Could Non-Gambling Businesses Save Atlantic City?

Thousands of workers are worried about their future, but rebranding Atlantic City might just be the answer to all of their problems.

The fall of Atlantic City might just be the most debated topic this month. Online gambling sites in the US state of New Jersey are doing fine, but profits made by land-based casinos are at almost half of what they were in 2006. Three casinos will be closed by the end of this summer, leaving thousands of employees without work.

Now casino owners are mourning their losses, but economy experts have warned officials and investors that this would eventually happen. It’s “casino saturation”, they say. Meanwhile, local authorities are trying to find a way out of this financial disaster and they’re considering turning the city from a gambling Mecca into a fun family destination.

Casinos fall, but the food sector flourishes

After the legendary Atlantic City Club closed at the beginning of this year, these casinos could follow:

• Showboat
• Trump Plaza
• Revel

Paul Sandler, general manager of The Palm steakhouse, serves as the perfect example of how you can run a successful business without relying on casino games to attract customers. At his steakhouse, which leases space at Tropicana, business is humming.

Over the past nine years, the total revenue generated by his firm has grown 2 to 5% on a year-to-year basis, while gambling revenues have constantly dropped. There are dozens of Palms steakhouses across the country, but the one in Atlantic City is among the most profitable ones.

“We’re in the top four,” he told reporters. He added that business is on a rising trend at his venue and the future looks even brighter. “I’ll budget myself for 2 to 3 percent growth in revenue next year, and I will meet that goal.”

With all the sad news about thousands of casino employees losing their jobs, locals seem to have forgotten that gambling venues are not the only tax revenue generators in Atlantic City.

Third-party sales increase

The truth is that the nongaming sector of Atlantic City is doing better and better and this information has not made the latest gambling news, which only seem to focus on the casino industry. But those working in entertainment, retail, food and beverage know very well that business is growing.

Over the past two years, the city’s non-gaming revenue has increased by more than $160 million. In fact, the Casino Reinvestment Development Authority claims that total profits are approaching $1 billion per year. Much of this business is being run by third-party leaseholders in the casinos.

The New Jersey Division of Gaming Enforcement said business leasing space in casinos has increased 18% from 2012, reaching $289 million last year. This growing trend continued in 2014 and figures show a 6% year-to-year increase in third-party sales, during the first quarter.

Casinos and shops go hand in hand

The truth is that the success of these third-party businesses goes hand in hand with that of nearby casinos. Janet Markowitz, co-owner of A Time For Wine, says her businesses benefits from foot traffic in the casinos. And when people win some big jackpot, they celebrate by buying a good cigar or a $3,500 bottle of cognac from her.

It’s similar with Sandler’s steakhouse: “They rely upon us, and we rely upon them. Customers 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.'”

For The Palm leasing space at Tropicana is great for business: “You have 2,300 hotel rooms above us. That’s the size of a small town,” he added.

But it’s exactly this symbiotic relationship that puts the non-gaming sector at a certain risk, experts believe. Clyde Barrow, director of the University of Massachusetts Dartmouth Center for Policy Analysis, explained: “The one risk for the independent businesses is they’re relying on that facility to stay open. If the casinos decide to close, they close, too, even if they’ve been doing well and it’s been profitable.”

What will the future bring?

So what will the future bring for Atlantic City? For now, it looks like nothing can be done to help all those casinos stay open. But seeing them all go would be bad for business too. The solution has to be somewhere in the middle, between gambling and family entertainment.

New Jersey already took the step of legalizing online casinos under the current American gambling laws, so the state has a lot to offer for people who enjoy casino games. Maybe relying less on these revenues and offering more family entertainment options could turn things around.