If you were looking to choose a prototypical example of the success of the American casino industry the past two decades and the challenges it faces going forward, you could do worse than to pick Tunica County, Mississippi.
Starting from scratch in the poorest area of the country, the casino industry grew to about $1.25 billion in revenue in a county whose population barely exceeds 10,000, a stunning success story by any standard. But the past few years haven’t been entirely kind, as many other mature gaming markets could also attest. The combination of growing regional competition, a sluggish economy, and natural disasters that both channeled business to the market (the aftermath of Hurricane Katrina) and re-located it in other places (last year’s flooding of the Mississippi), caused revenue to fall by about 35 percent from its peak in 2007 to just under $800 million last year.
The flood, which cost an estimated $87 million in lost revenue, was an extraordinary item on a balance sheet that Tunica’s stakeholders already knew needed shoring up. In order to help lay the foundation for a coordinated response to what is a considerable macro-economic challenge, the Tunica Convention and Visitors Bureau (CVB), the Tunica County Board of Supervisors and the county’s nine casinos commissioned a study by PricewaterhouseCoopers (PwC) last year that serves as a blueprint for the next chapter of what all feel is still promising future. The outcome was both reassuring and troubling.
“I am shocked in my three years here that the market has not evolved more than it has,” said Barber. “To me, for lack of a better term, it’s suffering from nothing-new syndrome. You haven’t seen a new entrant in the market since 1996; the Grand was really the last property that was introduced, so there hasn’t been a lot of new project work. The existing buildings have been renovated and kept fresh, so there is that element of newness inside the buildings. But it’s going to be almost impossible to attract new gaming product here, when you see a market decline at a 35 percent clip over a short period of time.”
Barber said a good outcome for Tunica would be to get back to $1 billion per year, which means there’s about $200 million of revenue to recapture. He estimates that about $60 million of that could come from business lost due to last year’s flood, meaning Tunica has a $140 million mountain to climb to get back to $1 billion. Getting more people to visit Tunica will be an essential part of any recovery; in the late 1990’s and early 2000’s, Tunica received between 10 and 12 million visitors per year; that that number is down to around 8 million now, according to Franklin.
“The vast majority of customers come from Shelby and DeSoto counties in the Memphis metro area,” said Chick Miller, senior vice president and general manager of the Fitz Casino Hotel Tunica. “Little Rock, Nashville and St. Louis are feeders. It has been a pretty solid market for a number of years, and stable. But that also tells you it’s a day-trip market with a lot of room capacity. It’s primarily a weekend business, so the key is how to get through the weekdays.”
A TWO-TRACK SOLUTIONTunica is working both internal and external angles to help secure its future. Outside development is a key area of emphasis, but so is the building the local population base through new, employment-intensive investments that trade on the area’s proximity to the growing Memphis metropolitan area, which now numbers 1.4 million people. Neighboring DeSoto County, for instance, grew by 150 percent from 2000 to 2010 to just over 160,000 people. DeSoto is now the second largest county in the Memphis area and the third largest in all of Mississippi.
“The growth of DeSoto County has really put us in a unique position, and the growth of the Memphis International Airport is an opportunity as well,” said Franklin. He pointed to a new pipe factory opened by the German-based Schulz Corporation, located opposite the new visitor center, as a forerunner for what is hoped to be many more such investments. “They located here because we had a good infrastructure with a good airport and we are close to a population base of DeSoto County and Memphis, plus we have the vast amount of land that it takes to build a big facility. We’re seeing more and more types of economic development project look at us because of those factors. I-69 to I-55 gets you to the Memphis Airport quickly and there’s just not that many places anymore that has tracts of land like we do.”
Schulz broke ground on the factory on 2010 and it is now complete. The factory will employ between 350 and 400 people out of the gate and will gradually ramp up over a three-year period. At full capacity, it has the ability to employ up to 1,500 people. Another potential investor is GreenTech Auto, a Chinese investment company whose mission is to produce electric cars. They have had a couple of site visits and are looking for permanent financing to build their first manufacturing plant here.
Caesars, and by extension Barber, is a key player on the economic development side, by virtue of all the land it owns along Highway 61. The company owns 2,000 acres in the area, 500 of which front Highway 61, all land that was acquired back in the 1998 Park Place/Grand Casinos deal. “We’re looking at proposed residential developments, proposed third-party outlet malls, amusement parks, water parks, and more,” said Barber. “The analogy that I use to describe Tunica to prospective developers is to think about the Gatlinburg-Pigeon Forge market in eastern Tennessee, or Branson, Missouri, or Myrtle Beach. Places with outdoor malls and retail/residential communities that are blended together and have created fantastic overall visitation patterns. Highway 61 is a perfect area to do something like that, where you can have a mixed-use retail dining entertainment facility that could really work well for this mid-South region.”
