Bonds

Atlantic City casino profits slide; remain above pre-pandemic levels

After a post-pandemic boom, Atlantic City’s casino profits fell in the third quarter this year, New Jersey’s gambling regulator said.

Revelers hitting slots and tables game in-person as well as online via two authorized internet-based gambling services brought the New Jersey seashore city’s nine casinos a total net revenue of $971.8 million in the 3rd quarter of 2023, reflecting a 0.9% decrease year-over-year, and a gross operating profit of $281.2 million, a 7.5% decrease compared to 3rd quarter 2022, the New Jersey Division of Gaming Enforcement reported.

Gross Operating Profit reflects earnings before interest, taxes, depreciation, amortization, charges from affiliates, and other miscellaneous casino revenue streams and is a widely accepted measure of profitability in the Atlantic City gaming industry, according to the DGE. 

The Ceasars Atlantic City hotel and casino. Net revenue in the New Jersey city’s casinos was down year over year, the state regulator said.

Bloomberg News

“While the industry would have liked to see more growth, the performance of net revenue in 2023 was relatively flat compared to last year and the year prior,” Jane Bokunewicz, faculty director of the Lloyd D. Levenson Institute of Gaming, Hospitality and Tourism at New Jersey’s Stockton University School of Business, said in a statement.

“Gross operating profit was down, perhaps reflecting an overall increase in the cost of doing business and attracting patrons to the resort amid local and regional competition.”

Resorts World saw the largest dip, with a $7.2 million profit marking a decrease of nearly 43% year-over-year, followed by Bally’s at $7.3 million profit, down over 32%, and then Harrah’s $30 million, down close to 13%.

For internet gambling services, Caesars Interactive Entertainment NJ saw $5.1 million in profits, a decrease of 18% year-over-year, and Resorts Digital $1.6 million, down nearly 50%. 

Across the first nine months of 2023, net revenue reached $2.5 billion, a 0.6% increase from the same period last year while gross operating profit over the first nine months of the year was $632.1 million, a 4.2% decrease compared to the same period last year.

While numbers beat revenues recorded in 2019 prior to the pandemic, they fell short of those seen in 2021 and 2022. However, instead of spelling a new losing streak, the figures may instead indicate Atlantic City’s gambling industry was seeing stabilizing after a difficult few years.

“In keeping with the experiences of many resort communities along the New Jersey shore, Atlantic City saw a bit of a cooling off in summer 2023 compared to the pent-up post-pandemic energy seen in 2021 and 2022,” Bokunewicz said. “That said, it did outperform prepandemic 2019 for both net revenue and gross operating profit, suggesting that this could be part of a cycle of stabilization.”

At the beginning of this year, Atlantic City’s casinos collectively saw their gross operating profit decline by nearly 15% in the first quarter compared with the same period in 2022, with figures from DGE showing a total operating profit of $135.4 million, down from around $159 million.

James Plousis, chairman of the New Jersey Casino Control Commission, pointed to higher costs incurred by the facilities from one year prior, especially associated with increases in casino employee wages.

COVID-19-related disruptions brought Atlantic City’s gambling businesses to a near standstill as the city marked a 90% decrease in attendee spending from March 2020 through February 2021 when compared with the prior 12-month period, according to another report from Stockon University. 

It was followed by “a burst of activity” as travel restrictions were lifted, boosting returns in 2021 and 2022. 

Considering the tumultuous marketplace and the current slowdown, third-quarter figures may simply be a sign of the local industry “righting itself” after a deluge of activity, meaning those “pendulum swings” should be expected, Bokunewicz said.

Atlantic City’s proximity to major population centers contributed to the highs observed in 2021 and 2022 due to a boost in travel focused on local destinations once lockdown orders were loosened, she continued.

“This year, people may have traveled further abroad, after foregoing international travel since the pandemic, contributing to the observed decrease in activity in the city in 2023,” she said. “For those that did come to the resort, inflation may have changed their spending behaviors. They may have shortened their trip, eaten out less, or participated in more free activities as observed by operators in Cape May and other New Jersey resort destinations.”

DGE also reported the city’s hotel occupancy was 85.6%, a decrease of 1%, while the occupancy rate across the first nine months of the year was 75.2%, a decrease of 1.0 percentage points from the comparable period last year. 

New Jersey levies an 8% tax on casino gross revenue, 15% tax on internet gross revenue, an 8.5% tax on casino sports wagering gross revenue, 13% tax on casino sports wagering internet gross revenue, amounting to $504 million for fiscal year 2023, up from $457.6 million in fiscal 2022. 

The states drew $144.2 million from third-quarter 2023 casino revenues and $494.8 million across the first 9 months of 2023.

The state also taxes a portion of parking and hotel room fees to fund debt service on $93 million of Hotel Room Fee Revenue Bonds issued in 2004 by the Casino Reinvestment Development Authority.

Atlantic City has undergone a tumultuous decade and saw revenues fall across the board , prompting a state government takeover in 2016 intended to head off a deepening financial crisis.

The state takeover was originally set to expire in 2021 but was extended another four years by Gov. Phil Murphy.

The strains on the city’s finances are visible in its speculative-grade bond ratings.

Moody’s Investors Service assigns a Ba2 long-term issuer rating to the city, following an upgrade from Ba3 in 2022. The outlook is positive

S&P Global Ratings assigns its underlying BB rating to Atlantic City general obligation bonds, after an upgrade from BB-minus in 2022, with a positive outlook.

Bonds backed by the city’s core gambling business are above the investment-grade threshold.

Casino Reinvestment Development Authority luxury tax revenue bonds, which are special limited obligations secured by luxury tax receipts levied in Atlantic City on hotel stays, entertainment tickets and booze, are rated BBB-plus by Kroll Bond Rating Agency, which upgraded them from BBB in June, and rated BBB by Fitch Ratings, which revised the rating outlook to stable from negative in 2022.

Several factors have helped to right the city’s finances, including improvements to governance structures, state oversight, and the introduction of new revenue streams including online sports betting. New Jersey legalized sports betting in June of 2018 after winning a U.S. Supreme Court case that struck down a 26-year federal ban on such wagering. 

Bokunewicz noted that while the three years since the pandemic have by no means been normal, 2024 and 2025 might mark “new phase in the cycle of recovery and a better understanding of how the city will perform moving forward.”

“This of course assumes there won’t be new market forces further disrupting the gaming, hospitality, and tourism industries of the region,” she added.

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