Faith, hope and Atlantic City
All around you there are financial problems in Atlantic City with other casinos, and when you look at Nevada you see some half-constructed and abandoned projects. So why are you moving forward when most everybody else seems to have stopped?
DeSanctis: I think it’s a fair question and the right question. When the economic crisis hit, each project had to be evaluated at that time on the merits of its particular situation. Each one was a bit different, with its own set of assumptions going in, and each one was at a different stage of development, and those factors ultimately determined the decisions that each project team made regarding how their projects would proceed. … As it related to our particular situation, we felt the best course of action, which was in large part dependent upon where we were in the development process, was to ride out the financial crisis and to pace our development with the level of funding that we would put in place at that point in time.
You obviously have confidence in the Atlantic City market. Why do you have such confidence?
DeSanctis: Because I believe that the underlying fundamentals necessary for a destination to succeed are present in Atlantic City. The demographics are outstanding - 47 million adults within an hour’s drive, a critical mass of retail, dining and entertainment amenities, an established market of approximately 30 million visitors a year, and most importantly a location that millions of people don’t need an excuse to visit, which is the Jersey Shore. When you combine a natural destination with a great resort product you should have a strong probability of success.
What about your particular project, is it going to make the town a destination resort when even though we have some very nice properties in Atlantic City the analysts still don’t call Atlantic City a destination resort?
DeSanctis: Your question really has two parts: first, is Revel being built as a destination resort; and second, why isn’t Atlantic City considered by some to be a destination resort? The answer to your first question is that, yes, we consider Revel to be an urban beachfront destination resort. The primary difference between what we are creating and what currently exists in Atlantic City is that we have the advantage of building for what we believe the consumer is looking for today, and most of the projects in Atlantic City were built many years ago for a different consumer. Revel will be different in that our project has been designed to incorporate gaming into a much broader entertainment experience. As to the question of Atlantic City as a destination resort, we believe that for Atlantic City to achieve that perception in the minds of consumers some things have to change, but those changes are not as difficult as some imagine. We believe it is more of an issue of all of the relevant constituencies agreeing on a vision for the future than an issue of implementing key changes to make it happen. We believe it can happen and will happen, and we are working with everyone, the city, state and industry, to make it happen.
Is your goal to bring people to your resort first and then assume they will gamble? Or is it the more typical Atlantic City model, which is to get the gaming customer in and hope that they spend in the restaurants and shops?
DeSanctis: Our model, very similar to what’s taken place in Las Vegas, is focused on attracting consumers who do not necessarily consider themselves gamblers but who will gamble. And that is a very large segment of the population. We believe over time that the revenue composition will become more balanced between gaming and non-gaming revenues, but the profitability will most likely be weighted towards gaming because of its strong margin potential.
Are you going to grow the market?
DeSanctis: The short answer is, I believe we will grow the market, and I also think there will be some cannibalization. We believe Revel will build on what Borgata started in 2003 and continue to expand the appeal of Atlantic City, which will bring a new customer to Atlantic City and grow the market. We also expect that Revel will appeal to some of the existing Atlantic City customer base, which, for those projects that cannot broaden their reach, will create a revenue gap which most people refer to as “cannibalization”.
In light of the current economic situation and the changes in the market is Revel the last mega-casino for Atlantic City?
DeSanctis: That’s really a hard question to answer. In today’s environment most would say that there won’t be any more projects of this scale built in Atlantic City or elsewhere. And in today’s environment that would be a fair assessment. But things have a way of changing, and depending upon a number of factors, I could envision projects of this size, and larger, being built, albeit with a different business model.
There’s more and more competition from neighboring and nearby states: Delaware, New York, and as close as Philadelphia. Doesn’t this worry you?
DeSanctis: Unfortunately, I worry about everything regarding this project, but the reality is that the competition from Pennsylvania, Delaware and New York was a known before we ever put a shovel in the ground. Our analysis tells us that the market demographic for Atlantic City and the regional competition is very large and, we believe, sufficient to sustain both business models. Each business model is unique and has its advantages and disadvantages and both have the potential for success by exploiting their respective competitive advantages. For example, if Atlantic City tries to compete as a convenience option it will face a challenging future; and, as a general rule, if the regional operators try to compete as resort options they will face a challenging future, the caveat being that Mohegan Sun and Foxwoods are a bit of a hybrid business model. We believe that Atlantic City should and can successfully compete within the overall market as a resort destination, and Revel will be a significant contributor to achieving that resort experience. Our belief is that our future will not be determined by what the competition does but by how well we execute our plan. That’s what I worry about.
Kevin DeSanctis is founder, chairman and chief executive officer of Revel Entertainment Group. He has served as a top executive with some of the industry’s best-known names, most recently with Penn National Gaming, where he was president and COO, and with Mirage Resorts, the Trump casinos in Atlantic City and Kerzner International.