LOWER CASINO REVENUES COULD MEAN DWINDLING JACKPOT FOR DETROIT

Story first appeared on freep.com.

The City of Detroit’s financial lifeline for its bankruptcy restructuring — tens of millions in annual taxes from casino gambling — has been faltering as downtown gaming revenue is on pace for its largest annual decline since the first casinos opened in 1999.

Continued creep downward and loss of the tax revenue could mean less money for restructuring Detroit’s city services. Bill Nowling, spokesman for emergency manager Kevyn Orr, said the EM’s office is closely monitoring Detroit’s casino situation.

“If we need to make an adjustment in our (financial) assumptions as a result, we will.”

The fall in business could indicate a shrinking of the casino business market in Detroit and herald fiercer battles for market share of what’s left among the Detroit three — MGM Grand Detroit, MotorCity Casino Hotel and Greektown Casino-Hotel.

Gambling revenue this year through November is down 4.3% to $1.2 billion. The state and city split up taxes from the three casinos. Roughly speaking, the state takes about 8% and the city from 10% to 12%, depending on the year and adjusted gross gaming revenue for each casino. The lower the revenue, the lower the tax receipts.

Orr this week called Detroit’s cut — $171 million in 2012 — one of the city’s most important revenue streams, representing about 14% of the total money coming in each year. But it has been sliding, down from $177 million in 2011.

“Without it, the city couldn’t operate,” Orr said Wednesday in bankruptcy court testimony.

Non-gaming revenue from hotel rooms, food sales and other sources at the three casino sites are not part of the equation.

Detroit’s lawyers are hoping to set aside a large portion of the taxes for improving dismal city services, if a federal bankruptcy judge allows a deal to go through that would release the casino tax revenue back to the city. The tax stream was pledged as collateral in 2009 for a massive city debt that came due.

To be sure, with $1.4 billion in total gambling revenues last year, the three casinos are still serious cash-generators and in no danger of closing. Still, their significant drop in revenue could have direct effects on the quality of Detroit’s amenities and resident services as the city aims to emerge from bankruptcy with sustainable finances.

Gambling industry experts and casino operators blame most of the decrease on the four new Ohio casinos, particularly Hollywood Casino Toledo, which let northwest Ohio residents gamble closer to home.

Another factor was the January expiration of the Social Security payroll tax cut, which was worth about $1,000 to a worker making $50,000 a year. The growing proliferation of casino gambling nationwide has also cut into gaming revenues for many regional-draw casinos nationwide such as Detroit’s.
Greater competition

It has been a down year for all three casinos.

Gambling revenues through November were 5.3% lower at MGM Grand than a year ago and 6.7% lower at Greektown, according to the Michigan Gaming Control Board.

MotorCity Casino had the smallest decline at about one-half of 1%. But it also paid for promotions and giveaways: Overall net revenues, which include food and beverage and hotel stays, were down 8% as of June 30, while the casino’s promotional expenses grew, according to figures compiled by BofA Merrill Lynch Global Research.

MotorCity also spent money this year on hundreds of new slot machines and to update the design of its gaming floors to draw in more gaming dollars.

“It’s definitely become more expensive to operate in the Detroit market, which happens whenever competition heats up, as it did with Toledo,” said Jenny Holaday, MotorCity’s senior vice president of operations.

Industry experts say revenues are down in regional-draw casino markets across the country, and especially so in areas such as Michigan and Indiana, where local properties have new competitors.
More casinos on way

There are now nearly 1,000 casinos within 41 states (including tribal lands) with more soon to open when Massachusetts becomes the 42nd state. The Kentucky state Legislature is debating whether to put legalized casinos on the ballot next fall.

Michigan has 22 tribal casinos within its boundaries, with FireKeepers Casino near Battle Creek the closest to Detroit.

New casinos lead to more new casinos. Just as the Windsor casino spurred efforts for Detroit’s casinos, officials often contend that their city or state must build its own casinos in response to neighboring casinos to recapture the gambling dollars (and potential tax revenues) that are flowing across their borders.

But each new property means less potential business for the others.

From an economics standpoint, communities hosting casinos want visitors from as far away as possible so that gambling proceeds are “new” money and not local dollars that would otherwise be spent elsewhere in the community.

“There are many markets where saturation has been reached or is close to being reached,” said Joseph Weinert, executive vice president of New Jersey-based Spectrum Gaming Group. “All things being equal, customers will chose to gamble at the casino closest to their home.”

The shine may already be wearing off Toledo’s new casino, which opened in spring 2012.

