BusinessScene

A volcanic eruption in Biloxi

By Buddy Bynum

Something in the nature of a volcanic eruption seems to be taking place on the Mississippi Coast as construction on the $300 million Imperial Palace casino resort and hotel nears completion.
A jurisdictional dispute, a lawsuit, a charge of trespassing and a bizarre dark shadow of Nazi-era prejudice are all raining down on one of the state's two largest casino projects like so many pieces of volcanic ash.
What happens next could by decided by a Harrison County Chancery Court on Sept. 8, by mid-September by the Mississippi Gaming Commission or anytime by an unpredictable casino owner who is clearly accustomed to getting his way.
Anyway you slice it, it's one heck of a story.
It starts with Ralph Engelstad, a tough former Minnesotan who made most of his pre-casino money in the Las Vegas home building business. Forbes magazine reported in 1994 that Engelstad was worth about $425 million and that his Imperial Palace in Las Vegas generates cash flow of an estimated $50 million per year.
When Engelstad decided to build a casino just east of the I-110 overpass on Biloxi's Back Bay, he brought his Las Vegas reputation — for better or worse — with him.
No stranger to controversy, Engelstad received a license from the Mississippi Gaming Commission to build his Imperial Palace, even after the Coast's Jewish community exposed earlier incidents in which Engelstad had hosted two birthday parties honoring Adolf Hitler at his Las Vegas casino.
The April 20, 1988 party, published reports found, featured a picture of Engelstad in a Nazi uniform and bartenders in t-shirts bearing Hitler's picture and the label "Adolf Hitler — European Tour 1939-45."
Nevada gaming authorities were not amused. They levied a $1.5 million find against Engelstad, which he paid. He apologized and accepted nine restrictions on his Nevada gaming license, including a prohibition on any more Hitler parties.
"What was so unusual about the fine," reported The New York Times, noting that it was the second largest fine ever imposed by the Nevada gaming authorities, "was that it was not for any of the usual gambling sins, like skimming or loading the dice. Rather, the gaming board said . . . Mr. Engelstad had damaged Nevada's image by glorifying Hitler and the Third Reich . . ."
Local news reports in 1988 had disclosed that Engelstad kept a secret room full of Nazi memorabilia, including murals of Hitler and a painting of Mr. Engelstad dressed in Nazi uniform. He also owns more than 250 antique cars, including some used by Hitler and other German and Japanese leaders in World War II.
Engelstad denied being a Nazi sympathizer, saying his interests were purely historical and that the Hitler festivities were just parties to boost employee morale.
Milton Grishman of Biloxi, representing B'nai B'rith District Seven in a 1994 letter to the Mississippi Gaming Commission, expressed "deep concerns" about the incidents which led to the Nevada fine, noted the restrictions on Engelstad's Nevada gaming license and asked Mississippi gaming authorities to follow suit. They declined.
"We in Mississippi should know better than any state that even the perception that hatred and prejudice are sanctioned is damaging," wrote Grishman at the time.
"The concern I had back in 1994 was that the Mississippi Gaming Commission didn't really have the complete file on Mr. Engelstad," Grishman said last week. "They seemed to only be aware of his antique car collection. I don't think they were fully aware of the full Nevada record.
"I am continuing to watch the story unfold with interest," Grishman said.
* * *
Aside from the Hitler episode, which, as it turns out, was more of a public relations debacle, Imperial Palace also faces trouble on the legal front.
Leading that charge is an outraged Secretary of State Eric Clark, who says the Imperial Palace in trespassing on state-owned land. He's gone to court to get the casino to either pay $550,000 for its tidelands lease or stop construction.
In coastal areas of Mississippi, land covered by water at high tides is known as "public trust tidelands" and legally belong to the state. In order for a company, casino or anyone else for that matter to occupy the water above these tidelands, they must also lease the tidelands.
All of the other casinos on the Coast do pay the leases, and the total of about $4.5 million is returned to the Coast for various seafood industry and tourism projects.
"They are clearly, in my opinion, violating state law," Clark said last week. "They have not leased land that they are occupying and in my opinion that's called trespass.
"It is remarkable to me that the Imperial Palace is putting in a multi-million dollar complex, a major operation, but they're flouting our laws and saying 'we don't like this and don't intend to do it.'"
Clark poses the question: "Is the state of Mississippi going to control the casinos or are the casinos gong to control the state of Mississippi?
"The Imperial Palace is saying they don't have to obey the law, and are not going to unless we get a court order to make them," Clark said. "I think that is horribly irresponsible and sends a terribly damaging message about the authority of the state of Mississippi and respect for our laws.
"It is trespassing on state property, in my opinion and we ought not to tolerate it," Clark said. "If the Imperial Palace can get away with being too big, too powerful, too rich, too important to have to obey our laws, then it sends the signal to every other casino that they don't have to either."
Beverly Martin, executive director of the Mississippi Casino Operators Association, which is backed by the casino industry, said she fears for the future of the Imperial Palace's prospective employees. She said her association has not taken sides directly in the current dispute.
"I sincerely hope Eric Clark is prepared to cope with the more than 1,800 employees and their families who may not get to go to work because of his action," Martin said. "As a political official, he needs to take a look at that. Every day that the casino is delayed is another day that these people are not working. My concern is for those 1,800 people who may not be going to work when they expect to."
Other officials said the Imperial Palace has offered to put the $550,000 in escrow while the issue is resolved, but that is not satisfactory to Clark.
But the Engelstad profile in Forbes was telling in other ways, too. Most of what he owns is paid for. He is financing the Imperial Palace in Biloxi with his own money. He is used to getting what he wants, like going to court to force the issue of pari-mutuel betting on horse and dog races. He won.
As for the Biloxi project, which was just getting started when Forbes profiled Engelstad in October 1994?
"If it works, fine," Forbes reported. "If not, it's about two years' cash flow. Either way, he's secure."
Then, a direct quote from Engelstad: "Ain't no stockholders, ain't no god--- bondholders, ain't no friggin' mortgage holders that are going to bounce us out."
In this case, the "mortgage" on the tidelands he's about to occupy is held by the people of the state of Mississippi. If he pays the lease, he can rent it. But it's not for sale, and he can never own it.

