New Jersey governor Chris Christie’s Advisory Committee on New Jersey Gaming, Sports, and Entertainment has issued its report, which calls for a partial state takeover of Atlantic City. From the AC Press:
But Atlantic city and state officials have naturally focused most on the governor’s plan to create a state-run portion of Atlantic City, in a plan already described as a city within a city. Christie said he could no longer watch the “teetering”; of Atlantic City’s institutions.
He said he gave “fair warning” to Atlantic City’s government to fix problems pointed out in a recent state audit or face state takeover.
He said he wanted to see the state run a clean and safe tourism district there within a year.
“Delay leads to demise,” he said.
Gaming enforcement would be streamlined, he said. He described the current system as an “antique car.”
via Christie unveils state takeover plan for Atlantic City gaming district – pressofAtlanticCity.com.
You can look at the report itself here. The Atlantic City section starts on page 13.
According to the report, Atlantic City’s gaming industry is in decline–no argument there. They attribute the decline to nine chief factors:
• The perception of the City as unclean and unsafe, and the failure of City government to effectively address such concerns (including blight and the overall image of the City) at any level or to work effectively with the industry to create a tourist-friendly environment.
• The City’s fiscal mismanagement of the large tax base provided by the industry (as much as $175 million/year in property taxes alone). Atlantic City spends almost four times as much per capita than comparable New Jersey Cities, such as Edison, Long Branch, and New Brunswick.
• 2003 audit results, which reveal that staffing in Atlantic City per 1,000 residents was twice the level of benchmark cities like Orlando and Norfolk.
• The absence of a visible police presence or effective law enforcement on the Boardwalk.
• The absence of evidence of a Master Plan that addresses the primary tourist area or the large swaths of urban blight surrounding the tourist area.
• Underinvestment by the casino industry in development of non-gaming amenities, attractions and surrounding areas appropriate for a “destination resort.”
• An outdated regulatory process marked by both high costs and the inability to attract development activity by other world-class ownership to the New Jersey market.
• Lack of coordination in positioning and marketing Atlantic City as a competitive tourist resort.
• Failure to effectively attract meeting and convention business to Atlantic City and to integrate such business with the existing destination resort hotels.
I think in general these are true, but point 5, underinvestment, isn’t across the board: you can’t look at the Borgata, or Harrah’s Resort, or the Pier at Caesars and say that these aren’t filled with good non-gaming amenities. Some companies have consistently put more into capital expenditures and expansion than others, and they’ve been rewarded with a bigger share of the market. You can’t legislate that you have to run your casino intelligently. It its recommendations, the committee acknowledged this. Here’s a crucial section:
Research provided to the
Commission by McKinsey & Co. indicates that the Atlantic City “brand” still has value with customers, and if the reality met customers’ expectations, there would be sufficient latent demand to more than double Atlantic City’s revenues in the medium term. The Commission is also encouraged by the economic success enjoyed by properties where proper investment has been made, including the Borgata, the Walk, Harrah’s and Taj Mahal, all of which are generating encouraging results. It appears that in Atlantic City, customers will come to quality offerings.
However, the status quo is not workable. In simple terms, almost every potential Atlantic City customer has a closer, more convenient place to gamble. If Atlantic City cannot provide reasons for customers to make the trip, its decline will continue. Atlantic City has no choice but to try to reestablish itself as a true “destination resort” against its new convenience gaming competitors in surrounding states. Meeting this challenge will require aggressive actions by both the public and private sectors.
That’s exactly what the city has to do, but unfortunately that’s what the city’s had to do for the last twenty years.
To get the city back on track, the committee recommended seven goals:
• Creating a “Clean and Safe” Tourism District with State oversight, with the goal of making Atlantic City clean and safe by July 1, 2011.
• Creating a Master Plan for the new Tourism District, focused on enticing new entrants to build both gaming and nongaming attractions that will increase demand in the City. The Plan should be delivered to the Governor no later than July 1, 2011.
• Improving the financial stability of Atlantic City by attracting other world class operators to ownership of the eleven existing facilities as well as any new ones. These operators should be committed to supporting both their properties and the District.
• Increasing the meeting and convention business in the Atlantic City market by at least 30% per year for the next five years.
• Bringing the New Jersey regulatory structure into the 21st century by reducing costs and redundancies and by supporting the attraction of operators while maintaining strict integrity.
• Increasing visitation and spending through joint marketing efforts on par with other national destination resorts.
• Improving intermodal transport to Atlantic City, including increasing air, rail and ferry options.