The casino’s third-quarter revenue was down 15% from a year earlier to $48.9 million, according to corporate filings by its owner, Penn National Gaming.

Caesars Entertainment does not give financials for Caesars Windsor in its filings, although the gaming company itself reported a $761-million third-quarter loss.
Hotels hurt profits

Insiders say Detroit’s casinos were most profitable in their early years when they operated in temporary facilities and before they took on debt to build large and expensive permanent digs.

Politics played a role in the grandeur and size of the properties, as each one was mandated to have conference space and no fewer than 400 hotel rooms to provide amenities thought to be lacking in the city at the time.

A deal negotiated by former Mayor Kwame Kilpatrick got the casinos out of an 800-room requirement in exchange for, among other things, $102 million cash to help balance Detroit’s budget.

“All of them were making a big profit before the permanent facilities, and all of them were in trouble when they went to the large, fancy facilities,” said Jacob Miklojcik, a Lansing-based gaming consultant.

Although none of the casinos discloses hotel occupancy rates, Miklojcik suspects that the 400-room hotel mandate was still too big and wouldn’t have happened if the casinos had a choice. “Some of those are pretty massive costs per key,” he said.

Both MGM Grand and MotorCity opened their temporary locations in 1999 and full properties in 2007 — just in time for the recession.

“The bottom fell out right when everyone’s permanent facilities came online,” said Holaday, the MotorCity executive.

Greektown was the last casino to open, in 2000, and did not transition to its full facility until 2009. It is the smallest property of the three.

Despite shedding $500 million in debt during bankruptcy, Greektown’s finances are still somewhat precarious, and the casino hasn’t reported an operating profit since emerging from Chapter 11 in 2010.

Quicken Loans founder Dan Gilbert bought Greektown this spring through his casino business, Rock Gaming, which has made management changes and plans “significant” renovations next year to the casino property. Rock Gaming owns two of the four Ohio casinos, in Cleveland and Cincinnati.

In an interview, Rock Gaming CEO Matt Cullen said he doesn’t believe Detroit’s casino market will continue shrinking.

“I don’t think we agree that the size of the pie has gotten smaller and will stay smaller,” Cullen said. “There are a lot of people still that are rediscovering the city of Detroit and who are coming down here that haven’t come down here for a long time. And there’s still people that don’t come down here.”

22 New Michigan Casinos Planned

First appeared in Detroit Free Press

Private investors and Indian tribes are proposing 22 new casinos across lower Michigan, and metro Detroit is clearly among the targets of the gambling gold rush.

Hopefuls are wagering -- against long odds -- on plans that could make them millions of dollars while also nearly doubling the number of casinos in the state. Six organizations want in on the game -- two investor groups separately seeking state constitutional amendments and four tribes trying to expand off-reservation gambling.

The proposals overlap, calling for four casinos in Romulus and two more in Detroit, home to the state's only non-tribal casinos. The groups also want casinos in Macomb and Oakland counties and two in Port Huron.

"It's like fantasy land," said Michigan State University law professor Matthew Fletcher, who specializes in tribal law. "I really don't expect people are willing to have that many more casinos in lower Michigan."

Confidential documents reviewed by the Free Press reveal details.

Leading one effort is Michigan First, which would amend the state constitution and usher in the largest gambling expansion since Detroit's casinos were approved in the 1990s.

In secret pitches to potential investors and government officials, Michigan First organizers propose a new casino in Detroit, one each in Wayne, Oakland and Macomb counties, and four more outstate, documents show. In Macomb County, the group would build a $300-million casino projected to rake in $85 million a year in profit for its owners once initial building costs are paid off.

A competing proposal by a separate group called Michigan Is Yours is also on the table, as are pitches from four tribes hoping to expand gambling through off-reservation casinos such as one proposed a few blocks from the state Capitol in Lansing.

Gov. Rick Snyder, Detroit's casinos and Mayor Dave Bing oppose casino expansion. So do major outstate Indian tribes.

Despite those challenges, investors and other tribes want to cash in, lured by the record $1.4 billion in revenues Detroit's casinos posted in 2011 and what supporters view as untapped markets in cities across the Lower Peninsula.

The fight may be costly. Michigan First tells potential investors that before one brick can be laid it will have to raise nearly $50 million to collect enough signatures for its campaign and then woo voter support for a November constitutional amendment to allow non-tribal casinos in Michigan First's designated cities: four in the Detroit area and one each in Grand Rapids, Lansing, Cadillac and the Flint-Bay City-Saginaw area.

Michigan First says in the documents that it has lined up support from former Michigan House Speaker Rick Johnson, a Republican from the Cadillac area, and Mitch Irwin, a Democrat who was the state's management and budget director under former Gov. Jennifer Granholm.

