Challenges to Mississippi Gaming Development Since Katrina: Part Two of a Series
Posted: Aug 12, 2010
Since Hurricane Katrina hit the Mississippi Gulf Coast in August of 2005, many developers have obtained gaming site approval or approval to proceed with a casino development from the Mississippi Gaming Commission. However, the ensuing economic strife has significantly hampered casino development in Mississippi.
In Part One of this series, we provided a summary of Mississippi Gaming Commission site and development approvals since 2005. In Part Two of this series, we examine the recent challenges inhibiting gaming development in Mississippi. In Part Three, we will discuss what changes must take place before Mississippi gaming development can return.
Financial Markets. While generally there is money to lend, there is very little appetite at the present time for lenders to invest in gaming in Mississippi. The financing that is available is expensive and lenders are requiring much greater equity than in the past. The uncertainty with respect to financial markets, Washington tax policy and national and international monetary and fiscal issues are having their effects on Mississippi too.
The financial resources available for gaming operators in Mississippi are primarily going to refinance the debt of existing gaming companies with existing cash flows from multiple properties in diverse markets. Very little is available for new, stand-alone “greenfield” projects in jurisdictions like Mississippi. As one observer told us, access to the bond markets is critical for such financing, and that requires sizeable projects of at least $150 million, along with 40% equity.
With sales of existing Mississippi gaming properties at low multiples of EBITDA, it becomes more cost effective and financially viable to purchase an existing Mississippi property than to build a new casino from the ground up.
Limited License Jurisdictions. Much of the money that is available for “greenfield” projects is being loaned to casino developments in limited license jurisdictions. Even though the tax rates in such jurisdictions are substantially higher than in Mississippi, the lure of a legal quasi-monopoly is more enticing at the present time than a jurisdiction like Mississippi with no limit on licenses.
Nearby Competition. Mississippi also faces competition from mature jurisdictions nearby (Louisiana), and potential competition from others (Alabama and Florida). Texas and other jurisdictions are also potential future threats.
Decline in Mississippi Gaming Revenues. Gross gaming revenues in Mississippi peaked in 2007 at $2.89 billion, but have steadily declined to $2.72 billion in 2008 and $2.47 billion in 2009. While the numbers for the first half of 2010 seem to have stabilized at $1.22 billion, this is hardly a market turnaround.
Perception of Lack of Quality Sites for New Gaming Projects. While gaming is legal in Mississippi along the Mississippi River and the Gulf Coast, gaming has been approved in only a handfull of those counties. The addition of zoning restrictions and the realities of “location, location, location” results in an actual or perceived lack of quality gaming sites. For example, a city such Biloxi has many potential gaming sites available, but gaming developers presently may see more challenges than opportunities with those sites, and many beach-front sites are off limits due to the protections afforded to Mississippi’s public sand beaches.
Weather Risks. Hurricanes and river flooding risks are also issues to be factored into any decision to invest in gaming in Mississippi.
Large Gaming Companies are Fully Invested in Mississippi. Many large and mid-cap gaming companies with capital have already invested in Mississippi, have their own financial issues with which to wrestle and have potentially more rewarding opportunities elsewhere (such as Pennsylvania or Macau). So, a project like Margaritaville in Biloxi remains mothballed for the moment. As a result, the future of Mississippi gaming development appears to have come full circle and must now rely on the entrepreneur just as it did in the early 1990s.