Revel, the resort-casino in Atlantic City, closes its doors in just a few days. Perhaps Revel could have succeeded as a unique and elegant feature of the Boardwalk. Instead, Revel was a catastrophic failure, becoming the victim of the economic downturn, competition, horribly bad luck, and bad decisions.
No new casinos had been built in Atlantic City for four years when Revel and its 90% owner Morgan Stanley, Inc. proposed to construct the Revel as a $2.4 billion modern casino. In 2007, they filed plans for the mammoth development, which included two hotel towers, a sizable spa and resort area, fine dining options, and a relatively small non-smoking casino floor. The plans called for natural light to flood into open, elegantly curved floor plans, decorative mosaic tile, modern and clean-lined hotel rooms, and dramatic vistas of the ocean. The finished facility looked like a sleek luxury hotel and not a windowless casino. Looking back through rose-colored glasses, it’s easy to see why the project was such an attractive investment.
And looking at the 2007 American economy through those rose-colored glasses, it’s easy to see why a new casino seemed like an excellent investment. The United States had seen a long period of low inflation and apparent economic stability. People had discretionary money to spend. Equally importantly, the economy appeared so strong that the American Dream of home ownership seemed attainable to average people with below-average credit.
Hence the economic bust. Predatory lenders approved sub-prime mortgages to extremely risky borrowers and then bundled those risky mortgages into securities. Those securities were graded low-risk by experts in the field and then sold as prime investments. In April of 2007 New Century Financial, a company specializing in sub-prime mortgages, filed a bankruptcy. From then on, companies involved in the sub-prime lending business – as well as government agencies – fell like dominoes: American Home Mortgage Investment Corporation; Countrywide Financial Corporation; Fannie Mae; Freddie Mac. This culminated in Lehman Bros., a financial services firm that had created and still held mortgage-backed securities, filing a bankruptcy in September of 2008. At that stage, borrowing became nearly impossible as the American economy accelerated into a free fall.
The economic situation was only part of Revel’s misfortune. On July 31, 2008, an airplane crash killed several Revel executives. Revel’s general contractor misrepresented that the project was under budget when it was far over budget, wasting around $100 million. In January of 2009, the project ran out of funding and Revel laid off 400 workers, retaining others to finish the construction of the exterior shell only. Two accidents in March 2010 injured a worker and damaged the project; in a later accident, a worker was struck by lightning and killed. Gambling opportunities in Pennsylvania and New York diminished Atlantic City’s market share. In April of 2010, halfway through construction, Morgan Stanley showed its lack of confidence in the project when it walked away from the project and its $932 million investment, put its equity position up for sale, and wrote off its enormous loss.
New Jersey Governor Chris Christie came to the rescue in February 2011, announcing that Revel had secured remaining financing. Christie signed a package of bills designed to revive the flagging Atlantic City tourism and gaming market. Additionally, the Economic Development Authority of New Jersey approved $261 million in tax-increment financing to assist Revel. The aid was to apply after Revel reached a set profit level. Revel was back in business, or at least, was able to finish the construction of the facility.
The Revel opened amidst great fanfare in April of 2012. Almost immediately, however, those of us in Philadelphia began to hear of its failings – the casino floor was too small, the customer service was failing, the spa and resort services were adequate at best, they did not offer free amenities to high rollers, food and drink were overpriced, guests got lost in the maze-like facility, and the casino was located inconveniently far away from outlet shopping and other casinos. According to those reports, instead of being a resort and a casino, the Revel was neither. Its profits reflected these failings: it was listed as having one of the lowest rates of casino winnings in Atlantic City, and showed consistent losses from the middle two quarters of 2012. These losses were exacerbated by the mandatory evacuation and extensive cleanup effort caused by Hurricane Sandy in October of 2012. Revel was forced to line up financing in December 2012 – the second time in less than a year.
In March of 2013 Revel filed a voluntary chapter 11 bankruptcy. Its goal was to file quickly, convert debt into equity, and allow for creditors to receive a sizable equity stake. Specifically, Revel proposed to convert more than $1.5 billion of debt into $272 million, and reduce its interest expense from $102 million to around $32 million. General unsecured creditors would be paid in full. The plan recognized some of Revel’s customer-satisfaction shortcomings, and called for the addition of less-expensive amenities, a larger customer rewards program, resort passes, and accommodations for higher-stakes gamers. The plan had been approved by most secured creditors before filing, and Revel exited its bankruptcy in less than two months. Revel immediately took steps to increase revenue. It removed its board of directors and fired around 18% of its staff. It advertised more widely, selling rooms online and hiring a new marketing representative, which doubled room occupancy. It fired its talent agent and started booking bigger concert acts. It made the facility more guest-friendly by installing signs in the confusing layout, allowing smoking, and selling day passes for its beach club.
Even after reducing the debt by over a billion dollars, Revel still failed because it could not handle the debt service stemming from the bankruptcy, as well as its fixed utility costs. Additional financing was granted by the secured creditors in November of 2013, but access to the funds was tightly restricted and required Revel to seek a buyer for its business. Revel could not do so.
On June 19, 2014, Revel filed its second bankruptcy, seeking to sell the facility at auction. At the time of filing, Revel had no interested buyer, but believed it could sell off its assets nonetheless. Unfortunately, no bids were received that met Revel's qualifications. As a result, in August, Revel announced that it would postpone the auction indefinitely and close its doors for good in September. Currently, Revel is scheduled to close to guests on September 2, 2014.
I believe that given enough time, or in the pre-downturn era, Revel could have found its audience. The concept was unique to the Atlantic City market, and the facility was stunning. But dozens of factors figured into its failure: The economic downturn. The loss of leadership at an early stage.
Construction cost overruns. New competition in neighboring states. Failure to recognize its audience. Failure to overcome Morgan Stanley’s withdrawal. Lightning strikes and hurricanes. All in all, it’s no wonder that Revel ended with a whimper.