ATLANTIC CITY - Revel Entertainment Group's $2 billion megaresort may be the coup de grace for two or three of Atlantic City's weaker casinos if they aren't killed off even sooner by the recession, a new research report ominously predicts.
The report, authored by gaming analyst Joel H. Simkins, of Macquarie Securities, concludes that it may not be an entirely bad thing to lose smaller casinos that are stealing business from the healthier, major resort hotels.
"(The) closure of two or more facilities in Atlantic City would be positive by eliminating the low-end as well as the more parasitic casinos that force other operators to drive down their margins," Simkins wrote.
Simkins said the opening of the Las Vegas-style Revel casino, itself struggling with financial troubles while it is under construction, should be "a transformational event" much in the way the upscale Borgata Hotel Casino & Spa began to attract younger and wealthier customers to the Atlantic City market.
"While Revel may cannibalize many of the aging facilities in the market, it may be the shot in the arm necessary to take Atlantic City into a more positive direction," he said.
In addition to Revel, the existing Atlantic City casinos are threatened by the fractured economy and stiff competition from slot parlors in Pennsylvania, New York and Delaware. Simkins believes that even before Revel opens, "certain markets like Atlantic City are overdue for capacity reductions."
Simkins did not name names, but Trump Marina Hotel Casino, the Claridge Tower at Bally's Atlantic City, Resorts Atlantic City and the Atlantic City Hilton Casino Resort are smaller properties that analysts believe are in danger of closing.
With the recession and global credit crisis wreaking havoc on the gaming industry, Revel is expected to be the last mammoth casino project built in Atlantic City for years to come. Even its fate is uncertain. The owners have slowed down construction to stretch out the cash they have on hand until they can secure long-term financing to finish the job.
Simkins, who met with Revel chief executive Kevin DeSanctis during a recent tour of the construction site, said the company and funding partner Morgan Stanley will have invested about $1.3 billion into the project by year's end and must obtain an additional $700 million. Revel executives once hoped to open by summer 2010, but financing shortages are expected to delay the casino's debut until 2011.
Simkins said he is impressed with Revel's South Beach-inspired design, calling it "world class for any market." Revel is building a 1,900-room hotel tower, 150,000 square feet of casino space and an array of nongaming attractions to lure well-heeled overnight guests and conventioneers.
According to Simkins, many investors mistakenly thought Revel had halted construction. He also said investors seem to have "written off Atlantic City" altogether because of the gaming industry's dramatic downturn during the recession and competition from surrounding states.
He urged political leaders to come to Atlantic City's aid by providing casino tax incentives, using the government power of eminent domain for redevelopment projects and allocating state Casino Reinvestment Development Authority funds for more nongaming attractions that would draw more tourists.
"Ultimately, we hope that the political powers in Trenton demonstrate some leadership before the state's cash cow is ultimately milked dry, particularly as gaming continues to ramp up in New York and Pennsylvania," Simkins wrote.
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