Atlantic City’s Revel To Allow Smoking As Part Of Chapter 11 Bankruptcy
Revel, Atlantic City’s newest casino that opened a mere 11 months ago, has filed for Chapter 11 bankruptcy protection. The casino found it couldn’t overcome some $1.5 billion in debt based on its valuation of just $450 million, according to recent SEC filings, and it would take another four years before it became fully profitable. But the casino, which became a large part of New Jersey Gov. Chris Chistie’s revitalization plans for Atlantic City when he backed its $2.4 billion completion with a tax package, plans to complete its restructuring plan within 60 days. It also expects to continue operations during the restructuring period, thanks to $250 million in financing.
But Revel’s going to have to make some changes to its operations in order to become profitable. With its pricier rooms and meals, Revel was intended to attract large conventions more than the everyday gambler. Smoking was banned in the entire casino—the only such ban in Atlantic City—and it didn’t offer a buffet. In fact, Revel has consistently performed near the bottom of the city’s 12 casinos in terms of gambling revenue—and that’s in a city that is already losing money, having dropped from the nation’s No. 2 gambling market to lag behind neighboring Pennsylvania.
“While this would not be a problem for the convention trades, where the attendee is on an expense account, it can be a big negative for the frequent independent traveler, overnight guest and the day tripper, that provides much of Atlantic City’s customer base,” casino analyst Steve Norton told the Associated Press. “Revel doesn’t have the level of low-priced food options like every other Atlantic City casino.“
And sure enough, no sooner did the bankruptcy news hit the wires than Revel’s chief restructuring officer Dennis Stogsdill announced the casino-wide smoking ban would be lifted, one of many changes to occur through the restructuring plan.
“While Revel’s resort and convention center segments have performed reasonably well in the first year of operations, the casino has struggled mightily to make headway with the traditional Atlantic City patron that does not stay overnight, an important segment of the customer base for any Atlantic City casino,” he wrote in court documents.
So how will the decision to reverse Revel’s smoke-free policy impact the overall smoke-free movement, especially in relation to other casinos? After all, the biggest argument made by opponents to such policies is that banning smoking in their establishments will hurt their bottom line. The same issue is being raised by heads of casinos nationwide.
In Iowa, for example, casino owners recently lobbied the state legislature when it began considering eliminating their exemption from the state smoking ban, passed in 2008. Although supporters argue banning smoking in casinos benefits public health, casino officials say smokers will simply abandon their establishments to frequent tribal casinos not bound by state law. According to KTIV4 News, some casino officials argue their bottom dollars could take as much as a 20-percent loss.
Meanwhile, a Florida casino owner is making the same argument in his attempts to defend a casino exemption from the St. Joseph, Fla. smoking ban. Craig Travers, general manager of the St. Jo Frontier Casino, told the St. Joseph News-Press revenue at the establishment would drop between 25 and 30 percent if the existing smoking ban included the gambling floor.
“It’s a business model that doesn’t work. Most of the time, a person goes to a casino to gamble, smoke and drink, and if they can’t do all three of them at the same time, they go somewhere else where they can,” Travers said.
And a heated battle is underway in St. Louis County in Missouri as representatives from Hollywood Casino and neighboring bars met with one local lawmaker in early February about his proposal to remove exemptions from a voter-approved smoking ban. The Hollywood representatives were concerned that removing their exemptions would prompt smoking gamblers to go across the Missouri River to neighboring Ameristar Casino—safe from the ban in St. Charles County.
“Such a ban would have a significant, detrimental effect on revenues produced for the state and for Maryland Heights,” said Craig Robinson, vice president of finance for Hollywood Casino. “Evidence from other states – mainly Illinois – shows a dramatic impact when smoking bans are implemented and smoking still exists among your competitors.”
The evidence Robinson referenced includes studies that show revenue drops 20 to 30 percent in a casino with a smoking ban, if said casino borders a jurisdiction without a smoking ban.
No sooner did the Hollywood reps make their case, then a Missouri state representative proposed legislation that would ease smoking restrictions on nearly all of Missouri’s casinos—for the time being. Rep. Bill Otto, a democrat representing the St. Charles district including both the Hollywood and Ameristar casinos, sponsored a bill that would prohibit local smoking bans at casinos if smoking is allowed at a competing casino within 75 miles. For example, the proposal would prevent St. Louis County from banning smoking at Hollywood unless smoking was also banned at Ameristar in St. Charles County, and vice versa. But the legislation isn’t necessarily designed to promote smoking in Missouri’s casinos, instead it simply levels the playing field while all counties catch up to rules already in place in some areas. Eventually, when all local communities have enacted their own smoking bans, the restrictions would affect all casinos.
“These counties will fall one at a time,” Otto said. “It will really be detrimental to whichever casino goes nonsmoking first. This will just kill them.”
So now now after Revel, which planned to lead other Atlantic City casinos out of their smoke-filled haze, has basically gone belly up? Even as recent as last August, Revel was still all about being smoke-free.
“That’s what governments are going to demand and that’s what employees are going to demand,” Revel Atlantic City’s then-CEO Kevin DeSanctis said about smoke-free gaming., adding that he doubted Revel’s below par gaming revenue was a result of the no-smoking policy.
“I think smoking is so yesterday,” DeSanctis told USA Today last March. “Interestingly, I have only heard from non- smokers, who are ecstatic” about Revel’s decision to be smoke-free.
Fast forward one year and DeSanctis is out as CEO and smoking is in at Revel. For all initial celebration of the casino’s smoke-free policy, the bankruptcy will certainly have some rethinking their positions. What do you think? Did the smoking ban have an impact on Revel’s lack of revenue?