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Howard Stutz

Gulf Coast gaming rebuilds after casino industry's 'single-biggest disaster'

30 August 2015

BILOXI, Miss. — John Ferrucci recalls standing at the Broadwater Marina on a humid, late summer morning in August 2005, trying to determine the best way to slip the moorings of the President Casino barge and float it 35 miles west to Hancock County, where it would reopen as the Silver Slipper.

Two days later, he was told to evacuate the area: Hurricane Katrina was bearing down on the Mississippi Gulf Coast.

"I had been through this several times," said Ferrucci, who has experienced his share of hurricanes in 22 years as a Biloxi casino operator. "You could tell that this one was different."

The President was one of 13 casinos in a 40-mile stretch of picturesque U.S. Highway 90 between Bay St. Louis and Biloxi.

All were destroyed by the Category 5 hurricane, which packed wind gusts exceeding 135 mph and pushed a 35-foot storm surge well inland on Aug. 29, 2005, leaving behind blown-out buildings and a stark landscape.

A few days after the storm subsided, Ferrucci returned to the marina to find the President gone. The massive storm had driven the barge three-quarters of a mile down the beach, where it came to rest on the north side of U.S. 90 atop a demolished Holiday Inn.

Other casino barges were destroyed or heavily damaged at their docks. Seawater and debris inundated hotel rooms, convention areas and restaurants. More than 19,000 slot machines were rendered useless and had to be destroyed. Some of the machines — with blackjack tables, slot tokens, gaming chips and other gambling equipment — ended up at the bottom of the Gulf of Mexico.

The human toll included the loss of 17,000 casino and hospitality jobs. Many of those gaming employees lost their homes. Some lost their lives.

The Gulf Coast was in shambles for years. Two U.S. 90 bridges were destroyed, cutting off east-west access to the Biloxi and Gulfport communities.

At the Global Gaming Expo in Las Vegas a few weeks after the storm, then-American Gaming Association CEO Frank Fahrenkopf Jr. called Hurricane Katrina the single-biggest disaster ever to hit the casino industry. Nevada-based gaming companies had invested billions of dollars in creating a destination that drew gamblers from the Deep South and neighboring states, only to see it wiped away by an unstoppable force of nature.

Yet neither Ferrucci nor other Gulf Coast casino operators ever considered folding their hand. Before Hurricane Katrina, the Gulf Coast was the nation's third-largest casino market, producing almost $1.23 billion in gaming revenue in 2004, trailing only Las Vegas and Atlantic City.

"I don't think anyone ever thought about not rebuilding," said Wade Howk, chief financial officer of the Hollywood Casino Gulf Coast and the Boomtown Biloxi, which are operated by Penn National Gaming. "People took their time deciding what to do, but this was a place no one was going to give up on."

After the storm

It took a few days for the national media, which focused attention on the flooding in New Orleans, to realize the Gulf Coast had also suffered extensive damage.

But unlike New Orleans, political infighting didn't slow the recovery.

Storm cleanup wasn't yet in full-swing when Mississippi lawmakers and Gov. Haley Barbour approved changes in state gaming laws, allowing casinos to move off the water as long as they were within 800 feet of the shore. Before Katrina, gaming had to be conducted on boats, barges or buildings on piers.

The October 2005 change was intended as an incentive to rebuild, and the industry did just that. Within days of the law's passage, several gaming companies announced plans to re-create their damaged casinos, on dry land.

A decade later, 11 casinos operate in Bay St. Louis, Gulfport and Biloxi.

Casino Magic in Biloxi, owned by Las Vegas-based Pinnacle Entertainment, was never rebuilt. The site is being converted into a water park and resort with restaurants and a 373-room, nongaming hotel. In Gulfport, the Harrah's (now Caesars) Entertainment-owned Grand Casino and the privately-held Copa were combined into a single hotel-casino.

But Katrina was more than a wrecking ball. Some casinos were shifted to new locations, and some downsized. Others changed owners. Almost all upgraded their gaming floors, hotel rooms and other attractions as they rebuilt.

"The properties that came back are much nicer than the ones that were here before," IP Biloxi General Manager Duncan McKenzie said.

Caesars Entertainment Operating Co. CEO John Payne, who once oversaw the company's Gulf Coast division, said the casinos on Biloxi's east end suffered because the washed-out U.S. 90 bridge there cut off the casinos' direct access to customers in eastern Mississippi and Alabama. Crucial infrastructure has been repaired. Modern bridges were built to reconnect the region to the mainland east and west of the casino cities.

"The properties are doing much better now since the bridge was restored," Payne said.

Other businesses have also returned to the Biloxi and Gulfport commercial areas, and Gulf Coast tourism in general has been re-energized.

