Upping the Ante: Gulf Coast Gaming is Back

April 2006 Successful Meetings magazine

"I went to the signing of the legislation on October 17, and the governor said, 'Go get your permit' and handed the pen to [state representative and chairman of the Mississippi House's gaming committee] Bobby Moak, who handed it to me." So Keith Crosby, general manager of the Palace Casino Resort in Biloxi, took the pen, got his new permit, and started on development plans.

"It's a very simple piece of legislation. Basically, a casino can move 800 feet north of the waterline, excluding highways or utilities," explains Larry Gregory, executive director of the Mississippi Gaming Commission in Jackson, of the bill Governor Haley Barbour signed into law. "This is what the industry needed to survive in this jurisdiction. The risk was too great to be back on water, and many expressed that they would not come back unless there was some legislation passed allowing land-based casinos."

"We got to see, unfortunately, just what is possible with casino barges, regardless of how securely they tried to build them," says Steve Richer, executive director of the Mississippi Gulf Coast Convention & Visitors Bureau. "There always was an attitude that land-based casinos would be allowed once a hurricane showed how insecure the barges were . . . Of course, that was a theoretical discussion until the 29th of August."

Casino operators are thrilled with the new law, and most plan to take advantage of the opportunity to build onshore. As redevelopment gets under way, the long-term effects could include ousting Atlantic City from its perch as America's number-two gaming destination.

Joining the Players' Club
Historically, casinos have been valuable to the Gulf Coast economy during times of crisis, and the onshore concession encourages the behemoths to rebuild in the area. "I remember when I first went down there, before there were any casinos, the locals kept talking about [Hurricane] Camille in 1969, and there was the hope that casinos could get the tourist business back on track," says Steven Ruggiero, gaming analyst with CRT Capital Group in Stamford, CT. By the 1990s, "They were still recovering. The introduction of casinos did get the tourist business back on track, and because of commitments on the part of certain companies like Isle of Capri, MGM, and Harrah's, we expect that the Gulf Coast will spring back again, but it will take time."

Onshore casinos will mean better properties, but they will also mean longer construction timelines, and the question remains just where the Gulf Coast will end up in the hierarchy of American gaming destinations. "What would take it to the next level is new developers coming in. I have had numerous meetings with developers, and it looks promising that we will see new faces on the Gulf Coast," says Gregory. "Prior to Katrina we had 13 casinos on the Mississippi Gulf Coast, and I would say in three to five years we could easily see 17 to 20 new casinos, in addition to the existing [establishments]."

Because there is plenty of buildable land, especially in the Back Bay, "We could end up being the number-two casino destination in the United Sates and surpass both Atlantic City and Reno—that's not out of the question," speculates the CVB's Richer. "The goal is for us to have a tier-one destination in 2010 with 30,000 rooms."

The consensus from others is that the destination could easily be number three in the country, but that the number-two title will be elusive, if not impossible.

"I think [number two is] probably a little bit of a reach. Vegas and Atlantic City have really strong revenue numbers. The difficulty we have is that the rebuilding process will take some time. I think we could be a strong number three," says Jon Lucas, general manager and president of the IP Hotel & Casino (formerly the Imperial Palace).

"Mississippi is a fine venue, and it has a lot of positive prospects. That's why these casinos went there to begin with and why they will return, but it's not going to be Atlantic City—at least in the next five years—and it's not going to be Vegas," says CRT's Ruggiero. "It will gradually get back to pre-hurricane levels, and I think three years is a best-case scenario, perhaps five years."

Even Gregory is cautiously optimistic. "I don't think the Gulf Coast would be the second gaming market, but there is no doubt Mississippi will be a $4-billion market within the next five years," he says. "Where it goes from there would be pure speculation at the moment."

By the Numbers
So far, Mississippi is on the road to success. Early numbers indicate that patrons are coming back in droves, and the market is remaining steady as new properties open. "Essentially, you have a $1.2-billion gaming market that evaporated, and you're seeing pent-up demand," explains Marc Falcone, a gaming analyst with Deutsche Bank in New York City.

According to Gregory, "It's still premature to know the endgame at this point, but it's startling as far as the numbers go." He says that Biloxi saw $64 million in gross gaming revenue in January, with only three casinos open, versus $90 million the January before with all nine Biloxi properties open. The 2006 numbers were also achieved with significantly fewer amenities, golf courses, and restaurants. "It really is amazing how the industry has rebounded in very little time," he adds.

Patrons tend to be day-trippers from Alabama, the Florida Panhandle, and even Louisiana, but not suffering local residents. "We had concern that we did not want people that are having difficulties in their life to be inside the casinos," says Gregory. Although Gregory says that for the most part the players are not contractors who are in the area to rebuild, Ruggiero believes that FEMA and temporary workers are indeed contributing to the boon at open properties.

