Mississippi casinos feel they have the right formula to survive tough times

Faced with uncertainty about the future of the economy, Harrah’s announced last month that it has slowed construction on the USD 700 Margaritaville Casino and Resort on the beach in east Biloxi. MGM Mirage, parent company of the nearby Beau Rivage, said earlier this spring it had laid off 100 people between the Biloxi and Tunica County properties.

As consumers‘ expendable income shrinks with the rising cost of food and gas, casino companies‘ earnings have plummeted almost across the board, and grand expansion plans have fallen along with them. In Las Vegas, for example, Boyd Gaming Group announced in early August that it is delaying construction of its multibillion-dollar Echelon resort.

Along the Mississippi coast, however, a muted optimism prevails, fueled by drive-in traffic that could propel the coast to meet the record-breaking revenue of last year, industry watchers said.

Projects like a USD 160 million expansion of the Isle of Capri Resort Casino, put on hold in 2007, are now back on the table.

That’s good news for neighboring areas like Jackson County and south Alabama, where many of the industry’s 12,400-plus employees live, and where millions of visitors likely spend some of their money, said Jerry St. Pé, chairman of the Mississippi Gaming Commission.

St. Pé said although the market has no doubt contracted, the long-term outlook is good. St. Pé praised Harrah’s for dealing openly with the community about its plans, and said he is confident that Margaritaville — which takes its theme from the music of Pascagoula native and former Mobile resident Jimmy Buffett — will come to fruition.

„Projects like Margaritaville are long-term, taking two to three years to develop,“ he said. „They (Harrah’s) are striving to adapt to market conditions.“

Harrah’s is not alone. Casino operators and developers readily admit the summer has been no fun. They are not going full force as they might have when the area was in the throes of reinventing itself in the wake of Hurricane Katrina, which slammed the coast three years ago this month and devastated the industry.

Then, with Gov. Haley Barbour allowing casinos to build inland rather than have floating barges, developers dreamt big. They envisioned a bigger, glitzier coast market that would rival Atlantic City.

That could still happen. It just might take a little longer, market watchers said.

Encouraging signs are there: Besides the Isle project getting the go, the IP Casino Resort just wrapped up a USD 55 million expansion, and has a USD 5 million showroom addition under way, said spokeswoman Elaine Stevens.

Last week, workers were onsite at Margaritaville, operating cranes and carrying truckloads of material back and forth across U.S. 90.

Still, summer has been a mixed bag, casino operators said.

Jon Lucas, president and general manager of the IP, said tourism is suffering across the board. „We’ve certainly seen better Julys,“ Lucas said.

Hotel occupancy is 100 percent at the IP, but revenue is down, Lucas said.

Most casinos are luring customers with free room nights, free food and gaming tokens, which — if the customers don’t gamble enough — can eat into their bottom lines, observers said.

„We’re definitely feeling the economic downturn and the gas prices, but the impact of those two factors has not been devastating,“ Lucas said. „In fact, our local traffic is stronger than ever.“

Indeed, local and regional traffic — visitors from the Alabama, Florida, Louisiana and Mississippi — accounts for more than 75 percent of business, according to commission data. Mississippi accounts for nearly 24 percent, according to the data.

Although the effect of high fuel prices has reverberated throughout the economy, Mississippi’s gambling industry has withstood it better than other markets, said Allen Godfrey, deputy director of the commission.

„We’re one of the few jurisdictions that did not realize a decline,“ he said. „We didn’t grow that much, but we did not decline.“

St. Pé said the coast market, which includes 11 casinos between Biloxi and Bay St. Louis, realized between 1 percent and 2 percent growth over the last year. „That doesn’t seem very dramatic, but when you look at other jurisdictions, including Las Vegas where there have been double-digit declines, it says a lot.

The coast had 12 casinos before Katrina.

„The coast is doing well by comparison,“ he continued. „There is good reason to be encouraged.“

In 2007, coastal casinos generated USD 1.3 billion of a USD 2.9 billion total in gross gaming revenues — their best year ever. Through June of 2008 they had brought in USD 658.2 million of a USD 1.4 billion total.

Gary Pedigo and John Ed Ainsworth of Phoenix Gaming Group LLC are among developers who are cautiously optimistic about the future of gaming here.

Phoenix Gaming controls more than 16 acres on Back Bay in the shadow of Interstate 110 and the IP — property that was originally being developed by Torguson Gaming Group Inc. as Bacaran Bay. That project was set to include almost 400 condominium units, a pair of wedding chapels, a bowling alley, nightclub, movie theater and retail stores, in addition to a hotel and casino resort.

Now it has been scaled back, and developers last week announced they plan to rename the project in an attempt to distance themselves from the Bacaran plan. Phoenix said the relationship was severed by mutual agreement.

Phoenix, which consists of members of the Gollott and Weems families among others, now hopes to convince investors to buy into a project that will be done in phases, Ainsworth said. The first, USD 300 million, phase would consist of 300 to 450 hotel rooms, a casino and restaurants, he said.

Condos have been scratched from the project. „Trying to market condominiums in this current market would be like trying to sell snowballs at the North Pole,“ he said, pointing to the proliferation of high-rise condos along the beachfront.

Ainsworth said since Phoenix owns the land, it does not feel rushed in getting a project going. „We can wait out a few things like sanity prevailing in the oil market and the interest rates coming around,“ he said. „Just like everybody else, we’re going to have to back up, take a breath, get on the top of the water and then swim forward.

„We just intend to be here at the end of the day.“