The situation at the Revel Casino Hotel in Atlantic City went from bad to worse last week when management delivered a letter to all employees. The letter reportedly warned that efforts to find a buyer for the property have not been successful and that the company will be forced to close its doors as soon as August 18 without a new owner.
The casino stressed, however, that the date was not a deadline, merely a requirement of federal law.
“The August date mentioned in the employee letter is not a deadline. To the extent applicable, the WARN Act generally requires at least 60 days notice and the dates selected are intended to satisfy such requirement and are based on current information available to Revel,” the company said in a release. “The sale process will run its course and we will revise the date in the notice as circumstances dictate.
“Revel has obtained the funding to continue operations as usual while facilitating a sale to a new owner who will help ensure it has the operational and financial flexibility required going forward. However, as stated in the notice, if Revel is not successful in its efforts to complete a sale promptly or to find a better solution, it may decide to discontinue all operations and permanently shut down, in which case, that would result in employee layoffs.
“Although Revel believes that it may not be required to provide notice pursuant to the federal Worker Adjustment and Retraining Notification Act (the WARN Act), this conditional notice of layoff, which was mailed to employees, is intended to satisfy any applicable notice requirements of the WARN Act.
“Revel’s management team is working to reach an agreement with a new owner as quickly and efficiently as possible. As always, Revel will make decisions and adjustments about future employment based on its business needs.”
The casino later confirmed that it has filed for bankruptcy a second time this year. For most of the year, Revel has been actively courting a buyer. Rumored to be interested have been major gaming companies like Caesars Entertainment and Hard Rock International, but the owners’ price tag of around $300 million has not been appealing to them. The casino is owned by a group of investors who took control after the first bankruptcy, wiping out 82 percent of the property’s debt, but apparently not enough.
Hard Rock President and CEO Jim Allen has said that his company would be interested for “the right price,” but apparently $300 million is too much. The property has lost more than $250 million since it opened.
Because the casino leases most of its food-and-beverage outlets, as well as its nightclub operations, Union Gaming Group says in a not to investors that Revel “can’t be valued on a cash flow multiple, which makes valuation tricky. We have the seen the property notably grow revenues recently. Year-to-date gaming win through May is up 29.3 percent to $59.6 million. The new management team continues to make a number of positive operational changes to get closer to break-even. The property doesn’t participate in the state’s online gaming industry, as it remains laser focused on improving operations. While the changes have helped the property, we don’t expect it to suddenly become a dominant player in the market.”
The casino opened in 2012 after nearly six years of starts and stops in construction. Built at a cost of $2.4 billion and owned originally by Morgan Stanley, construction of the property came to a halt in 2009. A year later, Governor Chris Christie arranged for tax credits for a successful Revel (none of which have ever been claimed), and construction resumed.
Envisioned as a non-gaming mecca prior to the Great Recession, Kevin DeSanctis and management of Revel did not alter strategy after the financial meltdown and their “build it and they will come” assumption proved to be false. Also falling victim was the hope that Revel would be a “game changer” in Atlantic City and help to re-attract the thousands of gamblers who have abandoned the Boardwalk for a casino closer to home, when gaming was legalized in surrounding states.
After the first bankruptcy, DeSanctis was replaced by former Mohegan president Jeff Hartmann, who gave way to current president and former Station Casinos exec Scott Kreeger.
A marketing program designed to attract gamblers debuted last summer. “You Can’t Lose” promised a rebate of as much as $100,000 in losses. While the program was complicated and unviable, it did grab attention and since then traditional marketing campaigns have improved gaming revenue substantially. But not enough.
The current financial difficulties were exacerbated two weeks ago when employees voted to allow Local 54 of UNITE HERE to negotiate a contract. Under DeSanctis, Local 54 has run a campaign to halt the construction of Revel at every step because DeSanctis refused to commit his restaurant tenants to unionization, saying it was unfair to force that upon them. But now the organizing campaign may have been the last straw.
Should Revel close, Union Gaming Group says that it would be a positive for Boyd Gaming, which operates the city’s leading casino, the Borgata, as well as Caesars Atlantic City, which have “similarities in market positioning.”
“Borgata would likely get outsized share of Revel customers,” wrote Union Gaming. “In the last year, Revel generated gaming win of $168.7 million. The property’s high-end room, dining, and nightlife focus attract a similar demographic as the Borgata. While some of the customer base is similar there are a number of key differences including Borgata’s focus on gaming, multiple dining price points, and location that have allowed it to be the marquee asset in the market. If we assume, the Borgata gets approximately a 20 percent share of Revel’s customers this would equate to roughly $35 million in incremental GGR.”
