The tale of the sale of Atlantic City Revel casino hotel is getting as murky as its existence as a gaming property on the Boardwalk. Just weeks after rumors surfaced about an interest from Hard Rock International in the property, last week Bloomberg reported that Caesars Entertainment (CZR) is preparing to bid on the property. But like the Hard Rock rumors, there is no certainty that any offers will be forthcoming.
Revel, which opened in April 2012, struggled from even before its debut. After the superstructure was erected, construction was delayed for almost 18 months as the recession slammed the gaming industry around the country. When it finally resumed, the original owners, Morgan Stanley, had walked away and New Jersey Governor Chris Christie had persuaded a group of private investors to come up with an additional billion dollars, to go along with the $1.4 billion already invested.
But when the property debuted, it was trouble right from the start. Customers stayed away in droves—particularly gamblers. Revel officials led by founder Kevin DeSanctis stubbornly stuck to their non-gaming strategy, even when it was clear players weren’t coming. Panic began to set in as summer turned to fall and things were only getting worse. The arrival of Hurricane Sandy in late October short-circuited whatever progress Revel had been making.
DeSanctis was removed in early 2013 and replaced by former Mohegan Sun President Jeff Hartmann, who brought in marketing consultants the Fine Point Group. Together, they developed a “Gamblers Wanted” promotion hat offered a loss refund of up to $100,000 in the month of July. Although the fine print made the program controversial, it served its purpose of returning the spotlight to Revel. Subsequent promotions weren’t as headline making, but Revel has developed a solid marketing campaign and posted the largest percentage gain in gross gaming revenue in the city for 2013.
When former Station Casinos executive Scott Kreeger was appointed to succeed Hartmann, the owners of Revel announced they had put the property up for sale. The bids are due in two weeks. Caesars has reportedly been examining and evaluating all the operations of the casino hotel, but it’s unclear how deeply involved Hard Rock has been.
Should Caesars make a bid, it may face a regulatory hurdle. For years, New Jersey regulators tried to prevent one company from dominating the market. While the previous regulation against owning more than two casinos was overturned several years ago, the Division of Gaming Enforcement still must examine the issue of market concentration with any sale, known as “undue economic concentration.” And since Caesars already controls 41 percent of the market, with its ownership of four casinos—Caesars, Harrah’s, Bally’s and Showboat—adding Revel’s currently anemic 6.2 percent would push it close to half the market. There are no guidelines about what is considered market domination, but the DGE is required to look into it.
One local official was against the idea. Former Atlantic City Mayor and current state Senator Jim Whelan said the idea of casinos in Atlantic City was to involve many companies. He said the state wanted “diversity in Atlantic City, and not have the market dependent on the rise or fall of one particular company.”
“I think it would be against the law, and I don’t think it would be good for Atlantic City,” Whelan told the Associated Press. “Caesars already owns 40 percent of the market, and they just bought and closed the Atlantic Club.
Caesars has confirmed that the company is listening to offers for Bally’s and Showboat, but no offers have been made on either property at this time. The company recently bought the Atlantic Club casino (the former Atlantic City Hilton) and closed it down to remove competition from the market. Some analysts believe that Caesars would close one of those properties should it successfully bid for Revel. Others say the company could cut costs by consolidating Revel into its system.
How Caesars would afford to buy Revel is also problematic. Caesars Entertainment is saddled with more than $20 billion in debt, but a spinoff, Caesars Acquisition Company (CAC), was formed to make deals such as this. CAC currently controls the Planet Hollywood in Las Vegas, the under-construction Horseshoe Baltimore and Caesars Interactive, the company’s online gaming venture.