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Best of Howard Stutz

Gaming Guru

Howard Stutz
 

Hurricane Katrina aftermath: Renewed, reborn

27 August 2007

NEW ORLEANS, Louisiana -- The South has risen again.

Wednesday marks two years since Hurricane Katrina, packing 135 mph winds and an estimated 35-foot storm surge, roared across the Gulf of Mexico and demolished the vibrant casino industry that had flourished along Mississippi's Gulf Coast.

When the clouds dissipated, 12 casinos were left in ruins. A 13th, just days from opening, was also destroyed. Wrecked casino barges were scattered across U.S. Highway 90, the Gulf's main thoroughfare, like toy ships. Some ended up several miles from where they had been moored.

More than 16,000 casino workers were left unemployed and it was estimated the state was out $500,000 a day in tax revenue each day the casinos remained closed.

The storm not only wiped out thousands of homes and small and large businesses, but also dealt a serious blow to the community's infrastructure. Two Highway 90 bridges that connected the Biloxi and Gulfport peninsula to adjoining Mississippi communities were washed away by the hurricane.

Larry Gregory, executive director of the Mississippi Gaming Commission, toured the area two days after Hurricane Katrina's devastation. The photos he had seen the day before didn't do the damage justice.

"We were facing unbelievable odds," Gregory recalled last week. "But in the early 1990s, no one thought this market would make it. So, we had to prove ourselves once again."

In 24 months, the casinos have not only rebuilt but have exceeded all expectations.

Fueled by casino revenues from the Gulf Coast, Mississippi leaders have visions of cracking the $3 billion mark in gross gaming revenues for 2007. The figure would help Mississippi regain its place as the third largest gaming revenue producing state in the U.S.

During July, the Gulf Coast casinos collectively reported gaming revenues of $122.4 million. The figure was the highest single month for gaming win ever on Mississippi's Gulf Coast since casinos were established in 1993. Meanwhile, the Gulf Coast casinos are employing roughly 15,000 workers.

Even Gregory, Mississippi's biggest casino booster, is surprised by the speed of the comeback.

"Looking back two years, it's astounding to see the success," Gregory said. "Clearly a good sign of the recovery is that 76 percent of our casino visitors are coming from out of state. That shows that the casinos are not just getting business from locals."

In the days following the hurricane, Frank Fahrenkopf Jr., president of the Washington, D.C.-based American Gaming Association, called the storm the single-biggest disaster to hit the casino industry.

Two years later, the gaming advocacy group is touting the Gulf Coast's comeback as a case study. A survey commissioned by the association showed 65 percent of residents thought the casinos helped speed recovery. Biloxi city sales tax receipts are higher than pre-storm levels, $25.4 million for the fist four months of 2007 versus $20.6 million for the same period a year ago.

"We needed to get our people back to work," Fahrenkopf said. "That way, they would have money to spend in the grocery stores and the retail shops. Let's face it, the casinos are the economic engine in Biloxi and Gulfport and reopening helps in the recovery."

Right after the hurricane, Mississippi lawmakers changed state law to let casinos, which required gambling to take place over water, to rebuild 800 feet from the away from the Mississippi coast.

The Gulf Coast casino market was sidelined for three full months until three casinos reopened in Biloxi in December 2005. Slowly, others returned, some into temporary facilities until permanent gambling halls were built.

The Casino Magic in Bay St. Louis was rethemed as the Hollywood Casino and reopened a land-based casino a year ago. Harrah's Entertainment reopened the Grand Casino Biloxi in convention space across Highway 90 from the casino's former location. The Isle View Casino replaced the destroyed Grand Casino in Gulfport.

Eleven casinos are now operating in Bay St. Louis, Gulfport and Biloxi. The most recent opening took place July 7 for the Hard Rock in Biloxi.

The 318-room hotel and 50,000-square-foot, rock 'n' roll-themed casino was destroyed by the storm a week before its planned 2005 grand opening.

Meanwhile, 2006 was a year of recovery; topped by the reopening of MGM Mirage's Beau Rivage in Biloxi, Mississippi's largest casino, on the one-year anniversary of the storm. In the last quarter, Beau Rivage reported $23 million in cash flow, well ahead of prehurricane levels.

"It's truly wonderful to see how quickly the casinos have come back," said Biloxi Mayor A.J. Holloway. "The hotels are filling up, especially on weekends."

For the first seven months of this year, Gulf Coast casinos have collected $775.8 million in revenue, 44 percent of $1.74 billion collected so far by Mississippi casinos. The revenues also include $966.1 million won by casinos operating along the Mississippi River in the northern part of the state.

In 2004, the last full year of operating by the state's casino industry before the hurricane, Mississippi reported gaming revenues of $2.77 billion, with $1.23 billion coming from the Gulf Coast.

"No question, we were well on our way to $3 billion in gaming revenue in 2005 when the hurricane hit," Gregory said. "What's amazing is that we are back on track and ahead of where we were two years ago."

The casino development is also not done. Harrah's and its partner, singer-songwriter Jimmy Buffett, broke ground recently on the $704 million Margaritaville Casino & Resort in Biloxi. The 46-acre site on the south side of Highway 90 will have 798 rooms, a 100,000-square-foot casino, 250,000 square feet of retail and 66,000 square feet of meeting space.

Although the casinos have returned, concern continues for the rest of the community.

Holloway said many businesses and residents have moved inland and away from the coast while a vast majority of the destroyed nongaming businesses along Highway 90 have yet to be rebuilt due to disputes with insurance companies. Still, the Edgewater Mall that fronts the highway has partially reopened.

Construction costs, Holloway said, rise between 3 percent and 5 percent each quarter while insurance costs continue to skyrocket.

"We've issued around $800 million in building permits since Katrina, and about $600 million of that are for non-gaming projects," Holloway said.

"A lot are condos but I'm not sure how many of those are for real."

He said there is still a ways to go until the housing market comes back completely, but some new subdivisions are under construction.

Meanwhile, two lanes of the Highway 90 bridge connecting Bay St. Louis with Gulfport reopened in May while the bridge on the eastern end of the highway connecting Biloxi with Ocean Springs, Miss., is still under construction.

"The infrastructure is not totally back, but it's getting there," Fahrenkopf said.

Way down yonder in New Orleans

While casinos on the Mississippi Gulf Coast continue their recovery, New Orleans remains challenged.

Much of the entertainment choices are still missing while Harrah's New Orleans, Louisiana's largest casino, has prospered.

During 2006, Boomtown New Orleans, operated by Pinnacle Entertainment, had gaming revenues 43 percent higher than 2005. The Treasure Chest, owned by Boyd Gaming Corp., had 23 percent more gaming revenues than in the previous year.

Harrah's New Orleans reopened in February 2006 and as casinos on the Mississippi Gulf Coast returned, business fell back to prehurricane levels.

Meanwhile, Harrah's upgraded its facilities, adding a new hotel, expanded casino space, new parking garage and new entertainment amenities. Business has followed. In July, Harrah's New Orleans said its gaming revenues were $35.2 million, 11.4 percent better than a year ago. In the year's first seven months, gaming revenues at Harrah's New Orleans are up 36.4 percent.

"There is still a huge challenge in New Orleans," American Gaming Association President Frank Fahrenkopf Jr. said.