Vol. 4, No. 7, July 2007
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Q&A Paul Rubeli, former chairman, Aztar Corp.
In the early 1990s, Paul Rubeli, then chairman of the Aztar Corporation, which owned and operated the Tropicana casino in Atlantic City, was dealing with a stagnant market. With others sounding the death-knell for Atlantic City, Rubeli was the first to champion new rooms and non-gaming amenities to jump-start the local market. Wall Street listened and the rest is history. He spent more than two decades with Aztar, leaving a little more than a year before the company was sold to Columbia Sussex. Casino Connection Editor Roger Gros caught up to Rubeli in Atlantic City in May at the East Coast Gaming Congress, where he was lauded as the man who woke up the investment community to the possibilities of Atlantic City.
Rubeli: Yes, I am. If you go back to the early years of Atlantic City, the early ’80s, Atlantic City had gained the reputation of being strictly a day-trip business, a low-end business and frankly, one that Wall Street wasn’t particularly interested in. We’ve come a long way as a city since that point and time. Thousands of hotel rooms have been built, retail and dining and entertainment projects are already in existence throughout the city with more on the drawing board. So it’s fun to see an area achieve what was intended originally by the act—a completely revitalized area.
How difficult was it in those days to get Wall Street’s interest?
It was extremely difficult. Frankly, one of the reasons was there were several major companies in the casino business in Nevada that were not in Atlantic City, and there was an implicit tug of war between the Atlantic City operators and the Nevada operators as to which jurisdiction Wall Street would be most interested in. So it was an internal battle that was rather ruthless at times. Secondly, we, as a city, didn’t do ourselves any favors, because we frankly exploited the day-trip business, invested most of the efforts in building bigger and bigger casinos, and did not invest the efforts or the capital in building the support structure such as hotel rooms, dining, retail and entertainment jurisdictions. It was a tough time.
When you really dug into the numbers and discovered how valuable a customer who stays in a hotel room was, what did you do?
In 1994, the formula of 500 hotel rooms per casino was essentially still what many of the operators were relying on. At Aztar, we had already built another 500 rooms. We had a 1,000-room hotel but wanted to make a substantial investment in more hotel rooms. We were met with a great deal of skepticism that we would have to fill them with such low-end players they wouldn’t generate any returns.
Our knowledge at the time was based on facts, not on the opinions or impressions that were formed by the media or by some of our colleagues in Nevada. We knew that the greatest returns were coming from the people who stayed overnight in the hotel rooms. And the returns were substantially higher than the average person in the average hotel room in Las Vegas. That was such a contradictory idea at the time that it received a great deal of attention. It is often true in life that when the facts are on your side, ultimately they prevail. That’s what happened, and we now have well over $10 billion of investment in this city that wasn’t there at the time.
Also during the 1980s we were laboring against a state that didn’t realize the potential for the Atlantic City gaming industry or its impact on the economy—which turned around in the early 1990s with the appointment of Pat Dodd as a commissioner and Steve Perskie as chairman of the Casino Control Commission. How important was that to the revival of the city?
I think your assessment of the ’80s is right on the money. For eight years, we had a chief executive in Trenton who made it crystal clear that he would stay as far away from the casino business as he could, and as a consequence, there was no direction and there was no vision. It was pure chaos for eight years.
I would argue it was during the administration of Jim Florio we saw a major turnaround in that attitude. Of all the governors that I’ve been through—six or seven since my first trip here in 1979—there is no question in my mind that it was Jim Florio who turned 180 degrees and recognized the importance of this industry to the state of New Jersey. He in turn named Steve Perskie as chief of staff, who managed to get a series of initiatives through the legislature that were extremely important in creating a capital investment environment that allowed us in subsequent years of the 1990s to begin this massive investment.
You were cautioning of coming competition 10 years ago. How important are the new amenities in remaining competitive?
Atlantic City is now surrounded by jurisdictions that have gaming within an hour of most of the population that serves our market. So, if you are going to cause people to drive past their local casino, there has to be things in Atlantic City that provide amenities, entertainment, excitement and things to do that are not going to be available at the local casinos. You are going to be selling the total destination amenities, not just gaming.
What do you think are the challenges still facing Atlantic City—what are the main problems we are going to have to surmount to make the city what you see it to be?
That is a good question. On the one hand the city has changed. It is very vibrant and, in my view, very beautiful in many ways. On the other hand, little has changed. It’s same old same old issues: cooperation between the public sector and the private sector.
At the end of the day, I go back to a mantra that I attempted to use to move the city and the industry toward: Step back and stop giving so much away.
As a company we were successful making progress to convince the industry and Wall Street that hotel rooms were very valuable and therefore a very important investment to be made in the city, and that obviously has momentum. I also attempted almost each and every year to provide all kinds of reasons and arguments that eliminating these cash givebacks and cash coupons is an absolute opportunity for this industry to seize. If we are still giving away 12 percent of every sales dollar in form of cashback, that is essentially an automatic 12 percent discount of $600 million a year that otherwise could be used to build more hotel rooms, dining, retail and entertainment.
I tried as well as I could to make a convincing argument that Atlantic City is unique, and there is a propensity here to compete by giving things away, and that we need to stop that and be a little smarter in our marketing. We need to use capital dollars to market ourselves, instead of using expense dollars. If we continue to use expense dollars, we still won’t achieve the kind of competitive advantage that needs to be had in this seaside resort. I failed to do it during my time here in Atlantic City. As I understand it now, there is just as much being given away here in Atlantic City as there was 10 and 15 years ago when I was arguing that if we wanted to build more hotel rooms let’s stop giving away so much. I hope that that is an opportunity that over the next five years maybe will be realized.
