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Casinos Gamble On Missisippi Recovery & Find Jackpot January 9, 2007

Posted by notapundit in US News.
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A new TV commercial imploring tourists to “come back to the Mississippi Gulf Coast” teases viewers with idyllic images of blue seas, green golf courses – and the twinkle of the slot machines.

Revenue at the region’s casinos, which have reopened en masse over the last few months after more than a year of rebuilding in the wake of Hurricane Katrina, is in step with pre-Hurricane Katrina levels – even though the area is operating with 10 facilities, rather than the 12 that operated before the storm. Mississippi’s Gulf Coast casinos are proving an integral foundation to the region’s recovery – one that’s injecting money into the economy and providing a major area of growth for expansion-hungry gaming companies.

“The fact that we had a dozen properties and most of them chose to move expeditiously to get back into the business helped [the economy] tremendously,” said Stephen Richer, executive director of the Mississippi Gulfcoast Convention & Visitors Bureau.

The central role the casinos are playing in the hurricane-ravaged region’s recovery is a boon to casino operators, who have faced ongoing criticism over the years as they have pushed to expand their reach. Regions that have struggled economically have faced bitter battles among voters and elected officials as they weigh the benefits of casinos’ economic infusion – from jobs and tourism as well as the high taxes that are usually imposed – against what Cleveland Mayor Frank Jackson termed revenue at the expense of “vice.”

Ohio recently voted down a measure that would have brought gaming facilities to the troubled industrial state. Pennsylvania, on the other hand, is the industry’s newest growth area, after gambling regulators last month approved 11 casino licenses to be spread across the state.

If Mississippi is any indication, the gaming industry has the capability to significantly boost a regional economy – creating jobs and luring tourists, who spend money on lodging and restaurants in addition to the blackjack tables. Fifteen years ago, said Richer, the gaming industry’s arrival in Biloxi lifted that city from economic mire. Now, after the most devastating hurricane in the region’s history, “they’re doing it all over again.”

“It’s not a federal grant – it’s true economic activity,” said Richer.

In September, October and November of 2006 (December figures aren’t yet available), Gulf Coast gaming revenue hovered in the $100 million area each month – matching or exceeding pre-storm levels. In the same period, unemployment in the region was sliced in half – not a coincidence, said Richer.

In Harrison County, home to Biloxi and Gulfport for example, the unemployment rate plunged to just over 8% in November, from about 15% the previous spring, according to data from the Mississippi governor’s office.

The Next Atlantic City?

For casino companies, the expansion of gaming means more diversified revenue. That fact protected most casino investors following August 2005’s devastating hurricane – despite the fact that many of the casinos were closed for a year or more.

The Gulf Coast casinos are for the most part “relatively small parts of large companies, so the impact of the companies was de minimis,” said Sabur Moini, a senior high-yield strategist at Payden & Rygel in Los Angeles, who follows the industry.

Of the 12 casinos in the area, just one was forced to file for Chapter 11 bankruptcy after the hurricane – Premier Entertainment Biloxi. That company, which was scheduled to open the Hard Rock Hotel & Casino Biloxi just days after Hurricane Katrina slammed into the coast, filed a pre-packaged bankruptcy as the result of a dispute with bondholders over access to insurance funds. Bondholders are expected to recover all of their principal, and the facility is scheduled to open this summer.

In the last year, gaming sector bonds have posted about 7% in returns, according to the Merrill Lynch Master II High-Yield index.

Even with 10 existing casinos and another slated to open in a few months, developers are still looking to the Mississippi Gulf Coast for growth. As many as a half-dozen new projects have been proposed, including a 40-acre facility headlined by Trump Entertainment Resorts (TRMP). Trump representatives weren’t available for comment.

Though Mississippi local press and officials have talked excitedly about the Gulf Coast region bumping Atlantic City and emerging as the country’s second-largest gaming destination, the area’s distance from major urban areas puts it at a disadvantage. Analysts at Standard & Poor’s noted in a report that they expect the market to experience a rise in revenues as the new flashier casinos open. After two to three years, though, they anticipate that the novelty will wear off and growth rates will fall back to about 5% annually.

Payden & Rygel’s Moini agrees, noting that casinos in Biloxi are likely to post a lower slot drop than those in Atlantic City, which draw wealthier patrons from New York, New Jersey and Philadelphia. Atlantic City, too, is on the growth path as it aims to morph into a destination akin to Las Vegas.

The industry’s biggest growth areas, however, are thousands of miles from Biloxi. As the U.S. market becomes increasingly saturated, gaming companies are pushing into more exotic locales, including Macau and Singapore.

By Simona Covel, Dow Jones Newswires

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