THE SPILL and its WAKE
by Paul Doocey
August 1, 2010
Five years after Katrina... NOW THIS
An oil slick is visible on the surface of the Gulf Coast waters
Kim LaRosa has resided along the Gulf of Mexico in Mississippi for the better part of 35 years. During that time she has dealt with the many vicissitudes that come with the territory — summer crowds, traffic jams, the rampant residential and commercial development of more recent times. Of course, all these problems paled in comparison to Hurricane Katrina, the most destructive storm ever to strike the United States, which laid waste to the region five years ago this month. It’s a blow from which LaRosa and her neighbors are still trying to recover.
There is much work still to be done to get the region back to where it was the day Katrina destroyed everything we had ever known,” says LaRosa, who is CEO of Gulf Coast Renaissance, a non-profit corporation that assists in the creation of sustainable and affordable housing for low- and moderate-income families. “I think it is hard for people who are not from here to understand why it is taking so long for the area to recover.”
In a fair universe, the Gulf Coast would be left alone to fully convalesce from Hurricane Katrina. But, as we know, it is battling yet another unprecedented crisis — an oil spill so massive that it threatens to eclipse Katrina as the worst disaster the region has known.
“Most people think only fishermen are impacted by the spill, but it goes way beyond that,” LaRosa says. “I really don’t know of anyone who is feeling hopeful today. What I do know is we are a group of people who will get through this crisis by working hard and taking care of one another. … I guess I am hopeful of that.”
Suffering side by side with residents and businesses is the gaming industry, one of the coast’s largest employers and a major driver of its tourism trade. It’s been a triple whammy for the casinos in Mississippi and Louisiana, which rebuilt quickly after Katrina only to run head-on into the worst economic downturn in decades.
“I don’t know any other way to put it, the oil spill is just another kick in the teeth to the total economics of the Gulf Coast,” says Harvey B. Perkins, executive vice president of Spectrum Gaming Group, a Linwood, N.J.-based gaming research and professional services firm. “Not only to the gaming industry, but to all the other economic drivers of the Gulf Coast, such as tourism, fishing/seafood and the previously pristine beach all the way from Biloxi to Panama City, Fla., and beyond. There are some real fundamental damages here.”
Despite their present difficulties, casino operators and government officials are proud of the strides the industry has taken since Katrina and believe once the runaway well is capped for good and the clean-up effort gains ground, Gulf Coast gaming will quickly recover and grow.
“It is the gaming industry that will get the Gulf Coast through this crisis,” says Keith Crosby, general manager of Biloxi, Miss.-based Palace Casino Resort. “It validates decisions made when the industry was first formed, such as building land-based infrastructure in addition to casinos. If we had not done that, we would not be where we are today. Our upside is fantastic.”
‘THE UNCERTAINTY OF IT ALL’
A fire burns aboard the Deepwater Horizon, foreshadowing the massive oil spill that followed.
Fast forward two short years and 11 gaming properties are up and running, many with extensive new land-based facilities, thanks to a change in regulations that now allows casinos to be built on land. By the end of 2007, the industry produced $1.3 billion in combined revenue.
“Looking back, you saw the Gulf Coast gaming market grow very rapidly during the 1990s, and then it trucked along at a steady rate,” says Paul Girvan, managing director of the Innovation Group, New Orleans-based leisure and hospitality consultants. “Then Katrina hit and it went down to nothing overnight. But the market proved to be remarkably resilient and it jumped back very quickly, more than anyone expected, and with less supply.”
Such results were not lost on the investment community or gaming developers, and soon Biloxi, the neighboring town of Gulfport and other coast communities were targeted for as many as nine new proposed casino developments.
Unfortunately, this was not mirrored in other vital sectors. Although basic services such as roads, bridges, electricity, sewers and water were soon restored, construction of affordable housing, entertainment amenities and other needs still lags five years after Katrina.
“I think the attractions and activities infrastructure still needs to be rebuilt,” says Jon Lucas, president of Biloxi-based IP Casino Resort & Spa. “The casinos were redeveloped, and many are better now than they were before the storm. But the lack of certain infrastructure is keeping us from coming all the way back.”
Despite these challenges Biloxi and the Gulf Coast as a whole were well on the way to a complete recovery, thanks in large part to the success of a revitalized gaming industry.
“From a purely gaming perspective, the recovery has been complete,” says Larry Gregory, executive director of the Mississippi Gaming Commission. “The properties are rebuilt, the amenities are there, and the resort experience is there. By 2007, revenues had eclipsed their pre-Katrina levels, and they were on track to do the same in 2008 when the national recession hit.”
Post-Katrina construction and investment initially spared the Gulf Coast from the worst of the recession, but by 2008 casino operators started to feel the economic crunch that hit most major domestic gaming markets. In 2009, the 11 casinos generated $1.11 billion in combined revenue, down 11 percent from 2008 and down 17 percent from 2007.
“We certainly felt the impact of the recession,” says Lucas. “We were not immune to it. I think we did not react in 2008 as quickly as we could have. We did not want to believe a recession was really happening.”
In addition to depressed revenues, the lack of available credit forced the cancellation or delay of all nine proposed Gulf Coast gaming resorts.
“That was a shame,” says Perkins. “These would have added a great deal of amenities and attractive brands to the Biloxi area.”
Despite these factors, Gulf Coast gaming started off strong in 2010. Through April, combined revenues for Mississippi-based properties were $374 million, a mere 4 percent decline from the $390 million they generated over the same period in 2009.
