"It’s like a fellow I once knew in El Paso. One day, he just took all his clothes off and jumped in a mess of cactus. I asked him that same question, "Why?" He said, "It seemed to be a good idea at the time." – Steve McQueen in The Magnificent Seven
Atlantic City has a chicken-or-egg problem: It’s generally agreed that it needs new casinos in order to flourish – but it’s prohibitively expensive to build one in the current market. This seems to have been especially true of $2.4 billion Revel. Its early revenue numbers have been disappointing, perhaps even dreadful when you consider that it’s a brand-new property and yet is stuck firmly in the middle of the pack. Wall Street thought it would be a serious threat to Borgata, but this has not been the case.
Revel’s genesis dates back to 2007, the peak of the casino-industry’s bubble years. Investment bankers Morgan Stanley decided to take a flier in gaming: Why merely loan money to build a resort when you can own it lock, stock, and casino, right? That was the thinking of then-CEO Mitch Petrick.
Revel was originally planned as a two-tower casino-hotel with roughly 3,800 rooms. Within a year, as Pennsylvania casinos began making serious inroads upon the Boardwalk, Morgan Stanley downsized the project to just one tower. More tragically, three members of the executive team were killed in a plane crash. It was but one of several misfortunes that would mark Revel as a jinxed property.
The casino collapse of late 2008 threw Revel two years behind schedule. Morgan Stanley found itself $700 million short of what it needed to complete the project and began slowing down. Construction was halted altogether in January 2009, with the exception of some exterior work, not to be resumed for 25 months. By this point, Morgan Stanley had lost its stomach for gambling. In April 2010, it decided to take a $932 million bath ("dispose of our investment" was Morgan Stanley CEO James Gorman’s bloodless description of his writeoff) rather than continue financing Revel. (Previous CEO Petrick had been demoted, then quit.)
That left minority owner and Revel CEO Kevin DeSanctis shopping around for new ownership. His persistence paid off in mid-February, when he was able to announce that he’d cobbled together $1.15 billion in completion money. The project also got a boost from New Jersey Gov. Chris Christie, who successfully pushed through $261 million in tax rebates, over a 20-year period, to help Revel make ends meet.
Toward that end, DeSanctis planned to open with only 1,090 hotel rooms (in a 1,900-room tower). However, that ran afoul of New Jersey regulations that peg the number of hotel rooms to the amount of gaming square footage – 130,000 square feet, in this instance. DeSanctis was forced to bump the room count up to 1,400. A self-imposed handicap was the decision to make Revel a completely non-smoking casino, giving potential customers an incentive to play elsewhere.
Deutsche Bank gaming analyst Carlo Santarelli, although bullish on Revel, ominously noted in early April, during the resort’s protracted "soft opening" (which ran from April 2 until May 25), that Revel was billed as a property where "gaming is one of several secondary attractions." Since the casino floor is where the profit margins are traditionally best – and Revel’s other amenities were of a high-end nature – this was an ominous description, reminiscent of problems encountered by The Cosmopolitan of Las Vegas.
Other mistakes included charging for parking and eschewing "free play" offers, comped hotel rooms, and promotional giveways … a policy that quickly reversed after two months of meager revenue. However, DeSanctis still insisted that conventioneers and leisure travelers were his two top-priority customer types. (Gamblers finished third.) "In its print ads and television commercials, the $2.4 billion Revel has carefully crafted its image as a resort first and casino second," reported The Press of Atlantic City.
Customers may not have been getting the message: A Baltimore Post-Examiner columnist and friends drove up to Revel to check out the action. They did well at the blackjack tables – but passed up the pricey restaurants in favor of a taco stand. Revel did only $17 million of business in June -- less than half of what was expected -- and subsequent months have proven little better. It lost $35 million in its first quarter and is still rattling its tin cup on Wall Street for additional capital infusions. At the moment, that looks like throwing good money after bad.
By the way, Revel doesn’t have 59 stories, only 48. Ownership is playing some "fuzzy math" with floor numbers, a non-infrequent occurrence in the industry (see previous QoDs concering superstition and floor-count massaging in the QoD Archives).
