Home Unique Amenities and Development Requirements In Mississippi’s Casino Industry

Unique Amenities and Development Requirements In Mississippi’s Casino Industry

Since the advent of gaming in Mississippi, regulators have wavered on the issue of whether and how to impose minimum investment requirements for the development of new casinos. In January 2014, a new “investment” or “infrastructure” Mississippi Gaming Regulation comes into effect, raising the bar for developers of new casino projects in Mississippi by providing enhanced standards and requirements for the nongaming portions of gaming developments, as well as for the size of the gaming floor itself. Will these heightened requirements enhance Mississippi’s overall gaming offerings or serve to stagnate growth and dissuade new investments?

The Mississippi Gaming Control Act, which allows legal gambling in Mississippi on vessels or cruise vessels located in certain areas in which the voters thereof approved gaming, neither at the time of its passage in 1990, nor now, contains any minimum investment requirements for casino developments. However, in 1997, the Mississippi Gaming Commission, through its statutory authority to promulgate regulations regarding the casino approval process, developed Mississippi’s first iteration of its “infrastructure requirement” for casinos. This regulation required that any planned development include a 500-car parking facility and “infrastructure facilities,” or land-based facilities, the cost of which equaled at least 25 percent of the casino cost.

The commission provided guidance as to the types of facilities that would constitute qualifying infrastructure: “250-room or larger hotel of at least a two-star rating as defined by the current edition of the Mobil Travel Guide, a theme park, golf course, marinas, tennis complex and entertainment facilities.”1 Specifically excluded from qualifying infrastructure were parking facilities, roads, sewage and water systems, and civic facilities normally provided by cities or counties.

In 1999, the commission promulgated a regulation amendment increasing the infrastructure requirement from 25 percent to 100 percent (with existing developments “grandfathered” or excluded from the increased requirement). At the time, the commission’s then Executive Director Chuck Patton stated, “Raising the level of nongambling investments will discourage smaller casinos preying on their employees and local people for their customer base.”2

In 2013, the commission again significantly amended the infrastructure regulation. These new requirements, which apply to any person seeking ”approval to proceed with development” from the commission after Dec. 31, 2013, are more onerous than the previous requirements and have caused concern as to whether these more stringent requirements will stymie new development in Mississippi. However, the commission believed that as the Mississippi gaming market matured, change was necessary. As a representative from the commission explained, the original infrastructure regulation was promulgated so that, if a casino gaming vessel ceased operations and left the gaming site, something significant and positive for the community would remain on the neighboring land.

The hope was that the land-based structures, once built, would provide an incentive for gaming operators to stay. However, as the gaming market has evolved, particularly because land-based gaming is permitted today on the Mississippi Gulf Coast, the commission’s concerns have changed. As Commission Chairman John Hairston stated, “With the competition and density of casinos in nearby drive-by markets, we no longer can just add a casino and expect visitor-ship to increase.”3 Now the commission desires that new developments offer an attraction that will drive tourism, economic development and grow the market, rather than only cannibalize the existing market.

On Jan. 17, 2013, after receiving public comment and amending the initial proposed regulation, the commission promulgated the final version of its new “investment” regulation. The new regulation provides as follows:

“Commission approval requires that the project include a 500-car or larger parking facility in close proximity to the casino complex, and infrastructure facilities shall include a 300-room or larger hotel of at least a three-diamond rating as defined by an acceptable travel publication to be determined by the commission. In addition, infrastructure facilities must include a restaurant capable of seating at least 200 people and a fine dining facility capable of seating at least 75 people, and the casino floor must be at least 40,000 square feet. The project will also have or support an amenity that will be unique to the market and encourage economic development and promote tourism.

