MGM / Mandalay: State Law Ownership Restriction Will Require Sale

Several readers have asked why there is talk of the potential sale of either the MotorCity Casino or, more recently, the MGM Grand Detroit Casino. Both casinos have performed well, and would seem to be an attractive investment notwithstanding the recent tax increase from the Legislature. "MGM Grand Detroit and MotorCity are both great properties with consistently strong operating results and terrific growth prospects," said MGM CEO Terry Lanni in a press statement last week. Both casinos have historically had more than a third of the $1.2 billion Detroit casino market.

So, why is there a need to sell? It involves the interplay between a state statutory provision with MGM and Mandalay's overall national plans to combine. MGM, the parent and owner of the local MGM Grand Detroit Casino, earlier this year announced plans to merge with Mandalay Resort Group, the 53.3 percent owner of MotorCity Casino. In a press release just last week, MGM reiterated its plans to have this deal close in the first quarter of next year.

The need to sell is a function of state law. The Michigan Gaming Control and Revenue Act provides that a casino operator licensee cannot own more than 10 percent of another casino operator in the City. Violation of this provision may lead to fines or other licensing action by the Michigan Gaming Control Board. Given that it is a statutory provision, the Gaming Control Board staff's interpretation is likely to be very inflexible, and will require the matter to be addressed relatively quickly if MGM plans to close its merger with Mandalay Resort Group.

MGM has repeatedly suggested that it hopes to close its merger with Mandalay Resort Group by the spring of 2005. The initial investigative process for the Detroit casino operator licenses years ago took many months. Thus, MGM will need to take action in the near future to allow the state to begin its required investigations of the new MGM Grand or MotorCity owners.

Friday's press release from MGM suggests that they are open to exploring all options to solve this problem. Terry Lanni made the following remark:

"We initially expected that we would dispose of Mandalay's majority interest in MotorCity. However, since making that initial determination we have been approached by several parties concerning the possible sale of MGM Grand Detroit and we have decided to explore this alternative. If such a transaction were to occur, we would maintain Mandalay's interest in MotorCity and look forward to working closely with Mandalay's partners and the City of Detroit to develop and enhance that property."

Whether MGM Grand Detroit gets sold, or Mandalay's 53.3 percent interest in MotorCity Casino, the year 2005 promises to have many interesting developments for members of the gaming industry. Hopefully, whatever transition occurs will go smoothly, and will allow further progression and growth of the industry. Detroit needs the spark of energy that casino gaming entertainment provides. Whatever companies end up being the operators in Michigan, hopefully will continue the investment in growth, training and expansion to assure a thriving gaming market for years to come.