After weathering hurricanes, an economic recession and an oil spill, the Gulf Coast gaming market appears poised for a long-awaited comebackForgive Gulf Coast casino operators if they take time to celebrate the first rays of industry revival after a rather lengthy economic nightmare.
Indeed, the series of setbacks that have plagued this market the past five years are well documented-an unprecedented hurricane that destroyed every casino along the Mississippi coast, a prolonged recession that negatively impacted casino operations throughout the entire region and to cap it all off, a seemingly never-ending Gulf of Mexico oil spill that crippled the already troubled costal tourism industry.
The final toll of all these mishaps: a 15 percent drop in combined Mississippi Gulf Coast gross gaming revenues, from a high of $1.3 billion in 2007 to $1.1 billion by the end of 2010.
“Gulf Coast gaming revenues really started to decline in 2008 and really tumbled in 2009 as the recession deepened and Biloxi casinos experienced a 12 percent dip in business,” said Paul Girvan, managing director of The Innovation Group, a New Orleans-based provider of consulting services for the gaming, leisure and hospitality industries.
The good news for the Gulf Coast gaming industry was that this rate of revenue decline slowed noticeably in 2010, which was only down 2 percent when compared to 2009. Even better, the industry staged a pretty impressive second half of 2010 comeback, reporting revenue gains in four out of six months compared to the previous year.
“Hopefully the market has turned the corner,” said Scott Fisher, president of Leisure Dynamics Research, a New Orleans-based consultancy that specializes in leisure industry economic research. “Like other U.S. markets, it has been on a bit of a downswing the last couple of years. It appears to be growing out of it slowly now.”
For the most part, this positive revenue trend appears to have carried over into 2011. Mississippi Gulf Coast casino revenues were $98 million for January 2011, an 8 percent increase over the same month in 2010, before falling back to $94 million in February, which was a slight 1.5 percent decline compared to a year ago.
“I guess you could say we hit rock bottom half way through last year,” said Jon Lucas, president of Biloxi, Miss.-based IP Casino Resort & Spa. “We then saw a leveling off for the remainder of last year. This year, my market counterparts and I project a 2 percent or so increase in revenue. We expect business to ramp up a little bit as the year goes on.”
This uptick in Gulf Coast gaming fortunes has not gone unnoticed by casino operators looking to set up shop in the region. The past year has seen the introduction of planned new developments or the resuscitation of previously dormant endeavors such as Margaritaville Casino & Restaurant in Biloxi, Miss., Rotate Black in Gulfport, Miss., CanCan Casino Resort & Spa and Oyster Bay casino in D’Iberville, Miss., and Mojito Pointe in Lake Charles, La. Meanwhile, established properties such as Biloxi, Miss.-based Palace Casino Resort are undergoing renovations and expansions to better compete in the improving marketplace.
“The Gulf Coast gaming market had taken a double hit from Hurricane Katrina and the economy, leading to fewer visitors spending less per trip,” said Mark Norton, chief operating officer for CanCan Development LLC. “By the time our project opens in two years, these problems should be resolved and we will benefit from improvements in visitation and spend per visit.”
The combination of improved business and potential new brick-and-mortar construction has many gaming observers bullish about the future the Gulf Coast casino region. “I do think that the worst is behind us,” said Eddie Williams, a deputy director for the Mississippi Gaming Commission. “We should see some slow and steady growth for the immediate future. I think as the national economy recovers, you will see us improve.”
STATE OF DECLINE?Positive talk about the economic future of Gulf Coast gaming is a welcome change considering the outlook for the industry wasn’t so rosy just five month ago when the John C. Stennis Institute of Government and Mississippi State University released a study entitled The Casino Industry in Mississippi, an Overview for Decision Makers.
The report essentially found an industry in a sharp, prolonged decline: casino and casino hotel employment had dropped 37.3 percent from 39,558 employees in the 2nd quarter of 2000 to 24,789 by 2nd quarter of 2010; industry payroll had cratered 17 percent from $907.3 million in 2000 to $750.5 million in 2009; statewide gross casino revenue had actually decreased over the past decade, from $2.65 billion in 2000 to $2.47 billion in 2009; tax revenues were also down for the decade, from $319 million in 2000 to $396 million in 2009, an 8 percent decline; and total patronage also dropped for the decade as well, from 56.03 million in 2000 to 33.65 million in 2009.
To address these declines and recapture lost tax revenue, the study suggested state decision makers consider a number of initiatives including adding racino facilities to the state’s gaming mix, establishment of a $2 to $3 admission fee for casino patrons and a to-be-determined increase in the state casino tax rate.
