'Stayin' alive' hard for casino

January 26, 2009 5:43:40 AM PST
When Resorts Atlantic City opened its doors in 1978, the Bee Gees' "Stayin' Alive" was the top song in America. Seemingly still stuck in that era 31 years later, New Jersey's first casino may have trouble staying alive in the harsh climate of modern-day Atlantic City.

Its lender filed notice last week that it intends to foreclose on Resorts if the casino's owners don't voluntarily hand over title to the place. Column Financial, a commercial mortgage subsidiary of Credit Suisse, says Resorts hasn't paid since October on a loan backed by a $360 million mortgage.

The owner, Los Angeles-based Colony Capital, invests mainly in real estate. It has refused to comment on the takeover bid, as has casino management and their lawyer.

It will be up to the state Casino Control Commission to sort out the mess. Among the issues to be determined is whether Resorts has enough cash on hand to adequately fund its operations and pay off on winning bets; whether ownership is still qualified to hold a casino license; and whether Column Financial would be suitable to hold a casino license, even while the lender seeks someone to run the business.

The first legal casino outside Las Vegas, Resorts is now an old property with a customer base to match. It was allowed to struggle by ownership that failed to invest as much in the product as other casinos did.

The result: younger, more affluent customers flocked to newer, hipper places like the Borgata Hotel Casino & Spa and Harrah's Resort Atlantic City. Resorts, in contrast, highlights its nightclub, "Boogie Nights," where '70s disco music is king, and many of its players are senior citizens who ride buses to gamble for a few hours before returning home.

Resorts "never really staked out a firm, sustainable niche in the market," according to Joe Weinert, a casino analyst with Spectrum Gaming Group.

Its long, narrow layout made it difficult to carry out major expansions, he added.

But Steve Norton, a gambling industry veteran who was Resorts' executive vice president when it opened on May 26, 1978, said Colony Capital erred by not finding a way to grow.

"The biggest mistake they made was not adding rooms like the other properties did," he said.

Resorts has 942 rooms - about half of what is now generally considered enough to successfully compete in Atlantic City. The Borgata, Harrah's and the Trump Taj Mahal Casino Resort all have around 2,000 rooms each.

When Resorts opened for the first time, so many cars streamed into Atlantic City that police contemplated blocking the entrance routes into town because traffic was so bad. People lined the Boardwalk for blocks waiting to get inside; some bought tickets for buffets they had no intention of eating, just to sneak inside the casino earlier than the rest.

And cash - more than anyone had ever seen and more than management could imagine - flooded into the counting room at Resorts International, to the point that it took nearly an entire day to count it.

But that was when Resorts had Atlantic City - not to mention the entire eastern United States - to itself. Competition soon followed.

Donald Trump agreed to buy a controlling interest in Resorts in 1987, but was challenged by entertainer Merv Griffin, who also wanted it. They settled the next year with Trump getting what would become the Taj Mahal and Griffin ending up with Resorts.

The casino's parent company went bankrupt in 1989 and 1994 before being sold to Sun International Hotels in 1996 for $301 million. Five years later, Sun sold to Colony for just $140 million.

In November, the owners told the casino commission they were unable to make their monthly payment "due to the extreme impact of the current economic conditions." They also skipped December and January payments, according to the petition.

Resorts took in $233.2 million last year, second-worst in Atlantic City. Its revenues were down 16.3 percent, and its gross operating profits for the first nine months of 2008 were down more than 60 percent.

Colony also owns the Atlantic City Hilton Casino Resort, which is struggling almost as badly as Resorts in terms of declining revenue and profits. But the Hilton is not affected by Column Financial's planned foreclosure.

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