Homerun or single? AC gambles on hotel

Oct 1, 2002 6:28 AM

Will Borgata be a drain or a big win for Atlantic City? Yes, say industry observers.

Despite the hoopla surrounding New Jersey’s first new casino in 13 years, analyst Larry Klatzkin of Jefferies & Co. predicts that the marina resort won’t net a 10% return on investment during its first year.

"The first six months will be tough. It won’t do $170 million in [cash flow] during the first nine months,’’ he said.

Ouch! And Klatzkin’s company even does financial reports for builder Boyd Gaming. But that downbeat forecast, is countered by others who say Borgata, a 50-50 venture between Boyd and MGM Mirage, will be a homerun.

"The costs will be offset by extraordinary revenue growth,’’ says Harry Curtis of J.P. Morgan.

Curtis likens the upscale property to an Atlantic City version of the Mirage, and predicts margins of 20-28% within six months of opening.

Putting their money where their mouths are, Curtis and Klatzkin are betting a meal that the other is wrong. "If Larry loses, it will be McDonald’s,’’ Curtis said.

Joking aside, the $1 billion Borgata is a high-stakes venture.

"We think we’ll expand the market,’’ says Bill Boyd, who was one of the keynote panelists at the recent G2E convention.

 MGM Mirage chief financial officer Jim Murren predicts that Borgata will be immediately be among Atlantic City’s top three or four revenue earners when it opens next summer. MGM is so bullish that it’s planning a $1.5 billion companion resort next door.

Still, Harrah’s exec Chuck Atwood terms Borgata "a huge question mark.’’ The majority of observers are cautiously optimistic that Borgata will inject vitality into the Jersey market and improve Atlantic City’s profitability in the long run.

With construction moving ahead on time and on budget, most are rooting for a winner.