Recovery of Gulf Coast casinos could hinge on a change in law
When Hurricane Katrina washed ashore in Biloxi, it tossed most of the barge-based casinos off the Gulf of Mexico and onto dry land.
It also raised questions about the future of the gambling business in the area, even though it has had great success on the low-tax Gulf Coast since the first slot machines spun in 1992.
The rebound of casinos in hurricane country will hinge as much on politics as weather patterns. Industry analysts say it will turn on tax rates and corporate competition, and could be decided by a bluff or two.
Casino executives expect enticements from other regions across the Southeast, from American Indian tribes to cities that can argue ? armed with Katrina?s fresh evidence ? that working on the beach sometimes can be bad for business.
But experts say that for the casino industry, the odds in Mississippi ? even calculating the occasional calamity ? look too good to pass up.
Already, some industry bosses have begun to leverage the disaster to push Mississippi to allow its barge-top casinos to move on shore, a move that would require a change in the state law that says casinos cannot be built on land.
?Both large and small have told me they will not rebuild without the change,? said Beverly Martin, executive director of the Mississippi Casino Operators Association. ?They can?t.?
Should the barges-only rule change ? Gov. Haley Barbour has said he will consider it ? industry analysts say Mississippi is unlikely to lose its casino business, no matter the risk from hurricanes.
One analyst pushing the rule change is Deutsche Bank?s Andrew Zarnett, who takes a hopeful long-term view. He said the disaster might serve as ?a catalyst for dramatically improving the quality of gaming assets? in the Biloxi market, ?leading to a more substantial destination resort in years to come.?
But the companies? effort to move their casinos onto land faces a challenge from within: MGM Mirage Inc., one of the industry?s megaplayers, opposes the change.
?If you allow the casinos to move, what happens to the businesses that have built up around them?? asked Alan Feldman, senior vice president of communications for MGM Mirage. ?Right now is no time to be making changes in public policy. There ought to be a cooling-off period.?
MGM Mirage owns the Beau Rivage, built in 1998 in Biloxi. The casino was anchored in sturdier footings than were allowed when its competitors? barges were anchored years before. So the Beau Rivage survived Hurricane Katrina far better than most casinos and should be among the first to start taking bets again. Because buildings are cheaper and more efficient than boats, analysts say the Beau Rivage would be at a decided disadvantage if its neighbors shifted to land.
Floating or grounded, casinos have reason to adore Mississippi ? and Mississippi has cause to love them back. Of the 11 states with legal casinos, only Nevada and New Jersey offer the industry lower effective tax rates than Mississippi?s 12 percent.
The jackpot for Mississippi is more than $330 million a year in tax revenue, nearly 10 percent of the state?s budget, and 17,000 casino jobs along the coast.
Other jurisdictions in the region that might offer inland safety for a casino do not offer tidy solutions. Alabama?s Legislature has an almost perennial flirtation with casino gambling but has never said yes. Indian tribes have the sovereignty that allows them to take on gambling, but none can compete with the Gulf Coast?s proximity to population centers or the beach. Louisiana has a limit of 15 licensed casinos, all currently accounted for, and the state has irritated the industry with its erratic regulating habits.
?Where Harrah?s builds a casino isn?t entirely up to Harrah?s,? said Jacques Cornet, a gambling industry analyst for CIBC World Markets. Given Mississippi?s low tax rate, ?you?ll look back in ?07, ?08, and the industry will be as strong down there as it is now or stronger.?
