Tuesday, February 9, 2010

How Atlantic City will win

The landscape for live poker in the North East/ Mid-Atlantic states is changing. Quickly. As I've written about in the past, PA recently gave the nod to table games in their slot casinos across the state. DE is on board, and now Maryland is on it's way as well.

My man HOP just wrote a post about his thoughts on poker in the east (which include some incredible maps) and how it will effect Atlantic City and even some thoughts on how AC should defend.

In the business arena, when faced with new competition, conventional wisdom tells us that adding incentives to keep your current customers from straying will give you the best chance to retain that market share and keep losses at a minimum. *This means panic.

HOP goes on to suggest that AC should lower room rates, offer better deals, keep the big name talent coming in... All very lucid, intelligent, well thought out points (Ty Judge... OVER RULED!) <-- Herman Munster was the only person that could have played that part IMO.

What we have here is something rather complicated for AC. This isn't the corner McDonald's fighting for business over Burger King across the street. But it will be.

When a company, or organization, or person even, seems to have had a monopoly on something for some time (geographically at least) and then all of sudden, a deluge of new competition is unleashed, common sense tells you a few things. First, you would recognize the 'ole supply and demand rule. Supply has exceeded demand, hence the monopoly will lose a lot of business to competing shops. In this case, most likely, proximity. Players all over PA, DE, and MD traveled to AC to get their live poker (BJ, craps, whatever else) groove on. Now they won't. It makes sense to think that AC will lose a lot of that daily play they were so used to, to something as simple as convenience.

Secondly, If you've been to AC, you would know it's not the nicest, the easiest, or the happiest place to be. To make the hour and thirty minute drive for me costs $30 in gas, $12 in tolls, an extra 30-45 minutes in traffic, and $5 - $15 to park.

In other words, to just go and play your simple 1/2 nl hold'em live action game, or ship about $300 to play $15 max bet Black jack, it will be conducive to stay in state and hit up one of the many casinos that will now offer those same games.

This is all true when it comes to the guy or gal who likes to set out once a month and play recreationally. The ones who the casinos like to cater to. The $500 a month club if you will.

Yes indeed, these players will hurt AC. The Atlantic City press published a story in January that PA actually PASSED Atlantic City for the first time in slot revenues for Dec. '09. Not a good sign. Atlantic City better friggin' panic. If for any other reason than this... Over the years they have spent (all casinos collectively) a shit ton of money building poker rooms. Something that was in the past a loss leader. Casinos don't make money on poker like they do the other table games. It does have it's advantages. First, it became a great marketing tool to bring players to their venues. The popularity of poker throughout the early to mid ott's was a boon to lure people by the masses into a casino room. The hope was that spouses and others would follow to go play the "other games" while pops dusted off at 3/6 limit. It worked. Secondly, it's guaranteed income. There's no whale that can plop down a $300k bet and hit for 35 to 1 on black 20 (if 20 is indeed black). Hwever, that guaranteed income never even came close to the profit margins it expected off of general table games, therefore, almost considered a loss, when you calculate how much space it took away from being able to offer more of the games that actually provide those lucrative profits.

AC did a great job providing poker and saw a lot of value out of it. The Borgata has made itself the premier place to play in the East Coast, and a regular tourney stop for pros alike. Something of a feat considering how difficult is to get to AC (fly to philly, find a car service to get you down there, stay, get back). Trust me, it's an issue with players.

All of the above points to AC having an issue with PA and surrounding states being able to compete. Add to that the intentions of those PA properties. Philly Parx (Bensalem, PA) issued a press release some 3 months ago stating that they would open a 100 table poker room. That would make them the largest poker room on the east coast (Borgata is currently, with 85 tables).

Now, I have since learned that it will most likely be 75, but time will tell. The point is, not only Parx, but the Sands in Bethlehem, Harrah's in Chester, and other properties are making it a point to show everyone, consumers, vendors, and competitors alike, that they will be making a huge push to gain as much market share as possible. All of this, plus previous points, doesn't bode very well for AC and it's properties.

I will tell you however... AC management are no dummies. Let me get back to the original comparison of Burger king versus McDonald's. What we have here are like products against different brands, and each hold their own. Now, let's throw in Wendy's. Wendy's was successful because they catered to a different consumer. Back in the hay day, they catered to yuppies.

Atlantic City is going to take this path. Over the last decade, AC has tried to become more of a Vegas type arena. This wasn't done by the city fathers. This was (and is) attempted by the properties themselves. When I say Vegas, I'm being a little unfair. This would lead you to believe that it's about competing against Vegas, and that's not the point I am trying to make. What I mean is that AC will become more of a destination resort rather than a daily destination.

The history of AC is very important to be able to understand how much of a paradox AC will have to overcome in order to be successful against new competition. In the next post, I will go through the history of AC, how it made it's money, and what steps it will take to overcome the transformation of east coast gambling.

I will end this post by telling you that AC will not lower prices. You will actually be paying more for rooms. You will continue to see the level of talent showing up for shows, and you will see higher limits on their minimum table requirements. No more $10 black jack baby. You may not even see 2/4 limit in the poker rooms. AC will see some drop off initially from those curiosity seekers looking at those new rooms. Their daily play will have issues as well. But overall, I believe AC will overcome this onslaught of competition and, eventually, come out ahead.


HighOnPoker said...

Interesting analysis, especially since it sounds like you are arguing for PA supremacy before switching at the end to explain how AC will survive. I think you make a good point. AC will have to become a destination location, rather than a gambling hall location. It would probably serve them well to build up the airport and try to attract people to fly in for longer stays. I've never been to their airport, but I can't imagine that it is very big.

BamBam said...

What I truly like about you brudder is, you have a keen sense of business.

I'm not 100% that it fits into this scenario however.

I hope you're right. I'd hate to see the loss of a "destination."

But we are talking about consumers here. Smarter consumers. Consumers with less disposable income. Consumers with a choice. Attracting that income is a gamble either way.

There is an arguement to be made on both sides, becoming THE destination vs. being there for the average Joe.

Time will tell I guess.