The New, New Atlantic City

The 1980 film Atlantic City, starring a young Susan Sarandon and an old Burt Lancaster, is the sort of dark comedy that captures the many challenges and contradictions of America’s second-largest gaming market. (I’ve always been fascinated with Atlantic City, especially its newest resort, Revel.) In the movie, we see Atlantic City in a sort of identity crisis as it transforms from its seedy, old-fashioned past to its more corporate, Donald Trump-influenced future. In a very memorable ending, we get to watch a wrecking ball clear out one of AC’s older casinos as the credits roll.

But the glitzy, larger-scale Atlantic City that’s emerged in recent decades isn’t where AC’s evolution ends.

The opening of Revel, the highly anticipated mega-resort on the north end of the city’s boardwalk marks the beginning of a new era for AC. With surrounding states drawing away gambling revenue, Atlantic City must redefine itself from casino town to resort town. The logistics, however, can be challenging.


According to data published by the Press of Atlantic City, Revel was pummeled by most of its neighbors when it came to summer gambling revenue. Despite the excitement one would expect from a brand new casino, Revel’s August gaming income was less than half that of Atlantic City’s second-newest resort, the Borgata.

Granted, Revel has seen its fair share of challenges. The project started at the height of the real estate bubble, and the market downturn triggered a great deal of changes to the project and its budgets (Revel is much smaller than initially planned), as well as a high investor turnover (with Morgan Stanley walking away with very little of the $1.2 billion it originally committed), and even intervention from the state of New Jersey.

Considering its challenges, a shaky opening for Revel can be forgiven, and its August gaming revenue (to the right) is certainly an improvement over July ($17.5 million). Still, the resort’s performance doesn’t bode well for this kind of property–even if it’s designed to draw revenue and visitors through non-gaming amenities.

According to Kevin DeSanctis, CEO of Revel, the numbers from gaming are just part of the picture:

DeSanctis said Revel enjoyed stronger results in hotel occupancy, entertainment and food and beverage sales. Revel’s hotel occupancy surged into the 90 percent range [in August] compared to the 70s in July, he noted.

So it ended its first summer on a relatively strong note. It’s important to consider other aspects of Revel’s business and operations before dismissing this large property as a losing proposition.

Jason Spillerman of Vibrant Development Group recently discussed his work with Revel at a Philadelphia luncheon hosted by the Cornell Real Estate Council. Revel boasts a number of advantages over competitors like the Borgata, he pointed out. First off, gambling (in one form or another) is now legal in the majority of U.S. states, with so-called “convenience gambling” causing many patrons to stay close to home rather than travel to Atlantic City.

As such, Revel was designed to be a unique experience, drawing tourists looking for a fun, luxurious destination, regardless of gaming.

  • Revel does not create but “curate” experiences for guests (their term, not mine). This means outside restaurants and other businesses operate independently within Revel, as opposed to selling their brand and relinquishing operations to the landlord.
  • As a high-end destination, Revel’s lodging enjoys some of the highest ADRs in Atlantic City. Once additional rooms have been completed, Mr. Spillerman says, income will rise.
  • Revel is completely non-smoking, which is unusual for casinos but may help attract a unique (upscale?) clientele.

Further, Spillerman says, Revel’s operating costs are significantly lower than those of the Borgata, meaning Revel may be nimbler than its peer in the long run. However, Revel’s operators cut costs by hiring non-union workers–which, let’s be honest, may come back to bite them.


This Post Has 6 Comments
  1. My point, many cash hoez, is that Revel is leading AC’s transition from being a gambling market to a more general “resort” kind of market. Which makes Revel a very different kind of property for AC.

    What do you think? How will Revel perform compared to other resorts in coming years?

  2. I’ll answer for MCH..

    I would tend to disgree with the general population that Revel is a pioneer. Revel’s thinking was a few years behind. I think Borgata was first to the punch and they were the first to have the resort concept…given the high class restaurants, the spa, the nightclubs, the entertainment venues, and the indoor pool.

    The one difference is that Revel was supposed to be the savior for the City of Atlantic City, largely due in part to the depressed economy.

    The City of Atlantic City’s tax revenue (driven by the the hotel and luxury taxes charged, which I believe our one of the highest in the continental United States) is a major piece of tax revenue for the state.

    I think the casino business and the model set forth by management and the industry is one that only suits the casinos themselves. The commonly held practice is to attract visitors to your property and to hold them there as long as you possible. I sincerely doubt that the current casino business model, given the recent casino expansion in local marketplaces (Philadelphia, Deleware, Bethelehem, and New York), will allow Atlantic City to flourish.

  3. To actually answer your 2nd question posed to MCH:

    I think Revel will slowly climb the gaming revenue ladder. One think that these reported earnings don’t include are “other than gaming” income. I would be curious to see Revel’s earnings from these measures.

    I, however, do not believe these numbers would suffice the debt obligation payments. DeSanctis has already written off $1.5b and based on current revenue and coinciding earning estimates he has been bleeding red. Revel needed to pump $35-$50mm of revenue in the summer months to carry through the tough winter months. Revel will eventually bleed the ILOC, most likely within 18 months. Who will be on the hook for the debt payment and roughly $100m in annual capex dollars(estimated)? Will the bondholders force bankruptcy? I don’t see the bondholders wanting to cash out for stock given the stagnate economy and the gaming expansion in above-mentioned local markets. Who would want to buy this casino?

  4. Very well put. It seems as if Revel and its stakeholders have no choice but to stay on course, even if that means staying in the red for much longer than hoped.

    One advantage for Revel, and AC in general, is they have a “brand” which small-scale casinos in local markets can’t match. Revel hosts big-name entertainers and bands doing one-off shows–leaving fans no choice but to travel to AC. As long as Revel and other resorts offer shows and other entertainment unlike any other city, AC might have a shot.

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