A study of the systematic risks of New Jersey’s casinos: phase II - impacts of new market entrants

This report presents the findings of the second phase of a study commissioned by the Office of Revenue and Economic Analysis, New Jersey Department of the Treasury. The report was requested on behalf of the Governor’s Atlantic City Working Group for the purpose of understanding the capacity of the Atlantic City casino marketplace. Phase I of the analysis found that Atlantic City’s gaming market as a share of aggregate regional personal income has appeared to be largely saturated since as early as 1993. At the same time, Atlantic City’s share of regional gaming revenue dropped significantly over the period (from 100% in 1995 to 26% in 2018), as competition from new facilities eroded what was once the city’s virtual monopoly on regional casino gambling. Phase II of the study uses two modeling approaches to estimate the net change in Atlantic City’s gross gaming revenue that would result from the introduction of a 2,000-slot machine casino in Philadelphia and/or New York City, as well as in Atlantic City itself. Phase II of the study results in two key findings: 1. The addition of new casinos in Atlantic City will yield diminishing returns to gross gaming revenues within the city, particularly as new competitors come on line in neighboring states. Gross gaming revenue of new casinos in Atlantic City would come largely at the expense of existing venues. 2. The opening of new casinos in competing jurisdictions is likely to continue eroding Atlantic City’s share of regional gaming revenues. The near-term trajectory of gaming revenues in Atlantic City will be instructive. It will be possible to observe how the maturation of the recently opened Hard Rock and Ocean Resort casinos affects citywide gaming revenues. The second quarter of 2019 marks a full year of operation for the two new casinos. In that time, Atlantic City’s gaming revenues have grown by about $280 million -- roughly the average revenue of one casino in the city over the four quarters ending in the second quarter of 2019. Thus, the revenue of the new casinos to a large extent has come at the expense of existing casinos within the city. Such cannibalization will likely become more pronounced with the addition of more casinos. This effect will be exacerbated in the event of an economic slowdown. In addition, while our analysis did not detect an effect of Internet gambling on brick-and-mortar casinos, this growing segment may eventually start to draw significant revenue away from traditional establishments. Sports betting may have a similar effect, though it is too new a phenomenon for those effects to be detected by statistical models