Amid challenging conditions, AC casinos show shrinking profits in Q2

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The Division of Gaming Enforcement (DGE) released its quarterly and year-to-date gaming figures this week, which show that Atlantic City’s nine casinos were profitable in the second quarter — but not nearly as profitable as just one year ago.

The casinos reported Q2 net revenue of $819 million, a 1.2% decrease over last year, and a gross operating profit of $146 million, a 21% drop from the second quarter of 2022.

Over the first six months of 2023, net revenue for the nine casino operators was $1.6 billion, a 1.5% increase from last year, while gross operating profit was $281.4 million, a 17.9% decrease from 2022.

“Atlantic City’s casino operators closed out the first half of 2023 on a hopeful note,” said Jane Bokunewicz, faculty director of the Lloyd D. Levenson Institute of Gaming, Hospitality, and Tourism (LIGHT), Stockton University School of Business, in her analysis of the gaming report.

Bokunewicz noted that despite market competition, changes in gross gaming revenue mix and an increase in payroll expenses resulting from a new labor contract signed in July 2022, the year-to-date net revenue compares favorably to last year ($1.55 billion) and pre-pandemic levels ($1.49 billion in 2019). And while the first-half gross operating profit dropped from last year ($342.6 million), it still exceeded pre-pandemic 2019 ($244.9 million).

On the quarterly numbers, Bokunewicz pointed out that even though net revenue dipped a bit in Q2 compared with last year, it outperformed 2021 ($726.6 million) and pre-pandemic 2019 ($796.8 million).

“Gross operating profit for the quarter ($146 million), as for the year-to-date, declined noticeably compared to the same period in 2022 ($183.6 million), 2021 ($186.1 million) and pre-pandemic 2019 ($159.2 million),” Bokunewicz explained. “Given the increase in labor expenses that did not exist prior to July 2022 and increases in operational expenses overall this decline is not unexpected.”

“As reflected in net revenue, the size of the Atlantic City market in the first half and second quarter was similar to the same period last year, with individual operators competing for customers,” said New Jersey Casino Control Commission Chairman James Plousis in his remarks about the report. “All operators were profitable despite reporting significantly higher costs, including but not limited to labor costs. The industry is employing approximately 1,000 more people in Atlantic City this year, which has been very positive for the workforce, the region, and the state.”

The three most profitable casinos were:

• Hard Rock – $30.4 million for Q2 (down 20% from last year) and $52.7 million for the first half of 2023 (down 19% from 2022)
• Ocean Resort – $23.9 million for Q2 (up 53.6% from last year) and $47.6 million for the first half of 2023 (up 39.5% from 2022)
• Tropicana – $24.9 million for Q2 (down 17.8% from last year) and $41.7 million for the first half of 2023 (down 16.8% from 2022)

The second quarter hotel occupancy rate was 74.4%, marking a 3% decrease from last year, while the first-half occupancy rate for 2023 was 69.8% — a drop of just under 1% from 2022.

Bokunewicz also noted that nongaming revenue, a topic NJBIZ has reported extensively about, is becoming increasingly important to the industry’s overall revenue mix.

“At $399.6 million, nongaming revenues represented nearly half of total net revenues for second quarter 2023. This represents a notable increase in comparison to the same period in 2022 when nongaming revenues represented 45.2% of total net revenue for the quarter,” Bokunewicz explained. “The increase is a bit surprising because second quarter is not typically the busiest period for in-person activity in Atlantic City.”

She believes that the nongaming revenue share increase is not the result of recent declines in net gaming revenue, but rather part of a larger trend of increases in nongaming revenue overall.

“In recent months, Atlantic City’s casino hotels have made substantial investments in their in-person resort experiences,” said Bokunewicz. “These investments may indeed be paying off.”