"These numbers are magnificent, but I don't want to paint such a rosy picture that everything is great on the Mississippi Gulf Coast. People are still struggling to put their lives back together. These large casinos have access to capital and are megabillion-dollar companies, so they can rebuild expeditiously; smaller businesses don't have that luxury," says Gregory. "On the one hand it's great, but on the other hand I want people to understand that the Gulf Coast is far from being put back together."

SIDEBAR 1:

Status of Gulf Coast Casinos
[as of presstime for April issue]

Beau Rivage Casino
MGM's Beau Rivage will reopen August 29, 2006, on the one-year anniversary of Katrina, with 1,200 rooms, eight restaurants, and all bars and lounges; the remaining amenities will open closer to the end of the year. Gaming improvements include new poker rooms and high-limit gaming areas.

Boomtown Biloxi
The Boomtown barge is currently dry-docked for repairs, and is expected to be up and running by early- to mid-fourth-quarter of this year. For the time being, the Boomtown Biloxi will operate on the water, while parent company Penn National Gaming Inc. explores onshore development options.

Casino Magic – Bay St. Louis
Penn National Gaming Inc.'s other Gulf Coast property is following a path similar to the Boomtown Biloxi's. The barge will be repaired and operational by the end of 2006, and future plans will likely include permanent developments elevated above flood lines.

Casino Magic – Biloxi
Pinnacle Entertainment Inc. has been clear that it is not obligated to rebuild in Biloxi, but continues to explore the viability of rebuilding, based on current and expected markets. The company will make a final decision over the next few months, and has commented that if it rebuilds, the project will include a non-casino hotel.

Copa Casino
The Copa was completely destroyed by Katrina. Copa owner, Gulfside Casino Partnership, expects to open a facility on land in approximately two years. The exact location and details have yet to be determined.

Grand Casino - Biloxi
Harrah's will not make final plans for its Biloxi property public until midyear, but does plan to rebuild a resort casino, at a rumored cost of up to $1 billion. There is also a chance Harrah's will open a temporary casino facility.

Grand Casino - Gulfport
The Grand Casin - Gulfport was sold by Harrah's to Gulfside Casino Partnership. Gulfside plans to reopen the Oasis Hotel as the Oasis Casino and Hotel by fall 2006. Long-term plans call for a riverwalk with restaurants and a marina.

Hard Rock
The Hard Rock declined to comment for this story, but reportedly plans to rebuild.

IP Hotel & Casino
The IP Hotel & Casino, formerly known as the Imperial Palace, was the first Gulf Coast casino to reopen. Back in business as of December 22, 2005, the property sustained minimal damage to its barge and will likely continue to operate its casino on the barge, while exploring land-based opportunities for expansion.

Isle of Capri
Biloxi's Isle of Capri reopened December 26, 2005, with 730 slot machines, 27 table games, a poker room, and 525 hotel rooms. Since opening, it has added another 220 slot machines and 200 guest rooms, and substantially renovated the property; casino operations are housed in the property's ballroom.

Palace Casino Resort
The Palace reopened December 30, 2005, and is operating a buffet and gaming in former meeting space while working on development plans. The pool area was to reopen April 1, the Preserve golf course will open in May, and the property development will be finished in two to three years.

Silver Slipper Casino
Phase I of Silver Slipper's redevelopment, opening fall 2006, includes 30,000 sf of gaming space, three restaurants, and an entertainment bar on the casino floor. Phase II, including a multifunction entertainment venue and a hotel with 10,000 sf of meeting space, is expected to open fall 2007.

Treasure Bay
Treasure Bay began demolition of the boat and fort in February and expects to be operational as both a hotel and casino by Labor Day, using ballroom space in the hotel for gaming. A permanent casino is planned, as well as a condo component that was designed prior to Katrina, but has since been expanded in scope. Treasure Bay has interim meeting space for approximately 500.


SIDEBAR 2:

Back Bay Buy-In: $500 Million

Bacaran Bay, the pet project of Gulf Coast gaming veteran Marlin Torguson, is expected to open in 2008 in the Back Bay area. Plans for the $500-million development were under way prior to Katrina, and have not changed substantially since the hurricane, according to Kim Melvin, director of sales for Bacaran's developer, Torguson Gaming Group Inc. The property, the first all-suite condo-hotel on the Mississippi Gulf Coast, will feature a hotel with over 630 rooms and 432 one- and two-bedroom condos, in two separate towers.

Bacaran Bay will have more than 80,000 square feet of meeting space in seven hospitality suites and 26 meeting rooms, the largest accommodating 4,000 theater style. Other amenities include 75,000 square feet of gaming; seven restaurants; six movie theaters—showing new releases and available for group presentations; two wedding chapels; a 20,000 square-foot spa, salon, and fitness center; a dog hotel; retail outlets; and a 40-lane bowling alley. Visitors to Bacaran Bay will also have access to the Arnold Palmer-designed 18-hole golf course 10 minutes off-property.