East Coast Gambling Mecca's Economy Could Suffer $5 Billion Drop From Pandemic

Atlantic City, New Jersey, Like Other US Gaming Centers, Hit by Stay-at-Home Orders
Atlantic City's economy is primed to receive a hard economic blow from the coronavirus pandemic, according to a new report. (Marco Verch/Flickr)Atlantic City's economy is primed to receive a hard economic blow from the coronavirus pandemic, according to a new report. (Marco Verch/Flickr)
By Linda Moss
CoStar News
April 21, 2020 | 07:52 P.M.
The nation's second-biggest casino market, Atlantic City, and the surrounding southern New Jersey area could take an economic hit of $2.1 billion to $5.1 billion from the coronavirus closings, according to a new study that doesn't bode well for the nation's other gaming centers.

The bruising decline that the region and casinos face will create extra challenges for a quick recovery during 2020, according to the spring edition of The South Jersey Economic Review, an analysis by the William J. Hughes Center for Public Policy at Stockton University.

“The regional economy’s reliance upon the leisure and hospitality sector again looms large,” Oliver Cooke, the review's editor and associate professor of economics at Stockton, said in the report. “We play and vacation together. And, personal, intimate, high-quality service (whether provided at a poker or restaurant table) arguably lies at the heart of the hospitality business. The pandemic has dramatically upended and altered our daily economic lives in unimaginable ways.”

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The projections for the Atlantic City region offer a glimpse into what the pandemic's economic repercussions may be in other gambling destinations across the nation. Atlantic City is only surpassed by Las Vegas in the ranking of largest U.S. casino markets, according to the American Gaming Association. Las Vegas in 2018 was No. 1 in gaming revenue, with $6.59 billion. It was followed by Atlantic City, with $2.15 billion; Chicago, $1.95 billion; Baltimore-Washington, D.C., $1.88 billion; and New York City, $1.45 billion.

The report indicates the virus will probably be a setback for gambling on a national level, as well as in the Garden State, after strong showings in recent years. Gambling revenue for the U.S. commercial casino industry reached an all-time high of $41.7 billion in 2018, up 3.5 percent from the previous year, according to the gaming association. And the coronavirus crisis follows a strong economic performance, $18.2 billion, by South Jersey last year, the best it had seen since 1984, according to the report by Stockton, which is based in Galloway, New Jersey.

Worse Than Great Recession

New Jersey Gov. Phil Murphy said on Monday he will offer a blueprint to start loosening some of the state's coronavirus restrictions later this week. The Garden State has the second most confirmed COVID-19 cases in the nation and has mandated the closing of nonessential businesses, banned large gatherings and issued a stay-at-home order for residents.

The South Jersey analysis projected the impact the coronavirus outbreak would have on the region’s hospitality, tourism and gaming industries this year. Based on three different scenarios, gross domestic product, or GDP, could contract between 12% and 28%, or $2.1 billion to $5.1 billion. That's a bigger blow than the 2009 recession, when GDP contracted nearly 10%, or $2 billion.

“In fact, the COVID-19 2020 contraction may well be much larger owing to the outsized role that tourism and hospitality play in the regional economy and the public health challenges the pandemic seems likely to present going forward,” Cooke wrote.

The report aggregates data for a region that includes Atlantic City-Hammonton, Ocean City and Vineland-Bridgeton.

The leisure and hospitality sector — which includes gaming, accommodations, restaurants and bars, and other recreational activities — accounts for 15%, or $2.8 billion, of the regional economy in southern New Jersey, according to the report. Retail makes up an additional 8%, or $1.4 billion. The biggest chunk of the economy, 22%, or $4 billion, relates to the real estate, rental and leasing industry, crucial in a geographic area that does brisk summer tourism business.

Shorter Season?

“Importantly, a significant portion of the region’s real estate-related output reflects summer condo and home rental activity,” Cooke wrote.

"The longer it takes for the economy to reestablish some semblance of normalcy, the shorter the 2020 summer shore season will be and thus the greater the impact on the regional economy’s real estate industry," he said.

The report maps out multiple scenarios for 2020, based on three factors: the percentage of economic output lost in the regional economy between mid-March and the end of May, the 10-week period that roughly coincides with the start of the lockdown and the beginning of the summer shore season; the speed at which the economy returns to “normal,” which dictates the number of summer shore season weeks that will be adversely affected by the lockdown; and the percentage of economic activity lost after a return to normalcy, referred to as the “COVID-19 drag.”

The "drag" captures long-term adverse economic effects likely to happen from the pandemic, including enhanced fear of public spaces, according to the report.

“While the speed of the return to normalcy will dictate the number of lost summer 2020 shore weeks, my own sense is that the COVID-drag will eventually play the more important role in determining the trajectory of the regional economy over the remainder of 2020 (and beyond),” Cooke said. “While we will eventually begin to work and play again, it strains credulity to believe that we will all do so at the same levels we previously did — at least for the better part of what remains of 2020.”

County Looks to Comeback

Atlantic County, where Atlantic City is located, is sketching out some of its plans to reopen its economy as restrictions from the COVID-19 pandemic wind down.

“The current pandemic was unforeseeable at the local level,” County Executive Dennis Levinson said in a statement on Monday. "We have some difficult times ahead, but we are prepared at our level to do what needs to be done with the resources at our disposal, and do it quickly.”

He noted, like Stockton's report, that the health crisis interrupted a growing area economy.

“Casino gaming revenues were increasing, employers were hiring, property values were rising, the tax base was stabilizing and our efforts to diversify the local economy were well underway," Levinson said. "All of this was set back overnight.”

That setback in South Jersey's gaming and hospitality sector highlights the importance of Atlantic County’s economic diversification efforts and the need to build on a local aviation industry, centered on Atlantic City International Airport, according to Levinson.

The impact is being felt at entertainment and resort venues around the country, he said.

“The pain of mandatory stay-at-home orders is not limited to our area but is being felt nationwide,” Levinson said. He highlighted a report by the Brookings Institution that singles out New Jersey; Myrtle Beach, South Carolina; Las Vegas; and Orlando, Florida, home to Disney theme parks, as areas that have been severely disrupted