Gambling on Recovery
Costs to reopen casinos are sky high - and are willingly paid.
BILOXI, Miss. - For casino operators and investors who envision converting the Mississippi Gulf Coast into a gambling-resort destination that will rival Las Vegas and Atlantic City, the effort won’t come cheap.
The costs of doing business here have gone from reasonable to sky high after last year’s hurricanes.
Meng Chai, project manager for the $500 million Bacaran Bay Casino Resort that Biloxi-based Torguson Gaming Group Inc. is building, said he was seeing cost increases across the board:
Steel, concrete and cement up 20 percent to 25 percent.
Copper 40 percent to 50 percent higher.
Glass and glazing up 20 percent to 25 percent. Same for drywall and metal-stud framing.
“A $100 million construction project before Katrina would now cost about $120 million,” said Chai, who works for Roy Anderson Corp., a construction company based in Gulfport, Miss.
Hurricane Katrina destroyed two casinos and severely damaged 10 others along the Gulf Coast. A year later, seven gambling halls have reopened, with an eighth set to reopen today - Hollywood Casino in Bay St. Louis, Miss.
In addition, a law signed by Mississippi Gov. Haley Barbour in October allowing casinos onshore for the first time is attracting billions of dollars of new capital investment. The Mississippi Gaming Commission has approved at least six new casinos, several of which are bigger than anything the Gulf Coast has seen.
“The catastrophe has given casino operators an opportunity to get an influx of capital to build something they couldn’t build before,” said Andrew Zarnett, an analyst with Deutsche Bank AG in New York.
But land, supplies and labor - the big three essentials for any type of development - are at a premium. China and other emerging economies have been on a building tear, consuming tons of steel, copper and other commodities.
Major projects in the United States are facing higher costs for building materials caused in part by the increase in worldwide demand.
“We are competing with projects going on domestically in the U.S. that’s putting demand on steel and copper - the same commodities that are used for building large facilities,” said Anthony Sanfilippo, Central Division president for Harrah’s Entertainment Inc. The company, which owns Harrahs’ Grand Biloxi casino, has proposed a $1 billion project that will double its footprint to 36 acres.
Harrah’s has faced costs 40 percent higher than they were a year ago, both for labor and materials, he said.
Analyst Zarnett said the Gulf Coast gambling industry had a myriad of issues moving forward, including dealing with the region’s shortage of skilled workers.
“It’s an issue of finding capable, competent people that want to work and paying them a comparable wage,” he said. “The hardest thing will be keeping the costs in line with building.”
But with the state having one of the nation’s lowest tax rates on gambling gross revenue - 8 percent, with an additional tax of up to 4 percent by local governments - and an open market for an unlimited number of licenses, there has been no shortage of casino applicants, despite the higher costs.
The year before Katrina, Mississippi’s 29 casinos produced revenue of $2.8 billion. In comparison, Atlantic City’s 12 casinos broke the $5 billion mark last year for the first time.
“Mississippi was already giving Atlantic City a run for its money pre-Katrina,” said Jerry St. Pé, chairman of the Mississippi Gaming Commission. “With the new reinvestments planned, it will overtake Atlantic City.”
But Zarnett said that would likely take several years. He said Atlantic City had a clear advantage: It relies heavily on customers from Philadelphia and New York who live within a two-hour drive, whereas Biloxi depends primarily on overnight customers who must either fly in or drive from surrounding states, including Florida and Georgia. Atlantic City also is in the midst of a building renaissance, he said, with several of its casinos expanding, and has plans to break ground on the 13th casino in 2008.
St. Pé said the new law that allowed the riverboat-casino operators to build on land in Mississippi stipulated that for every dollar an operator spent on a casino, it needed to invest an additional dollar on some other non-gambling attraction, such as a restaurant, concert hall or golf course.
The stipulation, he said, guarantees there will be a mix of offerings along the coast, besides gambling. It also ensures that the new casinos will be massive - soaking up lots of labor and supplies to build them.
But the costs are worth it because Mississippi is the next big thing, said Peter Simon, a developer for the Royal D’Iberville Casino project that is planned on the north side of the Bay of Biloxi in D’Iberville. The casino is scheduled to open in December 2008.
Simon said his company had received site approval to build in a small residential area that was rezoned about 10 years ago for waterfront development to include new casinos, restaurants and hotels. His team is now building the infrastructure for sewer and water.
“Because of the demand for construction materials, electricians, plumbers, and so on,” he said, “everything is running 30 percent higher.”
Chai said the high price of gasoline and other petroleum-based products was also shooting up costs for delivery of the materials to the Gulf Coast.
Labor was just as expensive - up about 20 percent. Chai estimates Phase I of the Bacaran Bay project will use about 1,000 full-time construction workers. It is aiming for a fall 2008 opening.
“Everyone is trying to get their facility in operation, so they absorb the escalations” in prices for raw materials and labor, Chai said. “A lot of the facilities have crews working day and night.”
Although casinos are the biggest economic engine in the state, their reconstruction is only one of many competing priorities along the Gulf Coast.
Michael F. Cavanaugh, a Biloxi lawyer who was involved in drafting Mississippi’s land-based-gaming resolution, said: “Getting affordable housing built in a timely manner is perhaps the most pressing issue.
“Housing affects everything - from your day-to-day casino workers to your construction workers,” he said. “You have to house all of them.”
Source: By Suzette Parmley - Inquirer Staff Writer