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Best of Howard Stutz

Gaming Guru

Howard Stutz

Hurricane Katrina's Aftermath: Casinos Sort Out Damage

31 August 2005

Hurricane Katrina devastated Mississippi's $2.7 billion-a-year casino industry, especially the hard-hit Gulf Coast communities of Biloxi and Gulfport. Gaming observers believe it may be months before the state recovers.

Initial reports show casinos operated by Las Vegas-based companies, including Harrah's Entertainment, MGM Mirage and Pinnacle Entertainment, suffered severe damage during the Category 4 hurricane, which had winds clocked at 145 mph and a storm surge of up to 25 feet.

As authorities surveyed the areas Tuesday, it became clear that repairs will be extensive. In Biloxi, the city's mayor said the storm's surge put at least five casinos out of commission.

New Orleans' gambling halls, including Harrah's New Orleans, survived Hurricane Katrina relatively unscathed, but were being threatened Tuesday by rising flood waters in the city. In a statement, Harrah's said the casino could be closed for at least a month.

The focus for the gaming companies was Mississippi, where 14,000 workers are employed at 12 casinos. One state official has said Mississippi will lose an estimated $500,000 a day in tax revenue each day the casinos remain closed.

State leaders have credited Mississippi's casinos with revitalizing the economy in depressed areas, adding another element to the state's tourism industry. In 2004, Mississippi casinos trailed only Nevada, $10.3 billion, and New Jersey, $4.8 billion, in total gaming revenues.

Many Biloxi and Gulfport casino employees have not only temporarily lost jobs, but also suffered severe damage to their home.

Deutsche Bank gaming analyst Marc Falcone said it could be well into 2006 before the area begins to bounce back.

"This goes way beyond the casinos," Falcone said. "You've got employees who lost their homes and now may be facing an employment factor pending on how long these casinos are out of commission. We may have lost between 50 percent and 75 percent of the state's gaming capacity."

Harrah's, which employs 6,000 workers in the Gulf Coast area between its casinos in New Orleans, Biloxi and Gulfport, said it was establishing an employee recovery relief effort that will provide emergency supplies and money to its affected workers. The company seeded the fund with $1 million through a grant from the Harrah's Foundation.

"Our main priority is for our employees to focus on taking care of themselves and their loved ones," Harrah's Entertainment Chairman Gary Loveman said. "In addition to providing immediate relief, the fund will help our employees with the long rebuilding task."

Loveman said the company's 100,000 employees will have an opportunity to contribute to the fund while Harrah's will pay base salary to its Gulf Coast employees for at least 90 days.

The way gaming is conducted in Mississippi may share some of the blame for storm damage to the casinos, analysts said.

By state law, gambling in Mississippi casinos has to be conducted above water. The Biloxi and Gulfport casinos were, in reality, large barges moored into the Gulf of Mexico shore.

The casino barge for Harrah's Grand Casino Biloxi was washed across U.S. Highway 90, the main artery through the Biloxi coastline.

Pinnacle's Casino Magic Biloxi sustained substantial damage to the floating casino and 22-story hotel, the company said in a statement Tuesday. Pinnacle executives plan to inspect the site when they are allowed into the area.

"Our main concern is for the safety and well-being of all of our employees, customers and neighbors in the affected areas," Pinnacle Chairman Dan Lee said. "It's very early in the process, but we are well-insured, including having business interruption insurance, and we intend to rebuild our properties and help our communities to recover."

Beau Rivage, which MGM Mirage operates, was still standing but suffered exterior damage and the first two floors were blown out. The property has a 1,740-room hotel tower and an 85,000-square-foot casino barge.

When Beau Rivage was built in 1998 by Mirage Resorts, the company spent $25 million to anchor the barge into the Gulf shore, a former company executive said. The casino was built, he said, to withstand a Category 5 hurricane.

MGM Mirage Chairman Terry Lanni said the company is still trying to determine the damage to the Beau Rivage. But he said the community's recovery matters most.

"The significant damage sustained by Beau Rivage is part of a substantially larger story of devastation in Gulfport and Biloxi," Lanni said. "Clearly, re-establishing basic services and a sense of normalcy throughout the region must take precedence over concerns for this interruption to our business. This process will, in all likelihood, take months."

The under-construction Hard Rock Casino in Biloxi, which was scheduled to open early next month, suffered extensive damage. However, Hard Rock's signature guitar marquee survived the lashing.

In Gulfport, the Copa Casino barge sat on land next to the Harrah's-operated Grand Casino parking garage. The western barge for the Grand Casino was swept around the west side of the hotel and now blocks U.S. Highway 90.

Stock prices for companies with casinos in the affected areas fell Tuesday. Harrah's closed at $70.90, down $1.85 or 2.54 percent while MGM Mirage was off 70 cents or 1.62 percent to close at $42.60. Pinnacle Entertainment closed at $21.35, down 72 cents or 3.26 percent.

JP Morgan gambling analyst Harry Curtis said Tuesday in a investor's note that casinos in Biloxi could "either be severely or permanently impaired."

The Associated Press contributed to this report.