Should I play in a bankrupt casino?

GreekTown Casino in Detroit has just filed bankruptcy. I can't imagine how this can be since just about everyone I know comes home much lighter than when they go....but...my question is: Is it an even worse time to play the slots there? Will they adjust the payouts to help compensate for their apparent losses? How in the world can they go bankrupt with the amount of people and money that passes thru there anyway?

Thanks for your newsletter. It is totally enjoyable!

Paula

Dear Paula,

Thanks for the kind words about my columns.

You asked how the casino can be bankrupt even though there seems to be many people losing money there. I don't know the specifics of the GreekTown Casino, but here are some general ideas.

First, you're looking at only one half of the equation. The casino may seem to have plenty of revenue, but its expenses may be much than its revenue.

Second, a casino might be highly leveraged and can't make enough profit to make the payments on its debt. In 1989, people thought Steve Wynn was crazy to spend -- and borrow -- so much money to build The Mirage because the debt payments would be so high. As it turned out, according to an article on Wikipedia, The Mirage made enough money to pay off its seven-year construction loan in 18 months.

It seems like having a casino is a license to print money, but the casino still has to be run well to make a profit.

Now isn't a worse or better time to play the slots there. The slots are most likely the same now as before the bankruptcy. The cost to lower the payback is so high (new chipsets have to be bought and installed) and the break-even period so long that lowering the payback just doesn't pay.

Besides, most bankrupt companies try to encourage people to use their services and lowering the paybacks certainly wouldn't get more players to go to the casino. Now in fact may be a great time to play there. The machines are the same, but the casino may offer more incentives to get players to visit.

Best of luck in and out of the casinos,
John

Send your slot and video poker questions to John Robison, Slot Expert, at slotexpert@comcast.net. Because of the volume of mail I receive, I regret that I can't reply to every question.