13 Aug 2013
The other 11 casinos that dot the perpetually struggling resort are on pace to put up their worst earnings in two decades, largely because of competition from surrounding states and the hangover from a punishing recession.
But the daunting financial challenges have not stopped gaming companies from around the world that are determined to establish a beachhead in Atlantic City, especially now that the lucrative business of online gambling is imminent.
The company officials behind London-based 2UP Gaming are so eager to own a casino in New Jersey that they are in talks with four different casino owners. And if the parties can’t agree on a price, the company wants to build its own casino in the seaside resort.
“We are committed to Atlantic City,” said Vincent Crandon, an investment banker who is overseeing the company’s expansion into North America. “I’m not just here to hit and run.”
Crandon is not the only executive to set his sights on the city with New Jersey poised to allow its dozen casinos to offer internet gambling by the end of the year.
It is the boldest change to the state’s gambling culture since the first roll of the dice in 1978. The venture is expected to provide hundreds of millions, if not billions, of dollars in revenue annually, re-energizing the casinos and breathing new life into the tired city.
The company 2UP is among 37 firms from around the world applying for online gaming licenses in Atlantic City this year. Most have agreements to join in partnerships with casinos. The state has not disclosed the names of those firms, although several have been announced.
Among the companies are some of the biggest names in online gaming — from PokerStars, which tried and failed to buy the Atlantic Club casino this year, to 888 Holdings, Bwin.party and Ultimate Gaming.
The attraction is not just a chance at big profits, experts say. What New Jersey is doing — creating a regulated internet gaming operation that ties the digital world to the physical, allowing for every game played in casinos to be played online — is “an entirely new business model,” said Michael Pollock, managing director of Spectrum Gaming.
“New Jersey is creating something which, arguably, has little precedent elsewhere in the world at the moment,” Pollock said. “You cannot look to Europe. You cannot look at Nevada or Delaware or other states for precisely what New Jersey is going to accomplish with this operation.”
Getting in on the ground floor, as well as getting licensed by some of the toughest regulators in the country, will set the course for future success, experts said.
Nevada began allowing only one online game, poker, this year and Delaware will soon. Others states may legalize it in the future, said I. Nelson Rose, a professor at Whittier Law School, and if they do, companies already taking bets in Atlantic City will be much better off.
“The reason you want to get licensed by New Jersey is, when other states follow, which will happen — Pennsylvania, California, major markets — the licenses will go to the companies that have the experience,” said Rose, who writes about gaming on his website, gamblingandthelaw.com. “The New Jersey companies that get approved for internet casinos now are going to be in much better positions to dominate the entire nation and the rest of the world.”
Now the race is on to license the companies hoping to be casino partners, and many are offering their brand of internet betting to the casinos. Trump Taj Mahal, for example, wants to provide its players with UltimatePoker.com.
Other companies will be providing behind-the-scenes support, including payment processing, verifying player identities and ages (the state requires gamblers to be 21) and geolocation technology to ensure players are within state borders.
Currently, officials at the state Division of Gaming Enforcement are sifting through the applications and will be approving them on a rolling basis. The state’s target launch date is Nov. 26, although the law says that can be pushed back if regulators say they’re not ready.
For now, the state will need to examine the qualifications of companies with a global reach, ensuring they meet the long-held standard of “good character, honesty and integrity.”
One firm, PokerStars, which has sought to team up with Resorts Casino Hotel, has faced accusations of money-laundering and bank fraud, and its founder and former principal is under federal indictment.
The company, which operated in the United States until 2011, maintains that it offers “a unique product which did not fall within any U.S. legal prohibitions on gambling.”
Two other companies seeking a place at the table also operated in the United States, although they did not face similar accusations — Bwin.party, which has an agreement with the Borgata, and 888 Holdings, which is forming a partnership with Caesars Entertainment, the owner of Bally’s, Caesars, Harrah’s and Showboat.
Steven Perskie, who as a state senator from Atlantic County was the architect of the Casino Control Act, said that despite the rush of companies — and the fact that online gaming is an entirely new product to regulate — New Jersey should not have trouble adapting.
Like the move from levered to computerized slot machines, Perskie said, internet gaming is “the latest in a long line of new developments.”
“The regulatory process has always managed to keep pace with these kind of changes,” he added.
Still, there are significant obstacles, such as how players will be able to deposit money into their accounts. American Express and Discover will not process online gaming transactions, nor will many banks that issue Visa cards and MasterCards, said Matthew Katz, chief executive of CAMS, which has agreements to provide technical services to a half-dozen of casinos.
“A lot of the big credit card issuers are not comfortable with online gambling,” said Katz, who is working to persuade banks to process the transactions.
In addition, geolocation is not 100 percent accurate, he said, and could suggest that someone playing on a computer in Hoboken is in New York.
Lisa Spengler, a spokeswoman for the Division of Gaming Enforcement, said both issues were “currently being addressed.”
Despite the concerns, experts say the state is likely to hit its target date, although some contend that not all 12 casinos will be ready to go.
A large motivating factor in getting all of the casions online promptly is the governor and his budget, which anticipates $160 million in tax revenue from online gaming, suggesting more than $1 billion in total revenue by next July.
One person not worrying about the start date is Crandon, the executive with 2UP Gaming, which is currently online in Europe. That is partly because the company neither owns a casino yet nor has a partner, but also because he says success will be found in building the perfect model.
Crandon, the managing director of MidOil USA, an investment firm that owns 2UP, said that while some casinos appear interested in simply adding another revenue stream, it is crucial to create synergy between online games and the physical casino. He said finding the right balance will get more people into the casino and more people playing online.
“It’s got to be a driver,” he said. “Atlantic City needs a reason for people to come.”