When Hurricane Katrina struck the Gulf Coast on August 29, 2005, the effects were devastating. By August 31, 80 per cent of New Orleans was flooded, with some parts under 15ft of water, and over a dozen casinos that employed nearly 10,000 people in the Gulf Coast were wiped out. Simon Binns looks at how a once thriving industry has rebuilt itself...

Ninety per cent of south-east Louisiana was evacuated during Katrina, in what was the most successful evacuation in American history, and people across the region were moved into temporary shelter. Nearly a million people had no electricity for several weeks.

By July 1, 2006, the population of Louisiana had dropped by nearly five per cent, almost a quarter of a million people.

All counties in Louisiana and Mississippi, 22 counties in Western Alabama and 11 in Florida were declared Federal Disaster Areas. The total economical impact to Louisiana and Mississippi was more than US$150bn.

The casino sector on the Gulf Coast, which had employed 9,000 people in a mixture of land-based and floating casinos, was virtually wiped out overnight.

All 13 casinos in Biloxi and Gulf Port and Bay St Louis had to close their doors. Some will reopen or have already done so; others will not.

The tourism industry in that area was spearheaded by the booming casino sector, but now the state was losing $500,000 in gambling tax a day.

Operators were forced to regroup and formulate a plan. MGM Mirage said its Beau Rivage resort in Biloxi had suffered ‘significant property damage’ and that operations would be suspended indefinitely. It was the same story at Pinnacle’s Casino Magic Biloxi, although the company was publicly determined to rebuild.

Speaking to CNN in September 2005, Larry Gregory, executive director of the Mississippi Gaming Commission, was not fully confident that gaming companies would return to rebuild their businesses, largely due to the state’s 12-year-old gambling law, which says that casinos can only operate on water in floating barges.

“I’ve had conversations with five CEOs of major casino companies, including Harrah’s and MGM and Casino Magic. They tell me they’re reluctant to rebuild if the other factors the laws still exist,” Gregory told CNN. Gregory also feared that said casino companies’ shareholders would be difficult to convince about operating floating casinos again - not just along the Gulf Coast or on the Mississippi River, but anywhere.

Mississippi’s offshore gambling industry was worth around $3bn a year to the state, and it was the third largest casino market in the country. Last year, Biloxi, Gulfport and Bay St Louis together generated only $1bn in revenue.

“This region 12 years ago was a ghost town,” Gregory said. “The casinos and hotels revitalised the area and added 14,000 jobs.”

The immediate priority was providing shelter to the tens of thousands of people made homeless by Katrina.

Harrah’s had more than 9,000 employees affected by Hurricane Katrina and the earlier Hurricane Rita, which hit the Gulf Coast in September 2005.

“When Katrina shuttered our New Orleans property and utterly destroyed our riverboats in Gulfport and Biloxi, Harrah’s had already created makeshift emergency shelters and information centres to give employees and other local residents safe places to stay, access to basic necessities, and resources to find housing and communicate with family members,” the company’s Jacqueline Peterson told InterGaming.

The Harrah’s Employee Recovery Fund, seeded with a $1m commitment from the Harrah’s Foundation, ultimately swelled to $6.6m, thanks to generous employees, customers, business partners, community leaders, Harrah’s entertainers and an additional $500,000 gift from the Foundation. Ultimately, a total of $8.1m in grants, loans and relocation assistance was distributed to victims of Katrina and Rita.

Within weeks, employee information centres were opened in Gulfport, Lake Charles and Baton Rouge, providing Harrah’s employees with basic necessities – including on-site medical care – and with resources to help them find housing, communicate with family members, and cope with the devastation they had experienced.

However, two years on, much has been done to rebuild homes and businesses. Casino resorts have acquired more than 175 acres in Biloxi since Katrina, according to Biloxi Mayor A.J. Holloway. After initial fears that operators may cut their losses, almost every casino in the region has been or will be restored and improved, and some exciting new developments are planned.

Remarkably, Harrah’s New Orleans’ revenue is up 13.6 per cent for the first five months of 2007 compared with the same period in 2005, pre-Katrina.

“Harrah’s New Orleans, Grand Casino Biloxi and Grand Casino Gulfport were all damaged,” says Peterson. “New Orleans did sustain damage, but it was not a complete loss. However, Grand Casino Biloxi was a complete loss as it was a barge that was uprooted and thrown inland.”

