Why Atlantic City casino profits are down but gaming revenue is up

ATLANTIC CITY — The casino industry has reported gaming revenue growth every month since the opening of two new properties last year, but operating profits have declined during the same time.

Experts say the disparity between the gambling parlors making money from tables, slots and online gaming and overall profits continuing to sag is not unusual, especially considering the current market environment where increased competition is fierce and properties have been making investments to attract and retain customers.

“These concerns are nothing new,” said Michael Pollock, managing director of Spectrum Gaming Group and a former casino reporter for The Press of Atlantic City. “We are in a competitive environment, and (the profit reports) reflect what some operators have to spend to get people in the door.”

The June 2018 openings of Hard Rock Hotel & Casino Atlantic City and Ocean Casino Resort brought the total number of properties in the city to nine. The addition of two more casinos means monthly revenue reports are comparing periods when the city had seven properties to ones when they had nine. Additionally, legalized sports betting was introduced to the market that same month, which created another revenue stream for operators.

According to the state Division of Gaming Enforcement, gaming revenue has increased by double-digit percentages each month since then.

The 2019 first-quarter reports show casino operating profits were $87 million, reflecting a 29.6% decrease from the first three months of 2018. Hard Rock and Ocean both reported losses in the first quarter of 2019, with the former losing more than $6 million and the latter more than $10.3 million.

During that same time, total gaming revenue increased 22.2% compared to the prior year.

Anthony Marino, a local analyst, pointed out that total gaming revenue reports do not account for the promotional spending the casinos undertake to entice gamblers to their properties, such as free play.

The monthly gaming figures also exclude taxes the casinos must pay on revenue generated from gambling.

“The lesson in these much diluted monthly report numbers compared to the later quarterly income statement numbers is that we should curb our enthusiasm over double-digit monthly increases that pop up in gross gaming reports but disappear in later quarterly income statements due to new accounting rules (implemented by the DGE in 2018),” he said.

In 2018, the DGE required that promotional allowances be reported as a reduction in revenue in the quarterly statements, rather than a separate line item.

Bob Ambrose, an industry consultant and adjunct professor of casino management at Fairleigh Dickinson University, said an apt gaming revenue comparison really cannot be made until July, when the monthly reports can make an “apples to apples” market comparison.

“It really takes anywhere from a year to 18 months to begin drawing conclusions about what (revenue numbers) mean,” Ambrose said.

As for the declining profits, Pollock said it should come as no surprise considering the additional properties and the long-term investments the existing casinos likely made to compete.

“I would hold off any judgement (on the Atlantic City market’s health) until you see third- and fourth-quarter results,” he said.

Contact: 609-272-7222 ddanzis@pressofac.com Twitter @ACPressDanzis