The Economic Impact of Casino Closings

In Struggling Casinos, Nongaming Businesses Thrive

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    Nongaming revenue in Atlantic City increased by more than $160 million in the past two years and is approaching $1 billion annually, according to the Casino Reinvestment Development Authority.

    Gambling revenues at Atlantic City casinos have plummeted since peaking in 2006. Three casinos announced in the past month that they could be closed by summer's end. Nearly 20 percent of local casino jobs are on the chopping block.

    But for Paul Sandler, general manager of The Palm steakhouse, which leases space at Tropicana, business is humming.

    The restaurant he runs has grown 2 percent to 5 percent year-over-year for the past nine years in terms of revenue and customers served, he said. And of dozens of Palms across the country, the restaurant in Atlantic City is among the company's most profitable, he told The Press of Atlantic City.

    "We're in the top four," he said, adding he doesn't see that trend stopping soon. "I'll budget myself for 2 to 3 percent growth in revenue next year, and I will meet that goal."

    You wouldn't know it from the headlines, but the nongaming sector of Atlantic City's casino economy — entertainment, retail, food and beverage — is growing. Nongaming revenue in Atlantic City increased by more than $160 million in the past two years and is approaching $1 billion annually, according to the Casino Reinvestment Development Authority.

    And much of that business is being done by third-party leaseholders in the casinos.

    Sales at businesses leasing space in casinos reached $289 million in 2013, an 18 percent increase from 2012, according to the state Division of Gaming Enforcement. Growth has continued in 2014, with third-party sales increasing 6 percent in the first quarter compared to the same quarter last year.

    Nearly half of all businesses in Atlantic City casinos are owned by third parties, said Israel Posner, executive director of Richard Stockton College's Lloyd D. Levenson Institute of Gaming, Hospitality and Tourism.

    But it wasn't always that way, said Carl Braunlich, an associate professor at the College of Hotel Administration at the University of Nevada, Las Vegas. In the early 1980s, when casinos first started operating in Atlantic City, "everybody ran their own stuff," he said.

    But casinos slowly realized that the brand names of third-party companies appealed to customers in ways the casinos couldn't replicate. In the early days of Atlantic City gambling, "You didn't have a lot of franchise brands. You didn't have chef-driven concepts. You didn't have really strong clothing retailers that were looking for leases. That opportunity wasn't there," Braunlich said. "It only has developed over the past 20 years to where you could get a good third party to come in and give you a good lease and sell a great product that people were aware of because of the marketing and the presence of the brand. And now you see a lot of this third-party leasing take place."

    Janet Markowitz, co-owner of A Time For Wine, which leases space for its alcohol and cigar stores in Tropicana Casino and Resort, Resorts Casino Hotel and Caesars Atlantic City, said her businesses benefit from foot traffic in the casinos, plus the occasional jackpot.

    "We sell Louis (XIII), so if somebody comes in and wins (a) lot of money, they might be more inclined to buy a $3,500 bottle of cognac," she said. She said her 20-employee business is preparing to renew its lease with Tropicana. "We have met our expectations. We've met our projections."

    The Palm's Sandler said his landlord-tenant relationship with Tropicana is symbiotic.

    "They rely upon us, and we rely upon them." Customers, he said, "are aware of our brand and know our brand from where they come from. So the first thing they're thinking about is 'Where am I eating for dinner? Where am I going? Hey, there's a Palm in the Tropicana. I like The Palm.'"

    And for The Palm, he said, the benefit of leasing space at Tropicana is obvious: "You have 2,300 hotel rooms above us. That's the size of a small town."

    Clyde Barrow, director of the University of Massachusetts Dartmouth Center for Policy Analysis, who writes an annual New England gaming report, said that for a third party, there is a risk to leasing space in a casino.

    "The one risk for the independent businesses is they're relying on that facility to stay open," he said. "If the casinos decide to close, they close, too, even if they've been doing well and it's been profitable."

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    Information from: The Press of Atlantic City (N.J.), http://www.pressofatlanticcity.com