Buddy Bynum is editor of the Mississippi Business Journal. His e-mail address is bbynum@msbusiness.com.

Imperial Palace adds two floors to hotel without permission from city

Skyscraper wars in Biloxi turn ugly with concern about Keesler safety impacts

By BECKY GILLETTE MBJ Staff Writer

BILOXI — The skyscraper wars of Biloxi have turned from being amusing into serious business.
In his quest to beat the height of rival Steve Wynn's Beau Rivage 29-story hotel in order to be able to boast having the tallest building in Mississippi, Ralph Engelstad forged ahead to add two floors to his 30-story hotel without asking permission from the city of Biloxi.
Although Beau Rivage had one fewer story than what was originally planned at Imperial Palace, Beau Rivage is higher without the addition of the two floors at Imperial Palace.
The height addition has brought opposition from the Federal Aviation Administration (FAA), and officials from Keesler Air Force Base who say the addition could negatively affect flight safety at Keesler. Keesler has an estimated economic annual impact of $2 billion per year.
Engelstad's attorney Britt Singletary said Engelstad willingly ignored the law because of economics, and the need to keep work going on the project in light of a planned Dec. 15 opening date. Members of the Biloxi Planning Commission lodged a complaint that casino officials lied to the planning commission when the commission was told recently that work had not started on the two-floor addition.
"They decided to ask for forgiveness, not permission," said Biloxi Mayor A.J. Holloway. "I don't operate that way. It puts me in a position I don't like. I don't think anyone should flagrantly disobey city laws and ordinance."
This past Tuesday the Biloxi City Council asked Imperial Palace to stop work on the two top floors until the issue is decided. Singletary said he couldn't make that commitment, and that work needed to continue on the roof to prevent water from damaging lower floors. Singletary said he would pass on the council's concern to Engelstad.
Biloxi officials have also been under intense pressure to give a certificate of occupancy for the casino, hotel and parking garage in order to allow the Dec. 15 opening. But the officials said the facilities are no where near complete, and that there is no way work can be completed and then inspected in time to allow the Dec. 15 opening date.
Building official W.R. (Bill) Prince said there were numerous violations of the fire and safety codes that must be addressed before the city can give a certificate of occupancy. The hotel's elevators haven't been tested, fire pumps are not in operation and fire safety systems haven't been tested.
"There are just too many things that have to be done," Prince said. "There is too much work going on all around."
Prince said the city has opened ten other casino resorts to date, and not a single other casino has approached the city for inspections this early before construction is complete.
Imperial Palace officials have said delaying the opening prevents putting their 1,300 employees to work. Holloway said he wants to see those people go to work, but can't allow the city to give Imperial a certificate of occupancy as long as life safety issues are unresolved.
"We want Imperial Palace to open as badly as they want to open," Holloway said. "The payroll and casino revenues, that's money for the city of Biloxi. But if we allowed it to open and there was an accident that killed someone, the city could be held liable. And I personally could be held liable."
The city agreed to have inspectors available on the weekend, Dec. 13 and 14, but Prince said there was no possibility that all of the inspections could be completed in those two days considering the unready state of construction. Prince said the casino has several times called for inspections before work was complete; when the building inspector arrived, the work wasn't ready to be inspected.
Prince said the Imperial Palace recently asked for four floors to be inspected. The inspector went over two floors, found too many violations to list, and thus didn't inspect the two other floors. Only days from the planned opening not a single floor of the casino nor the parking garage or casino had been approved for occupancy.
