25 years later, ‘Mississippi Miracle’ confronting competitive realities

It was termed the “Mississippi Miracle,” and it began 25 years ago, when state legislators allowed floating casinos along rivers and coastal counties in the Magnolia State, an industry that would ignite an explosion of jobs, taxes and economic development.

From the once-sleepy Gulf Coast, up the lazy river delta to dirt-poor Tunica County, nearly 30 casinos—most with hotels—jump-started a dormant economy, winning nearly $3 billion a year, creating 17,000 jobs and generating $300 million annually in state and local taxes.

“We had no clue how big it would be,” Chevis Swetman, president of the Peoples Bank of Biloxi, says of a statewide gambling industry that quickly rose to No. 3 in the nation, trailing only Nevada and Atlantic City.

“It was such an exciting time,” says Mary Cracchiolo Spain, director of public relations for MGM Resorts Mississippi. “It was like a loaded freight train barreling down the tracks.

“There were suddenly jobs. There were things to do.”

The Mississippi market remains strong. Revenues from 12 Gulf Coast casinos increased $124 billion over the last three years to a near pre-recession peak of $1.3 billion.

Optimism abounds even in upstate Tunica County, where annual revenues have fallen to $600 million, roughly half what the region was winning a decade ago.

“We still are a viable market—$600 million is nothing to sneeze at,” says Webster Franklin, president and CEO of Tunica Convention & Visitors Authority.

But the state’s casino industry is not nearly as viable as it was 25 years ago. And the freight train of excitement has slowed, considerably.

 

Confronting Competition

Except for the three-year jump in Coast revenues—helped along by the December 2015 opening of the Scarlet Pearl resort in D’Iberville—statewide casino win has been declining for more than a decade.

Casinos last year won $2.1 billion, according to Mississippi Gaming Commission figures, a long fall from the $2.9 billion they won in 2007.

The downward spiral continued this year with the February casino win at $172 million, 10 percent below the same month in 2016, according to the state Revenue Department.

With increasing competition in surrounding states, there appears no end to the revenue decline. And the industry is confronted with a myriad of challenges—some market-driven, some political and a few courtesy of Mother Nature.

Mississippi had a near monopoly on casino gambling in the Southeast United States when the industry was launched in the early 1990s. But the gambling landscape has changed dramatically. Operators today are competing with new and expanding commercial and American Indian casino markets in Florida, Alabama, Arkansas, Oklahoma and elsewhere.

Natural and man-made disasters—the Mississippi River flood of 2011, Hurricane Katrina in 2005 and the Deepwater Horizon (also referred to as the BP) oil spill of 2010—plagued the industry at both ends of the state. The threat of more hurricanes in the South and flooding in the North discourage potential investments.

And, perhaps most important, legislators from Mississippi’s Bible Belt remain staunchly opposed to gambling within their borders.

 

Tunica, Coast Seeking Help

Economists believe air traffic and tax and regulatory incentives are necessary to help casino companies in Tunica and along the Coast confront the growing competition. But efforts to get legislative help from Jackson may prove futile.

MGM and Harrah’s (now Casesars Entertainment) for nearly a decade subsidized low-cost carrier Air Tran’s flights in and out of Gulfport-Biloxi International Airport, a partnership that ended with Katrina and the recession. Many are looking to the state legislature to fill the void, helping incentivize air traffic needed to enhance the Coast as a destination resort.

Up north, state business leaders are suggesting legislators let Tunica casino operators move on land, plying them with tax incentives to reinvest in their properties and, perhaps, move closer to historic Route 61, known as the “Blues Highway.”

But few are confident they can get legislators to sign onto any bill aiding the gaming industry.

Lawmakers reacting to the devastation of Hurricane Katrina passed a bill permitting casinos to move inland within 800 feet of the median tide, legislation intended to discourage companies from abandoning their operations.

“After Katrina, there were thousands of people whose jobs were dependent on our doing something,” says Bobby Moak, a longtime legislator and current Democratic Party chairman. “We had to do it for the industry. We had to do it for the economy.”

The Katrina legislation—credited with saving 10,000 jobs and millions of dollars in taxes—passed by only two votes, barely surviving the wrath of anti-gambling Bible-thumpers.

“It was a very contentious vote,” Moak recalls. “Several legislators gave up their political careers to vote for it. Four or five didn’t make it back.”

The closeness of the Katrina vote does not bode well for gambling industry officials seeking a helping hand from the state Capitol.

