ATLANTIC CITY - Pennsylvania slots are no longer just a threat here, but are wreaking havoc on the Boardwalk casinos - a point underscored by the Tropicana Casino & Resort's fight for its life in a state relicensing hearing.
"We really underestimated the impact of Pennsylvania," William J. Yung III, president and chief executive of the Tropicana's parent company, said during last month's hearing, trying to explain to the New Jersey Casino Control Commission why he ordered 900 layoffs at the casino resort this year.
After taking two weeks of testimony, the commission is expected to decide this week if the owner and operator of the Tropicana can keep its gambling license based on character, integrity, business acumen and financial stability.
On Friday, the commission voted to extend the casino's current license, which expired at 12:01 a.m. Saturday, until it makes a final ruling.
If the commission approves a new license, it will be despite vigorous complaints from Atlantic City's largest union - Unite Here Local 54 - about what it says are unsanitary conditions at the Tropicana due to the layoffs.
If the commission denies the Tropicana's bid, it will be the first such denial since 1989.
It took this seaside resort almost 30 years to build a $5 billion-a-year gambling industry.
In Pennsylvania, in just one year since the first of the state's six slot parlors opened, the nascent industry has already reached $1.5 billion in revenue, and is growing by about $4 million a day, according to the Pennsylvania Gaming Control Board.
"I don't see this as a war," said Local 54 president Robert McDevitt, who attended every day of the hearing with several of his members. "We're trying to defend what the citizens of New Jersey voted for in 1976, that is, to continue to rebuild Atlantic City, and you can't rebuild Atlantic City by strip-mining a casino."
The New Jersey gambling law says a casino-hotel operator should maintain a "first-class facility."
In a victory for the union, the commission allowed into evidence numerous complaints from Tropicana customers. Tropicana attorneys wanted the complaint files sealed. They included tales of cockroaches and bedbugs in hotel rooms, filthy public bathrooms, and poor-quality food.
As competitive pressures mount, Atlantic City's other casinos cautiously await the outcome of the Tropicana case. In addition to thousands of new slot machines jangling in Pennsylvania and New York, an April ban on smoking in all but a quarter of the casino floors here also has hurt revenues, operators say.
At least three billion-dollar-plus gambling palaces are in the pipeline - from Revel Entertainment Group L.L.C., Pinnacle Entertainment Inc., and MGM Mirage.
Heavy hitters in private equity also are entering Atlantic City for the first time.
Texas Pacific Group of Fort Worth and Apollo Management L.P. of New York are set to close on a $27.8 billion deal to acquire Harrah's Entertainment Inc., owner of four Atlantic City casinos.
The $2 billion casino that Revel is building on the Boardwalk is fully financed by Wall Street investment firm Morgan Stanley.
"Private equity expects returns of at least 20 percent a year," said gambling law expert I. Nelson Rose, a distinguished senior professor at Whittier Law School in Costa Mesa, Ca. "Unless you have a monopoly, you can't get that kind of fantastic return.
"You have to do something, and the easiest way to boost profits is to either increase sales or cut costs."
Yung, of Tropicana owner Columbia Sussex Corp., said as much during his three-hour testimony. He said the Tropicana in Atlantic City accounted for about half of his privately held company's revenue, which was immediately threatened by the advent of Pennsylvania slots.
As he saw revenue continue to slide - gross operating profit was down 17.7 percent for the second quarter - Yung said, it became apparent that he had to go beyond consolidating departments and attrition.
"The business was declining, so that meant we had to make cuts in every category," he said.
Among the cuts were six "player development" employees, whose $100,000-a-year jobs were to cultivate relationships with high rollers.
A move criticized by the union was the elimination of scores of custodial workers who were responsible for cleaning the casino's public areas, including bathrooms.
Local 54 said there were more than 200 such workers before the Fort Mitchell, Ky., company took over on Jan. 3. Now there are 69.
Fred Buro, the casino's former president and chief operating officer, testified that his resistance to Yung's order to trim 300 more workers on two days' notice last summer and his alerting the commission about the pending cuts got him axed. He said he followed the commission's instructions to notify it, and his boss went ballistic.
"Mr. Yung said, 'Now, you go back and make the cuts, or I'll find somebody else who will,' " said Buro, who was fired on Aug. 8.
Among the diehard customers who left the Tropicana this summer was city resident Amelia L. DiCioccio, a Trillion Club member - among the most loyal, based on her slots play.
DiCioccio, 69, said the company fired her player host - one of the six player development workers - who eventually was hired by the Atlantic City Hilton, where DiCioccio now plays.
DiCioccio's complaints about lack of cleanliness at the Tropicana became part of the files now before the gaming commission.
"It's not as filthy as it used to be. It's cleaner now," DiCioccio said last week, while in one of the Tropicana's public bathrooms. She said she was there only to Christmas shop at the Quarter, the mega-retail and dining mall linked to the casino.
Mark Giannantonio, the president and chief operating officer who replaced Buro in August, said customer complaints have been overblown. He said the Tropicana made tough decisions on how to pare its staff - something he predicted the other casinos in town would soon be facing.
"Any property in Atlantic City that tells you it isn't looking at its cost structure in light of Pennsylvania and New York and the smoking ban is lying to you," he said. "We were just a little bit ahead of that curve."
Lawyers in the Tropicana hearing will deliver closing remarks here tomorrow.