Mississippi is selling bonds backed by its gambling taxes for the first time. The decision comes after Mississippi's take of casino revenues fell to its lowest level since 1997. That represents a historic decline for a state once known as the second most important gaming hub east of the Mississippi River. Revenues have dropped 30% since the peak year of 2008, due to a poor economy and regional market saturation.
Despite the drop in revenues, the $200 million in bonds set to be sold are expected to be popular with investors. Gaming revenues cover the bonds ten times over, so they are likely to be seen as safe investments to make.
Better-Than-Average Yield Prices
When the yield prices are released on Wednesday, some analysts expect the state to offer better-than-average yield prices to investors. Officials might want to offset concerns about an industry in decline. Last year, Harrah's Casino in Tunica County closed, along with a casino on the Gulf Coast. Such closings are likely to scare some traders.
Burt Mulford, an Eagle Asset Management analyst who manages $2.4 billion of municipal bonds in tax-exempt funds for the St. Petersburg, Fla.-based firm, was asked by the Salt Lake Tribute about Mississippi's bond issuance. Mulford said, "There has been a trend of decline in this sector in terms of state gaming revenue. It'll come at a very wide spread, at least initially, and because it's a name a lot of managers don't own, they're going to want to add it."
Shrinking State-Level Gaming Revenues
While casino gambling continues to spread throughout the United States, the sector is shrinking at the state level, because more states are getting into the business. Last year, 10 of the 12 leading states in gambling revenue saw those revenues decline. Mississippi was one of those ten states.
Mississippi is the 6th-leading state in terms of gaming revenues, with 28 land-based casinos in operation and $2 billion in revenues. The success of the Mississippi gaming industry has helped boost the state economy--which is the poorest in the United States--over the past 20 years.
Other States Want Mississippi's Take
That success is part of the problem, though. Other nearby states have seen the windfall Mississippi has reaped and want in on the action. Georgia is considering a bill to legalize casinos in order to put an MGM Resorts casino in Atlanta (and other places), while Alabama's Senate President Pro Tem, Del Marsh, is leading an initiative to legalize racetrack casino gambling ("racinos") in that state. If one or both of those states were to legalize gambling, it likely would hurt Tunica County's substantial gaming industry, because gamblers from nearby states to the east of Mississippi likely would go elsewhere.
Alabama in particular is a worry to Mississippi's gaming sector. Alabama sents 2.4 million gambling tourists (visits from gamblers) to Mississippi last year. If most of those gamblers stayed home to play at the racinos, it would severely effect the local industry. Luckily for Mississippi's coffers, expanded gaming in Alabama is a hot-button issue and its lawmakers are likely to have significant trouble passing any bill.
Grand Tunica's Closing
Some of the concerns are misplaced. The closing of the Grand Tunica last year was more of a strategic move by Caesars Entertainment, which faces $23 billion in debt and is trying to lower payroll during a bankruptcy fight. While better revenues at the Grand Tunica would have saved the casino, the business was still profitable--just not profitable enough.
A similar situation happened in Atlantic City with the Caesar's Showboat Casino. Even though the Showboat was profitable, Caesars decided to close one of its four casinos in Atlantic City, to cut payroll and help the other three. Thus, the biggest closing in the state was more a result of mismanagement than the local gaming economy.
Isle of Capri's Closing
The same can't be said of the Isle of Capri Casino in Natchez, which is set to close next month. Even then, a new Isle of Capri Casino is opening next year on the Gulf Coast. The new establishment is expected to have twice the number of slot machines and seven times more gaming machines.
