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Best of Howard Stutz

Gaming Guru

Howard Stutz

Gulf Casinos Again Brace for Storm

26 September 2005

Las Vegas-based gaming companies, already picking up the remains of their Gulf Coast casinos in Mississippi and New Orleans, are again bracing for a bout with a hurricane.

Pinnacle Entertainment, Boyd Gaming Corp. and Harrah's Entertainment closed their casinos in Lake Charles, La., as Hurricane Rita approached the area. The storm is expected to pass near or over Lake Charles this weekend and, in the wake of Hurricane Katrina, could deal a devastating blow to Louisiana's casino operations.

"By virtue of what happened with Katrina, we'd rather err on the side of safety," Pinnacle Entertainment spokeswoman Kim Townsend said.

The company has closed L'Auberge du Lac, a $365 million hotel-casino that opened at the end of May.

Townsend said evacuation orders were issued Friday in the Lake Charles area, where most of L'Auberge's 2,800 employees reside.

For Pinnacle, the hurricane couldn't come at a worse time. The company operates eight casinos and two are shut because of Hurricane Katrina; the Boomtown Casino in New Orleans was closed and the Casino Magic in Biloxi was destroyed.

On Friday, Pinnacle said it will eliminate staff at its Casino Magic and take a charge after the hotel and floating barge suffered extensive damage from Hurricane Katrina.

The company is assessing damage to the high-rise hotel and hasn't determined whether it can be repaired or rebuilt. The floating casino barge was snapped clear of its moorings by the storm surge and deposited several hundred feet inland, Pinnacle said Friday in a filing to the U.S. Securities and Exchange Commission.

L'Auberge, which has 750 rooms, a 30,000-square-foot floating casino and an 18-hole golf course, has fueled Louisiana's gaming win since its opening, reporting gaming revenue of $19.7 million in July and $17.1 million in August.

Cash flow from L'Auberge, according to company financial reports, was expected to be 35 percent of Pinnacle's overall total in 2006.

"Pinnacle has the largest exposure to the market, which is a concern considering the recent impact to the company from Katrina," Deutsche Bank gaming analyst Marc Falcone said.

In a statement, Pinnacle noted L'Auberge is about 30 miles from the Gulf of Mexico along the Calcasieu River.

CRT Capital Group gaming analyst Steve Ruggiero said that L'Auberge's casino is approximately 13 feet above sea level and the area's 100-year flood line is a couple of feet below the casino floor.

"As of now, the likely impact to the casino is the short-term closing of the casino and disruption to its customer base for a likely longer period of time," Ruggiero said.

In response to questions from investors, Pinnacle said it has "some $400 million of insurance policies" for business interruption and property insurance. The insurance was underwritten on a basis that any claims for damage from one named do not diminish the potential for another $400 million claim from a subsequent hurricane, the company said.

Other casino companies also closed properties in preparation for Hurricane Rita.

Harrah's shut its Harrah's Lake Charles, which includes a 257-room hotel and two floating casinos totaling 60,000 square feet. The company employees 1,400 people there.

Harrah's is involved in the relief efforts for some 8,000 of its workers who were displaced by Hurricane Katrina.

The company's Harrah's New Orleans, the state's largest casino, was closed because of Katrina; Harrah's two Grand Casinos in Biloxi and Gulfport were destroyed by the storm.

Boyd Gaming, which suffered damage to its Treasure Chest Casino in New Orleans, shut operations at the Delta Downs racetrack in Vinton, La., which is near Lake Charles. The property recently underwent a $65 million expansion to add hotel room and other amenities.

Even if the hurricane misses Lake Charles and affects areas east of Houston, the casinos in Louisiana will suffer, gaming analysts said.

Houston, the nation's fourth-largest city, is a feeder market for the Lake Charles casinos with upward of 75 percent of visitation coming from the Houston and Beaumont areas.

"If Lake Charles avoids a direct hit, devastation to the primary feeder market could have a negative impact as coverage from business interruption insurance is not certain," Falcone said.

The casino closings did not affect the stock prices of the Lake Charles-area gaming operators Friday in trading on the New York Stock Exchange.

Pinnacle closed at $17.49, up 63 cents, or 3.74 percent; Harrah's closed $66.67, up $1.69, or 2.6 percent; and Boyd Gaming finished at $44.15, up $2.80, or 2.6 percent.

If there are long-term disruptions in Louisiana, the stock prices could suffer, Falcone said.

Bloomberg News contributed to this report.

Gulf Casinos Again Brace for Storm is republished from