Desperation in Atlantic City

ACH casino counting on new locally focused marketing strategy to survive in Atlantic City
By DONALD WITTKOWSKI, Staff Writer pressofAtlanticCity.com

ATLANTIC CITY - Ghostly quiet - that's how the ACH casino floor appeared at 12:30 p.m. on a recent Wednesday. Row after row of slot machines were empty.

Michael Frawley admitted that the stillness made him nervous. Casinos, after all, are not libraries. The gaming floor is supposed to be boisterous and raucous, filled with gamblers.

But Frawley, ACH's chief operating officer, also viewed the hushed surroundings as an opportunity - a clean palette of sorts - to try to revitalize Atlantic City's second-smallest casino.

"We're going to create a niche in this market that's never been explored," he said.

The troubled gaming hall is being rebranded as a "locals" casino in a last-ditch attempt to save it in Atlantic City's shaky market. ACH, formerly known as the Atlantic City Hilton Casino Resort, will also go through yet another name change to fit its new identity. The new name will be revealed sometime soon.

ACH, in pursuing the locals strategy, will concentrate on attracting gamblers who live within a 35-mile radius of Atlantic City, a very tight customer base. But far more than geography is involved. Frawley explained that the casino will also adopt a new image as a "value-oriented" property.

"Price point is a deciding factor in where you're going to go," he said of customers. "This is a place where you don't come on a special occasion. You come here because it's Thursday. It's just a better deal."

ACH will slash restaurant prices by 50 percent. Penny slot machines will dominate the casino floor. The number of table games will be reduced from 86 to 50 and those that remain will feature low-limit stakes, Frawley said.

In December, New Jersey casino regulators approved gambling chips worth just 25 and 50 cents apiece for ACH. Chips of $1 or higher are commonly used at the Atlantic City casinos. Frawley said minimum table game bets will be as low as $2 or $3, with the 25- and 50-cent chips giving players different wagering options.

Slots machines, though, will really define the casino's low-budget strategy. Plans call for removing 920 old slot machines and replacing them with 600 new ones that feature the latest technology. Most of the new slots will be penny machines. When the overhaul is finished, ACH will have a total of 1,500 slot machines compared with 1,850 now.

"Our goal is to have the best slots product in Atlantic City," Frawley said. "We are a slots-centric property. We consider slots to be our core product."

ACH's rebranding follows a tumultuous year in which it lost the rights to use the iconic Hilton name and narrowly avoided a foreclosure sale by lenders. Hilton Hotels & Resorts ended its franchise agreement with the casino for the Hilton brand, but did not divulge the reason for doing so.

ACH has nearly completed removing all vestiges of the Hilton name and corporate logo from the property. Next comes a rebranding for a casino that has had a series of name changes associated with its revolving door of ownership over the years. It originally opened as the luxurious Golden Nugget in 1980 under Las Vegas gaming mogul Steve Wynn's ownership.

Hilton's ownership began in 1996, followed by other deals that ended with the California-based private investment firm Colony Capital LLC taking charge of the casino in April 2005. Colony kept the Hilton name through a marketing partnership with the hotel chain.

Under Colony, the then-Hilton defaulted on its mortgage in July 2009, prompting lenders to seek court permission to foreclose on the property. The litigation was put on hold early in 2011 while attempts were made to sell the casino. With no buyers emerging, Colony reached an agreement with lenders in November to continue as the casino's owner while pumping in $24.3 million in new cash. The deal also commits Colony to keeping ACH open at least through Oct. 31.

Frawley made no guarantees about the casino beyond that date. He acknowledged the possibility that the casino could close down. When the final figures are in for 2011, he estimated that ACH will lose between $19 million and $20 million for the year. Those losses underscore just how difficult it will be to revive the casino in a gaming market mired in a five-year revenue slump.

"To say it's not going to be easy is an understatement," Frawley said. "I'm optimistic, but I'm not deluded to think that it's going to be an easy road by any means."

Michael Pollock, a casino analyst and managing director of the Linwood-based Spectrum Gaming Group, noted that ACH will face additional pressure from the grand opening this spring of the $2.4 billion Revel casino. Revel is expected to steal business from not only the weak Atlantic City properties such as ACH, but even the powerhouse Borgata Hotel Casino & Spa.

"There's always that risk," Pollock said of the possibility of ACH closing. "There's always that risk in any year, particularly when a new property is going to come on line and from Day One that it will be a market leader."

Pollock praised ACH and Frawley for overhauling the casino's marketing strategy, but added that competitors will be quick to copy the "locals" theme to woo customers to their place, provided it works.

"If you can properly identify the niche, there is every reason to expect that competitors will try to emulate that strategy if it proves to be profitable," he said.

At stake are ACH's nearly 2,000 jobs. The New Jersey Casino Control Commission endorsed the deal between Colony and its lenders to preserve those jobs. The day after the commission gave its regulatory approval in November, ACH announced 150 job cuts.

ACH must reduce its labor costs if it is to remain open, Frawley stressed. He said that managers have taken an undisclosed pay cut and that concessions are being sought from nonunion employees.

"On the union side, we're looking for everyone to help as much as they can," Frawley said, declining to discuss possible pay cuts for union workers.

Customers agree that ACH needs changes, but the idea of a low-budget casino scares some and offends others. They fear the casino will lose its cozy atmosphere.

"I don't approve of it," said Barbara Hart, of Waretown, Ocean County. "I think it will attract a lower element of people."

Murray and Gloria Harper, of Monroe Township, Middlesex County, made similar comments. Murray, 87, and Gloria, 77, are retired teachers who started coming to ACH, during its Hilton days, for education conventions.

"What is the class of the people coming off the street?" Gloria Harper asked of the new customers ACH will court. "But at the same time, there could be some pluses. Maybe it will open it up to more people."

The Harpers visited ACH on a Wednesday in December to celebrate their 13th wedding anniversary. They were astonished to learn that all of the casino's restaurants were closed that day.

"We came to celebrate our anniversary and not one damn restaurant is open," Murray Harper complained.

In 2010, a $20 million renovation project added four new restaurants and gave the gaming floor a partial facelift. Frawley said about $14 million to $15 million in fresh cash from Colony Capital will be used for further upgrades to the casino floor. The remainder of the money gets tucked away for operating expenses.

In addition to new slot machines, there will be new carpeting, new lighting, new seating and more space for customers to move around in. The casino's opulent chandeliers and barrel-vaulted mirrored ceilings trimmed in gold-hued glass will stay, though.

Also staying put at ACH are Colony Capital and its partner Nicholas L. Ribis, who serves as the casino's chief executive officer. Colony and Ribis once were the owners of Resorts Casino Hotel, before lenders took over that property in 2009 when it defaulted on its mortgage. The lenders sold Resorts in December 2010 for $31.5 million to Atlantic City gaming executive Dennis Gomes and New York real estate magnate Morris Bailey.

"Nick always liked the property even, frankly, more than he liked Resorts," Ribis' spokesman, Alan Marcus, said of ACH. "He fought very hard to keep control of the property."

Ribis, a veteran Atlantic City gaming executive, came up with the concept of having a locals-oriented casino about 20 years ago, Marcus maintained.

Now that strategy will be tested as ACH fights for survival.

"Nick has always said that a gambler from Atlantic City is just as valuable as a gambler from Detroit," Marcus said.