Atlantic City's Casino Slump: A Tale of Shifting Preferences and Economic Pressures
Friday, Nov 22, 2024 3:18 pm ET
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The gambling mecca of Atlantic City has been feeling the pinch in recent months, with casinos reporting a nearly 14% decline in operating profits during the third quarter of 2024. This downturn is the latest sign of a broader trend in the city's gambling industry, as shifting consumer preferences and economic conditions continue to impact the bottom line. Let's dive into the factors behind this slump and explore what it means for the future of Atlantic City's casinos.
At the heart of the issue lies a fundamental shift in consumer behavior. With the rise of online gambling, gamblers now have the convenience of placing bets from the comfort of their homes. This trend, while beneficial for online platforms, has reduced the sole earnings of traditional casinos, as the money won from bettors must be shared with outside parties. Furthermore, the absence of large-scale events like the annual air show and beach concerts, coupled with lower average hotel room rates (-$17), has contributed to the downturn.
Another factor contributing to the decline in earnings is the ongoing debate over smoking regulations in Atlantic City casinos. Casino workers have been pushing for a smoking ban for over three years, believing it would improve both public health and profitability. However, casinos argue that ending smoking would put them at a competitive disadvantage, potentially costing revenue and jobs. A study on casinos in several states that have banned smoking found that they outperformed competitors that allow it, indicating the potential benefits of a smoking ban. While the debate continues, it's clear that the outcome could significantly influence Atlantic City's casino industry, potentially affecting their profitability and customer base.
Increased operational costs, including labor and materials, have also taken a toll on the casinos' bottom line. In the third quarter of 2023, casinos saw a 13.8% decline in gross operating profit compared to the same period in 2022, driven by a 15.3% drop in personal income and a 14.4% decrease in wages. This suggests that higher labor costs and increased expenses for goods have contributed to the decline in profitability. Additionally, the absence of large-scale events and lower hotel room rates indicate that operators may be struggling to attract customers, further exacerbating the impact of higher costs on their bottom line.
Fluctuations in gaming revenue, both in-person and online, have significantly impacted casinos' overall profitability. In the third quarter of 2024, Atlantic City's casinos saw a nearly 14% decline in operating profits. This decrease was driven by both in-person and online gaming revenue. In-person gambling revenue narrowly surpassed pre-pandemic levels, with Hard Rock and Ocean leading the growth. However, the majority of casinos witnessed a decline in this area. The slow recovery of in-person gambling revenue highlights the ongoing shift in consumer preferences towards online gambling. Between 2022 and 2023, online gaming revenue increased by 12.1%, reaching nearly $150 million. Despite this growth, it was not sufficient to offset the overall decline in profitability. This trend suggests that while online gambling is a growing revenue stream, it may not be the sole solution for reviving Atlantic City's casinos.
The casinos' efforts to attract and retain customers, such as offering promotions and discounts, have not fully offset the increased operational costs. Despite increased spending on free play, rooms, meals, and drinks, consumer spending has not risen as expected, contributing to a 14% decline in earnings. Jane Bokunewicz, director of the Lloyd Levenson Institute, suggests that the same forces tightening visitors' purse strings—like inflation and increased consumer prices—are also driving up operational costs for casinos. This struggle underscores the importance of balancing customer acquisition and retention strategies with efficient cost management to maintain profitability in the face of external economic pressures.
As Atlantic City's casinos navigate the challenges of shifting consumer preferences and economic pressures, it is crucial for investors to stay informed about the industry's trends and potential opportunities. The ongoing evolution of the gambling landscape, coupled with the impact of external factors, requires a thoughtful approach to asset allocation and risk management. By understanding the unique dynamics of individual businesses, investors can better position themselves to capitalize on the "boring but lucrative" investments that prioritize stability and consistent growth.
The gambling mecca of Atlantic City has been feeling the pinch in recent months, with casinos reporting a nearly 14% decline in operating profits during the third quarter of 2024. This downturn is the latest sign of a broader trend in the city's gambling industry, as shifting consumer preferences and economic conditions continue to impact the bottom line. Let's dive into the factors behind this slump and explore what it means for the future of Atlantic City's casinos.
At the heart of the issue lies a fundamental shift in consumer behavior. With the rise of online gambling, gamblers now have the convenience of placing bets from the comfort of their homes. This trend, while beneficial for online platforms, has reduced the sole earnings of traditional casinos, as the money won from bettors must be shared with outside parties. Furthermore, the absence of large-scale events like the annual air show and beach concerts, coupled with lower average hotel room rates (-$17), has contributed to the downturn.
Another factor contributing to the decline in earnings is the ongoing debate over smoking regulations in Atlantic City casinos. Casino workers have been pushing for a smoking ban for over three years, believing it would improve both public health and profitability. However, casinos argue that ending smoking would put them at a competitive disadvantage, potentially costing revenue and jobs. A study on casinos in several states that have banned smoking found that they outperformed competitors that allow it, indicating the potential benefits of a smoking ban. While the debate continues, it's clear that the outcome could significantly influence Atlantic City's casino industry, potentially affecting their profitability and customer base.
Increased operational costs, including labor and materials, have also taken a toll on the casinos' bottom line. In the third quarter of 2023, casinos saw a 13.8% decline in gross operating profit compared to the same period in 2022, driven by a 15.3% drop in personal income and a 14.4% decrease in wages. This suggests that higher labor costs and increased expenses for goods have contributed to the decline in profitability. Additionally, the absence of large-scale events and lower hotel room rates indicate that operators may be struggling to attract customers, further exacerbating the impact of higher costs on their bottom line.
Fluctuations in gaming revenue, both in-person and online, have significantly impacted casinos' overall profitability. In the third quarter of 2024, Atlantic City's casinos saw a nearly 14% decline in operating profits. This decrease was driven by both in-person and online gaming revenue. In-person gambling revenue narrowly surpassed pre-pandemic levels, with Hard Rock and Ocean leading the growth. However, the majority of casinos witnessed a decline in this area. The slow recovery of in-person gambling revenue highlights the ongoing shift in consumer preferences towards online gambling. Between 2022 and 2023, online gaming revenue increased by 12.1%, reaching nearly $150 million. Despite this growth, it was not sufficient to offset the overall decline in profitability. This trend suggests that while online gambling is a growing revenue stream, it may not be the sole solution for reviving Atlantic City's casinos.
The casinos' efforts to attract and retain customers, such as offering promotions and discounts, have not fully offset the increased operational costs. Despite increased spending on free play, rooms, meals, and drinks, consumer spending has not risen as expected, contributing to a 14% decline in earnings. Jane Bokunewicz, director of the Lloyd Levenson Institute, suggests that the same forces tightening visitors' purse strings—like inflation and increased consumer prices—are also driving up operational costs for casinos. This struggle underscores the importance of balancing customer acquisition and retention strategies with efficient cost management to maintain profitability in the face of external economic pressures.
As Atlantic City's casinos navigate the challenges of shifting consumer preferences and economic pressures, it is crucial for investors to stay informed about the industry's trends and potential opportunities. The ongoing evolution of the gambling landscape, coupled with the impact of external factors, requires a thoughtful approach to asset allocation and risk management. By understanding the unique dynamics of individual businesses, investors can better position themselves to capitalize on the "boring but lucrative" investments that prioritize stability and consistent growth.
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