A Renaissance Year for Atlantic City... Move over Las Vegas? / KPMG / 1996

- A Renaissance Year for Atlantic City... Move over Las Vegas? - by John J. Repa, Senior Manager KPMG Peat Marwick LLP

Atlantic City casinos posted a new record high in gross revenues in 1996, but excitement about the small gain over the 1995 figures was outweighed by concerns over profitability. While the New Jersey casinos posted gaming revenues of $3.83 billion in 1996, up 1.8 percent over 1995,s total of $3.76 billion, overall profitability decreased substantially because of higher marketing costs.

A marketing war was triggered by a bad winter season. And since the majority of marketing costs relate to bus promotion used to attract visitors, a change in this expenditure can have a significant impact. At one point in mid-1996 bus passengers were reimbursed as much as $32.50 per bus trip, although by the end of the year, these costs had subsided to $20. In some properties, the amount of promotional expenses increased by more than 30 percent over the same period in 1995.

The urgency of the marketing issue was underscored by expansion, creating more casino space to be filled in an already tight competitive arena. Atlantic City eased its casino regulations in response to competition from Native American gaming venues in Connecticut and the states of Delaware and West Virginia approving slots at their pari-mutuel facilities. Casino expansions in the spring of 1996 increased casino space with the addition of Trump World's Fair, the Trump Plaza, and a large expansion of the Tropicana. And, despite the increased competition, five major gaming companies in 1996 announced plans to enter the market with casino projects totaling more than $3 billion.
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Mirage	2,000 rooms	$750 million
MGM Grand	2,500	$700 million
Circus-Circus	2,000	$600 million
Boyd Gaming	1,000	$500 million
Caesar's	1,000	$490 million
Total	8,500 rooms	$3.04 billion

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In May of 1997, a new $268 million, 500,000 square foot convention center will open enhancing the City's ability to penetrate the national convention mar-ket. Recent focus has been on reinvest-ing in the City's roadway infrastructure and expansion of the Atlantic City International Airport. Sound familiar? Two major roadblocks to achieving international recognition as a primary gaming destination include higher air-fare prices and a somewhat limited number of daily non-stop flights from many key points of origination when compared to Las Vegas. The price conscious convention planner may still opt for Las Vegas as factors like room rates, taxes, and facility prices still position Las Vegas as a destination that is 35 percent cheaper than Atlantic City.

Should the five planned, new casino hotels actually be built in Atlantic City, and the planned infrastructure improvements be completed, Atlantic City will be in a much better position to compete for gaming and convention business and give Las Vegas a true run for the money.

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