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The Birth of a New Industry: Casinos in the Coastal Mississippi

In the past, casino gaming was monopolized by Nevada (1931) and New Jersey (1977). Since 1989, at least 21 additional states have either implemented or authorized casino gaming. These states include Arizona, Colorado, Connecticut, Idaho, Illinois, Indiana, Iowa, Louisiana, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Mexico, New York, North Dakota, Oregon, South Dakota, Washington, and Wisconsin. Puerto Rico has also joined the list. Several reasons are cited for the rapidly expanding casino industry. They are: (1) changing public attitude toward gaming, (2) use of gaming to increase out-of-town visitors, (3) needs for additional government revenue, and (4) competition from nearby jurisdictions. This paper reviews economic changes during the first two years of casino development in Harrison County, Mississippi by hypothesizing that it took only about two years for the casino industry to reach maturity. The maturity point is defined as a stage of development where excess profits begin to disappear. No one expected such a speedy progression of this industry in the coastal Mississippi. Leaving the moral value aside, casinos in the coastal Mississippi have generated a significant impact on its economy from their inception in August 1992 to the end of 1994. In 1994, 14 casinos operating in the area generated about $600 million of gaming revenue and directly employed over 13,000 persons. Many new jobs were filled by local residents. Prices and sales of residential homes, construction of apartments, commercial construction, and chartered passengers all have significantly increased. Personal bankruptcies have declined. The number of families that receive aid to families with dependent children (AFDC) and food stamps have declined. The April 10, 1995 issue of the U.S. News & World Report selected Biloxi as the 5th hottest cities in the nation. THE MODEL There are three counties of Mississippi on the Gulf Coast: (1) Jackson County on the east toward Alabama, (2) Harrison County in the middle, and (3) Hancock County on the west toward Louisiana. Casino gaming was approved by local referendum in Harrison and Hancock Counties, the first casino opening its door in August 1992. Twelve of 14 casinos in the coastal Mississippi that operated in 1994 were located in Biloxi and Gulfport of Harrison County. According to the Harrison County Development Commission, the 1994 population estimates are 48,144 for Biloxi, 66,296 for Gulfport, and 173,868 for the entire Harrison County. A model is developed to predict the maturity point in gaming revenues of casinos located in Harrison County. Once the gaming industry reaches maturity, a further growth is still possible and even probable, but at a greater cost. Upon reaching maturity point, casinos in the coastal Mississippi are expected to experience occasional shakeup in ownership and lower profits, and require quality improvement as well as greater advertising for growth. Furthermore, they have to come up with an innovative total package of entertainment in order to survive competition from outside the coastal Mississippi. The model is of a learning curve variety, specified as: R = R sup M (1-e sup 4 ) ...(1) where R = Total gaming revenue by casinos in coastal Mississippi RM = Gaming revenue at the maturity level Q = Slope of the curve for given R sup M t = Time measured in months Equation (1) assumes that the maximum gaming revenue R sup M is constant in the short run. In the long run, however, the maximum gaming revenue depends on such factors as the health of the national economy, competition from gaming industries outside the area, and changing social value toward gaming industry. In order to determine the value of R sup M , gaming revenues from all casinos in Harrison County are obtained by month as graphed in Figure 1. (Figure 1 omitted) The maximum gaming revenue ranges between $50 and $60 million per month. …