Suffice to say this report did not go over well with anyone involved in the Mississippi’s gaming industry. “The report didn’t uncover anything new-that information is out there for all to see,” Williams said. “There was more emphasis placed on the negative and what we should be doing as opposed to the positive and all the things that have gone right. Our free market approach and low tax rate continued to attract developers and investors to the state. I don’t think increasing the tax rate will have a positive effect… it’s going to take an overall economic recovery to positively impact the business.”
Instead of creating racinos to boost gaming tax revenues and bring more gaming patrons to Mississippi, gaming operators would rather see more attention paid to improving the Gulf Coast tourism infrastructure, which has yet to fully recover from the fury of Hurricane Katrina. Rebuild the Coast’s former array of family attractions, the theory goes, and the casino industry will benefit along with the myriad of other regional business that rely on the tourist trade.
“Everybody expected the tourism rebound from Katrina to take a little less time than it has taken,” Lucas said. “I think some of the non-gaming attractions, activities and infrastructure need to be rebuilt before we see a good spike in overall business. Casinos are great and a help to the local economy, but to really see the economic needle move significantly we’re going to need more growth in tourism infrastructure areas.”
The inability to rebuild the tourism base is only one factor that could harm the long term viability of the Gulf Coast casino market. Equally problematical for the future health of the mostly drive-in day-tourist market is the specter of rising gas prices.
“I think like many other gaming markets across the country, the Gulf Coast is slowly clawing its way back to where it was,” Girvan said. “Unfortunately, gas prices are starting to creep up again, which is really bad for the Biloxi/Gulfport market in two ways-short-term it hurts the drive-in market, longer-term it could once again disrupt air service, and bringing customers from outside the region to Biloxi is important to the future success of this market.”
Hotel development, and the lack of it along the Mississippi coast, is another shortcoming that could come to haunt the market. “The way I looked at this market pre-storm was that it had topped out its drive-in market,” Girvan said. “Any market growth going forward will be driven by two factors: one is air service, the other is hotel development.”
But perhaps the biggest fear for the Gulf Coast gaming market’s future is the potential of commercial casino legalization in one or more of its primary feeder markets of Florida, Georgia or Alabama. Various casino bills exist in the legislatures of each of these states, the most threatening of which is a megaresort legalization measure in Florida (see sidebar).
“I can see the Mississippi Gulf Coast market evolving into a $1.25 billion to a $1.4 billion a year market so long as there is no new regional competition,” Fisher said. “But if Pensacola or another Florida panhandle city gets a $2 billion casino resort, then this prediction goes right out the window. Florida patrons constitute something like 15 percent to 20 percent of Biloxi’s casino business.”
RISING ABOVE IT ALLDespite these potential pitfalls, there are many reasons to be positive about the Gulf Coast’s casino future. To start, although the threat of regional gaming expansion is ever present, the chances of any new casino jurisdiction coming online in the immediate future is remote.
“Never say never, but I don’t put much stock in the Florida talk because the Seminoles have too much to lose and they will up the ante to keep their semi-monopolistic situation down there,” Lucas said. “Some folks in Alabama tried to skirt the rules and open resorts that would compete against us, but those were ultimately shut down.”
Even if casino gaming came to a neighboring jurisdiction, it would be hard pressed to prove that it is a better market than Mississippi. The state currently boasts the second lowest casino tax rate in the nation and has a regional airport with plenty of room for expansion. It also has a recovering local economy and improving employment rate, according to observers.
“The overall market does have some factors going for it,” Fisher said. “There is decent population growth and unemployment is not as high as other parts of the country. There is certainly the potential for the market to recapture 2008 revenue figures in the next few years by natural growth alone.”
Indeed, although the Gulf Coast gaming business has suffered the past few years, it has still outperformed other major casino markets. Since reaching $12.8 billion in 2007, Nevada casino revenues have declined 22 percent, bottoming out at $9.95 billion in 2010, according to PricewaterhouseCoopers. Meanwhile, Atlantic City casinos lost $1.37 billion, or 28 percent, of market value from 2007 to 2010. The Gulf Coast’s 2 percent decline in revenue last year even outperformed Tunica and the other river counties in Mississippi, which had a 5 percent dip in revenue.
For these and other reasons, a number of gaming developers have unveiled plans to build new brick-and-mortar casinos over the last year. These potential projects include:
• Oyster Bay - A $150 million casino resort that would recreate an 1850s fishing village in the Old Town area in D’Iberville. When announced in April 2010, the 24-acre site was to include a 65,000-square-foot casino with 1,000 slot machines and 25 table games. The project would also include restaurants, shops and an artists’ village. The project, which is being developed by Malcolm Duane Lewis, Tom Moore and The Brosig Group, has received site approval from the Mississippi Gaming Commission.
