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Rebuilding casinos subject to politics, not just weather patterns

BILOXI, Miss.—When Hurricane Katrina washed ashore here, it tossed most of the barge-based casinos off the Gulf of Mexico and onto dry land—and raised questions about the future of the industry on the Gulf Coast.

Since the first slots spun here in 1992, casino gambling has found an especially profitable home on the low-tax Gulf Coast, a region that, until Katrina, was awash in a newly booming tourist trade.

Now, the rebound of casinos in hurricane country will hinge as much on politics as on weather patterns. It will turn on tax rates and corporate competition, industry analysts say, and could be decided by a bluff or two.

Casino executives expect enticements from other regions across the Southeast, from Indian tribes to cities that can argue—armed with Katrina's fresh evidence—that working on the beach can sometimes be bad for business.

But experts say that for the casino industry, the odds in Mississippi—even calculating the occasional calamity—just look too good to pass up.

Already, some industry bosses have begun to leverage the disaster to push the state of Mississippi to allow its barge-top casinos to move onto shore, a move that would require a change in the state law that says casinos can't be built on land.

"Both large and small have told me they will not rebuild without the change," said Beverly Martin, the executive director of the Mississippi Casino Operators Association. "They can't."

Large publicly traded companies don't think they could secure financing to rebuild something so expensive and so vulnerable, she said. And smaller casinos, she said, are convinced they won't be able to get insurance.

"Out of the 12 we have here now," she predicted, "we'd lose at least a third."

Should the barges-only rule change—Gov. Haley Barbour has said he'll entertain the idea—industry analysts say Mississippi is unlikely to lose its betting business, no matter the risk from future hurricanes.

But the casino companies' effort to move their gambling halls onto land faces a challenge from within: MGM, one of the industry megaplayers, is opposed.

"If you allow the casinos to move, what happens to the businesses that have built up around them?" asked Alan Feldman, MGM Mirage's senior vice president of communications. "Right now is no time to be making changes in public policy. There ought to be a cooling-off period."

MGM owns the newly built Beau Rivage in Biloxi. The casino was anchored in sturdier footings than were allowed when its competitors' older barges were anchored years before.

So the Beau Rivage fared the storm far better than most 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.

Consequently, the MGM has a reason to resist change.

"MGM can throw confusion into the market," said Roger Gros, editor of Global Gaming Business magazine. "They go against the rest of the casinos and maybe it gives those legislators who are morally opposed to gambling something to fight back with."

Floating or grounded, casinos have reason to adore Mississippi—and Mississippi has cause to love them right back. Of the 11 states with legal casinos, only Nevada and New Jersey offer the industry a lower effective tax rate than the state's 12 percent.

The jackpot for Mississippi is more than $330 million annually in taxes—nearly 10 percent of the state's budget—and 17,000 casino jobs along the coast.

And other jurisdictions in the region that might offer inland safety for a casino don't 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 has irritated the industry with erratic regulating habits.

"Where Harrah's builds a casino isn't entirely up to Harrah's," said Jacques Cornet, a gaming analyst for CIBC World Markets. "With (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."


(c) 2005, Knight Ridder/Tribune Information Services.

PHOTO (from KRT Photo Service, 202-383-6099): WEA-KATRINA-CASINOS

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