Jan. 12–A new heyday of casino development is transforming South Mississippi’s market in a way not seen since the 1990s, when Mississippi became the third state to legalize casinos.
More than $1 billion is being spent to buy, build and renovate casinos along the Coast.
In a little more than two years, four of the Coast’s 12 casinos sold or have a sale pending, for a total investment of $653 million.
Hard Rock Biloxi’s new Platinum hotel tower will open in a few weeks, and hotels will start going up soon at the Margaritaville Casino Biloxi and Silver Slipper. Add to that the renovation of all the hotel rooms at Grand Biloxi, Golden Nugget, Island View’s south tower and Palace casinos, and South Mississippi soon will have 1,000 new hotel rooms and 1,200 newly updated rooms.
Other amenities on the way are tropical swimming pools, new shops, more restaurants and a baseball stadium Biloxi will build on land downtown provided by the Beau Rivage Resort & Casino.
Weathering the storm
Despite the ups and downs over the last several years with Hurricane Katrina, the recession and the Gulf oil disaster, area casino operators said they remain bullish on South Mississippi. Gross casino revenue through November was down $22 million from 2012 levels, yet the market still is on pace to top $1 billion for the year when December’s revenue is reported.
“I think it’s weathered the economic climate well,” said Doug Shipley, president and CEO of Margaritaville, who recently announced a $50 million expansion at the property.
“It really is a good market,” he said of Biloxi. “You have some very, very smart operators and some of the best gaming companies in the world — all within a couple of miles of each other.”
Shipley said he thinks much of the investment on the Coast has to do with the casino tax in Mississippi, which at 12 percent is among the lowest in the country.
“Bankers look at that,” he said.
Timing is everything
The building boom is happening in part because it’s a good time to upgrade, experts say.
“Construction projects, materials and land acquisition are typically a bargain in a sluggish economy,” said state Gaming Commission Chairman John Hairston, who is chief executive officer of Hancock Bank. “Optimistic investors will deploy capital ahead of a positive surge in the economy to get a better price to build a project. The best time to build or buy is when no one else is building and buying.”
When gambling was legalized in South Mississippi 21 years ago aboard riverboats, investors could quickly recover their minimal investment.
“Now you need to have a property that has shows,” said Jeff Middleswart, portfolio manager for Vice Fund. “You need to have a lot of hotel rooms.
“It needs to have people come and do something other than gamble.”
Changing the game
In December, the Gaming Commission approved two casinos for construction — Scarlet Pearl, D’Iberville’s first casino, and Hemingway Resort in Gulfport, based on the life of author Ernest Hemingway — and several additional casinos are proposed.
More casinos in an already-competitive area could prove a challenge.
“The market still is only so big,” Middleswart said.
If visitors and revenue increase by 5 to 7 percent but casino capacity grows 20 percent, it’s just splitting revenue among the properties, he said.
The new casinos may not see the returns on investment they are projecting because they won’t get enough market share.
“At the same time, it kind of forces the existing players to reinvest a lot of money in their property,” he said.
Casinos will need to offer major incentives to keep their customers from going to the brand-new casino next door, he said.
The competition isn’t just from neighboring casinos.
Every state except Hawaii and Utah has some form of gambling.
“There’s more competition and it’s harder to get people to travel somewhere when you can go right next door,” Middleswart said.
Atlantic City learned that hard lesson as revenues began tumbling and never recovered after neighboring Pennsylvania legalized gambling.
Mississippi has a smaller population base to draw from than New Jersey and is watching nearby states for increased competition.
“Texas is not approving casino gambling. Florida has not done it very well. Louisiana has their problems. So Mississippi sort of wins by default in a lot of ways,” Middleswart said.
Coast needs a better hand
“What Biloxi needs is more air service, quite honestly,” Middleswart said.
If it were easy to get to South Mississippi with several flights a day from many cities, the casino market would grow.
“You’ve got the properties, you’ve have the weather,” Middleswart said.
And with the addition of hotel rooms in close proximity, he said, Biloxi could handle larger conventions.
The Gaming Commission has required a higher level of investment and amenities any new casino must add to the market and Hairston said investors now understand that.
“Scarlet Pearl had no amenity when first proposed,” he said, “but in multiple conversations agreed to add an amenity unique to our region — a Big Kahuna-quality mini-golf course.”
When the Gaming Commission proposed the new regulations, Hairston said, “detractors claimed that existing operators would cease any further investment in their properties. One attorney claimed we would never see ‘another nickel of investment from existing casinos.’ “
“The Commission believed otherwise,” he said, “that existing operators would refuse investment more so if we allowed slot shops to be built up and down the coastline.”
The recent investment backs that up, he said, and what is needed is still more amenities and events.
“The Coast is nowhere near its tourism potential,” he said.
