Casinos Changing/Failing Business Model

Go Lean Commentary

Change has come to Atlantic City, New Jersey. Change has come to the world of casino gambling. For the US, there used to be a casino monopoly west of the Mississippi in Las Vegas, and another monopoly east of the Mississippi in Atlantic City.

No More!

Casinos have since popped up in many states (Pennsylvania, Florida, Connecticut, California, Louisiana, Mississippi, etc) all over the country, plus on many federally-legislated Indian Reservations. Additionally, there is the eco-system of casino riverboats and cruise ships leaving major US ports.

Now, the casino hot spots of Las Vegas and Atlantic City have to compete for their customers, and many times, they lose, as depicted in the foregoing news article, which reports that 2 casinos are closing in Atlantic City next month September.

“Who moved my cheese?”

Title: The Atlantic City’s Revel Casino to Close in September
Atlantic City, NJ – Aug 12, 2014, 3:42 PM ET
By: Wayne Parry, Associated Press

CU Blog - Atlantic City's Revel Casino to Close in September - Photo 1When it opened just over two years ago, many people hoped Revel would save Atlantic   City’s struggling casino industry, which has been bleeding money and jobs for years.

But now the $2.4 billion resort that was widely seen as the last, best chance for Atlantic City’s gambling market is shutting down, unable to find a buyer for even pennies on the dollar.

In addition to putting 3,100 people out of jobs and hurting state and local budgets, Revel’s demise shows just how cutthroat the East Coast casino market has become, and how difficult it is for even the newest and nicest gambling halls to survive in an oversaturated market.

Revel Entertainment said the casino and its 1,399 hotel rooms will close on Sept. 10, never having turned a profit.

“We regret the impact this decision has on our Revel employees who have worked so hard to maximize the potential of the property,” Revel said in a statement Tuesday. “We thank them for their professionalism and dedication; however we are faced with several unavoidable circumstances.

“Despite the effort to improve the financial performance of Revel, it has not proven to be enough to put the property on a stable financial footing,” the company wrote.

Revel’s most recent Chapter 11 filing listed assets of $486.9 million and liabilities of $476.1 million.

The company said its situation was compounded by a “considerable non-controllable expense structure” that financially burdened the property. It said it had no choice but “an orderly wind-down of the business at this time.”

Revel said it still hopes to find a buyer through the bankruptcy process. But it acknowledged that if that happened, it would be after the facility had already shut down.

Matthew Levinson, chairman of the New Jersey Casino Control Commission, called the closing “enormously disappointing,” but held out hope for a future sale.

“I sincerely hope that possibility materializes, especially for the employees who face the loss of their jobs,” he said.

Israel Posner, who runs a tourism and gambling study institute at RichardStocktonCollege, said he expects Revel to sell as a non-casino building.

“I still believe Revel will sell, for pennies on the dollar, to someone who will figure out that it is the most modern, beautiful structure that’s going to be built for generations to come,” he said.

The casino was due to be sold at a bankruptcy court auction last week, but that was postponed to allow casino officials to study bids that were received. After Revel’s board met on Monday, the decision was made to shutter the glittering glass-covered casino at the north end of the Boardwalk.

Revel opened in April 2012 as the first new casino in Atlantic City since the Borgata opened nine years earlier, and carried great hopes for many that it would be the catalyst to jolt what had been the nation’s second-largest gambling market back to life. Atlantic City has since slipped to third place behind Nevada and Pennsylvania, whose casinos touched off the New Jersey resort town’s revenue and employment plunge in 2007.

Since 2006, when the first Pennsylvania casino opened, Atlantic City’s casino revenue has fallen from $5.2 billion to $2.86 billion last year.

So far this year, the Atlantic Club closed in January, bought at a bankruptcy auction by the parent companies of Tropicana and Caesars and shuttered in the name of reducing competition. Caesars Entertainment will close the Showboat on Aug. 31, also to reduce the competition in Atlantic City, where it currently owns 4 of the 11 casinos. And TrumpPlaza is due to close Sept. 16.

CU Blog - Atlantic City's Revel Casino to Close in September - Photo 2Revel has ranked near the bottom of Atlantic City’s casinos in terms of the amount of money won from gamblers since the day it opened.

Its original owners envisioned it as a luxury resort that just happened to have a casino, and eschewed many staples of casino culture, including a buffet and bus trips for day-trippers. But that strategy — as well as the only overall smoking ban in Atlantic City — turned off customers, and Revel filed for bankruptcy in 2013, a little over a year after opening.

