Bad timing and bad luck on the Boardwalk

By now, it is no secret that Atlantic City casino market is challenged; casinos have grown up in all of its feeder markets and are siphoning off the cream from its cash-flow.  No property is going to be more challenged than Revel.  There are a number of reasons for Revel’s challenged state.  Revel is the newest casino on the Boardwalk and lacks the customer base the other casinos have been able to build up over the years.  Revel is also the most expensive and has the largest debt – by a huge amount; the last couple of casinos to change hands and “upgrade” were purchased for less than $40 million and even with the upgrades they cost about one fifth of the $2.4 billion Revel cost to build.

Of course that means that Revel has monstrous debt payments to make and it must make them from its share of an ever diminishing revenue stream in Atlantic City; look at these numbers. In July casino revenue dropped 10 percent to $308 million –  a 10 percent decrease and 10 percent is a pretty big drop.  But that is a drop in the bucket compared to the percentage of revenue decline in the last six years.  In July of 2006, gaming revenues in Atlantic City dropped 4.8 percent to $480.5 million; that means in six years casino revenues in July have dropped 37 percent.  Those casinos on the Boardwalk are falling off a cliff and into the ocean.

Revel is the newest, most expensive and it should be the most attractive casino in the city; it should be attracting every person that visits the town, at least for a look-see and a couple of bets to test one’s luck.  However, it is not getting it – in July, Revel generated $17 million in casino revenue, a 5.6% market share; only a couple of casinos are generating less revenue.

Common wisdom says that location is everything in business, but timing can be just as important; if Revel could have been built in 2002, 2003 or 2004 it might have been a very big success, swept the market and dominated like Borgata did.  Instead, Revel opened too late and cost way too much.  The lenders will have to write down some of the debt, the operating company will have cut its expenses to the bone, but nothing will help; Revel’s timing was wrong.  Atlantic City is a declining market – after 6 years I think it is possible to say the trend is real and permanent.  Oh, there will be bottom, there always is, but that will not solve Revel’s problems.  With only $50 million in debt Resorts is struggling to make ends meet and has called in Mohegan Sun to help it operate the casino and to exploit Sun’s database.

In every industry there are visionaries, those people that can see the future and help to create it with their ventures; Steven Wynn is one of the people – time after time Steve envisioned something different and created it – up to this point he has always succeeded.  The rest, and in this category I belong, look into the past and try to recreate and enhance it. Sometimes those people succeed, but often they do not.  The reasons they fail are usually situational – the timing, a change in social attitudes, wars or hurricanes – unfortunate events, bad luck.  The visionaries rarely have bad luck and manage to avoid the unfortunate events – they are able to create the right thing at the right time.

Revel, like the Cosmopolitan and CityCenter was birthed in the wrong era; and as an aside, Steve Wynn did not plan it. Local 54 thinks the Division of Gaming should investigate; of course its debt is too high and revenues too low.  But what can the Division do – what can management do – what can Wall Street do – what can anyone do?  Not much is my guess.

 Moody’s Investors Service has lowered its corporate credit ratings for Revel, warning of a “significant shortfall” with the $2.4 billion megaresort’s gambling revenue and profits.  Donald Wittkowski, Press of Atlantic City, 8-23-12

 In a letter today to the New Jersey Division of Gaming Enforcement, Local 54 of UNITE-HERE also is questioning whether Revel meets the state’s financial stability requirement for casino licensees.  “Given Revel’s financial performance to date, the existence of so many claims against the company raises the question: Is Revel currently able to meet the statutory requirements for financial stability, and if not, how will the DGE protect taxpayers and other stakeholders from an escalating financial crisis that could negatively affect the gaming and tourism industries in New Jersey?” Local 54 President Bob McDevitt wrote to David Rebuck, the division’s director. Donald Wittkowski, Press of Atlantic City, 8-23-12



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August 2012
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