“We’ll generate about $130 million in retail sales in unincorporated Tunica County this year, and the state receives all of the taxes on that,” said Franklin. The Tourism Development fund bill asked the state to treat the unincorporated area of Tunica County like a municipality and rebate that 18.5 percent of sales tax as happens everywhere else, but not to use it for government services. “The gaming tax has already allowed our county to provide police and fire protection, a great infrastructure, water and sewer service; all of those things that it takes to operate,” Franklin added. “We need that money to go out to, say, a water park and incentivize them to invest in Tunica County and put together a deal that might not otherwise get done. That would provide jobs, economic activity in the area, hopefully bring more people and, in the long run, that state would receive more than that 18.5 percent less the rebate than they would by just collecting the money or giving us the rebate with the government services requirement.”
All perfectly sensible on the face of it, but getting concessions for gaming is still tough, even in industry-friendly Mississippi. The bill, HB 129, successfully passed the House and was transmitted to the Senate for consideration last month. It was referred to the Senate Finance Committee where it died. “We will work over the course of this year to educate the Senate and the Lieutenant Governor on the need for this legislation and hopefully be more successful next year,” Franklin said.
For all of that, operators like Niklas Rytterstrom, general manager of Gold Strike, thinks Tunica is on the right track. “All the growth you see in Memphis is going south, with [DeSoto County communities] Southhaven and Horn Lake; it’s getting closer to us,” said Rytterstrom. “This hurdle that we’re trying to overcome with people living in Memphis is, ‘should we go to Tunica, should we make the trip out there?’ Slowly but surely, making the trip suddenly doesn’t seem that far. I live in Southaven and commute every day; it takes me less than 30 minutes door-to-door to get here.”
Rytterstrom thinks progress will come in steps, not leaps and bounds. “It’s not necessarily that one big idea; OK, we’re going to build X, and now we’re going to have all these people because we built this,” he said. “In my mind, it’s much more about doing a lot of small things. Instead of having the goal of building something that makes our customers stay an additional night, do things that will encourage them to stay an additional hour. I’m on the tourism commission here and there are some great conversations taking place. I’m surprised at the level of conversations. The Welcome Center with the blues museum attached to it is a perfect example of what we need to do.”
AFTER THE FLOODDrive into Tunica from Memphis via Highway 61 and you see the usual billboard wars touting one or the other promotion at many of the county’s nine casinos. There is one interesting addition to the mix; Southland Park Gaming & Racing, the Delaware North-owned facility in West Memphis, Ark., which operates over 1,000 machines and got a substantial boost in business during and after the floods last spring. “Are you feeling fuelish?” asks one of their billboards, just as you get within sniffing distance of the casinos, an obvious attempt to trade on this year’s gas price spike. The facility harvested some of its post-flood gains in the fourth quarter by plowing $10 million into renovations, including an additional 200 machines, bringing its total to 1,200, and a new sports bar and lounge.
“They have certainly grown,” said Barber, who places Southland’s revenue growth at around $5 million per month, or $60 million annually. “That is a pretty big slice of the pie at the end of the day when you think of a market that is fighting to get back to a normalized environment. I do think there’s a difference in gaming and the level of amenities and services that they can provide. It gets back to competition and keeping everyone on their toes here in Tunica, and willing and able to reinvest in the customer not only from a marketing standpoint but also in terms of product.”
The flood “caught everyone off guard,” according to Miller, and Tunica is still recovering in some basic ways, though the tangible evidence is limited. The popular RiverPark museum, located next to the Fitz, is still closed, though it is expected to re-open “soon,” according to the museum’s Web site, and the 400-seat Tunica Queen is again offering cruises on the Mississippi from RiverPark’s landing. A golf course and the RV Park at Sam’s Town are the only other attractions that remain closed. The bigger question in the near term is how many customers changed behaviors as a result of the flood and how difficult it will be to get them back.
An improved economy is offering some hope. “We had a pretty strong fourth quarter in 2011 and volume has stabilized into this year,” said Barber. “We had a strong January and February and year-over-year comps look pretty strong. This market was never an explosive growth market; a good year here would be 3 to 4 percent growth. There’s some stability with the Memphis market; unemployment rates have come back down and homes seem to be moving again. They’re not commanding premium pricing yet but we are seeing some stabilization with the macro indicators.”
