Still standing: Why Atlantic City casinos are thriving in the face of igaming growth

In 2014, the land-based casino industry in Atlantic City, New Jersey was at an all-time low. The market declined for almost 10 consecutive years and in 2014 four of the 12 casinos closed. At the same time, the casino industry was at the peak of its struggles, NJ legislators legalized igaming with the hopes of diversifying its offering and providing an additional revenue source to its struggling casinos.

Igaming commenced in November 2013. Only five years later, the Supreme Court repealed PASPA, which paved the way for NJ to adopt another revenue source – sports betting. Despite the rapid expansion of digital gaming, the numbers show that across all forms of gaming, New Jersey is “firing on all cylinders.”

After years of gross gaming revenue (GGR) decline and casino closures, land-based GGR grew around $400m (about 14%) since the introduction of digital gaming in November 2013. Since its inception, igaming recorded an average of 30% growth each year. For the latest twelve-month period ending November 2019, igaming generated $463m of GGR.

Sports betting, which went live in June 2018, generated $288m of GGR during the same twelve-month period. Combined, sports betting and igaming are generating $751m of GGR.

Source: Spectrum Gaming Capital

Lay of the land

The expansion and rapid growth of digital gaming has not curtailed land-based casino growth, which is on the rebound. In 2015, following the closure of four casinos, New Jersey’s casinos generated $2.5bn of GGR, more than 50% lower than peak GGR of $5.2bn.

From 2016 to the latest twelve-month period ending November 2019, casino revenue rebounded to almost $3.3bn, an increase of 27%. The stabilization of GGR can be attributed to the right-sizing of a saturated market.

With stabilization came an increase in profits and the reinvestment of those profits. After two-and-a-half years of growth in the market, two of the four closed casinos were re-opened by well capitalized owners in Hard Rock (Hard Rock Atlantic City, formerly Trump Taj Mahal) and Luxor Capital (Ocean Resort, formerly Revel) resulting in new product and further overall gains.

This performance suggests internet gaming and sports betting is attracting a different customer than the existing land-based casino customer, and therefore generating incremental revenue. As a result of successful digital gaming expansion and growth in land-based gaming, New Jersey is generating just under $4bn of total GGR, which is just 30% lower than peak revenue of $5.2bn.

Source: Spectrum gaming Capital

The power of sports betting

Sports betting has been a boon to gaming with cross-promotion across platforms driving revenues. From 2014 to the middle half of 2018, internet gaming grew between 20%-30% year-over-year and generated $261m as of the twelvemonth period ending May 2018.

Since the legalization and expansion of sports betting (June 2018), growth of internet gaming doubled. For the twelve-month period ending November 2019, igaming generated $463m of GGR, an approximately 77% increase.

The recent substantial growth in internet gaming can be attributed to the investment operators are making to create and grow the sports betting market. Part of the strategy of acquiring new sports betting customers is also to cross-sell internet gaming. Cross-selling and marketing investments have clearly and substantially invigorated internet gaming growth.

Although New Jersey has been way ahead of the curve when it comes to digital gaming, states such as Pennsylvania, West Virginia and Delaware pursued their own expansions – we expect this trend to emerge more prominently in the new decade.

[Bio] David Isaacson is vice president of Spectrum Gaming Capital (SGC). SGC is a boutique financial advisory and investment banking firm specializing in the gaming industry. Isaacson works on a broad range of projects including strategic advisory engagements, market analyses, litigation support/valuation and digital gaming