April 17, 2013--PHILADELPHIA -- Atlantic City's recovery from its lengthy slump may depend on some weaker casinos going out of business and the survivors benefiting from a smaller, though more profitable gambling market, analysts said Tuesday.

The survival-of-the-fittest strategy was debated during the Pennsylvania Gaming Congress, an industry conference that focused largely on Atlantic City's plight and the prospects for a turnaround following six straight years of declining casino revenue.

During a panel discussion, Wall Street analysts argued that Atlantic City will never return to its $5 billion heyday and that it may be better for the unprofitable casinos to close down because there is simply too much supply in the shrinking market.

"We would like to see a couple of them shut down," Christopher Jones, managing director of the Telsey Group of New York, said bluntly.

In an interview later, Jones mentioned Resorts Casino Hotel and the Atlantic Club Casino Hotel as the properties that he sees as the most likely candidates for closing. However, he believes that the troubled $2.4 billion Revel megaresort will survive once it restructures itself in bankruptcy and emerges under new ownership.

Mitchell Etess, chief executive officer of Mohegan Sun, the Connecticut-based operator of Resorts, strongly denied that there is any chance that the casino will close. He said Resorts has secured its future by building a $35 million Margaritaville-themed restaurant, bar and casino expansion. The project will add 600 new jobs when it opens this summer.

"I can only imagine that the panelist has no idea of what is going on at Resorts," Etess said of Jones.

The Atlantic Club, which is in the process of being sold to the parent company of online global gambling giant PokerStars, had no immediate response to Jones' comment.

Adam Steinberg, a veteran casino analyst and president of A.M. Steinberg Advisors, joined Jones in arguing that it would be better for Atlantic City's overall financial health if some of the unprofitable casinos folded. He did not name names.

Afterward, Steinberg said in an interview that New Jersey should buy the weakest casinos and demolish them to create green space that would enhance the city's appearance. With fewer competitors around, the stronger, surviving casinos would have greater incentive to invest in their properties to make Atlantic City even more attractive to visitors, Steinberg added.

Other conference speakers, though, pointed to Margaritaville and other development projects as reasons to believe that Atlantic City's future is brighter than what the Wall Street analysts predict is ahead.

"I am up on Atlantic City. I do think Atlantic City will continue to evolve," said Douglas Stanger, a bankruptcy attorney with the New Jersey law firm of Flaster Greenberg.

Stanger said he envisions the Atlantic City market growing even larger through mergers and acquisitions that will ultimately create bigger, stronger casino resorts.

One New Jersey regulator said Atlantic City is shifting away from being a strictly casino-centric economy to one that offers an array of nongambling attractions -- such as upscale hotel rooms, restaurants and entertainment spots -- to complement the slot machines and table games.

"It's not the easiest road to get there, but we're moving in the right direction," said Matthew Levinson, chairman of the state Casino Control Commission, which oversees the licensing of Atlantic City casinos.

Levinson, however, noted that Atlantic City continues to suffer from the lingering effects of Hurricane Sandy. Tourism polls conducted after the hurricane found that many vacationers mistakenly believed that the Boardwalk and other major attractions were destroyed by Sandy when in fact they were largely undamaged.

"The biggest damage caused by Hurricane Sandy is the perception of what happened to Atlantic City," Levinson said.

Sandy, the sluggish economy and intense competition from casinos in surrounding states were blamed for driving down Atlantic City gambling revenue in 2012 for the sixth consecutive year. Since peaking at $5.2 billion in 2006, the city's annual gambling revenue has plummeted more than 40 percent to $3 billion.

"We'll never get back to the $5 billion range in Atlantic City. It will never happen," said Wall Street panelist John Kempf, a casino analyst with RBC Capital Markets.

Last year, archrival Pennsylvania overtook New Jersey to become the second-biggest casino state, behind Nevada, in terms of gambling revenue. Pennsylvania grossed $3.16 billion in total revenue from its slot machines and table games last year compared to Atlantic City's $3.05 billion.

New Jersey's new Internet gambling law, though, could provide a big boost for Atlantic City casinos, Kempf and other panelists agreed. Internet gambling is expected to begin this year or possibly early 2014 once the regulations are completed and the casinos have the systems in place.

Steinberg estimated that Internet gambling will generate between $500 million and $700 million in annual revenue.

New Jersey's proposed sports betting law, now blocked by the courts following opposition from collegiate sports and the professional sports leagues, would be another huge lift for Atlantic City if it is legalized, the analysts predicted.

Still, Atlantic City's hoped-for turnaround is threatened by growing competition throughout the Northeast. Developers are vying to open a second casino in Philadelphia, a move that could hurt Atlantic City somewhat, although existing casinos in eastern Pennsylvania have already pretty much harmed New Jersey's gambling market as much as can be expected, the panelists said.

The panelists also said that a new casino at the Meadowlands sports complex in North Jersey remains a possibility in coming years, which would give Atlantic City even more competition. They said New Jersey may have no choice but to open a Meadowlands casino if New York goes ahead with plans for resort-style casinos.

When asked by the panel's moderator what he thought was best for Atlantic City's future, Kempf jokingly replied, "Move to New York."

Contact Donald Wittkowski:

609-272-7258

[email protected]

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