Atlantic City Paves Way for Smaller Casinos

Business Week: "Smaller is friendlier" was the longtime motto of the former tiny Claridge casino in Atlantic City. But now the nation's second-largest gambling resort is embracing smaller casinos as a way to jump-start its struggling business.

The state Casino Control Commission on Wednesday approved a process for companies to apply for a license to build two new smaller casinos. One could have as few as 200 rooms, while the other would eventually have to expand to 500 rooms within five years.

Previously, New Jersey law required at least 500 rooms. The most successful of the city's 11 casinos have 2,000 rooms or more. It's designed as a lower-cost way for new companies to enter the market and bring fresh ideas -- and investment -- to a market that has been reeling from fierce competition in neighboring states and the continued poor economy.

"This is an exciting development on an exciting day," said Commissioner Sharon Harrington.

The Seminole Indians, through their Hard Rock franchise, have expressed interest in building one of the new smaller casinos in Atlantic City. Hard Rock Chairman Jim Allen did not immediately respond to a message seeking comment Wednesday morning. Linda Kassekert, chairwoman of the casino commission, said no other company so far has publicly expressed interest in building one of the two new casinos.

Kassekert said the new guidelines, following approval of a law earlier this year by the state Legislature permitting the smaller casinos, are "intended to promote the construction of new, first-class casino facilities along the Boardwalk containing first-class restaurants, high-quality entertainment venues, special amenities as well as much-needed hotel rooms."

She said the new law gives Atlantic City "the unique opportunity to grow through the introduction of innovative, one-of-a-kind themed concepts and attractions to add to the traditional gaming environment." The guidelines set an Aug. 19 deadline for applications to participate in the pilot program to build one or both of the new casinos, although that deadline can be extended if not enough applicants come forward by then.

The commission said it wants potential builders to file a "notice of interest" by July 8. Upon being accepted into the pilot program, an applicant has 120 days to pay $1 million to the state treasury that would be forfeited if the project is not completed by established deadlines. That payment will be used to make infrastructure improvements in the neighborhood surrounding the project.

The guidelines also lay out how state regulators would choose applicants if more than two compete to build the new gambling halls. They include evaluating how many jobs the projects would create, how quickly they could get started, how much financing is available, the companies' experience in building similar projects elsewhere and the level of neighborhood benefits, like infrastructure improvements, that would be included in the plans.

Atlantic City's existing casinos are split on the concept of allowing smaller casinos into the market. They say it is unfair to those companies that have invested billions to allow newcomers to enter the market more cheaply.

Yet that is precisely what the bill aimed to do. To compensate for the lower price newcomers like Hard Rock will have to pay, the new casinos will be taxed at a higher rate than the existing casinos. Any new casino would have to be new construction, and not a renovation or conversion of an existing building into a casino-hotel.