Odds worsen for smaller A.C. casinos
ATLANTIC CITY - The financial outlook for two of this town's smallest gambling houses continues to darken. Resorts International Holdings L.L.C., which owns Resorts Casino and the Atlantic City Hilton, said in its quarterly filing with the New Jersey Casino Control Commission on Nov. 17 that it failed to make its monthly interest payment due on Nov. 7, and that it was in debt-restructuring negotiations with its lender, Column Financial Inc.
ATLANTIC CITY - The financial outlook for two of this town's smallest gambling houses continues to darken.
Resorts International Holdings L.L.C., which owns Resorts Casino and the Atlantic City Hilton, said in its quarterly filing with the New Jersey Casino Control Commission on Nov. 17 that it failed to make its monthly interest payment due on Nov. 7, and that it was in debt-restructuring negotiations with its lender, Column Financial Inc.
Now, the company will no longer match employee 401(k) contributions starting Jan. 1 at Resorts, a further sign of the casino's dire finances. "Effective with the first paycheck you receive in January 2009 we are suspending the company match portion of 401(k) contributions," according to an internal company memo dated Friday.
"Obviously, we have no comment," company spokesman Alan Marcus said yesterday. "The filing does exist. It speaks for itself."
Resorts International is owned by Colony Capital L.L.C., a Los Angeles real estate investment firm.
"Our members are concerned about their future there," said Bob McDevitt, president of Unite Here Local 54, which represents 17,000 casino and hotel employees in Atlantic City. "Obviously, it's no secret that the company is not doing well." Resorts has 2,455 workers, and the A.C. Hilton has 2,441.
Last month, Resorts reported a decline of 62.3 percent in gross operating profit for the third quarter from the same period a year earlier to $3.3 million. Its sister casino - the A.C. Hilton - reported gross operating profit of $3.3 million, down 73.3 percent from the same period a year earlier.
For the first 10 months of the year, casino revenue was down 14.9 percent at Resorts, 15.7 percent at the A.C. Hilton, and 6.6 percent for Atlantic City as a whole. Today's November revenue numbers are expected to continue the downward trend.
Resorts and the A.C. Hilton have the smallest gambling floors and among the fewest hotel rooms in Atlantic City - hampering both casinos' ability to compete against other casinos.
The A.C. Hilton's casino floor is 60,000 square feet, and it has 809 rooms, the fewest in the city, while Resorts' casino floor measures 99,951 square feet, and it has 942 hotel rooms.
By comparison, the market leader and largest casino in Atlantic City - the Borgata - boasts a casino floor nearly twice as large as Resorts' at 161,000 square feet. It has 2,800 hotel rooms.
"The smaller properties with the highest debt loads face an uncertain future," said Andrew Zarnett, gaming analyst with Deutsche Bank AG in New York. "The lower room base makes it difficult to get efficiencies and the higher debt loads make it extremely difficult to maintain interest payments."
The future of Resorts and the A.C. Hilton could easily mirror that of the former Sands Hotel Casino on the Boardwalk. The tiny, older Sands was imploded in October 2007 as competition from the larger casinos and regional slots competition ate its market share. The land where it sat was bought by Pinnacle Entertainment Inc., of Las Vegas, which plans to build a megacasino resort there.
"The decision to shut a property comes down to whether that property can generate positive or negative cash flow," Zarnett said. "If it's negative cash flow, it requires a sponsor that is willing to continue to feed a money-losing proposition.
"Then the question becomes, 'How long are they willing to do that for?' "