As for higher gas prices, Barber doesn’t worry much. “At the end of the day, that’s not a meaningful difference to our customers when you’re talking about an extra 10 or 15 minutes in either direction; you’re talking about a couple of gallons of gas,” he said. “It really comes down to the marketing offer, the level of reinvestment, the quality of the experience of the products and services that we are providing. That’s how we’ll compete and differentiate ourselves.
COMPETITIVE STRATEGIESThe Tunica casino market features a blend of corporate marketing powerhouses and smaller operators who compete on service and customer responsiveness that gives players a broad range of product options to choose from. Caesars, Boyd Gaming, MGM and Penn National are all represented, so there is no shortage of marketing clout, and the pressure ratchets up all the time.
The clear market leader in terms in terms of share is Caesars, with three properties; Horseshoe, Harrahs and Roadhouse. “Horseshoe is a very strong brand for us,” said Barber. “It’s clean and easily distinguishable; easy to market. It has had a number one position in almost every market we’ve operated in. Harrah’s is the fun, lively place. A little bit broader audience that we’re marketing to. Given the asset mix here, it’s a little more broadly differentiated. We market a lot to sales and convention groups. To leisure travelers that are interested in our shooting range, our golf course, our RV parks; a much broader net that we can cast whereas Horseshoe is all about the gambler and getting that core gambler down here. I’ve referred to Horseshoe as a Memphis social club because the Who’s Who of Memphis plays at this property. It’s got a well-defined position and we defend it well.”
Caesars has made “significant investments” into the overall look of the floor at Horseshoe, freshening the slot product with new games and seating. The facility also added a new high-limit table games area with some additional table games in a pit that is positioned in front of the entrance of a theater that is used for live entertainment, group sales and a nightclub once per week, capturing more of a retail-oriented customer that comes into our building for various programming.
The high-end business proved pretty stable during the downturn, not just at Horseshoe, but also next door at Gold Strike, which shares one of Tunica’s two casino clusters with Horseshoe and Roadhouse. Strength on the high-end convinced the property to invest in a new high-limit slots area which opened in the fourth quarter of 2011, said Rytterstrom. The company’s new loyalty program, M Life, also puts it in a better position to compete, marketing-wise, with Caesars’ more established Total Rewards program, which leverages seven properties on the Strip and casinos in every major market in the U.S. M Life hooks Gold Strike up to the full range of MGM’s properties nationally and regionally, including not just Beau Rivage on the Gulf Coast, but thanks to recent agreements with Ameristar, to Vicksburg, and Lake Charles, La., when Mojito Pointe opens in mid-2013.
“We finally have a corporate loyalty program which is huge for the regional properties,” he said. “It’s everything; if you look at (Caesars), that is their brand and it’s huge for them. It gets back to having customers who come here weekly. Even when they are home, they live with us. They are on the Internet, seeing where they are at with the points because they are vested in gaming; that’s what they spend their entertainment dollar on. Even when they are away from here, they can still be part of the experience through M Life. It’s the next step toward loyalty.”
All of which keeps the door open for smaller competitors such as the Fitz, which plays the service angle to the hilt. “We aren’t trying to be everything to everybody; it’s very clear we’re not a megaresort,” said Miller. “We’re in a location that works for us and against us. We aren’t in a cluster, so someone has to want to come here; that’s the bad news. The good news is that when they get here, they’re here. The only way we can achieve what we want to is to make people feel good about choosing to come here when they walk through the doors.”
Indirectly, the Fitz competes with everyone, some more than others, Miller said. “I can’t say I can compete with a Caesars, which has three hotels and I don’t know how many restaurants. I can’t compete with golf courses, convention centers and entertainment centers. But what I can compete with is when somebody walks through our doors, making them feel comfortable, safe and well-taken care of. We can move quicker than most because we’re not a huge corporation, but I think our biggest advantage is we understand our market and who our guests are. Everyone talks about demographic profiles and all that kind of stuff; that’s all good, statistically. But if you walk the floor, listen to what your guests are telling you, give them what they’re asking for, you’ll succeed.”
SIDEBAR: Morale boosterChief Phyliss Anderson rejuvenates the Mississippi Band of Choctaw Indians
It’s hard to imagine a more challenging start to the leadership of a tribe than that experienced by Chief Phyliss Anderson of the Mississippi Band of Choctaw Indians.
After serving two terms on the Choctaws’ tribal council, Anderson ran for tribal chief and won a run-off election last July 5, only to have the results thrown out because of alleged voting irregularities in the regular elections held three weeks prior. The week after the first run-off, the Federal Bureau of Investigation raided the tribe’s prized economic asset, the Pearl River Resort, in connection with an investigation of the consulting firm that was managing the property as well as an advertising agency that it was using. Two days after the raid, Moody’s downgraded about $200 million of the tribe’s securities to Caa2, the lowest rating possible.