Great plan, but the devil’s always in the details. As far as attraction more investment, look at the country’s biggest gaming companies: one of them already owns 40% of the market (Harrah’s), one of them’s just been given its walking papers (MGM), one of them operates the city’s top casino (Boyd), one’s shown no interest at all in the city (Las Vegas Sands), one’s declared a “death spiral” (Penn National), one can’t build a casino on the land it owns (Pinnacle), and one left the city 25 years ago but might be tempted back (Wynn). So the options there are limited, unless you’re going to go the private equity route or open it up to international companies like Genting.
The changes we’ll see are:
1. Creation of an Atlantic City Tourism District
Following models established in other parts of the State, the Administration should support legislative enactment of an Atlantic City Tourism District (the “ACT District”) with representatives from State, City, County and Industry. The ACT District will assume full and complete control of certain governmental activities and operations within a defined Tourism District covering the casino areas and Boardwalk, as well as jurisdiction over related amenities and infrastructure.
This is the most controversial part of the plan. Basically it means getting the city government out of running much of the city.
2. PublicPrivate Partnership (the “Partnership”)
The government should establish a structure for a PublicPrivate Partnership with state and local government, the casino industry, and the greater Atlantic City community all represented. The new ACT District Commission would assume the role of the public component. The Commission recommends that the private component be represented by the Atlantic City Partnership (“ACP”) – a local consortium of businesses modeled after the Johnson and Johnsonled structure that has proven successful in the revitalization of the City of New Brunswick.
This group will develop the master plan and try to get more purveyors from other New Jersey boardwalks in AC. Hey, anything that brings Mack and Manco pizza or Johnson’s popcorn to Atlantic City is fine by me. If they want to re-launch Mr. Peanut, I’m available for consultations. They’re also going to oversee more effective use of Marina facilities, which I hope means reopening the marina at Harrah’s.
3. Coordinating Marketing, Boardwalk Hall and Convention Business Between ACCVA and ACP
Efforts should be made to encourage marketing “Atlantic City” as a brand. Theseefforts should include more joint industry efforts throughout the City, including efforts to increase use of Boardwalk Hall and efforts to capture a larger share of convention business.
Basically, doing what the LVCVA’s been doing in Las Vegas for the past 50 years.
4. Legislative Enactment of Regulatory Reform
Costs of New Jersey regulation are almost ten times those in Nevada and other mature gaming jurisdictions with strong, effective regulation. In 1978, 24/7 inspectors and built in regulatory redundancies made sense, but with the increased sophistication of camera surveillance, information technology, and audit abilities, they are unnecessary now.
Furthermore, these outmoded concepts and a licensing procedure that is unnecessarily adversarial have made the market less attractive to many respected world class operators.
To me, this is the most interesting idea. Is this an olive branch to MGM and Wynn? Maybe. It’s encouraging that they want to realign regulation with the technological realities of 2010.
5. Establishment of a Joint Atlantic City Marketing Fund
Once the ACT has gained traction on the initiatives above, it should work with the ACP to establish a fund dedicated to marketing the City, as compared to current marketing efforts with a limited $4 million spending limit.
Basically, market the city better–no argument there.
To contribute to the goal of making Atlantic City a destination resort, the Atlantic City International Airport needs to be expanded in terms of service – e.g., more airlines and additional intermodal connections – and in terms of its physical plant through capital improvements.
Make it easier to get to the city, and visitation will go up. If I ran a casino marketing department, I might go even further to try to attract Pennsylvania gamblers: show me your toll receipts, and I’ll give you double that in free play. It’s not that much money, but psychologically it makes a big difference, since the casino is now “paying for” your tolls. It should be much easier to get to the casinos from ACY or PHL for the casual visitor.
7. Related Issues
The Commission also considered whether the State should entertain gaming outside of Atlantic City at this point in time. Given the importance of the industry to the State, as well as the need for meaningful reform to foster sustainability and, hopefully, growth, this issue is best considered in the future when either: 1) the transformation of Atlantic City to a more destinationoriented model has meaningful enough traction to compete with instate rivals; 2) Atlantic City stakeholders support additional outlets; or 3) the new model is deemed to have failed.
In a nutshell, this means: no more subsidy for the racetracks; no slots at racetracks; no interstate Internet gambling; no sports betting.
It’s a major plan that will require several breaks from the past. Even if I knew all of the details, I couldn’t say definitively whether it will or won’t work, since there’s many moving parts here that are impossible to predict. But at least someone’s interested in reviving the city.