http://www.philly.com/philly/business/22570934.html
Posted on Sun, Jun. 29, 2008
A.C. dips its toes in nongaming luxury hotels
By Suzette Parmley
Inquirer Staff Writer
ATLANTIC CITY - Many eyes are upon this resort's newest nongaming attraction, the Water Club, a $400 million luxury hotel that sits next to the Borgata, the city's top-grossing casino.
As top executives from Boyd Gaming Corp. and MGM Mirage - the two companies that built the Borgata and Water Club - and New Jersey politicians took turns at the podium at Friday's ribbon-cutting ceremony here, almost all alluded to the Water Club as where the city needed to venture.
"This means so much for the future of Atlantic City as other states are nipping at our heels with gaming," said Assembly Speaker Joseph Roberts (D., Camden), who came down from Trenton.
High-end hotels with no gambling, like the Water Club, represent a new option at gambling meccas like Las Vegas and Atlantic City. Four more megacasino resorts are planned for Atlantic City over the next four years.
"This type of development activity continues the momentum of the town of rounding out its nongaming amenities," said developer Curtis Bashaw, a partner in one of the nongaming resorts planned to open by 2012. (He is also opening a 330-room luxury boutique hotel next to the Tropicana, the Chelsea, next month.) The $111 million Chelsea, like the Water Club, has no place to gamble, but will offer plenty of beach cabanas and upscale restaurants.
"It just adds depth to the marketplace," Bashaw said. "Atlantic City was a resort for 100 years before it became a gaming town, and now it's letting the past form the future."
But the Water Club is the start of a high-stakes gamble by Atlantic City developers. With gambling available at Pennsylvania slot casinos, and Maryland moving in that direction, and with the huge Connecticut resort-casinos an easy option for residents in New England and the Mid-Atlantic region, Atlantic City needs to appeal to a high-end clientele looking for more than a place to bet.
But the theory has some risky assumptions: That airline travel will be too expensive for Easterners to flock to Vegas, that rising costs of gasoline won't discourage people from driving to Atlantic City, that the billions of dollars of development planned won't create a glut, that a deteriorating economy will get better.
"The Borgata and the Water Club sit as an oasis on their own," said Andrew Zarnett, of Deutsche Bank AG, "but the market itself will be under pressure as it continues to compete with growing slots competition in Pennsylvania."
Michael Pollock, managing director of Spectrum Gaming Group L.L.C., of Linwood, N.J., said: "We believe that people who are watching the Atlantic City market will have to brace themselves. There are a number of challenges ahead."
But diversifying revenue sources is seen as an imperative for Atlantic City.
About 75 percent of Atlantic City's revenue of $5 billion last year came from slot machines and table games. The rest came from nongaming attractions, like the upscale retail malls and celebrity-chef-laden restaurants that now populate the casinos.
The seaside resort desperately needs to follow Las Vegas, which evolved to offer more than slots and table games as California Indian casinos substantially cut into its business.
Today, only 40 percent of Las Vegas' total revenue comes from gambling, according to the Las Vegas Convention and Visitors Authority. Before the mid-1990s, gaming revenue accounted for about 90 percent of Sin City's total take.
The Water Club is Atlantic City's latest step toward the new Vegas model.
"It's that kind of attraction," said David G. Schwartz, who is based in Las Vegas and is author of Roll the Bones: The History of Gambling. "The Borgata itself could compete in Las Vegas."
Boyd Gaming and its partner, MGM Mirage, knew immediately they had a winner on their hands with the Borgata. The Water Club was in the planning stage within weeks of Borgata's July 2003 launch, said Larry Mullin, Borgata's chief operating officer and president.
The demand for hotel rooms in Atlantic City, especially in the peak summer season, is insatiable. Mullin estimated that the Borgata was turning down on average 800 to 1,000 patrons a week last year.
But like restaurants and the retail sector, timing is everything, and casinos are no different when it comes to fighting for the consumer's discretionary dollar - which of late has been shrinking.
"There is a big opportunity here in the near term," said Kevin DeSanctis, chief executive officer of Revel Entertainment Group L.L.C., of Atlantic City. "People are looking to stay a little closer to home. I'm hoping Atlantic City takes advantage of it."
DeSanctis has a need to be hopeful. His company is currently building a $2.5 billion megacasino resort with two giant hotel towers on the northern end of the Boardwalk next to the Showboat.
A room in the summertime at the Water Club will cost $300 to $499 on average on weeknights, and $629 on weekends. The hotel's front desk has 10 check-in stations to handle the business.
Initial indicators show there is a market for such luxury. Since June 21, the first weekend that all 800 rooms were available, the Water Club has been sold out.
"I like this," said John Pepe, as he waded for the first time in one of three heated indoor pools at the Water Club last week. Pepe, 67, a Borgata V.I.P. blackjack player from Long Island, stayed at the new hotel for three days and three nights with his wife, Lee, 64. "This is very nice."
Schwartz, who is also director of the Center for Gaming Research at the University of Nevada, Las Vegas, said the Water Club "will fly on the East Coast."
"There is a market for this, especially with energy prices edging up," he said. "People who want a luxury vacation won't be heading to Vegas.
"It's almost like the Dark Ages returning where people aren't traveling as much by air because of costs," Schwartz added.
Richard Virgilio fits the bill. He drove in from Asbury Park and stayed at the Water Club for two days and one night last week.
"I wanted to get away," said the 35-year-old marketing executive.
The big difference: "I didn't have to go 1,000 miles to get it," he said. "I just had to drive an hour."
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Contact staff writer Suzette Parmley at 215-854-2594 or
sparmley@phillynews.com.
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