January 12, 1997|By BLOOMBERG BUSINESS NEWS
ATLANTIC CITY, N.J. -- Donald Trump's Taj Mahal casino doles out $20 to gamblers arriving by New York bus even before they plunk their first dollar into a slot machine.
Such cash handouts to small-time gamblers at most of the city's 12 casinos helped push up the cost of giveaways to the highest level in at least six years, casino executives said. Promotions and marketing expenses jumped 21 percent to $862.9 million in the first nine months of 1996 from the year-earlier period, according to the state's Casino Control Commission.
While a boon to retirees with time to kill, the cutthroat marketing campaign comes as casinos battle for a limited number of customers to play newly added slot machines and table games. It's hurting casino profits, depressing casino securities and driving investors to Las Vegas or less competitive markets.
"We have stayed totally clear of Atlantic City," said Sandy Rufenacht, who manages $600 million of bonds for Denver-based Janus Capital Corp.
High marketing and promotion costs will continue to plague Atlantic City, investors said, unless a younger crowd of more affluent gamblers is drawn to glitzy casinos planned by Mirage Resorts Inc., MGM Grand Inc., ITT Corp. and Sun International Hotels Ltd., among others.
That's a big change from just a year ago, when Atlantic City's fortunes soared after the state loosened betting limits and committed millions of dollars to fix streets, build a convention center and expand the airport.
The improvements lured back Mirage Chairman Steve Wynn with plans for a $2 billion casino complex. In 1987, Wynn sold his Golden Nugget casino and left in a huff, complaining that regulations made it difficult for gamblers to place bets.
Casinos are fighting over gamblers to play new slot machines and table games, which include blackjack, baccarat and craps. Trump Hotels & Casino Resorts Inc.'s Trump Plaza and Aztar Corp.'s Tropicana Casino & Resort added 2,186 slot machines and 55 table games in the first half of 1996, increasing the total number of slots and tables by 7.5 percent and 4.2 percent respectively, according to regulators.
To entice customers to play the new games, Trump Plaza and the Tropicana increased their giveaways, and other casinos matched the offers, analysts said. Trump Plaza's marketing and promotions expenses soared 49 percent in the first nine months of 1996, while Tropicana's rose 37 percent, the casino commission said.
Aztar Chief Executive Officer Paul Rubeli couldn't be reached for comment, and a Trump Hotels spokesman declined to comment.
The expenses soared expenses came as revenue stagnated. The city's 12 casinos had revenue of $3.2 billion in the first nine months, up only 2.5 percent from a year earlier. Revenue also was hurt by gamblers traveling to three Delaware racetracks, where they wagered $1.94 billion on new slots so far this year, analysts said.
That in turn squeezed profits. Earnings for Atlantic City casinos before charges fell 59 percent to $62.3 million for the first nine months, from $150.6 million in the year-earlier period, according to the casino commission.
"In the short term, it's a rough market," said Michael Weinberg, who manages 275,000 Showboat Inc. shares for Dallas-based Richmont Capital Partners.
In addition to bus coupons -- which rose to as much as $32.50 apiece at some casinos this year -- promotions include extra cash for slot machines and table games, refunding some gambling losses, and doling out complimentary hotel rooms, meals, show tickets and limousine rides.
Harrah's Entertainment Inc., for example, offers first-time users of its "Harrah's Gold Card" a free hour of slot play valued at about $250. It also gave away a trip to Florida's Sea World to promote the opening of a new buffet.
And Bally's Grand, which was just acquired by Hilton Hotels Corp., gives away a new car and $50,000 in cash every two months as part of its "Driving for Dollars" sweepstakes. Gamblers' parking stubs are drawn in a lottery.
Not to be outdone, the Claridge Hotel & Casino, through its "Hot Spot, Hot Cash" promotion, is handing out $100 each hour through February for gamblers who put their cars in parking spaces selected randomly by the casino.
"This is a pointless struggle that nobody wins," said Howard Klein, Claridge's senior vice president of marketing.
The Claridge certainly isn't winning. The casino lost $2.7 million in the third quarter, can't pay interest on its borrowings and said it expects to file for bankruptcy.
The future holds much of the same, analysts said. In the next five years, seven existing casinos will expand and at least five casinos will be built. If the new casinos don't attract new gamblers, even more companies will be fighting over the same retirees.
"The supply-demand [ratio] is out of whack and will be for years to come," says Steven Ruggiero, a bond analyst at Chase Securities Inc. in New York.
Pub Date: 1/12/97
