In an industry rocked by recession, Atlantic City's casinos look especially grim.

In this 11-casino market, total revenue is in its third consecutive year of decline, several casinos may change ownership, and several projects have been delayed or postponed.

Trump Entertainment, which owns three casinos, has been delisted from Nasdaq and is in bankruptcy. The private Tropicana Atlantic City declared bankruptcy as well.

The two casinos owned by Colony Capital have defaulted on their mortgages. Four casinos are owned by Harrah's Entertainment, which has had to initiate debt exchanges with lenders to ease pressure on its balance sheet.

Keep reading to find out about the mixed dealings at the 11th casino, Borgata.

Atlantic City is being hit not only by the recession, but also by more gambling opportunities in neighboring states. It offers a lesson in why equity and bond investors must check not only balance sheets but also an industry's competitive environment.

Unpleasant results
Disappointment is a common theme in casino markets, including in Las Vegas, where the biggest names -- MGM Mirage (NYSE:MGM), Las Vegas Sands (NYSE:LVS), and Wynn Resorts (NASDAQ:WYNN) -- as well as smaller names like Station Casinos still have too much debt and too few customers.

In Atlantic City, the second-quarter hotel occupancy rate fell to 84.6% from the year-ago period's 91.3%. Proving that optimism still trumps reality, Atlantic City had nearly 1,000 more hotel rooms than in the year-ago period.

Casino revenue for July was 12.7% lower than in July 2008. Revenue for the first seven months of the year was down 14.9% from the same period last year.

More challengers in more states
The first Atlantic City casino opened in 1978, making this city the East Coast gambling destination. It remains the second-largest U.S. market, with $4.55 billion in casino revenue last year, according to the American Gaming Association.

However, that figure was 7.6% below 2007, and 2007's revenue was 5.7% below Atlantic City's peak casino revenue in 2006.

Atlantic City has had to share bettors' dollars with casinos and racinos (racetracks that offer slot machines and video poker terminals) that have sprung up in Delaware, New York, and Pennsylvania. Competitors include companies that don't operate in Atlantic City, such as Las Vegas Sands, which recently opened a slots-only casino in Bethlehem, Pa., and Dover Downs Gaming & Entertainment (NYSE:DDE), in Deleware.

And it will get worse. Pennsylvania regulators have granted licenses for two Philadelphia casinos that haven't been built yet.

Big-name finance, big changes
The biggest headliners in Atlantic City these days aren't singers and comedians but rather financiers.

There's Donald Trump, trying to reacquire the company that he steered into bankruptcy five years ago. Trump Entertainment and its predecessor company have filed for bankruptcy protection three times, most recently in February.

There's Carl Icahn, leading investors in the purchase of the bankrupt Atlantic City Tropicana.

Even Michael Jackson makes an appearance via Colony Capital, a real estate investment firm that holds the loan on the late entertainer's Neverland Ranch in California. Affiliates of Colony Capital own the Atlantic City Hilton, which recently defaulted on its mortgage and is negotiating with lenders, and Resorts Atlantic City, which previously defaulted on its mortgage. The state's casino control commission is reviewing a request for Resorts' lenders to take over the property.

More bad news
These ownership developments come at a time when some companies have postponed or delayed plans to build in Atlantic City.

In October 2007, MGM Mirage said it would build a multibillion-dollar resort complex, but it has postponed the project due to the poor economy.

Last year, Pinnacle Entertainment (NYSE:PNK) changed its mind about a casino/hotel project, citing the recession, competition, and tight credit markets.

The private Revel Entertainment, which has received financing from Morgan Stanley (NYSE:MS), is still building, although at a slower pace than had been expected. Revel needs more money. CEO Kevin DeSanctis recently told Global Gaming Business he is targeting a May 2011 opening if he gets enough financing by year's end.

More bad luck
The Atlantic City casino business reminds me of the old saying, "If I didn't have bad luck, I'd have no luck at all."

The only casino with an improved second-quarter operating profit was Borgata, which is owned by MGM Mirage and Boyd Gaming (NYSE:BYD). Yet, Borgata's license is now under review.

One state agency asked the casino control commission to act, contending that MGM Mirage's partner in a Macau casino is "unsuitable" and that MGM Mirage should "disengage itself" from the partner. MGM will contest the agency's allegation.

The license review could take at least a year. By that time, Atlantic City may look a lot different.

I get the impression that people invest in casinos here because, like Icahn, they believe they can get a cheap deal, or they believe enough local competitors will fail, or they believe the economy will snap back quickly and robustly.

However, with out-of-state-competition increasing, Revel Entertainment promising to forge ahead, and other developers sitting on prime casino property, I wonder how well investors will have learned their lesson.

I recently surveyed the gambling industry for the best bets. Click here for my thoughts.