Biloxi officials said if the Imperial Palace hadn't been working on the two unauthorized floors, then efforts could have been concentrated on getting the rest of the property ready for opening.
"To have the unapproved work come into the picture complicated everything," said city spokesman Vincent Creel. "That just delays the entire process."
Engelstad had planned to open the casino, parking garage and the first 15 stories of the hotel by Dec. 15. The remaining 15 floors are scheduled to be opened three months later.
The Biloxi City Council has remanded the matter of the two unauthorized floors back to the planning commission, which will take up the matter at a meeting Dec. 18. The city has three options: 1. Make Imperial Palace remove the unauthorized floors. 2. Fine the casino. 3. Allow the construction to be completed without any punitive action.
Earlier the planning commission had recommended approval of the two-floor addition pending approval of the FAA.
Keesler officials are expected to present their case at the planning commission meeting Dec. 18. The FAA is also expected to make recommendations at that meeting. The city council plans to meet the next day to act on the recommendations of the planning commission.
In an interview earlier this year with the Mississippi Business Journal, Keesler officials expressed concern that high-rise hotels in the flyway of Keesler could cause the base to be considered for closing in the future.
Col. Wolf Gesch, 81st Support Group Commander at Keesler, said that he has seen other bases close because of encroachments on their flyway by commercial air traffic.
"We shouldn't be complacent about the future because there could come a time when there are additional base closures," Col. Gesch said. " If our flying mission ever were to go away, we would become very vulnerable. We can't afford to become complacent. We have to keep an eye on our mission at Keesler."
Engelstad is the sole owner of Imperial Palace in Las Vegas, and the new Imperial Palace in Biloxi. Estimated by Forbes magazine to be worth about $450 million, Engelstad is investing $300 million in the Back Bay casino resort. Engelstad made his fortune as a building contractor and has been closely involved in supervising construction of the Imperial Palace in Biloxi.
The flap over the unapproved top two stories is not the only conflict Engelstad has had with government officials in Mississippi. Engelstad, who shuns conventionality by showing up for business meetings wearing tennis shoes and casual clothes, opposed signing a tidelands lease with Mississippi Secretary of State Eric Clark claiming that the lease terms were unfair. After a protracted public battle that drew attention to Engelstad being fined by the state of Nevada for holding birthday parties for Hitler, Engelstad agreed under protest to sign the tidelands lease.
Engelstad collects Nazi memorabilia and owns Hitler's parade car, but denies being a Nazi sympathizer.
"Just because I own Hitler's car doesn't mean I have any special interest in Nazism," Engelstad said. "I have collected Nazi memorabilia and other kinds of memorabilia from World War II. On the other end of the spectrum, I also own one of the Popemobiles (an automobile used to transport the Pope). I've got cars from the Presidents, including President Kennedy's bubble top. I have Howard Hughes' car, and cars owned by King of Siam and the Czar of Russia."
Part of Engelstad's antique car collection — but not the Hitler parade car — will be on display at the Imperial Palace in Biloxi. Engelstad said collecting antique cars started as a hobby, but has turned into a business. He said that one of the Hitler birthday parties was in celebration of purchasing Adolph Hitler's parade car.
Although Engelstad said he has never personally met Steve Wynn, CEO of Beau Rivage parent company Mirage Resorts, press reports have said the two men dislike each other intensely. The two men have battled over a property site in Las Vegas, and Wynn, who is Jewish, was reportedly displeased about Engelstad's birthday parties for Hitler.