Atlantic City Gives Hilton Another Chance : Gambling: Regulators vote to allow the hotel chain to operate a casino, a reversal of a 1985 decision.

New Jersey gambling regulators, reversing a controversial decision made six years ago, voted Wednesday to allow Hilton Hotels Corp. to own and operate a hotel casino in Atlantic City.

By a 5-0 vote, the New Jersey Casino Control Commission said the well-known Beverly Hills-based chain had the integrity and financial stability to hold a gaming license in the seaside resort.

The decision was a complete reversal of one in 1985, when a divided commission turned down Hilton Hotels’ request for a gambling license because of its relationship to Sidney Korshak, a reputed mob lawyer who is no longer connected to Hilton. The commission now has all new members.

The latest decision means that Hilton Hotels will start an effort to buy one of the city’s major hotels, many of which are in financial trouble. “It’s wide open,” said James Galbraith, senior vice president of Hilton Hotels. “We’re literally going to be looking at the whole market.”

The unanimous vote also erased a mark against W. Barron Hilton, company chairman and chief stockholder. The company’s previous failure to obtain a license was placed largely at his doorstep.

Although not available for comment, Barron Hilton said in a statement that he was “delighted” by the news.

“To be vindicated like this has got to make him feel pretty good,” said Henry Gluck, chairman of Caesars World, which operates major casinos in Atlantic City and Las Vegas.

The license denial six years ago forced Hilton to sell for $320 million a hotel casino it had already built to developer Donald Trump. Now known as the Trump Castle, the hotel is on an inland waterway away from the seaside Boardwalk, where 10 of the casinos are situated.

The Trump Castle has been a steady money loser in recent years and recently missed a $41-million payment to bondholders. The commission is trying to decide if the casino’s gaming license should be renewed and Wednesday gave Trump until July 31 to show that he can run the Castle profitably.

“We certainly will be looking at the Trump Castle,” Galbraith said. “Somebody else’s troubles are our opportunity.” Trump has said previously that none of his three casinos in town are for sale.

New Jersey gambling experts hope that Hilton Hotels will be able to inject new blood into a city where gaming was legalized 13 years ago with decidedly mixed results. Although gaming has helped the southern New Jersey economy, it has done little for Atlantic City--a slum-ridden, racially divided town of 35,000.

“The Hilton name brings excitement on the consumer side and credibility on the investor side,” said Atlantic City Mayor James Whelan.

The Atlantic City casino industry has been in decline since 1983, when it earned a record $169 million. In the first three months of 1991, the city’s 12 casinos lost a total of $55 million, their worst quarter on record.

The financial problems stem from a continued recession in the Northeast, coupled with the fact that many casino hotels are deeply in debt because they were built with high-yield junk bonds. Only a few casino hotels are making money today, local gambling experts say.

Many experts believe that Atlantic City needs a new convention center and modern airport to lure visitors on a long-term basis and compete more effectively with Las Vegas. The city also has a shortage of first-class hotel rooms.

Hilton Hotels is now in a position to make a good buy from any one of several would-be sellers, gaming experts say. “They’re sitting in an excellent position right now,” said Al Glasgow, publisher of a casino-industry newsletter known as Atlantic City Action.

Hilton Hotels officials were stunned in 1985 after casino regulators turned thumbs down on their request to operate a casino.

One commissioner commented that “many of the (company’s) highest executives were unaware or uninterested in problems and associations which could seriously call into question” its public image.

A major concern was Hilton Hotels’ payments to Korshak of more than $700,000 from 1971 to 1984. The company severed its ties to Korshak with reluctance only after realizing it might endanger the casino license.

In ruling that Hilton Hotels is now fit to hold a license, the Casino Control Commission acted after hearings that lasted only one day. Hearings on the same issue six years ago dragged on periodically for seven months.

“The state (of New Jersey) made a mistake six years ago,” said Saul F. Leonard, a casino-industry consultant in Los Angeles, “and it has finally been rectified.”