 $ 565.9 $ 45.2
$ 2,525.2
$ 2,400.6
$ 2,222.9
$ 2,167.2
$ 2,178.9
$ 2,060.3
$ 2,003.1
$ 1,974.9
$ 879.2 $ 464.8 $ 569.5 $ 44.6 $ 52.1 $ 2,010.2
$ 41.4 $ 129.8 $ 32.1 $ ‐ $ ‐ $ 203.3
$ 47.2 $ 134.4 $ 37.3 $ ‐ $ ‐ $ 218.9
$ 49.4 $ 136.0 $ 37.1 $ ‐ $ ‐ $ 222.5
$ 53.0 $ 139.7 $ 41.3 $ ‐ $ ‐ $ 234.0
$ 57.0 $ 150.4 $ 42.3 $ ‐ $ ‐ $ 249.7
$ 61.7 $ 159.8 $ 43.7 $ ‐ $ ‐ $ 265.1
$ 59.6 $ 159.6 $ 43.7 $ ‐ $ ‐ $ 262.9
$ 55.9 $ 158.8 $ 41.5 $ ‐ $ ‐ $ 256.2
$ 56.5 $ 160.3 $ 39.7 $ ‐ $ ‐ $ 256.5
$ 93.2 $ 28.2 $ 44.9 $ ‐ $ 142.2 $ 308.5
$ 101.4 $ 32.5 $ 50.0 $ ‐ $ 164.5 $ 348.3
$ 111.1 $ 36.3 $ 55.1 $ ‐ $ 166.7 $ 369.2
$ 115.7 $ 37.7 $ 61.6 $ ‐ $ 180.2 $ 395.3
$ 122.0 $ 39.8 $ 73.1 $ ‐ $ 188.4 $ 423.3
$ 129.6 $ 45.1 $ 81.2 $ ‐ $ 169.6 $ 425.6
$ 131.5 $ 43.7 $ 76.8 $ ‐ $ 144.6 $ 396.6
$ 124.4 $ 49.0 $ 64.2 $ ‐ $ 132.5 $ 370.0
$ 124.5 $ 50.6 $ 63.8 $ ‐ $ 129.7 $ 368.6
$ ‐ $ 124.6 $ 229.3 $ 175.5 $ ‐ $ ‐ $ ‐ $ 529.4
$ ‐ $ 244.1 $ 254.6 $ 189.7 $ ‐ $ ‐ $ ‐ $ 688.3
$ 78.8 $ 278.5 $ 235.1 $ 179.0 $ ‐ $ ‐ $ ‐ $ 771.4
$ 267.7 $ 264.1 $ 202.2 $ 144.9 $ ‐ $ ‐ $ ‐ $ 878.9
$ 343.1 $ 282.9 $ 201.4 $ 137.2 $ ‐ $ ‐ $ ‐ $ 964.7
$ 351.5 $ 284.4 $ 195.7 $ 122.4 $ ‐ $ ‐ $ ‐ $ 954.0
$ 352.0 $ 264.3 $ 176.0 $ 99.8 $ 13.8 $ 23.2 $ ‐ $ 929.2
$ 346.3 $ 245.4 $ 164.9 $ 94.0 $ 31.7 $ 43.7 $ 28.7 $ 954.7
$ 348.1 $ 245.5 $ 144.3 $ 95.7 $ 35.5 $ 45.2 $ 91.8 $ 1,006.1
$ 10,795.7
$ 10,986.7
$ 10,555.2
$ 10,710.6
$ 11,375.6
$ 11,831.8
$ 11,815.0
$ 11,576.3
$ 11,717.7
Source: Various state agencies and GGH research – Atlantic City includes free play
Current Regional Expansion (Before North Jersey Casinos) Casinos first came to Atlantic City in 1978 and New Jersey enjoyed a monopoly on gaming on the east coast until the early 1990s. As we documented earlier in this study, gaming expansion started in the early 1990s with the opening of casinos in Connecticut (Foxwoods and Mohegan Sun) and 45 | P a g e
Gaming Expansion in New Jersey
January 2016
then proceeded with racinos in Delaware, Rhode Island and West Virginia and Tribal facilities in upstate New York. During the 2000s New York entered the fray with racinos throughout the state and Pennsylvania followed with racinos and slot parlors. As the northeast became more competitive in the late 2000s, the industry expanded with legislation allowing table games in West Virginia, Pennsylvania and Delaware. New casinos in Maryland, Maine and Massachusetts came online over the last several years. As land based casinos proliferated, New Jersey and Delaware added online gaming bringing casino games into patrons homes in both those states. The negative impacts of this expansion on Atlantic City were documented earlier in this report. In the next few years additional casinos are slated to open in Philadelphia (Cordish) the Washington, D.C. area, in Massachusetts (3 new casinos in Boston, Springfield and southeastern MA), Long Island New York (two slot parlors) and New York State (4 casinos in Monticello, Schenectady, Binghamton and between Rochester and Syracuse). This expansion will cut further into the gaming market, impacting all casino operators throughout the northeast, including Atlantic City. However, since most of these new out‐of‐state competitors will be on the outer reaches of Atlantic City’s feeder markets, most of the impacts of this expansion will be felt by Atlantic City’s competitors in New York, Pennsylvania, Maryland and Delaware.
