July 5, 2006
Atlantic City Casino Shut, Costing Millions in Losses
By Paritosh Bansal
NEW YORK (Reuters) - Atlantic City casinos forced to close by a New Jersey state budget dispute are losing more than $20 million a day in revenue and putting thousands of workers out of jobs, an industry executive said on Wednesday.
The stocks of gambling companies that have casinos in Atlantic City were off, with shares of Trump Entertainment Resorts Inc. hit hardest, since it only owns casinos in the seaside resort. It was down more than 4 percent.
All 12 of the city's casinos closed on Wednesday morning after a budget impasse led New Jersey Gov. Jon Corzine to shut down nonessential services July 1, furloughing most state employees, a Casino Control Commission spokesman said.
The casinos, which generate millions of dollars in taxes for New Jersey, must have state-employed regulators in place to operate. A state appellate court on Monday rejected a plea by casinos to stay open.
"It is a terrible thing for Atlantic City," Trump Entertainment Resorts Inc. Chief Operating Officer Mark Juliano said. "For future investment it makes people think that there is not a government that is stable enough to administer their own policies."
Corzine, who wants to raise the sales tax one percentage point to 7 percent to help close the state's $4.5 billion budget deficit, said on Wednesday he did not have the authority to exempt casino regulators from the state jobs shutdown.
Major casino operators affected include Borgata Hotel Casino & Spa, a joint venture between Boyd Gaming Corp. and MGM Mirage, and Harrah's Entertainment Inc., the world's largest gaming operator, which runs four casinos there. Other casino operators in Atlantic City include Aztar Corp. and Colony Capital LLC.
The closure of casinos in Atlantic City comes amid speculation high gas prices and rising interest rates might be starting to dissuade at least some people from gambling.
Growth in the number of visitors to casinos in Las Vegas, the largest U.S. gambling market, has not kept pace with the build-up of capacity there, Majestic Research analyst Matthew Jacob said.
"In the past, the casino industry has been very resilient," said Jacob. "But we may be seeing ... somewhat of a breaking point where these economic forces do start impacting the casino industry."
The shutdown could also hit Atlantic City's plans to transform itself into an entertainment destination along the lines of Las Vegas and better compete with casinos in neighboring states.
Trump Entertainment's Juliano said a prolonged closure could lead the company to lay off all of its 2,000 or so casino employees as well as affect its expansion plans.
Every two days of closure would cost Harrah's a penny in earnings per share, while Boyd Gaming would lose that much every three or four days, Jacob said.
The revenue loss to the industry could be between $20 million and $22 million a day, Juliano said. "We didn't think it would happen."
Meanwhile, competing resorts in the region, pFoxwoods Resort Casino and Mohegan Sun in Connecticut, said they were seeing signs of a potential windfall and planned to add buses to bring people to their properties.
Even online betting sites CDPoker.com and SportsInteraction.com reported 15 percent and 12 percent increases, respectively, in registrations since the specter of closure first raised its head.
Still, some investors were hoping the impasse would end soon and not leave scars on the industry in the long-term.
"The day-trip nature of the Atlantic City market (is) a positive in this situation," Morgan Joseph analyst Adam Steinberg wrote in a research note. "We believe Atlantic City will quickly regain visitor and wagering volumes upon r
Majestic Research's Jacob said he did not believe the shutdown would have a long-term effect on the industry.
"It is a reminder to investors that it is a regulated industry," he said.
Trump Entertainment's shares were down 89 cents, or 4.4 percent, at $19.39 during late trading on Nasdaq. Harrah's shares were down 87 cents, or 1.2 percent, to $69.63 and Boyd's shares were off 61 cents, or 1.5 percent, to $39.28 on the New York Stock Exchange.
(Additional reporting by Doris Frankel)