Have you notice how many of Atlantic City’s casinos have closed down? At the beginning of this year, there were 12 casinos operating in Atlantic City. Now, there are only 8 with the Trump Taj Mahal in trouble and everyone thinking it will close down in November.
Trump Plaza was the fourth casino to be boarded up this yea.r. Thirty years ago, when it opened, the New York Times wrote:
Analysts and rival casino executives agree the demand for gambling on the East Coast can accommodate at least the new casino and three more under construction, so long as their openings are not too close together. Could Pass Las Vegas
”The growth potential is too large for the Trump opening to hurt the rest of us,” the executive vice president of Resorts International, H. Steven Norton, said. ”More casinos and more entertainment will only make Atlantic City a more attractive destination.”
Everyone thought the more the better. But, back in 1984, things were a little different. There were no other casinos along the Atlantic Coast other than those in Atlantic City. If you wanted to casino gambling, there was Atlantic City and there was Nevada, which was then an expensive plane ride away.
But much has changed since 1984. Plane trips to Nevada are now much cheaper. Internet gambling has become a new substitute, and casinos have opened up all over the country. Take a look at this list of casinos in the US. I did not stop to count, but there must be hundreds of casinos on that list. Casinos are all over now. There are quite a few casinos in New England, too. Maryland to the south and Pennsylvania to the northwest of New Jersey both have plenty of casinos. Newer casinos. And for many, closer casinos.
If you enjoy losing your money at multiple locations within a simple walk of one another, Atlantic City may have some of these other gambling destinations beat, but if that is not a thrill to you, closer might just be better.
So, with new casinos closer to many than New Jersey, with online casinos and cheaper-to- get-to Las Vegas, the demand for gambling in Atlantic City has dropped like the Times Square ball on New Year’s Eve. Even while casino revenue nationwide has been increasing, Atlantic City casino revenues have reportedly dropped in half since 2006.
With lower demand, casinos start to close down. Many have stayed open even while making losses, because they could still cover their variable costs. Even then, however, the losses have meant that capital was not being replaced. Take a look at the reported deterioration of Trump Plaza in this USA Today article. Bedspreads have worn out, ice machines are in disrepair, neon signs on the casino read “Trump Plaz Hotel & Cas” and “U Laza.” Air conditioning in a glassed-in walkway does not work.
You can bet that the revelation of the Ray Rice domestic abuse video in the Trump Plaza casino had little to do with its closing. I am a bit surprised that the elevator video camera was working.
With Atlantic City casino demand having been cut in half in only four years, revenues were no longer covering depreciation or funds from depreciation were invested somewhere other than Atlantic City, as stock holders moved their holdings out of these ventures.
As more casinos in Atlantic City close down, the chances for the rest surviving goes up.
You can think of the price in gambling as (dollars bet minus winnings returned to gamblers)/(dollars bet). As the number of suppliers falls, this “price” increases and dollars bet per surviving casino goes up.
So, all of these Atlantic City casinos closing down is a market correction. The correction is to the new circumstances of many states legalizing casinos, keeping their gambling citizens at home, and to cheaper airline flights to Las Vegas and Reno and to new forms of gambling. The market correction to these new circumstances restores stability or equilibrium to the market.