Financial distress in a full house: Revel, three months later

    Six p.m. is a transition time at Revel in Atlantic City. Outside its glass doors on Saturday night, a pack of bros in pale plaid bathing suits, straw fedoras, and button down shirts stood with cigarettes and plastic cups of beer. They were passed by seniors in fanny packs exiting the building, and girls in tight bandage dresses, bachelorette party sashes, and four-inch heels going in.

    Inside, the casino floor was a mass of people and color and noise. The line for the women’s bathroom ran 10 deep. By 7 p.m., you either needed a reservation or an hour and a half to spare if you wanted dinner at one of the casino’s restaurants.

    The crowds intensified as the night moved on. Forty-somethings looking for an alternative to the night’s cancelled Duran Duran concert mingled at Royal Jelly with the club kids in even shorter dresses and higher heels. Maybe the burlesque dancers strutting across the bar and on catwalks would entice a few of those club kids to see one of the night’s two shows instead of heading to HQ, the casino’s four-story night club, but a line to get in there was already starting to snake around the casino.

    As I watched the parade go by, I tried to align the scene with the fact that Revel, the $2.4 billion mega casino resort that fully opened in Atlantic City on Memorial Day Weekend, is in financial distress. Beyond the pretty colors and the pretty girls is the cold, hard fact that Revel was a calculated risk, and one that might not immediately pay off.

    But it’s not like they had a lot of options.

    The Revel project was announced in 2007. It was a heady time in Atlantic City. That same year, the Sands was imploded to make way for the $2 billion Pinnacle Entertainment casino/hotel. MGM Mirage planned to build an even bigger $5 billion mega-casino. I had just started covering the Jersey Shore, and it felt like I was getting a press release announcing a new Atlantic City condo project every other week.

    Older casinos spruced up their properties. The Borgata, Harrah’s, Resorts and the Trump Taj Mahal added second towers. Atlantic City’s casinos brought in over $5 billion in gaming revenue in 2006, and another $1.36 billion in everything else (food, drink, rooms, spas, etc.)

    Gambling was a big money maker for the state of New Jersey, too. Casinos and race tracks paid over $500 million in taxes that year.

    But the recession tipped off early in Atlantic City, pushed ahead by casinos opening in Delaware (2005) and Pennsylvania (2006). Gaming revenues have dropped an average of 8.62% every year since 2006, according to the Center for Gaming Research at the University of Nevada, Las Vegas. In 2011, gaming revenues only reached $3.3 billion with an additional $1.23 billion from everything else.

    In early 2009, construction on the interior of Revel stopped. The project needed more money. They got it, but in April of 2010, Morgan Stanley, which had a 90% stake in the project, decided to sell and cut its losses.

    So Revel had two options: leave the building as is, an empty glass memorial to Atlantic City’s once-strong gaming monopoly, or find the money, somewhere, to finish construction with the hopes that Revel could beat the odds.

    The somewhere came from N.J. taxpayers and J.P. Morgan. The bank provided new financing, which, along with a $261 in tax credits via Gov. Chris Christie, allowed Revel to open this summer.

    Christie made plenty of speeches about how Revel was going to kick off a new era in Atlantic City, but given the city’s continuing decline, I had a hard time believing him.

    Atlantic City casinos that made profits from Pennsylvania and North Jersey gamblers who care little about ambiance and more getting to a slot machine quickly won’t be getting them back.

    Christie’s projections for Revel seemed too optimistic, and his calls for Bruce Springsteen to play Revel on Labor Day weekend were more desperate bleating than a legitimate request (Springsteen booked shows in Philadelphia on Labor Day weekend instead).

    After an eight-week preview, Revel opened on Memorial Day weekend with a splashy ad campaign and four days of Beyonce concerts with First Lady Michelle Obama as her personal guest.

    In late July, though, the Press of Atlantic City reported that six contractors had filed millions of dollars worth of in liens on Revel (I asked a construction industry expert what he thought about Revel’s explanation that this was part of standard audit procedure, and he had a one word reply. I can’t print it here, but it rhymes with “full sit”). Revel then reported a $35.2 million operating loss in the second quarter, and Moody’s downgraded their credit rating. Revel has been finishing eighth out of Atlantic City’s 11 casinos in gaming revenue. The bankruptcy drum beat grew louder when the Philadelphia Inquirer ran three stories in eight days about a possible bankruptcy.

    But when CEO Kevin DeSanctis put out his hand in late August for an additional $70 million in credit to bring their total line to $100 million, he got it. David Rebuck, director of the Division and Gaming Enforcement, told the Press of Atlantic City that Revel was sufficiently funded and working to pay contractors, a response he gave after the head of Local 54 of UNITE-HERE, the casino employee union, demanded an investigation of Revel’s finances.

    Revel is gorgeous. It blew away any expectations I had for what an Atlantic City casino could be. But the fact that it fell short of expectations is not surprising. It’s not because there’s no buffet, or that there’s no smoking, or the prices for a cup of coffee are too high. It’s that this was an expensive place to build (Revel cost $2.4 billion; the new Barnes Museum cost about a tenth of that) It was also built for an Atlantic City at the top of its game and opened to an Atlantic City at its bottom – if we’ve even reached that floor yet.

    Bankruptcy is not out of question, but calling a casino dead after it hasn’t been open for three months – even given financial warning signs – seems like a stretch. If bankruptcy does happen, Revel won’t shut down. Otherwise, Atlantic City would have already lost Resorts, Tropicana, Trump Plaza, Trump Taj Mahal and the Atlantic City Club (formerly the Atlantic City Hilton).

    If Revel restructures its debt, I fear that the ones who will really lose are people like me, a New Jersey tax payer, and that we won’t be getting a return on our $261 million investment.

    None of this will stop people from coming. Revel is too pretty, too glitzy, and too fun. Its season will extend beyond Labor Day, too – I know a lot of people waiting for those fedora bros and club kids to go home for the summer before they visit. For a non-gambler like myself, it’s the best thing that could have been added to Atlantic City assuming that the state will always keep casinos in town. That $277 million paid in taxes in 2011 between casinos and racetracks is not the $500 million of 2006, but it’s still a lot of money for a state trying to figure out what exactly Gov. Christie was talking about in his speeches about the “Jersey Comeback.”

    I still believe that if Atlantic City does becomes a prospering city, it won’t be through gaming, but through improving the actual city of Atlantic City and making it a desirable and safe place for people to work and live. With so much focus on boardwalks and gaming halls and marketing campaigns, I fear that it won’t happen. Maybe Revel’s financial problems will be a wake up call, but I’m not holding my breath.

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