That led to new ownership and a “Gamblers Wanted” promotional campaign to emphasize the company’s new emphasis on its casino.

But despite some improvement, Revel’s finances never recovered enough, and it filed for bankruptcy a second time in June.
Associated Press News Source (Retrieved August 12, 2014) –


CU Blog - Atlantic City's Revel Casino to Close in September - Photo 3

This article aligns with the book Go Lean…Caribbean, which calls for the elevation of Caribbean economics. The same challenges being experienced in Atlantic City are also affecting Caribbean casino resorts, especially since 2008. For example, the practice of Caribbean casino “junkets” is dead or dying [a].

The book posits that there is a need to re-focus, re-boot, and optimize the engines of commerce so as to make the Caribbean a better place to live, work and play. The tourism product, the mainstay of Caribbean economy, was accustomed to depending on certain amenities that have now come under attack by social change. Whereas golf was a popular day pastime for resort guests, and casino gambling was popular at night, both activities are experiencing decline and implosion in their individual industries. (See this previous blog commentary regarding the Future of Golf). The supply and demand of gambling/gaming options have equally encountered rapid evolutionary change, from lottery tickets, BINGO parlors, online poker,  area pari-mutuels (horse/dog racing, Jai-Alai) and Off-Track Betting.

If only there was an alternate roadmap to elevate Caribbean society without depending on the “games people play” to remain constant. Wait, there is! The book Go Lean… Caribbean, serves as a roadmap for the introduction and implementation of the technocratic Caribbean Union Trade Federation (CU) with the charter to effectuate change in the region with these 3 prime directives:

  • Optimization of the economic engines in order to grow the regional economy to $800 Billion and create 2.2 million new jobs.
  • Establishment of a security apparatus to protect the resultant economic engines and marshal against economic crimes.
  • Improve Caribbean governance to support these engines.

Early in the book, the responsibility to monitor, manage, and mitigate the risks and threats of job killing developments, (such as the reporting in the foregoing news article), were identified as an important function for the CU with this pronouncement in the Declaration of Interdependence (Pages 14):

xxvi.  Whereas the Caribbean region must have new jobs to empower the engines of the economy and create the income sources for prosperity, and encourage the next generation to forge their dreams right at home, the Federation must therefore foster the development of new industries… In addition, the Federation must invigorate the enterprises related to existing industries like tourism… – impacting the region with more jobs.

Many Caribbean tourism resort properties depend on casino gaming. The issue of declining growth or failing business models is an important discussion in the execution of this roadmap. This commentary previously related details of the changing macro-economic factors affecting the region’s economic engines. The following are samples of earlier Go Lean blogs: The Future of Golf; Vital for Tourism Declining Economic Trends – Having Less Babies is Bad for the Economy Open/Review the Time Capsule: The Great Recession of 2008 Econometric Analysis – Student debt holds back many would-be home buyers Book Review: ‘How Numbers Rule the World’ – How Demographic Studies Dictate Policies The Erosion of the Middle Class Tourism’s changing profile

According to the foregoing article, the closing of this one property, the Revel, will directly impact 3,100 jobs. This article failed to mention however the effect on the local market with in-direct jobs. The Go Lean book details the principle of job multipliers, how certain industries are better than others for generating multiple indirect jobs down the line for each direct job on a company’s payroll. (The automotive manufacturing industry was a choice selection with a job-multiplier rate of 11.0 – Page 260)

The Caribbean must contend with many of these same issues as the city leaders of Atlantic City must now deal with. The State of New Jersey is one of the most prosperous in the US, so there’s the chance that many displaced workers can be absorbed into the regional economy. The Caribbean does not have this option – our situation is more dire, especially on self-contained islands. Our society is in desperate need of reform/reboot to insulate many of the macro-economic downward trends that are pending. On the one hand, we must double down on the tourism product. On the other hand, we must diversify our economy and avail other high job-multiplier industries, like automotive manufacturing. The Go Lean… Caribbean book details the community ethos to adopt to diversify our economy and proactively mitigate the dire effects of the changed demographic landscape, plus the executions of the following strategies, tactics, implementations and advocacies:

