The Silver Lining within “America’s Favorite Playground”
Monopoly, that notoriously thrived during the prohibition, survived the economic decline after World War II, that surged upon legalized gambling, where dozens of knockouts by Mike Tyson took place, and where the most beautiful women in the U.S. competed for Miss America. Where is the infamous boardwalk empire heading?
At first glance, 2014 has so far been a devastating year to the once prosperous Atlantic City, New Jersey. The city has lost 4 of its 12 casino-hotels this year, amidst several published reports that the Taj Mahal could be next. Between all four casino bankruptcies and ensued closings, this leaves about 8,000 former casino employees out of work. Real estate foreclosure activity in New Jersey spiked in August, leaving the state with one of the highest foreclosure rates nationwide. Atlantic County leads in foreclosures, with Cumberland, Sussex, and Camden counties trailing behind.
How are these bankruptcy filings affecting the economy? It is clear that there is a ripple effect currently underway and is affecting the entire state. The employees laid off from the bankrupt casinos not only lose their paychecks but also cease paying income taxes on those earnings and may default on credit obligations. As a result, other businesses that rely on the employees’ earnings for their own sales and profitability also suffer. Vendors that have been engaged in business with the bankrupt casinos may lose their accounts receivables. There are approximately 1,000 to 15,000 businesses, mostly in New Jersey but also nationwide, which are registered as vendors supplying these casinos with goods and services. These businesses are going to start losing revenue and as a result are going to start curtailing their expenditures. And last but not least, the government cannot receive money from a defunct business, it can only seize and liquidate assets for taxes owed and it is rare to recoup the full value of the tax debt. Consequently, the government loses tax revenue and impacts government budgets. These effects are not only going to reach northern New Jersey but the rest of the country as well.
So how did “America’s Favorite Playground” get to this point? Atlantic City has been riding a downward trend since 2006, both secular and cyclical. The secular downward trend is due to competitive gaming on the east coast; in recent years casinos have opened in Connecticut, Delaware, Maryland, New York and Pennsylvania. This competition has contributed to ending Atlantic City’s roughly 36 year run as the east coast’s gambling mecca. The cyclical downward trend is due to the economic recession and the effects of Superstorm Sandy. There are local businesses that have never reopened since the Superstorm. Since 2006, the city’s revenue from slot machines and table games has decreased by about 50 percent.
The vital instrument for economic advancement is jobs. The job market in Atlantic City has already been suffering prior to the casino closings based on the fact that most of the available jobs were part-time. Without good full-time jobs, people are not prospering, spending money and aiding businesses in the community and state. Internet gaming has brought in millions and is attracting customers, however there is deep apprehension about jobs when it comes to internet gaming. Internet gaming is going to yield a few living wage, middle-class jobs in sustaining servers, doing computer code, and programming and internet security. On the other hand it’s going to sacrifice some of the jobs of the hardworking people that have made a career for themselves on the gaming floor: the dealers, the cocktail servers, etc.
Recent news reports and articles have been depicting a black cloud over Atlantic City and it is heartbreaking to acknowledge struggling families, businesses and nearby towns that are undergoing a major uprooting to their lives because of recent catastrophic events. However as the idiom optimistically suggests, “every cloud has a silver lining”. Atlantic City’s current focus for rebuilding is centered on non-gaming revenue which has been increasing over recent years; from 2010 to 2013 non-gaming revenue has increased by $240 million. The resort is now concentrating on the development and redevelopment of waterfront projects while promoting beaches, boardwalk and shopping. Although some may argue that Atlantic City has been rebuilding for years, this time the city is looking outside of the gaming box and focusing on diversifying the city’s economy and creating a clean and safe tourism district with state oversight, and marketing efforts to stimulate visitation. There has been discussion of the prospect of Richard Stockton College locating a campus in Atlantic City. This diversification could potentially open the job market and create an entirely new market and atmosphere for Atlantic City.
With that being said, Atlantic City has prevailed through some of our nation’s most tumultuous economic spells and the correction the city is facing today can be an opportunity for major economic expansion in years to come.
Need More Information
If you’d like more information regarding this update, please contact your local WS+B advisor.
Frank Boutillette, CPA, Partner
Co-practice Leader , Financial Services
212.751.9100
[email protected]
Anthony Tuths, JD, LLM Partner
Co-practice Leader, Financial Services
212.751.9100
[email protected]
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The information contained herein is not necessarily all inclusive, does not constitute legal or any other advice, and should not be relied upon without first consulting with appropriate qualified professionals.
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