Yet there is a dark cloud around the silver lining: Where Gulf Coast casinos once employed 17,000 people, the 11 survivors had just 9,220 workers as of June 30, according to the Mississippi Gaming Commission. While other aspects of their business may boom, few think the market can support more than the combined 591,146 square-feet of casino space.

"We believe the casinos are at the capacity the market currently requires," Harrah's Gulf Coast General Manager Jonathan Jones said. "There is tremendous upside in the potential here. The opportunity is there to grow the tourism market."

Hurricanes are a lesser concern than economic forces.

In the 10 years since Katrina, Gulf Coast casinos have seen new regional gaming markets open in Pennsylvania, Ohio and Maryland, while Louisiana added casinos in Baton Rouge and Lake Charles. To the east, the Wind Creek Indian Casino in southern Alabama is giving the Gulf Coast new competition.

And debate continues over legalizing commercial casinos in Florida, Alabama and Georgia.

"Everyone in Biloxi acknowledged an expansion in Alabama would be a major negative, as it would cut off the business from Mobile and the Florida Panhandle," Fitch Ratings Service gaming analyst Alex Bumazhny told investors earlier this year.

Gaming industry leaders cite several ways the Gulf Coast could boost both visitation and customer spending and compete with emerging markets.

As in other destination gaming markets, the Gulf Coast needs more nongaming attractions to drive business. That's starting to happen. New restaurants have arrived, and MGM Resorts International — which owns the market-leading Beau Rivage — essentially gave Biloxi land across the street for a new minor-league baseball stadium.

Also on the region's wish-list is a convention facility that would attract larger groups and trade shows. The Gulf Coast's only major trade show site now is the Mississippi Coast Coliseum and Convention Center, a small sports arena that isn't within walking distance of a craps table.

Casino operators also would like to see the Gulfport-Biloxi International Airport (which has only domestic routes despite the name) add more direct flights from southern feeder markets. The airport, which gets less passenger traffic in a year than McCarran International Airport sees in a week, has recently upgraded gates and parking facilities, however.

"Gaming has proliferated greatly all around us," Beau Rivage General Manager Marcus Glover said. "A diversification to the economy is important. We need attractions that complement gaming to drive the right type of tourism to the market."

The Gulf Coast faced its share of challenges in the past 10 years. The Deepwater Horizon oil spill in 2009 and Hurricanes Gustav, in 2008, and Isaac, in 2012, drew headlines but did little to disrupt business to the casinos.

The recession that gripped the gaming industry on a national scale, however, slowed the Gulf Coast recovery.

By 2007, two years after the storm, the Gulf Coast gaming market had reached a record $1.3 billion in annual gaming revenue.

But the recession pushed the region into annual declines in six of the past seven years, according to the Mississippi Gaming Commission. Gulf Coast casino revenue was $1.079 billion in 2014, but the market is running ahead of that figure for the first seven months of this year. In July, the market recorded a combined $104.2 million in gaming revenue — the best July since 2012.

"Three times we've been knocked down, and three times we've had to get up," Biloxi Mayor Andrew "FoFo" Gilich said.

Lost time

The post-Katrina casino comeback took a few months to energize.

The Imperial Palace was the first to reopen in early November 2005. Isle of Capri Biloxi and the Palace followed in December. Harrah's (now Caesars) Entertainment built a temporary casino in convention space on the north side U.S. 90 for the Grand Biloxi. The property reopened in August 2006.

It wasn't until the reopening of the 1,740-room Beau Rivage — the Gulf Coast's largest resort — on the storm's one-year anniversary that the comeback seemed assured.

The President, the barge that was scheduled to move 35 miles west from Biloxi to Bay St. Louis when Katrina arrived, never saw water again. Fortunately, it was fully insured.

Ferrucci said the President's insurance payout built the land-based Silver Slipper Bay St. Louis, near the site where he had planned to moor the President.

"We had an opportunity to do something right," said Ferrucci, who opened the casino in November 2006. He is still general manager of the property, which was bought by Las Vegas-based Full House Resorts in 2012. A 120-room hotel opened there earlier this year.

There have been some failures since Katrina.

In 2008, Harrah's planned to combine its Grand Biloxi with the Casino Magic site into the $800 million Margaritaville complex, in partnership with the hospitality company associated with singer Jimmy Buffet, a native of nearby Pascagoula, Miss. The recession ended the project a year later.

Buffet did open a stand-alone Margaritaville Casino on Biloxi's Back Bay in May 2012, but the 68,000 square-foot casino and restaurant closed in September 2014. Owners blamed a dispute with the property's landlord over financing needed to build a hotel.

But those are just the everyday economics of the casino-resort business.

Gulf Coast casino operators hope Katrina was a once-in-century storm, and they remain confident that no hurricane could ever kill their market.

They just want to make up for lost time.

"We knew this market would come back," Ferrucci said, gazing at the Gulf from the Silver Slipper's Blue Bayou restaurant. "We were just on the cusp of doing something great when the storm hit."