Showcasing the Shore, Revel Rolls the Dice on an AC Comeback

Casinos tend to be dark places that force visitors to focus on one thing and one thing only: gambling.

Yet Revel, the $2.4 billion new centerpiece of Atlantic City’s efforts to stem a steady decline in revenue, isn’t shy about leveraging the beautiful coast it sits on. It’s a multifaceted approach aimed at luring in destination guests and making sure they come back for more.

This unique strategy translates to a 6.3-million-square-foot mega resort that reserves less than 5% of its space for gambling, instead focusing on breathtaking views of the ocean, limitless entertainment options and constant reminders of the scenery.

“This is a resort first and foremost. It happens to have a casino in it,” said Michael Prifti, a principal at BLT Architects, which quarterbacked the massive construction effort. On the East Coast, “There is no resort like this until you get to Florida -- none that recognizes and capitalizes on its place,” he said.

However, does spending $2.4 billion on a massive new resort make sense given the sluggish     U.S. economy, enormous competition for gambling dollars in the region and lingering image issues hovering above Atlantic City?

“There’s no question it’s risky,” said Randall Fine, managing director of The Fine Point Group, the largest full-service management and consulting firm in the gaming industry. “Atlantic City is not Miami Beach. There are real challenges there.”

Despite these concerns, Revel opened its doors to customers in April on a preview basis and then went fully operational this past holiday weekend with a splashy premiere that was highlighted by a performance by Beyonce that drew scores of celebrities.

Rocky Start Gives Way to Luxurious Amenities

Revel’s construction was delayed and scaled back by a year in part due to Morgan Stanley (NYSE:MS) backing out of the project in 2010 in the wake of the financial crisis, a move that cost the Wall Street giant nearly $1 billion.

New life was breathed into Revel after it secured $261 million in tax credits from the state of New Jersey under Gov. Chris Christie’s administration.

The Morgan Stanley exit and help from the state drastically reduced the cost for the ownership group, Revel Entertainment Group, which is led by CEO Kevin DeSanctis.

“They were able to pick up a half finished building for nothing,” said Fine.

This allowed Revel to spare no expense in the construction of the resort, which has 14 restaurants, a 32,000-square-foot spa, two theaters, a pair of night clubs, a day club and 10 pools.

Each of the 1,898 rooms in the 47-story glass tower has a view of the ocean or bay and a Cisco (NASDAQ:CSCO) powered tablet that gives guests Internet access as well as control of the room’s lighting, phone and drapes.

Revel also has other nifty features such as airport-styled electronic kiosks for check-in, a video-game room near an indoor pool, the only man-made salt room on the East Coast and a sophisticated sound and light installation that makes noise and changes color when guests enter the resort.

Herbert Gishlick, a professor at Rider University, said Revel’s strategy of leveraging the beachfront and creating a state-of-the-art resort seems to make sense.

“It’s a form of product differentiation. It may make their destination more desirable,” said Gishlick, who cautioned that the strategy may not necessarily help Revel’s struggling peers.

Revel said room rates begin at $239 a night during the middle of the week and increase depending upon the season and day of the week. Rates for Saturday nights and summer Saturdays start at $459. For an upcoming Saturday, the resort lists its view suite, which features floor-to-ceiling windows, at $809 for the night.

Fierce Competition Shifts Focus Off Games

All of this is targeted at the estimated 47 million adults who live within six hours of Atlantic City in the metropolitan areas of New York, Philadelphia and Washington D.C.

“We were looking for a diverse group that is sophisticated and appreciative of the nicer things in life and the quality of the experience,” said Prifti.

A new advertising campaign recently launched by Atlantic City features a new slogan -- "Do     A.C." -- and doesn't even mention gambling.

The focus on non-gamers makes sense given Atlantic City’s crumbling casino revenue. The industry reported a 6.9% drop in gaming revenues last year to $3.3 billion, marking a fifth-straight decline and a hefty 36% tumble since they peaked in 2006.

“We need to get [guests] to stay longer, return and spend more when they’re with us,” said Liza Cartmell, president of the Atlantic City Alliance, which is a not-for-profit corporation created by the state last year. “Atlantic City is really the picture perfect getaway.”

The loss of revenue underscores the enormous amount of competition Atlantic City faces these days as neighboring states lifted casino restrictions.

“Twenty years ago Atlantic City was the only place east of the Mississippi you could gamble,” said Fine. “The monopoly has faded. Now every state has gaming and is frankly increasing gambling.”

Revenue peaked just as Pennsylvania opened the first of 10 new casinos and continued to deteriorate as the economy crumbled and other casinos opened in New York and Maryland.

“The number one factor for determining where a gambler goes is proximity. It’s a tough sell to get someone to drive an extra chunk if there’s something close by,” said Fine.

Gishlick goes a step further, saying, “I don’t see gambling as a growth industry, particularly in this country. I think we’re tapping out the market of gamblers from all these other casino opportunities.”

At the same time, Atlantic City has struggled to overcome image issues caused by urban blight and crime. Just days before Revel’s May 25 premiere the Philadelphia and New Jersey newspapers were splashed with a story about two Canadian tourists who were stabbed with a butcher knife near the Atlantic City boardwalk during an apparent robbery.

Will Revel Help or Hurt Peers?

Atlantic City officials are hoping Revel will be able to help the city conquer all of these challenges.

Earlier this month Revel said it generated $13.4 million in gambling revenue in April, its first month of operations. That compares with $54 million in revenue raked in by the Borgata, the  city’s other luxury hotel, casino and spa.

Besides monthly revenue metrics, one key way to gauge the success of Revel is whether or not the resort opts to build a second 47-story tower. The property already includes a podium and the infrastructure for the second tower.

“I think it depends on how quickly the economy really ramps up and demand grows,” said Prifti.

A number of other casinos in the area are planning or have already executed their own upgrades, including a $50 million makeover of the Borgata and a $150 million transformation of Trump Marina into the Golden Nugget.

Other projects include a $100 million renovation of the Steel Pier amusement pier, which was recently sold for $4.25 million.

It remains to be seen if Revel can help reinvigorate Atlantic City by luring in new visitors or if it will just siphon off revenue that would have been spent elsewhere in the district.

“Revel could be successful even if it doesn’t make its brothers or sisters successful,” said Fine.