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Casinos Profit While Detroit Bickers2 April 2002DETROIT, Michigan – As reported by the Detroit News: "While Detroit's three gambling houses are on the hook to build permanent 400-room hotel-casinos, the construction timetable continues to be delayed by political infighting among the city's power brokers. "In a way, that is hardly disappointing to casino companies and their Wall Street investors. The reason is simple: The returns on the casinos' current temporary quarters are exceedingly rich and can only shrink with additional investment in larger, more elaborate, facilities. "…They point to the returns generated at MGM Grand Detroit Casino. Las Vegas parent MGM Mirage invested $220 million in the Detroit property, which consists largely of gambling operations. It had 2001 operating profits of $144.3 million. "That's a return on investment of 66 percent. "Some perspective: `Developers of a new casino want at least a 20-percent return on investment,[ said Morgan Stanley Dean Witter analyst Mike Happel. "…The discussion over investment returns comes as the Detroit City Council last week feuded with new Mayor Kwame Kilpatrick over his request for a 30-day extension of the city's three temporary casino agreements while the pacts for the permanent gambling halls are negotiated. "The council wanted a longer period to review the development agreements. "…The city's council and mayor have tussled over casinos ever since voters approved them in 1996. "…Some casino executives do want to move forward with construction on permanent casinos, for a host of reasons. Gamblers like the idea of hotel rooms at casinos. New opportunities for career advancement would boost the morale of temporary casinos' workers. Profits would still be impressive. And, generally, businesses are hard-wired for growth, the alternative being stagnation. "…But while analysts say the more lavish permanent casinos would still be highly profitable, the longer it takes the mayor and the council to reach an agreement, the longer the casinos can avoid spending money on loss-leader hotels and keep making money in the higher-profit business of gambling. The casinos are relieved they're on the hook for only 400 rooms now, not 800 originally proposed. "With a new casino, returns will still be impressive, but will nonetheless be much lower when compared to today's levels…" |