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The Fall of the Boardwalk Empire: New Jersey’s Gambling Debacle

The Fall of the Boardwalk Empire: New Jersey’s Gambling Debacle

The Fall of the Boardwalk Empire: New Jersey’s Gambling Debacle

By: Alexandra A. Kozyra

 

Atlantic City, once considered the East coast city of sin, is currently facing a sharp economic downturn. Atlantic City’s woes, however, stem from a different type of industry debacle than those of inner cities like Paterson, Newark, or Camden. Instead of a loss of manufacturing jobs, the challenges faced by the former boardwalk empire are the result of the city’s enduring lack of economic diversification, which has been exacerbated by major changes in the American gambling landscape.

 

Atlantic City rose to popularity as a seaside resort town in the 1850s. It experienced continued recognition as a tourist destination during Prohibition when municipal corruption and a disregard for the law prohibiting the sale of alcohol attracted tourists looking for a good time, as well as criminal organizations and businessmen alike. The repeal of Prohibition signaled a decline in Atlantic City’s popularity; however, it continued to be a major vacation spot until the post-World War II era when a plethora of factors, such as increased access to air travel and a shift in the American population’s taste for entertainment, resulted in a troubling decrease in tourism.[1] As a result of the reduction in tourism, businesses and hotels were forced to close and residential areas became abandoned and decrepit.

 

In an effort to revive the seaside oasis from dilapidation and despair, New Jersey lawmakers swooped in to extend aid by passing the Casino Control Act (CCA) in 1977 which legalized gambling in only one New Jersey city, Atlantic City. The goal of the CCA was to revitalize tourism while using gambling revenues and taxes as a tool to support urban redevelopment of a failing city. Indeed, the CCA revitalized tourism; however, increased revenue and jobs from the new industry were not accompanied by the desired gentrification. Nor did it encourage diversification of Atlantic City’s economic base. In fact, many of the pre-gambling problems that plagued Atlantic City remained. For example, Atlantic City continued to experience high crime rates, an active drug trade, low graduation rates, elevated home vacancy, high unemployment and poverty rates, and one of the lowest per capita incomes in the state of New Jersey.[2]

 

Gambling, the very thing meant to save Atlantic City, is what ultimately led to its current downfall. Like Detroit, once the auto capital of America, Atlantic City became a “one-industry” town. Although the casino industry brought increased jobs, the level of non-casino employment decreased dramatically.[3] Small businesses began to fail because large casinos monopolized services provided to patrons, such as food and lodging, and stimulated high rents which the small businesses were unable to afford. Both businesses and the government funneled all efforts into marketing Atlantic City as a gambling destination rather than a seaside destination with more to offer than slots and poker tables.

 

In 2004, a massive threat came to the shared monopoly over gambling held by Las Vegas and Atlantic City. In response to decreased revenues at horse and dog racing tracks, Pennsylvania began to allow “racinos,” slot machines placed in racetracks.[4] Following in Pennsylvania’s footsteps, racinos are currently legal in ten states and other forms of gambling, such as tables, are legal in the neighboring states of New York and Pennsylvania. Now, Atlantic City, once the dominant gambling destination on the east coast, has experienced a 15% hit on casino revenue from New York casinos alone. In addition, an even more local threat is posed to Atlantic City with a number of New Jersey cities vying for the legalization of gambling.[5] As of September 2015, almost half the casinos in Atlantic City have shuttered. So, how can New Jersey balance the potential for economic success in the intrastate expansion of gambling while trying to save a failing one-industry city spiraling towards a Detroit-like fate? The state is met with a number of challenges in how to treat both Atlantic City, and gambling in general: First, how influential must the state be in nursing Atlantic City to full health? Is gambling the key to Atlantic City’s revitalization, or should the boardwalk empire pursue a different course? And finally, should the legislature reserve all gambling-related business for the place where it all began, or should it allow for the expansion of gambling to other areas of the state?

 

The New Jersey government will be tremendously influential in the ultimate success or demise of Atlantic City. Just as it has previously relied on state government for financial and economic help, Atlantic City continues to be in need of assistance. The current list of potential plans for Atlantic City’s future is lengthy, as is the list of state efforts to help revitalize the city. In November 2013, New Jersey became one of three states to legalize online gambling. The online gambling law is actually part of the revitalization efforts, and requires that online platforms partner with physical casinos within the state’s limits.[6] This partnership aims to boost casino revenues without gamblers leaving the comfort of their own homes. However, the players themselves must also be physically located in New Jersey, which places limits on the clientele able to play. Revenues from online gambling have been gradually improving, but in order for them to really pop, New Jersey must work on reciprocal interstate compact agreements with other states (or countries) which would allow the New Jersey platforms to act as a host for out-of-state residents’ gambling activities. An example of one such agreement is the hosting of iGaming content for the Delaware state lottery by Caesars Interactive Entertainment servers located in Atlantic City.[7] The content offered will only be available to Delaware players but is hosted in Atlantic City. New Jersey can market Atlantic City as an interstate host for other states who want to explore online gambling without the states having to worry about the expense of a physical data center.

