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Atlantic City: The New Las Vegas?

Jonathan Kandell
From the Print Edition:
Rudy Giuliani, Nov/Dec 01

(continued from page 3)

"We operate our business with the mantra that all customers aren't created equal," explains Wilmott. The mantra is enshrined in what Harrah's calls its Total Rewards Program. Operated along the lines of a frequent-flyer mileage program for airline passengers, the program rewards the heaviest gamblers with access to VIP lounges, star-studded entertainment, gourmet items in Harrah's restaurants and access to more secluded spaces on the gambling floor, with "Diamond Card" customers getting the quietest, most exclusive precincts. But with privileges come responsibilities: avid experience players must gamble often enough at Harrah's to avoid losing Total Rewards Program points; if their attendance at Harrah's drops, the assumption is they are giving business to competitors. "We create certain penalties that will exclude customers from better services and privileges if they split their gaming budget with other casinos," says Wilmott. It can be embarrassing for a couple to be told by the smiling hostess at the entrance of the Diamond Card space that she's awfully sorry, but they've lost their rights to gamble with the elite.

Curiously, slots account for almost all the gambling at Harrah's, even in the snootiest Diamond Card spaces. When New Jersey legalized gambling by popular referendum in 1976, the state decreed that no more than 75 percent of gambling space in the casinos could be turned over to slots. This was because the gaming tables, which are devoted to cards, roulette and craps, were thought to project a more classy aura -- worldly European or exciting James Bond images of skilled opponents going mano a mano against each other and the house. Slots, on the other hand, evoked the dumb luck of a lonesome gambler, mindlessly pouring coins into a machine.

But the recent relaxation of the 75 percent limit reflects the reality that most gamblers prefer slots. Even at the Taj, which generates the highest table wins in Atlantic City, slots account for 62 percent of revenues. Casino operators insist that it isn't a question of the dumbing-down of players, but rather a result of the increasing sophistication of slots. The old one-armed bandits -- with three reels of fruits or numbers operated by a spring-loaded mechanism attached to an outside handle -- are long gone. In their place are computer-operated reels offering top jackpots that can result from one of a billion possible outcomes. This allows a casino to tender six- and seven-digit-dollar prizes that will attract bigger bets. Slots have also been made more entertaining with bonus games featuring video and audio clips from old television shows like "The Addams Family," "I Dream of Jeannie" and "Jeopardy" that have a nostalgic appeal for the 50-somethings who account for much of the business. And the more recent slot machines include bonus games like "Battleship" that offer the illusion that a player's strategy and skills might affect the outcome.

But slots are still a matter of dumb luck. "Regardless of what the scam-artist books may say, there is no way for a player to affect the outcome of a normal slot machine," writes Frank Legato, one of the leading gambling analysts, in a recent issue of Casino Player magazine. Nor are payback percentages a function of any one game's programming, adds Legato, but rather "they are a result of casino policy." In Atlantic City, casino policy has turned the local slots into some of the stingiest in the United States. According to Casino Player's Slot Chart, Atlantic City slots average a 92 percent payback, while those on the Las Vegas Strip have a 95 percent payback.

The beauty of slots for casino operators -- and for the institutional investors that look closely at their bottom lines -- is their predictable cash flow. Junkets for high rollers can bring 35 percent profit margins and gaming tables will average 15 percent returns. But high rollers on a winning streak can ruin a monthly or quarterly earnings report. It's so much more comforting to count on an 8 percent take, day after day, year after year, from slots.

So, the Atlantic City casinos are basically slot machine palaces. The trick for operators is to give them each a distinct personality that will attract a profitable market segment. The Trump properties have decided to draw customers who identify with Donald as a high roller in real life. Harrah's wants big gamblers who are upscale enough to drive up in their own cars, as opposed to the hordes who come by bus. The Tropicana is planning New York-quality restaurants and West Coast-like nightclubs to attract a younger, hipper crowd.

Only Park Place Entertainment, the largest Atlantic City operator, has decided to cover all market segments, from the bus trade to the spa fringe. Park Place was largely put together by Arthur M. Goldberg, a former New Jersey trucking company owner who took over Bally Manufacturing, a debt-ridden maker of slot machines and operator of casinos and health clubs. Then, through wheeling and dealing his way through mergers, Goldberg created a veritable casino empire in Las Vegas, Atlantic City and other locations before his untimely death last year at age 58. In Atlantic City, Park Place runs Bally's, Caesars, Hilton and Claridge, which it bought recently after the previous owners declared bankruptcy.

Goldberg's business approach of drawing all types of gamblers to Atlantic City remains in place. The strategy, according to Scott LaPorta, the executive vice president and chief financial officer at Park Place Entertainment, is based on an appreciation that the Northeast "is one of the most underpenetrated markets in the country." Less than 15 percent of Las Vegas customers come from the East Coast, says LaPorta, "and there are many segments of that gaming population who find nothing to attract them currently in Atlantic City." To change their minds, LaPorta estimates it will be necessary for the local casino industry to invest more during the next five years than it has in the last 15.

The only way that can happen is if New Jersey can become as casino-friendly as Nevada. "In New Jersey, we have noticed a very definite movement among politicians towards working with the industry in a pro-business-like manner," says LaPorta, who is based in Las Vegas. "And it's getting even more so because they recognize that casino operators have alternative places to deploy their capital."

The point man for the casinos in New Jersey politics has always been State Sen. William L. Gormley, an Atlantic City Republican. Since the inception of legalized gambling, he has helped craft nearly every bit of legislation involving the casino induÅtry. His biggest achievement was the creation in 1984 of the Casino Reinvestment Development Authority (CRDA), which collects a 1.24 percent tax on casino revenues and distributes the money to urban renewal projects in Atlantic City and elsewhere in New Jersey. A tall, athletic 55-year-old with graying blond hair, Gormley is as famous for his foul temper as for his imaginative schemes to help the casino industry grow. He interrupts an interview at his offices in a suburban mall to take a phone call and chew out a politician who isn't showing enough support for a Gormley issue. But once the phone call is over, the senator is his smiling, reasonable other self. "There is a constant need to create a positive government environment for the casino business," says Gormley. "The casino operators are sometimes undecided where to put their money: Will it be Las Vegas or Atlantic City? But you give them a tax break and that causes them to lean to Atlantic City."

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