Fitch: Atlantic City Casinos Will Keep Most Closed Casino Volume

The casino industry in Atlantic City, NJ should earn approximately $2.5 billion in 2015, despite the coming closure of Revel, Showboat and Trump Plaza, Fitch Ratings says. Over the longer term we expect revenues to deteriorate closer to $2 billion as new competition opens in neighboring states and, possibly, northern New Jersey. Further potential revenue deterioration could exceed these expectations if the overall economy softens. Fitch does not anticipate more closures over the next 24 months as the weaker casinos should benefit from the more rational supply in the city.

We estimate that approximately 50% of Revel's gaming revenues will be retained by other casinos in Atlantic City. This estimate is based on the increase in revenues at Golden Nugget and Tropicana since Atlantic Club closed this past January. We also anticipate more than 60% of the revenues generated at Trump Plaza and 75% of the revenues at Showboat will remain in the market, as their respective parent companies own other casinos there. Much of the revenue recaptured by the remaining casinos will flow through to their profits, as the gaming tax rate in New Jersey is just 9.25%.

Revenues through the 12 months that ended in July are $2.7 billion. Revenues over the same period for Atlantic Club, Showboat, Revel and Trump Plaza total $457 million. We estimate that $280 million will be recaptured with more than half going to Caesars' properties. We also expect the marina casinos (Borgata, Golden Nugget and Harrah's) may benefit more than the others, as their resort facilities could become more attractive considering the dwindling activities on the boardwalk, and they will be the freshest properties in Atlantic City, having undergone major renovations in the past 10 years. However, most of the closings are at the ends of the boardwalk, leaving a cluster of remaining casinos (including Caesars AC, Bally's and Taj Majal) that should see a sizable lift in business from the closures.

Atlantic City remains one of the few places in the populous tri-state area to offer a full suite of eat, play and stay options and has by far the lowest gaming taxes. Lower taxes give these casinos more room in the margin to spend on promotional activity, including free food and hotel stays. A 2014 property tax increase of 29% will partially offset these factors.

Additional information is available on www.fitchratings.com.

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