The commission will have authority in determining the quality of the amenity and the ultimate approval of the amenity and may in its discretion reduce the requirements above should it determine that there is a justification to do so in certain markets. The commission will further determine, in its discretion, if the prerequisite hotel and dining facility may be supplanted by an amenity of high value to the overall tourism market in that the amenity will likely encourage economic development and promote tourism. As used herein, infrastructure facilities are not such items as parking facilities, road, sewage and water systems, or civic facilities normally provided by cities and/or counties.”4

Thus, there are now five objective requirements, three of which are straightforward: a 500-car or larger parking facility, a 200-seat or larger restaurant and a 40,000-square-foot or larger casino floor. However, the other two objective criteria—a 300-room or larger hotel of at least a three-diamond rating as defined by an acceptable travel publication to be determined by the commission and a 75-seat or larger fine dining facility—require further interpretation. A representative for the Commission explained that an “acceptable travel publication” will likely include publications such as AAA, Forbes and Trip Advisor. Since the hotels will not be open at the time developers seek approval, and thus will not be rated, the development plans must show that the proposed hotel will be similar to hotels already receiving the required rating. As for what the commission deems a fine dining facility, the representative stated that it need not be a white-tablecloth restaurant, but generally must have seating, menus and wait staff.

More questions arise from the subjective portions of the regulation. A proposed development must “have or support an amenity that will be unique to the market, encourage economic development and promote tourism.” A commission representative indicated that most of the inquiries the commission has received relative to the new regulation focus on this requirement, and the commission has directed such inquiries to municipalities’ convention and visitor’s bureaus, which generally maintain information regarding the types of amenities thought to be desired in their respective areas. According to the representative, the commission’s intent is that the developer will propose an amenity not currently offered in the market, for example, a waterpark, an IMAX theater, a marina or an amphitheater. Generally, the commission will define the “market” to be the municipality in which the development is proposed.

The developer need not fully fund and construct the amenity itself, hence the regulation provides that the developer may “support” an amenity. This support language contemplates the developer contributing financial support or donating property for the development by a third party of an amenity that otherwise would not come to fruition.

The regulation reserves for the commission the discretion to reduce or possibly even eliminate the hotel and dining requirements. The representative indicated that this affords the commission the ability to take into account the particular market involved and the desires of its citizens and thus reduce the required standards if the developer is proposing an amenity that is of an elevated standard.

Will the new regulation’s more stringent standards foster economic development, as the commission hopes, or will developers be reluctant to invest in Mississippi with these new heightened, and thus more costly, requirements? Will the subjective nature of the requirements, with so much discretion afforded the commission, and given current unpredictability, frustrate developers and lenders, driving them to competing jurisdictions?

Interestingly, in 2007, the commission, when again amending its regulations, modified Mississippi’s casino site approval process from a three-step process to a two-step process. Under the former three-step process, a proponent first received gaming site approval, which focused on the legality and suitability of the site location, then site development plan approval, wherein the commission considered the plans for the development, and then “approval to proceed with development,” which required a firm financing commitment. Currently, under the two-step process, the site development plan approval step has been eliminated, and the commission now approves the details of the development plan when a proponent comes forward with its financing commitment for approval to proceed with development. Accordingly, a lender or investor must provide a financing commitment prior to a formal commission finding that the development’s planned unique amenity is adequate to satisfy the regulation’s requirements.

Although such financial commitments are conditioned upon receipt of commission approval, both the lender/investor and the developer will have invested a significant amount of time, attention and money in due diligence leading up to the issuance of the financial commitment. Failure to subsequently receive commission approval after a financial commitment renders the due diligence of limited value and the financial commitment likely inadequate, as the developer must then enhance the project significantly to meet the commission’s subjective infrastructure requirements, thereby increasing the development’s costs. Given the more stringent and more subjective requirements of the new regulation, perhaps the commission should consider reverting to the three-step approval process, thus allowing a developer to obtain formal approval of its development plan before shopping for financing for its project and providing comfort to lenders reluctant to provide a firm financing commitment under the current structure.

Footnotes
1 Mississippi Gaming Commission Regulation II. A., Section 3(h).
2 Dave Palermo, Sun Herald, “More Money Will Go to Hotels,” January 22, 1999.
3 “Mississippi Gaming Commission Approves New Rules for New Casinos,” gulflive.com (February 21, 2013).
4 Mississippi Gaming Regulation Title 12: Part 2, Chapter 1: Rule 1.5(a).

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