Gulfport was severely damaged and was later sold, but Peterson says that there was no question of the company abandoning the area.

“We did not close any of our facilities indefinitely, and Biloxi reopened after a year-long renovation,” she says. “Selling Gulfport was part of a strategic geographic plan, but Harrah’s Entertainment continues to be committed to the Gulf Coast.  

“We absolutely did not hesitate in rebuilding, bigger and better facilities. We reopened our New Orleans Harrah’s Casino in February 2006 and opened a brand new, $170m luxury hotel tower in September 2006. We reopened Lake Charles, Louisiana, in February 2006. In Biloxi we opened the Grand Biloxi Casino Hotel in August 2006 and we have also just announced more than $700m of investment for the Margaritaville branded casino and entertainment facility.”

The company had to take some serious short term hits though, losing $88.7m of intangible assets at its Biloxi property; $78.6m related to its Gulfport property, and $56.1m of goodwill, although it did manage to recover $19.2m due to the termination of a contractual liability at its Lake Charles, Louisiana property.

“In addition to these expenses, there was lost revenue and rebuilding costs,” says Peterson. “We underwent a year-long renovation.”

However, the reopening of the Treasure Bay Casino in Biloxi at the beginning of July means that almost all of Biloxi’s casinos that were damaged or destroyed by Hurricane Katrina are now open again.

The former pirate ship barge has undergone a total rebuild and remodel, and no longer carries the pirate ship look.

The President and Casino Magic will not reopen, although Casino Magic will become part of a projected billion dollar casino complex near the new Margaritaville Casino, under new owners Harrah’s. Margaritaville has a target completion date of spring 2010.

But there are still restrictive factors. New Orleans law still allows only one land-based casino, and that is operated by Harrah’s, situated near the French Quarter of the city.

New Orleans Mayor Ray Nagin wants to turn much of the city into a Las Vegas-like casino district, by adding casinos to some of the nine existing hotels in and around the French Quarter and downtown area. Harrah’s will no doubt want to preserve the status quo and other operators are unwilling to commit to such plans, seeking assurances that the proper infrastructure is in place for an expanded gambling industry in New Orleans.

In his blog, Vedran Vuk, a student of economics at Loyola University of New Orleans, argues that lifting the casino restriction would mean more casinos offering low-skilled, high-paying jobs to the residents of New Orleans.

“The real problem of the New Orleans job market is finding a job that pays well and requires low skill at the same time,” he says.

“The casino industry provides this alternative. Yes, being a casino card dealer requires intense knowledge of proper gaming etiquette. However, anyone can learn this on the job or through proper job training. Casinos pay high wages that make working preferable to leisure time on welfare.

“Mississippi Gulf Coast, an area also ravaged by Hurricane Katrina, had about a dozen casinos. Why does Mississippi near a polluted beach have a dozen casinos while New Orleans, a capital of world tourism, has only one? The obvious answer is the difference in law.

“If I was a gaming industry entrepreneur and someone asked, ‘Where would you rather build a casino? New Orleans or the Mississippi Gulf Coast?’ Without a moment of hesitation, I would answer New Orleans.”

However, Vuk argues that even the regulations on the Mississippi Gulf Coast pose a major threat to business. “The casinos are forced to locate on the water. The regulation was a direct catalyst for disaster and destruction.”

On July 1, the state amended gambling law to allow casinos to use pilings, long steel structures driven into the seabed to anchor offshore floating platforms.

“The issue with the pilings is that they’re still over water,” Gregory told CNN. “If we experience another hurricane like Katrina, the water will wash over the pilings and the barges. We have a very serious situation facing the future of our casino industry. Insurance companies won’t want to cover them if they operate on water.”

A new law in Mississippi that allows casinos to be within 800 feet of water rather than requiring them to be floating in it has helped to act as a catalyst for reinvestment and rebuilding. Many are hopeful that New Orleans will follow suit.

Only 60 per cent of the inhabitants of New Orleans have returned in the two years since Katrina, but the casino industry has been quick to demonstrate its commitments to the area and help play a part in its recovery.

There is much more to do, of course, but all signs are the casino sector can flourish once more on the Gulf Coast.