Community Ethos – Deferred Gratification Page 21
Community Ethos – Economic Principle – People Respond to Incentives Page 21
Community Ethos – Economic Principle – Consequences of Choices Lie in the Future Page 21
Community Ethos – Job Multiplier Page 22
Community Ethos – Lean Operations Page 24
Community Ethos   – Return on Investments (ROI) Page 24
Community Ethos – Ways to Impact the Future Page 26
Community Ethos – Ways to Foster Genius Page 27
Community Ethos – Ways to Help Entrepreneurship Page 28
Community Ethos – Ways to Promote Intellectual Property Page 29
Community Ethos – Ways to Impact Research & Development Page 30
Community Ethos – Ways to Bridge the Digital Divide Page 31
Community Ethos – Ways to Impact the Greater Good Page 37
Strategy – Integrate Region in a Single Market Page 45
Tactical – Fostering a Technocracy Page 64
Tactical – Tactics to Forge an $800 Billion Economy Page 67
Tactical – Separation of Powers Page 71
Implementation – Ways to Deliver Page 109
Planning – Ways to Make the Caribbean Better Page 131
Planning – Lessons Learned from 2008 Page 136
Advocacy – Ways to Grow the Economy Page 151
Advocacy – Ways to Create Jobs Page 152
Advocacy – Ways to Enhance Tourism Page 190
Advocacy – Ways to Impact Events Page 191
Advocacy – Ways to Foster Technology Page 197
Advocacy – Ways to Foster e-Commerce Page 198
Advocacy – Ways to Develop the Auto Industry Page 206
Advocacy – Ways to Help the Middle Class Page 223
Appendix – Job Multipliers Page 259

The CU will foster industrial developments to aid tourism, incorporate best practices and quality assurances to deliver the best hospitality in the world. But there is room for service improvement and enhancement of the regional tourism product.

This roadmap is not advocating the abandonment of casino gambling, though the practice is considered a vice. Rather, the community ethos being promoted is one of open competition and fostering world class deliveries in information technologies. The book posits that the tenets of Internet Communications Technology (ICT) is a great equalizer between large countries and smaller states. To reinforce this point, remember that Japan is far from being the largest population base in the world (only 126 million), yet they are the #3 economy worldwide. Size does not matter…as much, intelligent strategy and efficient delivery matters more.

This Japanese model is fully defined in the Go Lean roadmap, detailing their growth strategies (Page 69) and starting with this Declaration of Interdependence (Pages 14) statement, identified here:

xxxiii.  Whereas lessons can be learned and applied from the study of the recent history of other societies, the Federation must formalize statutes and organizational dimensions to avoid the pitfalls of [certain] communities… On the other hand, the Federation must also implement the good examples learned from developments/communities like … Japan.

The Caribbean can be a better place to live, work and play, perhaps even the best address on the planet.

Download the book Go Lean…Caribbean now!


Appendix a:

Smart Gaming Magazine Article: INSIDE LOOK AT CASINO JUNKETS
By Henry Tamburin

Casino Junkets began in the mid-50’s as a way to entice players to Las Vegas to gamble. Junket programs in those days were pretty straightforward. Casino operators would hire junket reps to fill a plane with qualified gamblers. These players would get free airfare, free hotel accommodations, free meals, free shows (and just about anything else they wanted) in exchange for their commitment to gamble a specific number of hours per day at an explicit average bet size. The casinos of course were gambling that the players would lose more than their out of pocket expenses for bringing, housing and feeding them.

That was the past. To get a fresh look at how junkets operate in 2005 and what benefits they provide players, I interviewed junket rep Sandy Crammer, owner of S&S Casino Tours, and Jeffrey Hoss, Director of National Casino Marketing, for Harrah’s. What I learned about junkets might surprise you (it did me).

So let’s begin by defining what exactly does a Junket rep do?

Jeffrey Hoss: First off, in the Harrah’s organization we refer to our third party reps as Independent Agents rather than Junket Reps. Independent Agents send us customers (i.e. players) and in return they get a commission based on a player’s theoretical. We have about 185 Independent Agents representing 47 states and 5 international countries that have a specific territory that they can market and promote our properties to their customers. In total our Independent Agents have scheduled about 300,000 customer trips annually to Harrah’s properties.

Let me ask Sandy how she got started in this business.

Sandy Crammer: Before I started my own company, I ran a junket office as in-house employee for many years and I decided it was something I liked and wanted to try on my own. So my husband, Scott, and I started our own business and thankfully, Harrah’s decided to take a shot with us four years ago to represent them. We have three employees in our company and currently we are one of the top 5 Independent Agent producers for Harrah’s.


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