Hedging bets: AC is finally getting around to diversifying its economy

Martin Daks//October 7, 2019//

Hedging bets: AC is finally getting around to diversifying its economy

Martin Daks//October 7, 2019//

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Atlantic City vs. Las Vegas Strip total gaming vs. non-gaming revenue share.
Atlantic City vs. Las Vegas Strip total gaming vs. non-gaming revenue share. – NJCCC, LIGHT

Atlantic City built and lost its fortune on legalized gambling. While the casino business appears to have stabilized after long decline, some experts argue that to stay relevant the city must continue to diversify its economic base.

In the late 1970s, after New Jersey voters blessed legalized gambling in Atlantic City — giving the city a lock on the East Coast — casinos rushed to fill the demand. The flow of revenue was strong for more than two decades, reaching a high in 2006, when 11 casinos generated $5.1 billion in gaming wins.

The secret to that success, of course, was that the house always wins in the long run. But beginning in 2006 — when nearby Pennsylvania opened its first casino — Atlantic City lost its monopoly and the slide began. By the end of 2018, after some casinos shuttered and new ones opened, the waterside city was down to nine brick-and-mortar casinos, which collectively took in $2.9 billion, down some 43 percent from the peak.

Now, like a business that shifts its goods and services to satisfy evolving consumer tastes, Atlantic City has been reinventing itself, morphing from a center that relies on gaming to one that offers additional attractions. Think of projects like the 125,000-square-foot meeting space expansion at Harrah’s Waterfront Conference Center — and Borgata’s Festival Park, an outdoor concert area with festival grounds.

As far back as 2006, economist Joel Naroff was warning that Atlantic City had to transform itself into a family-friendly resort, “where gambling was the central, but not the only attraction.” Naroff is the president and founder of a strategic economic consulting firm. “Las Vegas started the process early — using gaming to spur concerts and other activities — but Atlantic City was slow to react,” he explained. “By the time it developed supplementary plans, the country was wrapped in the 2008 recession, and they were delayed. That’s why Las Vegas recovered from the recession sooner than Atlantic City did. Efforts are underway to revitalize Atlantic City’s economic base, but it takes longer when you start from such a low point.”

The problem was that for a long time, “gaming walled itself off from the rest of Atlantic City,” added Naroff. “It really didn’t spill over to residential and other activities. You could be in a casino and not realize that the Atlantic Ocean was just 20 feet or so away. That kind of approach isn’t a way to showcase your assets.”

Those millennials again

The challenge was compounded by the rise of the millennial generation, which wants a live-work-play environment, he noted. “Millennials aren’t as attracted to gaming and other activities unless there’s a residential and work component to it,” Naroff said. “But I’m encouraged by recent developments, like the Atlantic City Gateway project [in the Chelsea neighborhood], which brought in Stockton University and brought back South Jersey Gas,” a regulated utility that traced its roots to Atlantic City, but left in 1970 for a new corporate headquarters in Folsom
These developments and others are “encouraging residential development, too,” he added. “Those components are all important, because expanding beyond gaming requires infrastructure.”

With Phase 1 completed, Phase 2 of the Gateway project — a five-story, $62 million building that house about 440 Stockton University students — is ready to go once all the approvals are in, said Chris Palladino, president of AC Devco, which is leading the redevelopment effort.

“South Jersey Gas, Stockton employees and students, and AtlantiCare [which opened facilities in the Gateway late last year] changed the tempo of the Chelsea neighborhood,” he said. “They’re helping build an economic base that’s not directly tied to casinos. Chelsea can lead Atlantic City’s continuing comeback story, and as a nonprofit, AC Devco can be patient and prudently develop long-term plans.”

One of those projects will involve Block 21, a three-acre oceanfront parcel his organization owns next to the Stockton building. “We’re evaluating different uses and design elements,” Palladino said. “It’s in an opportunity zone, and we’re optimistic about it, given the success of the Stockton campus.”

Attracting Stockton University was a big win for Atlantic City, he added. “The presence of a university can have a large, positive impact on an urban environment,” noted Palladino. “Look at Rutgers in New Brunswick [where New Brunswick Devco, another Palladino-led effort, has helped reshape neighborhoods], and Rutgers and NJIT in Newark. They bring young, enthusiastic folk into a neighborhood who’ll keep it going 24/7 with new energy.”