“There are people in North Mississippi religiously opposed to what goes on here,” says Spain, who oversees public relations for MGM’s Beau Rivage on the Coast and Gold Strike hotel-casino in Tunica County. “They don’t care. They simply do not care.”

“Something has got to be done, particularly in the Tunica market,” says Larry Gregory, executive director of the Mississippi Gaming & Hospitality Association.

“We’re going to have to look at Katrina as our model as we look up north,” Gregory says, noting not only the tidelands legislation but the billions of dollars in federal and state aid and tax incentives that flowed to the region after Katrina and the BP spill.

“That action has paid the state back,” he says of the Katrina vote. “It was a good investment.”

“Government can be a player with the industry,” Moak says. “It can provide tax incentives for gaming companies putting money back into their projects and growing their footprint.

“But gaming along with tobacco and liquor is treated like a sin industry. The state has to treat the industry like everybody else.”

The Mississippi Economic Council (MEC) plans to solicit a study on gambling public policy, likely from one of the state universities, in an effort to open a dialogue on how lawmakers can work with and assist gambling as a tool for economic growth, tourism, jobs and taxes.

“We need to look at how we can position this industry to continue to be successful, because it’s proven to be a big driver of the state economy,” MEC President Blake Wilson says.

“We’ve got a ton of non-gaming businesses that benefit and serve the gaming industry, just as is the case with an auto plant or ship-building, other mainstay industries in our state.

“The gaming tax revenue going to the General Fund is a good chunk of money,” Wilson says, “and it’s needed.”

 

A Once-Ideal Economic Model

One of the first states to legalize commercial casinos, Mississippi was the perfect model for a gambling industry, drawing 60 percent to 70 percent of its revenue from surrounding states.

Lawmakers levied a relatively small 12 percent state and local tax rate and imposed a laissez-faire regulatory system modeled after that of Nevada.

Rather than recycling existing local revenue with small-market “convenience” gambling, regulators required developers to build non-gambling infrastructure—preferably hotels—creating a network of visitor destinations.

Floating casinos eventually lined the state’s northern, eastern and southern borders, leaving the inland Bible Belt free of gambling, save for the Mississippi Band of Choctaw Indians, operators of the Silver Star and Golden Moon resorts on reservation land near Philadelphia.

Poverty-stricken Tunica County captured the Memphis, Tennessee, and Midwest markets. Resorts along the white-sand Coast beaches lured visitors from Alabama, Florida and Louisiana.

Seven casinos in Vicksburg, Natchez and Greenville comprise a central Mississippi River market targeting local communities, geographically insulated from outside competition.

The Gulf Coast, with its history of bootlegging, illegal gambling and 24-hour nightclubs, had long been a regional destination, but commercial fishing, oil and tourism in the 1970s fell on hard times. Construction of Interstate 10 diverted traffic from once-bustling coastal Highway 90.

“The conventional wisdom was those folks were going to hell anyway, so why not let them have gambling?” Moak quips.

Regional gambling competition developed with passage of the Indian Gaming Regulatory Act (IGRA) of 1988 and the spread of commercial casinos in Illinois, Indiana, Iowa, Missouri and elsewhere.

The Seminole Tribe of Florida expanded gambling operations and the Poarch Band of Creek Indians built three hotel-casinos in Alabama. Visitation from Florida, Alabama and Georgia has fallen 1.1 million since 2013, according to the Mississippi Gaming & Hospitality Association.

Tunica County visitation fell dramatically—and to some degree permanently—when the flood of 2011 forced closure of its 10 casinos for nearly a month, diverting nearby gamblers to Southland Park Racing and Gaming in West Memphis, Arkansas.

“That day-trip market out of Memphis to Tunica during the flood gave trial to Southland,” Franklin says. “Southland very smartly reinvested money they were making during that time and upgraded their product. The games got better—or more comparable—to what we offer.

“Our properties reopened, but a large portion of our market found it easier or more convenient to go across the river to Southland.”

The region suffered another major blow in 2014 when Harrah’s Casino Tunica closed its resort and convention facility, putting 1,300 people out of work.

 

Shared Interests

Fearing competition from Louisiana and Florida, Nevada casino companies initially avoided building on the Coast, preferring the more secure Tunica County market south of Memphis.

Casino development in south Mississippi was spearheaded by first-generation companies such as Grand Casinos and CEO Lyle Berman, Casino Magic and founder Marlin Torguson, Isle of Capri and Chairman Bernard Goldstein, Treasure Bay and CEO Bernie Burkholder and President Casino and owner John Connelly.

Mirage Resorts (later acquired by MGM), Harrah’s/Caesars, Imperial Palace and Boyd Gaming later bought into the Coast market.