Anderson won the second run-off election, and was sworn into office for a four-year term last October, but she still faced the twin challenges of shoring up the tribe’s finances and building tribal unity. By all indications, she is succeeding admirably.
For starters, she has kept her campaign promises, meeting every marker she set out for her first 100 days. These included restoring unity among the tribe’s governing bodies and its 10,300 members, which was aided through five tribal council meetings in the first 100 days and the passage of 42 resolutions, 37 of which went through unanimously; tribal finances were audited; cost-of-living increases were extended to all tribal and resort employees making less than $16.83 per hour; contracts were terminated with Mercury Gaming, Titan Agency and a sponsorship of the Atlanta Braves that wasn’t paying off; a tribal advocate position was created to help tribal members with workplace-related issues at its three casino properties; and steps have been taken to end job intimidation and fear of job loss.
“We campaigned on these issues; the tribal members were ready for new leadership,” said Anderson. “The main thing for me personally was I had been in council for eight years. I felt like it was a calling for me to take over, with all that I had seen, and that’s why I decided to run. What I have emphasized to employees is that we have to have people who are dedicated and loyal to us in order to be productive, and that people who are accountable, come to work every day and produce should not have to fear the loss of their jobs. I think that morale has improved a lot, based on what I’m hearing, but we look for it to get even better.”
STABILIZING THE BUSINESSThe Mississippi Band of Choctaw Indians owns and operates Pearl River Resort, in Choctaw, Miss., which is composed of Silver Star Hotel & Casino, a 90,000-square-foot casino with about 2,500 slot machines and 67 table games and over 500 hotel rooms, and the high-end Golden Moon Hotel & Casino, which features The Arena (a 10,000-seat entertainment venue), 200 slots, and 572 luxurious hotel rooms (including 33 VIP suites) and a 10,000-seat arena. About 85 miles to the south, the tribe also operates Bok Homa Casino in Sandersville, Miss., a 27,000-square-foot property with over 700 machines.
Financial matters related to the tribe’s gaming business were a major focus the first few months of Anderson’s tenure, culminating with the negotiation of a successful $78 million refinancing package in late February with Trustmark National Bank serving as administrative agent and lead arranger. The deal reduced the number of entities that the tribe has to deal with from 55 to eight, all of which are regional banks, removing hedge funds, money market managers and foreign banks from the equation. The five-year loan is at a 6 percent variable rate compared with 10 percent previously.
“I’m so glad that that part is over with right now,” said Anderson. “I can breathe a little bit better and I can sleep better at night knowing that the refinancing deal is behind us. We faced the question of whether we could get the refinancing done at all because of the ongoing investigation, but we’ve managed to do it in a positive manner with great terms and with good rates. We’re excited.”
Even though the tribe’s gaming business had dropped 30 percent in the prior three years, the Choctaws were able to get the deal done in no small part because the tribe has never missed a payment on its notes, Anderson said. “The economy is turning a little, so we’re doing a little bit better than we have in the past,” she said. “There was also a lot of face-to-face interaction with people so they could get to know me and the people around the resort. We brought people in to visit the resort so they could have a look at what they’d be bringing money to the table for. All of that let people know that we are a safe bet.”
The FBI’s investigation remains ongoing, but the tribe has been assured by authorities that it is focused on outside vendors, not on the tribe itself, Anderson said. Meantime, the new chief has taken strong steps to boost employee satisfaction, starting with raises for hourly workers, the largest of which ($1.25 per hour) were granted to employees making less than $10 an hour.
“We had a few incentive plans in place, but never anything that increased employee earnings on an hourly basis,” said Anderson. “What I wanted to do was target those people who were at minimum wage, because they are the ones who are hurting the most and I wanted to make sure that they got a little relief. We can’t give them all the relief that I’m sure they would like, but we had to at least give them something so they won’t have to struggle as much. And they were all happy with it. We got telephone calls, texts, e-mails from tribal members and non-tribal members letting us know how much they appreciated the cost-of-living increase.”
A YOUNG, GROWING TRIBEHalf of the tribe’s members are under the age of 21. Most reside on tribal land but in eight different communities, spread across 35,000 non-contiguous acres. Anderson is from Red Water, which is about 25 miles from tribal headquarters in Choctaw. Tribal lands are as far away as Tennessee where there are 20 residences.
“We’re the largest tribe in the southeast,” notes Anderson. “The ratio between the demand we have for services and actual supply is terrible. One of things we’re looking to build is a new hospital. The one we have was built in 1976 when the population was about 4,000. We have so many more people to serve now and it never lets up. There is so much to do for this tribe.”