Current Anticipated Gaming Expansion
46 | P a g e
Gaming Expansion in New Jersey
January 2016
Impacts on Atlantic City Mid‐Atlantic and Northeast Regional Gaming Market The table below depicts the trailing twelve months ended September 2015 gaming revenues for the eight Atlantic City, New Jersey casinos and the regional competitors within a four hour drive (the regional drive‐in market) of Atlantic City. All revenues are depicted net of free play. Market Gaming Revenues (net of free play) Casino Atlantic City (8 properties) SugarHouse Harrah's Philadelphia Parx Valley Forge Delaware Park Hollywood Perryville Dover Downs Sands Bethlehem Yonkers Resorts World Harrington Horseshoe Live! Mohegan Pocono Mount Airy Penn National Monticello Ocean Downs Charles Town
State NJ PA PA PA PA DE MD DE PA NY NY DE MD MD PA PA PA NY MD WV
Drive Time from A.C. ‐ 64.0 76.8 84.0 85.7 95.1 110.7 128.7 133.1 144.9 146.4 147.8 150.5 162.3 167.5 171.4 171.5 203.0 209.1 219.4
Gaming Revenues $ 2,101,528,507 269,478,614 282,649,243 515,610,106 111,420,857 157,994,476 76,971,100 153,258,314 507,913,015 553,122,518 825,391,905 91,633,730 281,684,532 623,209,052 262,421,148 184,737,313 250,278,749 59,561,746 54,326,550 389,352,148 $ 7,752,543,624
Source: Various state agencies, GGH research
Gravity Model A gravity model was developed to model gaming revenues in the mid‐Atlantic and northeast casino gambling market and quantify the impacts of new competition and regional expansion on Atlantic City gaming revenues. We define this market as patrons living within four hours of Atlantic City. The gravity model is an excellent tool for forecasting & quantifying gaming revenues from regional population centers. The model quantitatively estimates customer demand based on the following factors: adult population, gaming penetration or participation, the distance to and attractiveness of various gaming facilities in the market and their offerings. 47 | P a g e
Gaming Expansion in New Jersey
January 2016
The gravity model derives its name and basic premise from Isaac Newton’s law of gravity. William Reilly developed Reilly’s Law of Retail Gravitation for purposes of determining “Retail Gravitation.” Gravity models are commonly used in the retail and gaming industries to determine the interaction between or likely number of trips from population centers (generators) to shopping malls or casinos (attractors). The model is used to predict the likely number of gamers in the market and at which properties (or proposed properties) they spend (or would spend) their gaming dollars. The gravity model formula is as follows: Gamers x (Gaming Positions & Hotel Rooms) x Attraction) / Distance2 In developing our model, we calibrate regional gaming revenues in the model to actual market performance for a recent twelve month period. There are two key drivers we use to estimate the gaming revenues in the regional market. Those drivers are as follows: The first is the estimated gaming penetration of the market, i.e. the percentage of adults in the market that participate in casino gambling. According to many published surveys, in jurisdictions with significant gaming capacity, we often see state‐wide participation rates up to and exceeding 40%. Our model estimates participation rates based on a negative exponential curve. This means that adults in zip codes closest to casinos participate at the highest level and as distance between zip codes and their closest casino increases, estimated participation rates decrease and do so at an increasing rate. Thus, as shown below, $1.2 billion or 59% of Atlantic City’s current market, resides within a 120 to 180 minute drive, a large portion of which is at risk of being be siphoned off by North Jersey casinos. The second driver is the estimated annual gaming budget per participant. Throughout the United States, these budgets typically range from $700 to over $1,100 annually. Higher budgets exist where gaming product is readily accessible to populations. In calibrating our model to the actual gaming revenues in the market for the trailing twelve months ended September 2015, we calibrated to a maximum annual gaming budget of $1,019 per participant, which is then adjusted based on the per capita income of each zip code in the model. Based on our assumptions of participation and spend, our gravity model was calibrated to yield the trailing twelve month gaming revenues (net of free play) of the eight casinos that operated during that period (the Atlantic Club closed in January of 2014, Showboat in August 2014 and Trump Plaza and Revel in September 2014). We also assume that Atlantic City generates most of its gaming revenues from within a four hour radius which is well within the area North Jersey casinos would draw from. This assumption is based on discussions with casino operators and analysis of casino database information by geographic region. Our analysis indicates that revenues coming from beyond four hours are minimal. The model output below depicts adult population, participation and gaming revenues by drive time bands for the market within four hours of Atlantic City.
48 | P a g e
Gaming Expansion in New Jersey
January 2016
TTM September 2015 Calibrated Gravity Model Summary Minutes