For nearly a decade, the legacy operators in Tunica constituted the bulwark of the Mississippi gambling industry.

“Tunica, in the early days, was a huge success,” Gregory recalls.

Declining revenue, industry consolidation, investment opportunities elsewhere and threats of flooding have left operators cool to the market. Some properties desperately need upgrades.

“If you’re a publicly traded company, you have a fiduciary responsibility to your stockholders to make money, to increase the value of your stock,” says Allen Godfrey, executive director of the Mississippi Gaming Commission. “If I’m in management with one of those properties up there, it would be hard to sell investing in an area that is not growing, but declining in business.

“They had a great market going into 2007, 2008. Then they had the recession. It wasn’t long after that—two, three years—that they had the flood of 2011. Then there was an expansion of gaming.

“It’s been a struggle for Tunica. Whatever could happen did happen.”

 

Interest Remains on the Coast

There continues to be developer interest in the Coast, Godfrey says, which has “six to eight” sites approved by state regulators awaiting project proposals.

“We’re looking at more growth, barring a major storm,” says gambling attorney Mike Cavanaugh. “I believe the market is coming back.

“We’re near where we were pre-Katrina,” he says of the Coast’s $1.2 billion casino win in 2016. “Those are pretty sporty figures, in my opinion.”

Potential developers include the Poarch Band of Creek Indians in Alabama and Mashantucket Pequot Tribe of Connecticut, operators of Foxwoods Casino.

“I think there’s a lot of room for growth,” banker Swetman says. “What is being debated is, how do we grow it?”

There is plenty of gambling, hotel rooms, entertainment, fishing, golfing, seafood restaurants and bars along some 26 miles of white-sand beach, stretching from Biloxi to Waveland.

The state, city of Biloxi and MGM collaborated to build a minor-league baseball field to house the Mississippi Shuckers, an affiliate of the Milwaukee Brewers. And the family-friendly Margaritaville Resort and water park recently opened for business on Biloxi Beach.

An aquarium is planned in Gulfport, and the Beauvoir, onetime residence of Confederate President Jefferson Davis, is a major tourist attraction. The same is true of the Ohr-O’Keefe Museum in Biloxi and Walter Anderson Museum and Shearwater Pottery in Ocean Springs.

The gambling industry grouses that the Coast Coliseum and Convention Center is too far from the cluster of casino hotels in East Biloxi.

“We’ve got to have a convention hotel,” Swetman says. “People don’t want a shuttle bus.”

But the biggest beef is the lack of sufficient air traffic.

Gulfport-Biloxi is serviced by Delta, American and United Airlines. But airline industry consolidation and the lack of discount carriers are obstacles to expansion of regularly scheduled air service to the Coast.

“We’ve got a lot going on with entertainment, fishing, golf and the baseball park,” Gregory says. “We just need to get more people down there.

“Air service is critical.”

“Everybody would agree we need more air service,” Spain says. “The challenge is there are limited gates and limited carriers. There’s competition. There are a lot of parts to that. It’s very complicated.”

Competing with surrounding states and sustaining business is a challenge for marketing directors.

The Beau Rivage flies a Boeing 737 twice daily in and out of Gulfport-Biloxi airport—chartering gamblers from such locales as Rockford, Illinois; Canton, Ohio; and Knoxville, Tennessee—and generating a third of the visitors to the 1,700-room beachfront resort.

“We have to be creative,” Spain says. “We’re always looking to find new markets, try different approaches and change the mix. We have to differentiate what we’re offering because gaming has proliferated. Products evolve. This is a different market than it was 25 years ago.

“But we continue to bring people back. It’s an exciting time. It’s a mature market, but we’ve got great facilities. We have great operators. We’ve got a great destination. There’s a lot to do here.

“We’ve got the key ingredients you need to be successful,” Spain says. “We have to continue to stay on our toes and understand the forces we can and can’t control. We’re going to do our best to keep bringing people here.”


Vicious Cycle
Casinos ‘flipped the switch’ on the Mississippi Coast

The late Mississippi House Speaker Tim Ford was booked into the Broadwater Beach Resort in Biloxi one night in 1988 when the hotel manager telephoned his room and offered to comp him dinner at nearby Mary Mahoney’s Old French House Restaurant.

When Ford remarked that the generosity was not necessary, the manager of the 450-room hotel is said to have replied, “Mr. Ford, you’re the only guest in the hotel tonight. If you eat at Mahoney’s we won’t have to open the kitchen.”

