New Jersey Doubles Down on Casinos

Benjamin Franklin derisively likened New Jersey to a keg tapped at two ends, with all the beer flowing into Philadelphia and New York. Things haven't changed much in the 200-plus years since Poor Richard made that observation, but today it's the coin of the state's gambling center that's flowing to other parts. Gov. Chris Christie was blunt this week, saying: "Atlantic City is dying."

The chips are down
The city is home to a dozen casinos, many along the famed Boardwalk, and a few farther away on the city's marina, like Harrah's and The Borgata, a joint venture of MGM Resorts (NYSE: MGM  ) and Boyd Gaming (NYSE: BYD  ) .

Yet walk one block away from the jingling sounds of the slot machines, and you're in a gritty urban environment perceived as dangerous. Although the city's crime rate is below national averages -- a former governor once quipped it's because "there's nothing to steal" -- perception is reality, and the current governor wants to transport us to an alternate reality.

Christie has proposed plugging the state's leaky keg by taking over Atlantic City's casino district and stripping the municipal government of its functions. Services like policing and garbage collection would be turned over to an independent authority, essentially making it a city within a city. The governor wants to turn Atlantic City into a family-friendly entertainment destination, something on the order of Las Vegas.

Suffering a losing streak
Vegas woes have grabbed a lot of the headlines. In New Jersey, June gaming revenues fell 11%, to $287 million, and Pennsylvania is likely to siphon off even more bettors now that table games have started there. Las Vegas Sands (NYSE: LVS  ) opened a new casino last year in a former Bethlehem, Pa. former steel mill, making it an attractively close option for gamblers in the northern part of New Jersey.

If you're not a casino operator in New Jersey, though, you might be ready to go on a hot streak. Penn National Gaming (Nasdaq: PENN  ) just reported net income was lower than a year ago, but still much better than expected. It also raised full-year guidance. Lady Luck smiled on Wynn Resorts (Nasdaq: WYNN  ) , too, after Fitch Ratings upgraded its issuer default rating based on the casino operator's prospects in Macau.

The homestretch for racing
It's not just the casino business that's hurting in New Jersey. Horse racing there, and around the country, is a dying breed.

Churchill Downs (Nasdaq: CHDN  ) , the operator of the venerable Kentucky Derby, has suffered several years of declining racing revenues, while the other two legs of racing's Triple Crown, the Preakness Stakes and the Belmont Stakes, almost went out of business this year. Penn National stepped up to save the Preakness, while cash-strapped New York loaned Belmont $25 million to finish out the 2010 season. New York track operator Empire Resorts (Nasdaq: NYNY  ) is also facing hard times.

Off to the glue factory
Part of Christie's plan is to sell off The Meadowlands racetrack in north Jersey, next to Giants Stadium, ending the state's $30 million-a-year subsidy to it along with centrally situated Monmouth Park. The plan comes down to focusing the state's gambling efforts in one area. If you want to be separated from your money, you'll need to go to Atlantic City to do it.

I'm not sure how smart that plan is. Northern New Jersey gamblers have several options in addition to Sands' steel city gambling hall, including the casinos run by Indian tribes at Mohegan Sun and Foxwoods in Connecticut, and off-track betting offices in New York. Pennsylvania now offers those table games in the Poconos, too.

South Jersey might benefit from remaking Atlantic City into Las Vegas East, but there is competition in the form of racinos -- racetracks that offer other gambling options -- like Dover Downs in Delaware, racetracks in Maryland, and "slot barns" (similar to racinos) in Pennsylvania. New Jersey also won't be giving up its lottery anytime soon.

Big gamble?
Will the state's plans revitalize Atlantic City and boost the big gaming companies there? Christie knows it's an uphill battle, saying Atlantic City had "squandered hundreds of millions of dollars in casino revenue" over the years. "We don’t have a monopoly anymore. The wave is not there anymore," he said.

Investors should keep an eye on New Jersey and keep some of Christie's other words in mind: "I don’t have the money to subsidize failure."

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.


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