“I think we are at a point now where we are finally leveling off,” says Lucas. “In some cases we are seeing year-over-year positives, which we have not seen in quite some time.”
And investors were taking a fresh look.
“The good news is that we are beginning to see new interest in more ‘right-sized’ projects for the Coast,” says Gregory. “As the credit markets thaw, I foresee progress.”
At least this was the case until April 20, the day the Deepwater Horizon rig exploded in the Gulf of Mexico, killing 11 workers and unleashing a torrent of oil that is likely to impact the economic fortunes of the region for years to come.
“The first four months of this year looked very promising,” says Richard Forester, executive director of the Gulf Coast Convention & Visitors Bureau. “We hadn’t quite turned the corner, but we could see it down the street. Now that corner is farther away.”
At press time, somewhere between 86 million and 169 million gallons of British Petroleum’s oil had leaked from the damaged Deepwater well into the Gulf. Large areas were closed to fishing. Tar balls and other spill byproducts were starting to wash up on beaches, bayous and marshes from Texas to Florida. The results for the seafood industry and coastal tourism have been catastrophic.
The gaming industry, on the other hand, appears to have gotten through the early phases of the crisis largely unscathed. In May, the 11 Mississippi Gulf Coast casinos had combined revenue of $95 million, down only 3 percent from May 2009.
“Knock on wood, the oil spill has not had an impact yet,” Lucas says. “We ran 99.4 percent occupancy in June. I have spoken to some of my colleagues at other properties, and they have not seen an impact either.”
The reason for this lack of immediate impact: Simply stated, the frequent Gulf Coast casino guest does not come to swim in the ocean or lounge on the beach.
“To be fair, there was not a whole heck of a lot of people coming down here for the beach prior to the spill,” Crosby says. “When people call about the oil, I tell them there is no oil on the golf course, no oil in the pool, no oil in the hotel rooms and no oil in the casino.”
Indeed, it appears that casinos may actually benefit, at least in the short term, as beach vacationers seek alternative regional destinations, and relief workers and clean-up crews seek area lodging.
“Operators from Lake Charles to Biloxi expect a post-Katrina effect, where they got a revenue bump due to all the reconstruction workers,” Girvan says. “This time, they expect the bump to come from BP workers who are making good money. This revenue may offset short-term losses from the spill.”
The Gulf Coast convention and tourism trade is also holding its own. Hotel occupancy rates were actually up for the month of May compared with the previous year, and there has been no letdown in convention business, reports Forester. Even ocean-based events, such as the popular Fishing Rodeo, managed to take place despite the oil, although Forester is uncertain if this can continue. “We have seen some cancellations of fishing tournaments — it’s a day-to-day thing with the remaining events,” he says. “That has been the greatest difficulty of this whole oil spill situation, the uncertainty of it all.”
And each such cancellation plays into the perception that the Gulf Coast is an oil-strewn wasteland, further muting the region’s normally vibrant summer tourist trade. If this perception continues it could have dire long-term impacts on the local economy.
“Our fly-in markets aren’t close enough to know the real story, and if they hear over and over again that we’re covered in oil they may decide to take their business elsewhere,” Lucas says.
Beyond perception issues, of greater concern to gaming operators is the long-term impact the spill will have on the tourism and the fishing and oil industries — three of the region’s economic linchpins. The extended closure of any of these businesses would mean drastic declines in disposable income among locals, which could have a chilling effect on casino spend.
“Oil is now a new risk factor in the eyes of potential investors,” Perkins says.
Efforts continue to clean up in the aftermath of the BP oil spill
Governments are doing what they can to alleviate the impacts of the spill. The federal government is attempting to coordinate capping and cleanup initiatives while maintaining pressure on BP to make sure they pay for business losses in a timely and fair fashion. State officials are taking a more local and hands-on approach to relief efforts.
“I was down on the Coast yesterday, and I saw buses lined up along the beachfront full of workers sent to clean up the beach,” says Gregory. “Just as soon as the oil hits the beach you will see people working to clean it up. The clean-up effort is ongoing and unprecedented. The state of Mississippi is dedicated to keeping the shores of Mississippi clean.”
Despite the much-needed aid, few people on the ground are satisfied with the federal, state and BP responses to date.
“I think local government has done what they can to respond to the spill,” LaRosa says. “I am very disappointed in the state and federal response. I think it has been late, disorganized, and even today people are left wondering who is in charge.”
The gaming industry is doing its part, whether it’s allowing employees to participate in clean-up efforts or disseminating important public information among casino workers and patrons.
Marketing may be where the industry is having its greatest impact — working with the Convention & Visitors Bureau to fight the perception that oil has totally ruined the Gulf Coast tourist experience. Ad campaign dollars have been rededicated and a new ad campaign created for the intermediate drive-in and fly-in markets emphasizing that the coast is still a viable tourism and gambling destination.
To some, such ad campaigns are like trying to heal a gunshot wound with a band aid.
“The Gulf Coast is like a prize fighter down for the third count,” Perkins says. “It was flattened by Katrina, the recession and now the oil spill. It may have a very hard time recovering from the last blow.”
Others, however, believe in the resiliency of both the region’s economy and its citizens and feel that over time the Gulf Coast will attain the lofty international destination mantle predicted for it prior to Hurricane Katrina.
“I don’t want to sound corny, but it’s really easy for people here to bond over disasters,” Crosby says. “The oil spill was like getting a second sucker punch. The good news is we’re really getting good at taking it.”
Paul Doocey is a New York-based writer and editor specializing in the gambling and betting industries.
is editor of Casino Journal magazine. He can be reached at email@example.com.
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