Longtime resident Fred Larue, noting how barren of traffic Coastal Highway 90 was prior to legal gambling in the early 1990s, often quipped, “The only thing you had to worry about running into on the highway was a dog sleeping in the road.”

Once a wild and wooly resort area with fishing, golfing, 24-hour nightclubs and even some illegal gambling, the Mississippi Gulf Coast had fallen on hard times when legislation was enacted in 1990 to allow floating casinos on the beach.

“We were a tourist town without the tourists,” Harrison County Supervisor Beverly Martin recalls.

“The hotels couldn’t pay their water bills,” says Chevis Swetman, president of the Peoples Bank of Biloxi. “They couldn’t pay their power bills.”

“It was pathetic,” says Mary Cracchiolo Spain, public relations director for MGM Resorts Mississippi. “There simply were no jobs.”

Despite a dismal economy and double-digit unemployment, it took two referendums for Harrison County, Mississippi, residents to legalize floating dockside casinos in 1992, and the margin was slim.

But within a month, the Isle of Capri, President Casino and Biloxi Belle were up and running. They grossed $121 million in five months.

Those who worked the ballot initiative anticipated five casinos employing some 5,000 workers. Twelve hotel-casinos today employ about 13,000 workers.

“We dramatically underestimated the pent-up demand,” attorney Mike Cavanaugh says. “I had no clue.”

“Prior to the casinos, nobody had health insurance,” Martin says. “Not only did the casino companies provide excellent benefits with health insurance, but other employers on the Coast had to match their benefits so they wouldn’t lose their workers.”

There was an economic ripple effect. Hotels and motels up and down the coast were booked to near capacity. City and school budgets swelled and municipal services improved. There was entertainment, nightlife and more dining options.

Land prices soared.

“Gaming sort of flipped the switch,” Swetman says. “We went from being a buyers’ market to a sellers’ market, overnight.”

“Things have come full circle,” Spain says. “Now people are trying to get here.”

Many were wary that the gambling industry would have a negative impact on the Coast quality of life.

“We were concerned that if gambling came to the Coast, it would dominate our communities, socially and politically,” former Sun Herald publisher Roland Weeks says.

“We were fine with casino companies coming here and becoming a part of the community. We did not want casino companies to come here and make the community a part of the gambling industry.”

Weeks praised first-generation gambling companies that came to the Coast—Grand Casinos, Isle of Capri, President Casino, Treasure Bay and Casino Magic, among others—for embracing the community.

“The companies that came here expressed a desire to be a part of the community,” he says.

Disaster struck, however, with Hurricane Katrina in 2005, and economic momentum slowed to a crawl with the recession of 2007 and the BP oil spill in 2010. An ecological calamity, the spill caused little visual damage but frightened tourists away from the beachfront resort area.

“We were well on our way when the storm hit,” Cavanaugh says. “The storm kicked us off our tracks. There was a brief economic boom after the storm hit. Then BP hit us, and we got thrown off the tracks a little bit again.

“BP was an impact more in perception than reality. There was no oil washing up on the beach. But the rest of the country didn’t know that. They said, ‘Oh, they got hit by an oil spill,’ and who wants to go visit an oil spill?”

“We’re having a hard time starting up again and developing continual growth,” says Swetman, who slept in his downtown bank in the days following Katrina, which destroyed his home.

“Aside from air service, everything else is coming along,” Cavanaugh says. “Gaming is improving. The non-gaming investment is coming along. The third component is airline service.

“We need to reach a level where we are not totally dependent on the drive-in business,” he says.

“I’m optimistic.”


Tribal Struggles
Mississippi Choctaws also hurt by regional casino competition


The legendary Chief Philip Martin (l.) created the diverse economy for the Choctaws, which includes a large dose of casino gaming. But that meant debt and the current Chief Phyliss Anderson has instituted a tribal-wide austerity program.

As is the case with the state’s commercial casinos, the Mississippi Band of Choctaw Indian’s multimillion-dollar gambling empire has also suffered from the economic recession and increasing casino competition in the Southeast United States.

The tribe’s Choctaw Resort Development Enterprise (CRDE)—comprised of three casinos, three hotels, two golf courses and a water theme park—saw an approximately 5 percent increase in revenues in 2015 following at least three years of declines, according to informed sources.

Praised for creating a diversified economy long before the Indian Gaming Regulatory Act of 1988 launched a nationwide tribal casino industry, the Choctaws under the late Chief Phillip Martin encountered debt problems with development 15 years ago of a second casino resort.