 

While sticking to what it knows best might seem like the obvious answer, different camps of Atlantic City supporters are trying to find innovative ways to pump life into the resort town. Hotel and casino owners are putting forth great efforts to bill Atlantic City as a hot spot for conventions and business meetings.[8] Just last month, Harrah’s opened its brand new $126 million conference center aimed to capture a large share of the corporate conventions market. The conference center, the largest conference-hotel complex between Baltimore and Boston, has already booked 97 meetings and conventions through 2019. One obstacle that will face the convention business, however, is a lack of viable transportation options leading into Atlantic City. The area is mostly automobile-centric and is in dire need of a reliable and consistent form of public transportation. Possibilities for transportation improvements are plentiful. For example, a high-speed ferry could shuttle visitors between Manhattan and Atlantic City. In the meantime, since so many visitors currently drive to Atlantic City, New Jersey could start using revenues from nearby tolls to fund an aboveground monorail that could run continuously day and night.

 

There are also other opportunities for casinos to open their real estate for alternative uses. Nearby Stockton University purchased the Showboat Casino for $18 million with plans of opening an Atlantic City campus. Unfortunately, the university ran into a number of issues with land-use covenants that prevented it from repurposing the property, and Stockton ultimately resorted to selling the property to a Philadelphia-based developer in September.[9] Nonetheless, the university continues its efforts to find a suitable location for a campus and student housing in Atlantic City. On September 5, the Senate State Government, Wagering, Tourism, & Historic Preservation Committee approved a bill aimed to bring top entertainers to Atlantic City by offering a tax break to performers who commit to performing multiple shows a year in Atlantic City.[10] The bill has been met with both support from those who hope big performers will draw non-gambling visitors to Atlantic City, and opposition from those who think the tax breaks are misguided.

 

Legalizing gambling elsewhere in New Jersey may seem like it would destroy Atlantic City by taking even more business away from the struggling city. Neverthelessproponents of the idea are taking a different stance.[11] Framing the issue as an economic opportunity for New Jersey, legislators argue that with Atlantic City’s decreased popularity, gamblers are spending valuable dollars elsewhere. Supporters of the expansion argue that the new casinos will not require any state funding and that any legislative plan put into effect will include $100 million per year in taxes from the new casinos dedicated to transforming Atlantic City into a more attractive destination. Opposition to the expansion is rampant, however, with the major concern being further harm to Atlantic City’s gambling industry. This year, the opposition prevailed and the bill will not be placed on the November ballot, preventing New Jersey voters from voicing their opinions on the issue. Supporters fear that this delay will prevent the bill from proceeding until 2017, at which time more competition will be present in the New York and Pennsylvania areas. Perhaps an increase in gambling locales in New Jersey would release some of the pressure on Atlantic City to be viewed as a one-industry city and allow for its further economic diversification.

 

With so many ideas flowing about how to restore Atlantic City to a burgeoning resort town, which solution is the answer to the boardwalk empire’s woes? For me, the solution will require a combination of efforts with the chief objective being economic diversification of Atlantic City. At a time when people are betting against its revitalization, it is important for the state to capitalize on what Atlantic City already has that distinguishes it from other gaming competitors: a boardwalk, beaches, and the ocean. Sure, the weather in New Jersey is not exactly a year-round draw, but it can be influential in roping in tourists during summer months who will then come back in the winter for the broader activities Atlantic City is capable of offering, such as convention centers and big-name entertainers. The redevelopment will not be easy and will require joint efforts from corporate players, the government, and the citizens of New Jersey, as well as an investment of millions, if not billions, of dollars. But, making Atlantic City a broader destination is completely feasible and has already begun with projects like the Harrah’s conference center. This time three years ago, Atlantic City simply had too many casinos. With the recent closings, the supply of gambling venues is no longer vastly exceeding the demand. Atlantic City only needs a gentle push down the road of economic diversification and it can shirk its long-standing reputation as a one-industry city and avoid a Detroit-like apocalypse.

[1] Harriet Newburger, et al., Atlantic City: Past as Prologue at V (2009)

[2] Id. at VI.

[3] Id. at 19.

[4] Israel Joffe, The next Detroit: The catastrophic collapse of Atlantic City, Fox5 News, http://www.fox5ny.com/news/16771572-story (last visited Oct. 6, 2015).

[5] Ted Sherman, As Atlantic City struggles, a bet is made on new casinos, NJ.com, http://www.nj.com/news/index.ssf/2015/06/as_atlantic_city_struggles_a_bet_is_made_on_new_ca.html (last visited Oct. 6, 2015).

[6] Adrienne Raphael, What Happened to Atlantic City?, The New Yorker, http://www.newyorker.com/business/currency/what-happened-to-atlantic-city.

[7] James Guill, Caesars Interactive Approved to Host Delaware Lottery Games in NJ, NJ Poker Online, http://njpokeronline.net/4013/caesars-hosting-delaware-lottery (last visited Oct. 6, 2015).

[8] Hugh R. Morely, Business leaders see strength in numbers at New Jersey summit, NorthJersey.com, http://www.northjersey.com/news/business/business-leaders-see-strength-in-numbers-at-summit-500-welcome-call-for-contract-with-new-jersey-1.1413998?page=all (last visited Oct. 6, 2015).

[9] Alison Burdo, Stockton University still seeking property in Atlantic City, Philadelphia Business Journal, http://www.bizjournals.com/philadelphia/morning_roundup/2015/10/showboat-stockton-university-student-housing-dorms.html.

[10] Erin O’Neill, Tax break advances for big-name A.C. shows, The Star-Ledger, Oct. 6, 2015.

[11] Ted Sherman, As Atlantic City struggles, a bet is made on new casinos, NJ.com, http://www.nj.com/news/index.ssf/2015/06/as_atlantic_city_struggles_a_bet_is_made_on_new_ca.html (last visited Oct. 6, 2015).