Planes and games

A number of initiatives, including aeronautics and e-sports — competitive multiplayer videogames — will help Atlantic City and Atlantic County continue to thrive, said Lauren Moore, executive director of the Atlantic County Economic Alliance. The nonprofit economic development corporation is focused on business attraction, retention, and marketing efforts in Atlantic County.

September 2019 Ultimate Gaming Championship Halo Classic. - UGC
September 2019 Ultimate Gaming Championship Halo Classic. – UGC

“We’re encouraging a broad-based economy by helping to attract and grow different industries in Atlantic City and the wider county,” he said. “One example is the National Aviation Research and Technology Park. This and other initiatives will help to establish the area as an aviation innovation hub.”

A nonprofit auxiliary organization of Stockton University that’s dedicated to facilitating research and development, innovation, and commercialization of emerging aviation technologies, the park is located on a 58-acre parcel in Egg Harbor Township, adjoining the Federal Aviation Administration William J. Hughes Technical Center.

Long term, the Atlantic County Economic Alliance is also focusing on “key segments” like agriculture, manufacturing, business services, and life sciences. Recently, it provided introductions and advice to InGame Esports, an Atlantic City-based company that provides strategy, management and production of live and online events and state-of-the-art venue design for the gaming and esports industry. The organization has been involved in three esports events this year, noted President and co-founder Anthony Gaud.

“In April, about 1,000 people, primarily players from out of state, came to the inaugural event in Atlantic City,” he said. “Then in June the Esports Travel Summit was hosted here,” pitching Atlantic City as a destination and focusing on the nexus between venues, destinations, the travel industry and the esports industry.

In September, Showboat Atlantic City hosted the Ultimate Gaming Championship’s Halo Classic, Gaud added. “These events — which attract the important demographic of 20-year-olds, 30-year-olds and some beyond that — all help to establish Atlantic City as a leader in the esports market.”

What’s ahead?

Diversification has become a necessity for Atlantic City “as a means to distinguish its gaming product from other available products in a highly competitive region,” said Rummy Pandit, executive director of the Lloyd D. Levenson Institute of Gaming, Hospitality and Tourism (LIGHT). “That Las Vegas began the diversification process sooner is likely a function of a mature, highly competitive local market and the relative isolation of a destination located in the middle of a desert.”

Fortunately, Atlantic City already had some experience. “It was never exclusively a gaming destination and, prior to the legalization of gambling, was primarily a destination for conventions, entertainment and amusements,” added Pandit. “While at its peak, gaming represented an almost monolithic share of revenue in the resort, gaming operations always relied on the presence of non-gaming amenities to inspire loyalty and repeat business.”

Stockton University residential - DINOFA PHOTOGRAPHY
Stockton University residential. – DINOFA PHOTOGRAPHY

He pointed out that the city’s gaming and non-gaming revenues are now more balanced, and said that reflects a number of factors, including “the need to provide a distinctive customer experience to create differentiation between local and regional competitors.” It’s also a nod to changing consumer tastes, as indicated in LIGHT’s Millennial Preferences study that found, among other trends, only 44 percent of millennials play slot machines, compared to 72 percent of non-millennials.

“They also lean more toward the experiences associated with non-gaming amenities such as dining and entertainment,” according to Pandit.

“Additionally, the city needs to stabilize its economy by adding additional revenue streams that are less dependent on seasonal visitation.”

He’s encouraged by casino and other investment in “traditional amenities,” including meetings and conventions venues, dining establishments, night clubs, pools and spas, and “less traditional” initiatives, like permanent sports books-lounges, and the infrastructure to support egaming events.

“Developers have also brought new food and beverage, retail, lodging and entertainment concepts to Tennessee Avenue and Gardner’s Basin,” Pandit added. “Beyond the tourism sector, public-private partnerships such as the Atlantic City Gateway projects have brought anchor institutions like Stockton University into the city. Likewise, the presence of other institutions and employers such as South Jersey Industries and AtlantiCare provide new opportunities for area residents.”