The debt load was exacerbated by the recession of 2007 and expanded gambling in Alabama, Florida and other Southeast states, which has diminished business at the CRDE’s Pearl River Resorts.

Current Chief Phyliss Anderson is credited with launching an austerity program that is apparently pulling the tribe out of much of its financial difficulties.

Anderson in November reported the CRDE saw a $2 million profit increase for 2016 compared to the previous year. She said revenues increased by $11 million.

Additional financial information, including CRDE gross revenues, was not provided.

Mississippi’s only federally recognized Indian tribe—located on a 35,000-acre reservation spread out over 10 Northeast counties—does not disclose financial details of its government enterprises.

Choctaw officials at the last moment cancelled a scheduled interview with GGB magazine.

The tribe, which has about 10,000 citizens, operates several business enterprises with some 50,000 workers, making it one of the state’s top ten employers.

The CRDE Pearl River Resorts includes the Silver Star and Golden Moon hotel-casinos, adjacent resorts on the tribe’s headquarters reservation near Philadelphia.

CRDE/Pearl River also operates a largely slot casino further south on the Bok Homa tribal lands near Sandersville, the Dancing Rabbit golf courses and hotel and the Geyser Falls water park

The tribal council in January voted 9-7 to build Red Water Casino, a 35,800 square-foot gaming facility in Leake County with 500 slot machines, 10 table games and dining options. It’s expected to create 200 jobs.

Debt Burden

The upscale Silver Star hotel-casino, which opened for business in 1994, and the adjacent Golden Moon, which debuted in 2002, draw local gamblers and others from as far as Birmingham, Ala., Atlantic, Ga., and other southeast metropolitan areas.

The Silver Star resort, opened in partnership with Boyd Gaming, was a huge success. The tribe bought out its management agreement with Boyd Gaming after only three years.

But the debt load from the Golden Moon and other ventures and declining business due to expanded gambling in surrounding states created serious financial problems for the tribe. Operations at Golden Moon were sharply curtailed in 2010.

“The facilities were actually doing well,” says economist Alan Meister, author of the annual Indian Gaming Industry Report. “But you had a downturn in the economy and, like other places, they got hit. That’s when they realized they couldn’t sustain two fulltime facilities.”

Anderson, who took office in 2011 as the tribe’s first woman chief, initiated an austerity program to pull the tribe out of its debt problems.

The Choctaws in 2014 secured a $145 million loan that included refinancing of $70 million in debt and a $75 million credit line to expand and renovate the two resorts.

Full operations at Golden Moon resumed in 2015 when the property reopened with a scaled-down casino.

“This deal is something every tribal member should have pride in because it is the best rates banks have ever given our tribe,” Anderson told the Neshoba Democrat.

“This deal clearly demonstrates banks and lenders have confidence in the work we are doing here at Pearl River Resort and on the Choctaw Indian Reservation.”

The tribe in February announced it had paid the balance on a 10-year, $10 million loan to help finance construction of a new health center. The loan was paid off in only 23 months.

Some Dispute Over Tribe’s Direction

Anderson’s policies have met with some opposition, as reflected in the 9-7 council vote to approve the Red Water Casino. The council had earlier rejected the project.

“We do have some people who are against the casino,” Anderson told those attending a press conference to announce the $25 million facility.

“We won’t be borrowing any money to build this casino,” she told reporters. “We’re going to use our cash on hand. We are also going to use cash from our operations.”

Some tribal officials fear the project will overly cannibalize the Silver Star and Golden Moon.

The two large gambling resorts and the smaller casinos enable the tribe to maximize revenue generation while creating additional jobs, a strategy pursued by other tribes with large reservations, including the Navajo Nation and tribes in Oklahoma.

Unlike commercial casinos, tribal government operations are designed not solely to maximize profits, but to create employment and provide health insurance and other services for residents of the indigenous communities.

“In determining the success of Indian gaming it’s not always about how much money a casino produces, particularly if it generates a lot of jobs,” Meister says.

The late Chief Martin is credited with negotiating a tribal-state compact with former Governor Kirk Fordice that extends into perpetuity and does not require the tribe to share casino revenue.

Of the approximately 240 tribes in the United States operating casinos, the Choctaws is believed to be among only two or three that is not subject to regulatory oversight by the state and National Indian Gaming Commission.

Author: Dave Palermo

Dave Palermo is an award-winning metropolitan newspaper reporter. He has written about American Indian governments for more than 20 years, working as an advocate for several tribes and tribal associations. He also has co-authored books on gambling and gambling law. He can be reached at dgpalermo1@gmail.com.