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Best of Howard Stutz

Gaming Guru

Howard Stutz

Recovering From Katrina: Coming Inland, Prospering in Biloxi

5 September 2006

BILOXI, Mississippi -- In the days following Hurricane Katrina, state officials and gaming authorities assessed the damage the storm inflicted on the Gulf Coast's lucrative casino industry.

It became clear to many that a controversial step had to be taken; moving the casinos away from the shoreline onto land to protect the multimillion-dollar investments should another storm hit here.

What wasn't anticipated, however, was the outpouring of interest that casino operators would have in joining the Gulf Coast's casino reconstruction.

State lawmakers passed an emergency measure in a special legislative session two months after the hurricane, allowing casinos to be 800 feet from the water's edge.

The bill, signed immediately into law by Gov. Haley Barbour, opened the floodgates once again, but this time in a positive way. Since the Katrina storm surge subsided, eight casinos have reopened; seven alone in Biloxi.

A ninth casino will open in Gulfport in a few weeks. Two more casinos are in various stages of construction. Almost a half-dozen proposals have been cleared by gaming regulators and await other state and local approvals.

Meanwhile, proposals for new casinos seem to cross Mississippi Gaming Commission Executive Director Larry Gregory's desk weekly.

Barbour lobbied lawmakers to pass the emergency measure, opposed by anti-gambling groups and religious leaders who said casinos could pop up throughout the state. The governor said all of Mississippi benefits by the Gulf Coast building boom.

"The casinos are an enormous taxpayer, both to the state and locally," Barbour said. "They are a very important part of these communities' fiscal health. But most importantly, the casinos bring people to Mississippi who otherwise wouldn't come here. That's good for our image because Mississippi's image has been marred by a different thing. People come to Mississippi and they like it here. The people are warm and hospitable."

Before Katrina, Mississippi was the nation's third-largest producer of gaming revenue; figures topped $2.77 billion in 2004. More than $1.2 billion came from the 12 Gulf Coast casinos. The casino closures took an estimated $500,000 a day away from state and local tax coffers.

Barbour said the state keeps about two-thirds of all gaming taxes with the other third going to local governments. In all, gaming taxes account for just less than 10 percent of the state's budget.

As casinos reopened, revenue generation recovered quickly.

Three Biloxi casinos were open in January and reported a combined $64.2 million in gaming revenue, more than half of what 12 casinos produced in January 2005. In July, five casinos reported $74.4 million in gaming revenues, 75 percent of what 12 casinos reported the same month in 2005.

The revenue figures are even more impressive when it's factored in that customers have to go out of their way to reach the Biloxi peninsula. Two Highway 90 bridges that connected the casino corridor with Ocean Springs to the east and Bay St. Louis to the west were washed away by the hurricane and won't be open until next year.

Obstacles notwithstanding, it now seems that everyone wants a piece of the action.

"The development proposals are reflective of two reasons, the legislation passed allowing land-based casinos and the gaming revenue numbers coming out in the recent months," Gregory said. "Once the numbers started coming in, I was seeing people in my office every week."

Beau Rivage's opening last week after a yearlong, $550 million renovation, is expected to spur new gaming growth on the Gulf Coast. Beau Rivage, which cost $800 million when it originally opened in 1999, had the same effect seven years ago.

Harrah's Entertainment reopened part of the Grand Casino Biloxi on Aug. 18, bringing back 500 hotel rooms. The property's former convention space and part of the pool deck were turned into a land-based casino that replaced its hurricane-destroyed gaming barge.

In addition to the Grand Casino site, Harrah's acquired the hurricane-wrecked Casino Magic next to the Grand from Pinnacle Entertainment. When the deal closes in November, coupled with other adjacent land purchases, Harrah's will have more than 50 acres to design around.

Anthony Sanfilippo, president of Harrah's central division, said it will be year's end at the earliest when the company is ready to disclose a master plan for the site. However, he wouldn't discount two casinos populating the development with a combined investment of more than $1 billion.

"When you see how the casino market has come back in Biloxi, our site gives us a tremendous footprint from which to build on," Sanfilippo said. "The reopening of Beau Rivage is a great signal for the market. Obviously, we want to see how they progress."

MGM Mirage Chairman Terry Lanni said he hopes rival Harrah's spends $1 billion or even $2 billion on the company's Biloxi site. That type of investment, Lanni said, can only benefit every property in what is going to be a changing market.

"Frankly, the Beau was the place to be, with all due respects to the other casinos," Lanni said. "At the time, the others were not very nice properties. I think the average investment was under $200 million. If Harrah's spends $2 billion, they are bringing new people to the market."

At the other end of the spectrum is the privately held Treasure Bay, a floating casino that had been themed as a pirate ship. The boat was demolished after the storm, but the casino is being reincarnated as a boutique-style property, said Susan Varnes, the chief executive of the casino's privately held company.

A 250-room hotel, across Highway 90 from where the casino once sat, is being renovated. A temporary slot machine arcade has been situated in part of the hotel lobby and restaurant.

Varnes said an expansion will open in October that will include 450 slot machines in 22 table games.

"We're going after a different audience," Varnes said. "We're looking to attract a customer that wants a smaller, more intimate setting. We believe that how Biloxi is changing, there will be room for smaller properties."

Change also took place in Bay St. Louis, where Penn National Gaming reopened the former Casino Magic as Hollywood Casino, modeled after other company casinos under the same brand. The property was reconfigured into a 40,000-square-foot land-based casino with more than 900 slot machines and 20 table games.

Hollywood spokesman Marty Moore said plans are being developed for a casino expansion, along with a hotel addition. The property has 291 hotel rooms; a second building with another 200 rooms was damaged by the hurricane and subsequently demolished.

"Getting open and getting our employees back to work was important for the community," Moore said. "We've been the only casino in Bay St. Louis and this is an area that was hit pretty hard."

Isle of Capri Casinos may be giving the Hollywood Casino some competition in a few years. The company, which operates Biloxi's first casino on Highway 90, wants to develop a second property, this time on Interstate 10 at the edge of the Hancock County border.

Isle of Capri President Tim Hinkley said the casinos, 30 miles apart, would serve two different markets.

Billionaire developer Donald Trump's gaming division is exploring putting a casino in Harrison County just opposite the Isle of Capri site, while the American Indian tribe that operates the Foxwoods Casino in Connecticut, wants to build in Biloxi on the site of the destroyed President Casino.

For Barbour, new development not only means new jobs, but increased tax revenue to the state and local governments.

"Gaming was a large employer on the coast with about 17,000 workers before the storm," Barbour said. "It's pretty clear there will be more than that when the casinos fully return."