By Bill Wichert

Law360 (March 31, 2020, 10:11 PM EDT ) Atlantic City casinos were on a winning streak until COVID-19 crashed the party, forcing them to close their doors ahead of the typically lucrative summer season and setting the stage for an industry shakeup in the New Jersey resort town as it confronts the unprecedented health crisis.

The seashore destination had been "on a roll" before the pandemic hit, as industry attorneys put it. After the 2018 openings of the Hard Rock Hotel & Casino and the Ocean Casino Resort, total gambling revenue from the casino industry in the state soared last year to about $3.2 billion, marking a roughly 15% increase, state officials said. Such revenues were up in January and February as well.

That successful run met a sudden and expansive roadblock on March 16 when New Jersey Gov. Phil Murphy shuttered the casinos and certain other businesses to help stop the spread of the novel coronavirus.

What else lies in the cards for Atlantic City remains to be seen as casinos dip into their lines of credit to help ride out the financial storms ahead and brace for the crushing prospect of remaining closed during the summer — when they usually make their greatest profits.

"If casinos have to stay closed through the height of their season, that's going to be tough," said Nicholas Casiello Jr., chair of the gaming practice group at Fox Rothschild LLP, adding that if the casinos remain shut down in July or August, "that means there's no way that the industry could make up what it lost."

But the city's beleaguered history may have prepared its gambling industry to weather the crisis, and it's possible that financially sound businesses will seize opportunities to expand their portfolios during the downturn.

"It was a good story till we stopped, but I think we're all going to come out stronger at the end of this," said Rummy Pandit, executive director of the Lloyd D. Levenson Institute of Gaming Hospitality & Tourism at Stockton University, referring to the city's recent success.

"People work together and people work harder," Pandit added. "When things get tough, the tough get going, as they say."

The impact of the casino shutdown will ultimately hinge on how long it lasts. While the casinos will still be able to make money from online gambling, that revenue falls far short of the dollars earned from slot machines and table games inside their buildings.

With less revenue coming in, casinos also are taking on higher levels of debt as Atlantic City's major operators try to ensure they have as much cash on hand as possible amid the pandemic, said Colin A. Mansfield, an industry analyst with Fitch Ratings.

"When you're staring into the face of unknown timing around how long these properties will be closed for health concerns ... you want to be positioned as best as you can to ride that out as long as you can," he said.

But all forms of debt carry some type of risk, Mansfield noted.

"In a perfect world, when things became more normal, they could just pay that back, but to the extent you eat into that liquidity over the next couple of months for whatever it might need to be used for, it's debt that's got to be paid back at some point," Mansfield said.

How long a casino can remain shut down will "depend on the financial health of each property or company," Casiello said.

"If a property in Atlantic City is owned by a large, publicly traded parent company that has cash on hand or access to a line of credit, it's one thing. If it's a stand-alone, privately held property, it could have a different impact," Casiello said. "It's clearly going to leave every casino and entertainment company in a weakened financial state."

Casiello said the gambling industries in Atlantic City and elsewhere could see a "wave of M&A activity" after the outbreak subsides, as companies with healthier balance sheets get chances to buy assets that cash-strapped operators are looking to offload.

"Even companies that can borrow money, if they end up doing that and the deck gets so high that they're not able to make a profit because they had to borrow so much money, will be looking to sell," Casiello said.

Frank A. DiGiacomo, team lead of the gaming industry group at Duane Morris LLP, echoed those points, saying any economic downturn presents opportunities for sales of properties or consolidation.

For "those companies that may not have been on solid financial footing coming into this," DiGiacomo said, "it just logically follows that they would be more at risk or ... they may have to take more drastic action than just opening the doors again."

Compared with the 2008 financial crash, however, the Atlantic City market is better positioned to get through the pandemic because there are fewer casinos and, thus, it's easier for them to be profitable, DiGiacomo said.

"It is leaner and meaner in Atlantic City," he said.

During the shutdown, the costs of Atlantic City casinos are fixed and they will be able to "weather some period of time where they have to be closed and they understand what their costs are during that closure," according to Stephen D. Schrier, co-chair of Blank Rome LLP's gaming practice.

The city's industry is not alone among gambling markets in feeling the pain of a shutdown, Schrier noted.

The casinos faced problems of competition in the past and did not generate enough revenue despite being open for business, but "now everybody's closed. It's a different world in that sense," Schrier said.

"It's not a competitive world where casinos elsewhere are open and you're losing business," he said, adding that "everybody basically is paused and paused in the same way, and I think the upswing that we saw is going to continue once things get back to normal."

But even when the casinos reopen, a number of factors could impact their profitability, including whether visitors will have disposable income for such leisure activities, experts say.

"While I think people are going to want to get out of their houses and go to a casino, it's a question of whether they'll be able to afford to go to a casino," Casiello said.

But with a gambling industry that has endured its share of adversity — from competition in other states to political scandals — "Atlantic City is a survivor," Casiello said.

The city has features that other states do not, such as the beach and the boardwalk, and its casinos are full-service facilities with restaurants and entertainment that surpass what's available in other states, Casiello said.

"I think Atlantic City will be back," he said.

--Editing by Aaron Pelc and Jay Jackson Jr.

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