U.S. Markets close in 1 hr 29 mins

Atlantic City’s failing casinos: Key implications for investors

Mike Kane of Hedgeable

Why Atlantic City bet big on casinos and lost (Part 0 of 1)

Gambling revenue in Atlantic City is barely half of what it was in 2006. Since 68% of the city’s tax revenue depends on the gambling industry, city official are going to face some tough decision. Nearly half of the workforce is also connected to casinos, so consumer spending will likely fall off as unemployment rises and purchasing power declines. And to top it all off, Moody’s just downgraded the city’s debt to junk bond level. The worst part is that no one knows when this domino effect will end — and no one appears to have a viable contingency plan.

Market Realist – According to statistics revealed by the New Jersey Division of Gaming Enforcement, land-based gambling revenue plummeted 6% in 2013, marking the seventh consecutive year of declines for Atlantic City’s casino market.

The chart above shows the industry’s consistently falling revenues over the years. With casinos in Atlantic City (CZR) shutting down in quick succession, Pennsylvania (PENN) and Las Vegas (LVS)(MGM) casinos are likely to take center stage.

The irony is piling up as Atlantic City realizes that it gambled away its future on gambling. The city violated some basic economic principles and is now hamstrung by a lack of diversification. Having such a high level of exposure to one industry was bound to backfire, but unfortunately many Atlantic City residents are about to suffer for mistakes that began decades ago.

Market Realist – To make sure you’re investing and not gambling your money away, read our article  Are you investing or gambling in the current environment?