There was a lot of hype surrounding the opening of the Revel casino in Atlantic City. Supporters predicted the upscale $2.4 billion resort would reverse the struggling Shore townâ€™s sagging fortunes.
But just four months after opening, Revel is losing money and could be headed for an early bankruptcy. The casino is seeking another $100 million from its investors to stay afloat through next year. Talk about chasing losses.
This plan is not going to work. Atlantic Cityâ€™s gambling revenue has been cut almost in half thanks to increased competition from neighboring states. Those gamblers are not coming back. Why spend the time and money schlepping to A.C. when there is a casino close to home?
Despite the hype, the Revelâ€™s woes should not surprise anyone. After all, adding a 12th casino to a struggling casino market made no sense. In fact, the money men behind the Revel figured this out four years ago.
After the 2008 financial crisis, Morgan Stanley, the lead investor in Revel, walked away from the half-built casino. The Wall Street bank crunched the numbers and determined it would be cheaper to cut its losses at $1.4 billion rather than keep plowing more good money after bad.
In effect, some of the smartest guys on Wall Street concluded that Revel was not financially viable.
Then along came Gov. Chris Christie. The supposedly free-market Republican governor gave the Revel $261 million in tax credits to help complete construction of the casino. The deal included some murky language about repaying the state if it reached certain profit levels. But that is unlikely to happen.
The Revel is rolling craps. The casino only generated $17.5 million in gambling revenue in July, up from $14.9 million in June, but well below the $25 million to $30 million a month Wall Street analysts say is needed to pay its bonds. By comparison, a slots-only facility at the Aqueduct Race Track in Queens rakes in close to $60 million a month.
The New York market is much bigger and currently has less local competition. But the Revelâ€™s revenues even lag behind all but a few of the smaller, older and dumpier casinos in Atlantic City. (Disclosure: I edit an anti-gambling blog.)
Usually, any new casino draws huge crowds at the start. But despite lots of hype and a new marketing push to â€śDo A.C.,â€ť gamblers have mostly avoided the Revel. The problem is the Revel went after upscale gamblers in a market that caters mainly to senior citizens and low rollers in sweatpants.
Gov. Christie now says it will take time for the Revel to create more of a â€śresortâ€ť market. How and when is that going to happen? Atlantic City is a seedy dump and has been for some time. Thirty years of gambling has done nothing to reverse its fortunes. The best tourist draw remains the White House Sub Shop.
At some point, the Revel will likely go down market, offering cheap rooms, penny slots and smoking. But then it will be like all the other Atlantic City casinos fighting over a shrinking pie.
Either way, the Revel is likely headed for Chapter 11.
Ironically, the Revelâ€™s financial troubles will probably lead to even more gambling in New Jersey. Thatâ€™s because as Atlantic City continues to struggle, pressure will grow from upstate lawmakers to offset the lost gambling tax revenue by adding casinos in the Meadowlands. Christie has opposed such a move, mainly as a sop to state Senate President Stephen Sweeney and other Democrats in South Jersey who the governor needs to get other legislation passed.
But the answer to New Jerseyâ€™s gambling problem should not be more gambling. States are caught in a casino arms race leading to few winners. Pennsylvania, Maryland and Delaware now have casinos.
The competition is just heating up. Massachusetts and Ohio have recently legalized casinos. New York is moving to do the same. There is a push at the federal level to allow online gambling. No need to even go to the local casino when you can lose money at home.
New Jersey and the casino Christie helped build are holding some bad cards. Letâ€™s just hope the Governor doesnâ€™t use more taxpayers money to double down on casinos.