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Howard Stutz

Mississippi Reconsiders Casino Regulations

2 September 2005

LAS VEGAS -- As Las Vegas-based gaming companies continue to evaluate their losses in the hurricane-ravaged Gulf Coast, changes may be sought in Mississippi's gaming regulations before casino operators commit to rebuilding their multimillion-dollar gambling halls.

Mississippi requires that gaming take place on floating casinos, which are in reality large, multi-level barges moored into the Gulf of Mexico, the Mississippi River or other waterside locations. Amenities such as hotel rooms, restaurants, retail and entertainment are usually constructed dockside.

Several gaming observers said the casinos have long wanted to have land-based casinos in the state. Casino leaders now may lobby the Mississippi Legislature to change the law in the wake of Hurricane Katrina, whose 145-mph winds and 30-foot storm surge devastated the state's 12 coastal casinos in Biloxi and Gulfport.

"I don't know how they will get these companies to invest millions into these projects unless they are allowed to build them on land," said Deutsche Bank gaming analyst Marc Falcone. "They would not only protect the assets of the casino companies, but land-based casinos could benefit the market greatly."

Falcone said the gaming areas would be developed more in line with single-level and expansive Las Vegas casinos, instead of on two-or-three-story floating boats.

"They would create a more efficient environment for employees and a more enjoyable experience for customers as well as being built in more protected areas," Falcone said.

Mississippi state Rep. Steve Holland, who is on the Mississippi House's Gaming Committee, Wednesday said he believes the law should be rewritten to allow land-based casinos, but only in areas that had gambling barges before.

Some lawmakers, particularly religious conservatives, have opposed land-based casinos along the coast or the Mississippi River because they fear inland counties would push for gambling houses, too.

Several of the casino barges in Biloxi and Gulfport were displaced by the hurricane and sent across U.S. Highway 90, finally resting amid other debris on dry land and ending up heavily damaged. In some instances, the storm deposited the barges far from their original locations.

The 134,500-square-foot Grand Casino Biloxi, the state's largest coastal casino which is operated by Harrah's Entertainment, was beached about a mile from its moorings. Harrah's said the floating casino, which the company acquired as part of its $9 billion purchase of Caesars Entertainment in June, was most likely a total loss.

Harrah's Chairman Gary Loveman said the barge would have to be cut into pieces and moved while temporary casinos would be used until rebuilding projects have been completed.

Loveman also said he hoped Mississippi would consider changing its gaming laws covering casino locations.

Casino gaming is credited with reviving the Mississippi economy in the 1990s. In fiscal year 2005, the state's 28 casinos accounted for $2.7 billion in gaming revenue and $334 million in tax revenue. It's estimated that each day the casinos along the coast remain closed, Mississippi loses about $500,000 in tax revenue.

Falcone said the casinos are too important to Mississippi's recovery efforts for the state not to make changes in regulating locations. In addition to tax revenues, the casinos employ 28,000 workers, including almost 14,000 at the 12 coastal casinos, who earn an estimated $1 billion in wages.

"We believe the state of Mississippi's dependence on the gaming industry will be an important factor in passage of legislation that is more protective of these two valuable sources of economic vitality," Falcone said.

He thought casino companies with interests in the state would push for the changes.

One Las Vegas-based operator, Pinnacle Entertainment, whose 49,260-square-foot Casino Magic Biloxi barge ended up in a parking lot across the street from its normal site, believes the aftermath of Hurricane Katrina will be enough to convince Mississippi lawmakers to make changes.

Company spokeswoman Kim Townsend said while Pinnacle's main concerns for now are with helping its nearly 1,000 Biloxi employees, the company wants to rebuild its casino under the right conditions.

"I think the evidence of the tragedy from this hurricane is all that is needed to make changes," Townsend said. "All you need to do is look at what has happened and the devastation this hurricane has caused to understand that there is a value in making a change."

The Mississippi Gaming Commission's executive director, Larry Gregory, believes legislators may agree that changes need to be considered.

"I think that will be a public policy question that will be on the minds of every legislator when they come in for the next session," Gregory said. "That discussion will be the No. 1 issue in this legislative cycle. This will definitely put the fire under their feet."

Still, MGM Mirage Chairman Terry Lanni, whose Beau Rivage casino didn't suffer the catastrophic damage experienced by other casinos but will still need significant repairs, wasn't ready to look at changing Mississippi's laws quite yet.

"Right now, our focus must be on re-establishing contact with our employees, supporting the efforts to re-establish basic services and determining the full extent and scope of the damage both to our business and to our communities," Lanni said Wednesday.

MGM Mirage is seeking to establish a distribution system to help the Beau Rivage's 2,800 employees receive their paychecks.

Three Harrah's casinos -- Grand Casino Biloxi, Grand Casino Gulfport and Harrah's New Orleans -- were put out of commission by the hurricane. The company estimated it would be months before the casinos could reopen and Loveman added that the 6,000 Harrah's employees, whose jobs have been put on hold by the hurricane, would be paid for up to 90 days.

Investors were down on shares in Harrah's for the second straight day. The company's stock price closed Wednesday at $69.56, down $1.34 or 1.89 percent.

One question surrounding Harrah's future is how rebuilding its Gulf Coast operations will affect any plans the company might have for expanding in Las Vegas. Harrah's has said it wants to remodel Bally's Las Vegas, and its recent purchase of the Imperial Palace for $370 million lends to speculation the company will redevelop a large portion of the Strip between Harrah's Las Vegas and the Flamingo.

"We don't know yet how all that has happened in Mississippi really affects the company's balance sheet," said Brian Gordon, a principal with Applied Analysis, a Las Vegas financial advisory firm.

"A lot is going to depend on their level of insurance coverage and the impact of what it will take to re-enter that market," Gordon said.

Casinos in other parts of Mississippi slowly began reopening Wednesday. Las Vegas-based Ameristar Casinos reopened its Vicksburg casino, which sustained only minimal damage, after power was restored to the casino and hotel. Ameristar said it would pay its 950 employee for the work time missed.

Penn National Gaming reopened its Casino Rouge property in Baton Rouge, La., on Tuesday. However, the company's two Mississippi casinos -- Casino Magic in Bay St. Louis and the Boomtown Biloxi -- suffered severe damage and company officials have not been able to inspect the sites.

The gambling losses on the Gulf Coast weren't confined to just casinos.

Reno-based International Game Technology lost two of the company's three sales and support offices that serviced the Gulf Coast region. About 100 IGT employees are based in Louisiana and Mississippi, and offices in Harrahan, La., a suburb of New Orleans, and in Gulfport, were both a total loss, said company spokesman Ed Rogich.

Ironically, slot machine manufacturers, who are collectively having a down year for sales and revenues, could benefit once rebuilding efforts begin.

In a note to investors, Falcone said some 25,000 machines, many of which were left unrecoverable when the casino barges were damaged, could be replaced in the coming months, giving the manufacturers a slight financial boost.