Feb. 21 (Bloomberg) -- Governor Chris Christie isn’t giving up on reviving New Jersey’s Atlantic City even though its newest casino plans to seek bankruptcy protection and another is ready to sell itself for less than its 1984 construction cost.
Christie, a first-term Republican seeking re-election in November, has said the city’s gambling venues are key to the state’s economic recovery. He gave Revel AC Inc. $261 million of tax breaks, saying the hotel and casino would lead the seaside resort city’s transition from day-trip to luxury destination.
The $2.6 billion Revel, though, has fallen short of its own expectations since opening in April, ranking next to last in January gambling revenue out of the city’s 12 casinos, the state reported Feb. 11. The operators plan a prepackaged bankruptcy to erase more than $1 billion in debt.
“The agreement we have reached with our lenders will ensure that the hundreds of thousands of guests who visit Revel every year will continue to enjoy a signature Revel experience in our world-class facility,” Chief Executive Officer Kevin DeSanctis said in a Feb. 19 statement.
Certain Revel lenders will provide about $250 million in financing, the company said. The resort boasts almost 1,900 hotel rooms and a 130,000-square-foot (12,100-square-meter) casino floor with more than 2,000 slot machines.
“They’re investing in Atlantic City,” Christie told reporters yesterday in Little Ferry, New Jersey. “If they thought that there was no future there, they could close Revel down.”
Christie, 50, also was confident in the pending sale of Trump Plaza for $20 million. That’s about 10 percent of the $210 million spent to build the hotel and casino in 1984, the Associated Press said. The sale to Meruelo Group will be completed by May 31, according to Trump Entertainment Resorts.
Atlantic City is only halfway into a five-year turnaround, the governor said.
“You can call it a failure at the end of five if that’s where it turns out, if that’s where we wind up being,” Christie said. “But I’m not ready to give up yet.”
Atlantic City casino revenue fell 8 percent in 2012, the sixth straight decline. Competition from Pennsylvania has been rising, with the Keystone State passing New Jersey last year to become the second-largest U.S. gambling market after Nevada.
Revel hasn’t succeeded in taking control of the upper end of Atlantic City’s casino market from Borgata, the market leader. Borgata has remained in first place for monthly revenue since Revel opened. Revel’s slots were in last place in January, while its tables were in seventh, state figures show.
A strategy of marketing to high-end consumers “may have sacrificed non-gaming revenue and indirectly depressed gaming revenue” at Revel, said Brian C. Miller, a Bloomberg Industries analyst. Revel’s third-quarter occupancy rate of about 80 percent was the city’s lowest, while its average room rate of $138.53 was the highest, according to Miller’s research.
Revel’s fate won’t determine the future of the Atlantic City market, according to Joseph M. Kelly, who teaches business law at the State University of New York at Buffalo.
“Revel won’t be the first and probably won’t be the last in Atlantic City to file for reorganization in Chapter 11,” Kelly, who is also a co-editor of Gaming Law Review, said by telephone. Donald Trump’s Taj Mahal declared bankruptcy in 1990.
Atlantic City’s revival relies partly on expanded gambling. The Democratic-controlled Legislature on Feb. 26 will decide whether to accept Christie’s changes to a bill that would let casinos offer Internet-based betting. A federal court may rule by the end of the month on a proposal to make New Jersey the fifth state to legalize sports betting.
Atlantic City was a bustling resort until the 1960s, when it became riddled with poverty, crime and corruption. The state approved casino gambling in 1976, limited to the city, to boost its ailing finances.
The first casino, Resorts International, opened in 1978. Gambling revenue rose every year until 2007, when the 18-month recession began. Six of Atlantic City’s casinos went through bankruptcy or restructuring, while development stalled.
Christie stepped in to help Revel after Morgan Stanley walked away from the project in 2010, halting funding on what was conceived as the city’s biggest resort. The bank wrote off most of its $1.2 billion investment.
Backed by Christie, the state Economic Development Authority granted $261 million in tax incentives to help restart Revel construction two years ago. He signed legislation at the construction site to create a tourism district, boosted marketing and eased regulations on casino operators.
The Revel restructuring shows support for a “new type of business model for Atlantic City,” according to Israel Posner, the executive director of the Levenson Institute of Gaming, Hospitality and Tourism at the Richard Stockton College of New Jersey in Galloway Township.
“The lenders are confident that the business model is something that makes sense going forward, and the lenders are willing to stand by it,” he said by telephone.
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