• Rotate Black - The planned $180 million Gulfport resort will start with a 240-foot by 65-foot gaming vessel that is undergoing a $40 million renovation. The ship has 30,000 square feet of gaming space and two restaurants. Once the boat is docked at the former location of the Marine Life Aquarium, construction will begin on a 120-room hotel and two additional restaurants. Phase two development includes the construction of a larger 380-room hotel attached to an 80,000-square foot casino, according to Rotate Black officials.
• Margaritaville Casino & Restaurant - Actually, a Margaritaville-themed gaming resort plan has been kicking around Biloxi since 2007, when Caesars Entertainment unveiled plans to build a $700 million Jimmy Buffett inspired gaming complex. Construction on this project was halted in 2008. The property was reborn early this year however when Margaritaville officials teamed up with the Brosig Group and announced plans for a smaller, $48 million facility that would be located on Biloxi’s Back Bay. The new Margaritaville would include a 68,000-square-foot casino with restaurants, pubs, retail space, an events center and an 18-slip marina. The project is still seeking site approval from the Mississippi Gaming Commission.
• Mojito Pointe - In February, the Louisiana Gaming Control Board awarded it 15th and final gaming license to Creative Casinos and its planned $400 million Mojito Pointe on Lake Charles. The Caribbean-themed resort will be built on 220 acres of land and include a casino with 1,500 slots and 400 table games, two four-star or better hotels with a combined 400 rooms, restaurants, a convention center and an entertainment complex. Mojito Pointe still needs approvals from Calcasieu Parish voters on a special April 30 election before construction can begin. The tentative opening date for the facility is 4th quarter of 2013.
• CanCan Casino Resort & Spa and French Village - The $450 million D’Iberville-based complex will include French-themed casino and entertainment components. The CanCan Casino Resort and Spa will feature a 250-room hotel, a full-service spa and rooftop pool, a 60,000-square-foot casino with 1,800 slot machines and 46 table games, and a live poker room. Three restaurants are planned in the casino, featuring a buffet, a coffee shop and a specialty gourmet restaurant. A nightclub and entertainment lounge is also planned. A flexible meeting space of 15,000 square feet will be used to host meetings, events and player parties.
The French Village portion of the project will consist of 95,000 square feet of leasable space to accommodate retail tenants, dining and nightlife venues and will also feature a wedding chapel and outdoor vendor space for a farmers market, street peddlers, roaming entertainers and kiosks.
Norton believes construction of the French Village is key to the long term success of the CanCan Resort and the exact type of development needed to revive The Gulf Coast’s lagging tourism infrastructure. “I have done a lot of demographic research on the area,” he explained. “Prior to Katrina, there were about 22 million visits a year to the Coast casinos. Last year, we ended up with 16 million. We know there is pent up demand for some reason. We think it is because there are a reduced number of things to do down here, and people have decided to take their families somewhere else to vacation. That is one of the reasons why the French Village component is so important to us.”
Some existing gaming properties are also expanding to better meet market needs. One such property is Biloxi’s Palace Casino Resort, which is in the throes of a multi-million dollar renovation and expansion. The 110,000-square-foot project includes the addition of 38,000 square feet of gaming space, which will be home to 1,000 additional slot machines, 26 new table games and a high-limit gaming salon. A new two-story lobby atrium is also being built, which will house a new front desk, concierge area, VIP check-in, a gift shop, spa and fitness center, business center and motor coach lounge.
“We are adding a lot of the amenities that we have not had available since Katrina, such as a spa and additional restaurants,” said Jeana Tribble, director of marketing for Palace Casino Resort. “We absolutely have confidence in this market; our expansion will coincide with its comeback.”
Many would-be Gulf Coast operators would probably like to build large, splashy projects. The problem: Getting the financing in place to do so is proving exceedingly difficult. “When you burden a project with lots of hotel rooms it is hard to pencil out,” Girvan said. “It’s a chicken-and-egg situation-you jigger the size of the hotel to keep costs down and make the ROI work, but when you do that, you reduce your ability to generate meaningful revenue. It is a difficult balancing act.”
And it is a balancing act that many of these proposed developments are unlikely to reach. “Of all the projects being talked about right now, if half of them move forward, I will be surprised,” Fisher said.
SIDEBAR: Florida considers integrated casino resort expansionA bill has been introduced in the Florida Legislature that would clear the way for five destination casino resorts at various cities throughout the state.
The measure calls for the development of casino complexes with conference center, retail, vacation resort and entertainment components in five Florida communities: Miami, Tampa, Jacksonville, Orlando and a to-be-determined panhandle city. The facilities would have slots and table games with exclusive rights to offer roulette and craps play. The destination casinos would be taxed at a sliding 10 percent to 30 percent rate based on revenue volume.
The state’s existing tribal and pari-mutuel casinos would be excluded from competing for destination resort licenses.