If New Jersey voters approve expanded casino gambling, as many as four Atlantic City casinos could close, according to Fitch Ratings.
The proposed referendum, which would authorize casinos in northern New Jersey, faces an uphill battle, Fitch analyst Colin Mansfield said in a report Thursday.
But if it passes, the report says the Atlantic City casinos most susceptible to closing are the Trump Taj Mahal, Resorts Casino and Golden Nugget. Golden Nugget is the most popular of the vulnerable casinos and Fitch estimates that a 25% decline in Atlantic City's gross gaming revenue would wipe out its operating income before management fees. Drops of 10% and 20% in GGR would put Taj Mahal and Resorts at risk, respectively, under the same assumptions, according to Fitch.
The Fitch analysis, which estimates one to four casino closures under New Jersey casino expansion, also determined that Bally's Atlantic City could also face "an uncertain future." Bally's owner, Caesars Entertainment, closed the Showboat casino in September 2014 when Atlantic City was weakening financially despite the property being marginally profitable, Mansfield said.
It was one of four Atlantic City casinos that closed in 2014.
Atlantic City was on the verge of default before state lawmakers approved a rescue package that provides the cash-strapped municipality with a $60 million bridge loan and will have the city's eight remaining casinos make fixed payments-in-lieu-of-taxes, instead of variable property taxes, for a 10-year period. The city saw four of its 12 casinos close in 2014.
Mansfield cautioned that the casino measure faces an uncertain future with public opposition at around 50%, according to a Farleigh Dickinson University poll from January. The numbers have improved from the 56% opposition the same poll showed in June 2015.
"Even if the referendum does pass, we think it will be at least four years until a casino could realistically open," wrote Mansfield.
That "aggressive timeline" assumes one year to pass the necessary regulatory legislation, a one-year bidding process, and two-year construction phase, Mansfield wrote, but the timeline could be even longer.
He pointed out that Wynn Boston Harbor and MGM Springfield are slated to open nearly five years after their proposals were selected and eight years after Massachusetts legalized casinos. The Massachusetts projects have faced legal and construction hurdles that have slowed their development process.
While casinos in Northern New Jersey would be a major negative for the Atlantic City gambling market, Mansfield noted that Atlantic City would also receive revenue from the new revenues the new North Jersey casinos generate.
"The incremental revenues could help the city offset any declines in Payment-In-Lieu-of-Taxes Atlantic City casinos pay to the city as the PILOT amount begins to decline if (gross gaming revenue) falls below $2.2 billion," said Mansfield. "In addition, the surviving properties could benefit from the closures and see performance improve, similar to what occurred after four casinos closed in Atlantic City during 2014."
While an exact tax rate is unknown should the referendum pass, previous legislative proposals called for rates in excess of 60%, which Mansfield said would put the projects on similar footing to nearby casino competition in Pennsylvania and New York. Atlantic City casinos have an effective tax rate of only 9.25%, which Fitch notes may provide the surviving casinos additional margin cushion to promote more aggressively.
