Analysts say AC casinos can withstand Borgata

John Curran

Friday, June 6, 2003 | 10:09 a.m.

ATLANTIC CITY -- New Jersey's first new casino in 13 years will be a big draw for gamblers, but not enough to force its competitors to fold their cards, Wall Street analysts told a conference of casino industry executives.

The Borgata, a $1 billion casino being built in the marina district, is expected to begin taking bets in late July. The new casino will be the city's 12th, and the first to open here since Trump Taj Mahal in 1990.

"Sure, people are going to want to see what you get in New Jersey for $1 billion. But I don't think there's a chance of anyone going out of business," Jacques Cornet, CIBC World Markets analyst, said.

Everyone agrees that the Borgata, which will have 2,002 rooms and a 135,000-square-foot casino floor, will be a big draw all summer as casino regulars check out the new player in town and tourists who don't usually gamble flock to see the new building.

"We do have some concerns that in the first six or nine months we'll see some cannibalization of the existing market," said Joyce Minor, casino industry analyst for Lehman Brothers.

Minor told the seventh annual Mid-Atlantic Gaming Congress last month that she expects the earnings of competitors Park Place Entertainment Corp. and Aztar Corp. -- which together control four Atlantic City casinos -- to take hits of between 5 percent and 10 percent.

"No matter how bad Atlantic City gets this summer, no one property is at risk of going bankrupt," Lawrence Klatzkin, a Jefferies & Co. analyst, said. "People will go visit Borgata. You have to accept that. But they'll come back."

Five years ago that might not have been the case.

But the properties once considered weak sisters in the Atlantic City market have been fortified, either through consolidation (Claridge's takeover by Park Place) or acquisition by deep-pocketed owners like Carl Icahn (who bought the Sands).

Also, the existing casinos are frantically adding attractions and building new rooms in anticipation of the more intense competition. On Wednesday Showboat Casino-Hotel opened a new 544-room hotel tower.

The challenge for Borgata will be to adequately handle the throngs that descend on it, said Andrew Zarnett, analyst for Deutsche Bank Securities.

"Everyone will talk about it, everyone will want to look at it. The big challenge will be to perform. If you have to wait too long or if the service isn't good, Borgata will lose out," Zarnett said.

Conspicuously absent from the casino conference was Gov. James McGreevey, a public enemy on the Boardwalk since he announced plans to impose $135 million in new taxes on the casinos.

The Gaming Congress event had announced McGreevey as its keynote speaker, but McGreevey's office said the governor never committed to the event.

McGreevey, who pledged his support for the casino industry at last year's event, wants to boost the state casino tax by 2 percent and impose a tax on the complimentary items given away to gamblers.

He would have faced tough questioning from industry leaders had he attended. Instead, he sent Albert Kroll, the state labor commissioner, in his place.