Showboat casino is shut down despite its profitability
Recently, Caesars Entertainment (CZR) closed down Showboat, its profitable Atlantic City casino that had operated for 27 years. The company closed Showboat in order to reduce its number of casinos in Atlantic City. CZR has been struggling with plunging revenues due to increased competition in the saturated northeastern U.S. casino market.
The above chart shows that CZR’s yearly revenues have decreased since the leverage buyout (or LBO) in 2008 amid financial meltdown. Factors that negatively affected the company’s overall revenue over the years include severe weather conditions that caused temporary closures of some of its properties and lower visitation due to competition in the regional markets, especially on the Atlantic Coast.
Plus, New Jersey’s Atlantic City faced severe competition from Pennsylvania, which became the second biggest U.S. gambling hub in 2012. Atlantic City has attempted to lure more visitors to its casinos with promotions like free stays and meals.
Earlier this year, Trump Plaza, Atlantic Club, and Revel Casino Hotel also closed in Atlantic City. The city began this year with 12 casinos, but now only eight remain.
Gary Loveman, Chairman, CEO and President of CZR, commented on the industry competition. “Since 2006, revenue in Atlantic City has declined by more than $3 billion and competition in the city has increased. The dynamic in Atlantic City has led us to the difficult but necessary decision to close Showboat in an effort to help stabilize our business there and support the viability of our remaining operations in the vicinity.”
Analyst perspectives on casino market
Analysts and casino executives say the painful contraction that is shrinking Atlantic City’s casino market is exactly what the city needs in order to survive. Since 2006, Atlantic City’s casino revenue fell from $5.2 billion to $2.86 billion last year.
Atlantic City’s unemployment rate hovers around 13%, which is more than twice the state average. The casino closings have left about 8,000 or a quarter of Atlantic City’s casino workforce out of work so far.
Some analysts predict that the current mix of casinos, including three from CZR, and one each from Boyd Gaming (BYD) and MGM Resorts (MGM), might stabilize due to less competition. According to Deutsche Bank, about 14% of BYD’s revenue last year came from Atlantic City.