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Howard Stutz

Bullish on Detroit gaming despite bankruptcy

29 July 2013

Back in 1996, when Michigan voters authorized three casinos in downtown Detroit, opponents said legal gambling would destroy the city.

Detroit is now bankrupt.

Ironically, gaming tax revenues are helping the Motor City avoid a total meltdown.

In the municipality’s Chapter 9 bankruptcy filing on July 19, Detroit disclosed that the $11 million a month it gets from MGM Grand Detroit Casino, Greektown Casino and the MotorCity Casino “is roughly the equivalent of 30 percent of the city’s total available cash on hand as of June 30.”

Gaming taxes could pay for Detroit’s entire fire department or half of the city’s police department, and the city said it needs continued access to the funds “to ensure public safety.”

Michigan taxes gaming revenues at 19 percent — 10.9 percent of which goes to Detroit. In 2012, the state collected $319.75 million in gaming taxes.

Detroit is the largest city in the nation to file bankruptcy.

Residents have fled to the suburbs and the once-vaunted auto industry has lost its luster, leaving the city owing more than 100,000 creditors some $18 billion.

Despite banner headlines and negative news surrounding the bankruptcy, gaming leaders said last week they aren’t giving up on Detroit.

Gaming has fueled additional investment into parts of Detroit’s downtown area. The casino market, which produced $1.42 billion in gaming revenues in 2012 and employs almost 8,000 workers, has been a welcome industry to a city seeking a spark.

But MGM Grand Detroit President Steve Zanella said positive changes in the city over the past few years are now overshadowed by the bankruptcy filing.

“We’re committed to the market and we’re committed to the community,” said Zanella, who has been an executive with the 400-room hotel-casino owned by MGM Resorts International since 2010.

“The people we cater to know the story,” Zanella said. “Our clientele knows what Detroit is about and the improvements that have taken place.”

He added that MGM Grand’s customers have remained loyal. There hasn’t been falloff in convention business or cancellation of large meetings.

“We do not expect to see any business impact from the filing,” Zanella said of the MGM Grand, which reported $140.9 million in revenues in this year’s first quarter.

Greektown owner Rock Gaming also remains bullish on Detroit, and with good reason. The company is controlled by Detroit-based Quicken Loans founder Dan Gilbert.

Gilbert and other members of the Rock Gaming-Quicken Loans team are loyal to their native city.

Quicken Loans moved its headquarters to downtown Detroit and has spent more than $1 billion to acquire some 30 downtown properties. Quicken Loans and Rock Gaming combined employ 10,000 workers.

Rock Gaming President Matt Cullen, who spent 29 years with General Motors — the only automaker with a headquarters in Detroit’s city limits — said the bankruptcy filing was no surprise.

“Detroit has probably been bankrupt for 10 years,” said Cullen, who is leading Rock Gaming’s downtown efforts. “This was really just viewed as inevitable. There was no other choice. The city needs to fix its financial house.”

The Motor City Casino also has local ownership; Marian Ilitch, whose husband Michael Ilitch is a partner in the Detroit Red Wings and owns the Detroit Tigers.

City leaders welcome any improvement to Greektown, which has been fraught with financial and ownership issues since opening in 2000 and is consistently third in the market. It now has a deep-pocket owner in Rock Gaming, a joint venture partner with Caesars Entertainment Corp. in two Ohio casinos (Horseshoe Cleveland and Horseshoe Cincinnati); the northern Ohio Thistletown Racetrack; and a casino development in Baltimore.

“We have a passion for the city and right now we’re just doing our due diligence to understand the property,” Cullen said.

Detroit’s casinos attract customers primarily from the region and Canada, where they challenge Casino Windsor in neighboring Ontario.

The opening of casinos in Ohio last year, especially Penn National Gaming’s Hollywood Casino Toledo — roughly an hour’s drive from Detroit — now keeps northern Ohio and Southern Michigan residents closer to home.

MGM Grand Detroit anticipated a loss of customers to Ohio and began selling more corporate events and packaged hotel offerings to fill the void.

“We do really well with the ‘staycation’ crowd,” Zanella said, adding that Detroit’s sporting events and concerts help fill the property.

Cullen, whose company is one of Ohio’s largest casino operators, notes that Rock Gaming bought Greektown long after its Ohio casinos opened.

“I think I’ve read where Detroit has seen about a 5 percent impact,” Cullen said. “They are two different markets.”

In 2010, the Institute for Policy Studies authored a paper that said Detroit had an “unsustainable economy” based on casinos.

But today, those casinos are keeping Detroit on life support.