Irwin confirmed his involvement but declined to discuss details in the documents or specifics about the group's proposal, saying more would be revealed in mid-March.

"We're not ready to announce anything publicly right now," Irwin told the Free Press.

Irwin said the effort is attracting enormous interest among community leaders and private investors.

Others associated with the Michigan First effort, including Johnson, did not return phone calls seeking comment.

Opposition's viewpoint

James Nye, a spokesman for a coalition of tribes and Detroit casinos preparing to fight the Michigan First effort, said his group is ready to raise $50 million to stop the new casinos. The group, Protect MI Vote, says casino expansion would circumvent state voters' approval in 2004 of a constitutional amendment requiring both statewide approval of non-tribal casino expansion and approval of local voters where a casino would locate.

Nye's group represents the MGM Grand Detroit and Greektown casinos and two tribes: the Saginaw Chippewa, which own Soaring Eagle in Mt. Pleasant, and the Nottawaseppi Huron Band, which owns FireKeepers Casino near Battle Creek. Nye said Michigan First wants to write its eight casinos into the state constitution, exempting them from the strict Michigan regulatory oversight required for the existing Detroit casinos.

"They are really unbelievably brazen with their plan to sell off pieces of our constitution to their investors," Nye said. "Worst of all, there is no transparency," he said, adding that it remains possible for any amendment that goes before voters to not include the names of the casino owners.

Other casino efforts

Separately, a high-profile effort to build a glitzy $245-million Kewadin Lansing Casino, just blocks from the state Capitol, kicked off in January. It would be built by the Sault Ste. Marie Tribe of Chippewa Indians in partnership with the city, and would be the state's 26th casino.

Other efforts range from the small Upper Peninsula Hannahville Indian Community's interest in building a casino in Romulus to larger efforts by the two investor groups. One of the investor groups, Michigan Is Yours, has tapped former Detroit Lions great Billy Sims as a backer and aims to build privately owned casinos in Detroit, Romulus, Port Huron, Grand Rapids, Lansing, Saginaw and Benton Harbor.

"Detroit was meant to be the first city, not the only city," Sims told the Free Press.

How much is too much?

Lansing Mayor Virg Bernero said he's not sure, but it's time that cities outside Detroit get a crack at the jobs and economic development potential of casinos, instead of seeing the money flow to other parts of the state.

"That's our money they're luring away," Bernero said. "I want that money reinvested here. Lansing will get a casino. The only question is when and where. I want it downtown as soon as possible."

But Michigan First and Michigan Is Yours also each want a casino in Lansing -- that would make three -- and the overlap among the competing plans highlights serious questions: Can Michigan's casino market handle a slew of new casinos, and if so, how many?

In southeast Michigan, gamblers already can easily drive to casinos in Detroit and Windsor. There will be one more option when the Hollywood Casino Toledo opens in Ohio in late May.

Adding casinos in Detroit and its immediate suburbs and Port Huron would saturate the market, said Frank Fantini, editor and publisher of Fantini's Gaming & Lodging Reports. He said putting so many casinos in metro Detroit would be "extreme, because you're not dealing with a destination market."

Michigan now has 22 tribal casinos in addition to Detroit's three, and analyst Jake Miklojcik said it's not likely that government officials would permit the number to double -- or that banks would finance so many new casinos.

He said, however, the Michigan market has room for more casinos, perhaps a 20% expansion.

The American Gaming Association ranks Detroit the nation's fifth biggest casino market. And it's a lucrative industry statewide, employing about 19,800 people last year in Detroit and tribal casinos, by the state's estimate.

Detroit's casinos in 2010 paid nearly $100 million to the state's school aid fund and nearly $164 million in Detroit wagering taxes, according to the Michigan Gaming Control Board. Tribal casinos paid more than $61 million in taxes to the state and local governments in 2010.

"For any one community, it could be a nice shot in the arm" to open a casino, Miklojcik said. "Could Flint have a successful casino? Yes. Would it rely on pulling from other casinos? Probably."

Nye said that risk is too great.

"In Michigan, we are in a mature casino gaming market," Nye said. "The pie is not going to grow any larger, so instead, everyone will get a smaller piece of the pie, and in that scenario, you would have a dramatic shift of jobs and revenue from certain areas of the state to another, but without any net economic gain for the state."

New Casino Opening catches many off Guard

The Detroit Free Press

A new casino that opened quickly in northern Michigan is raising questions about state and federal authority to regulate Indian gaming.

The Bay Mills Resort Casino opened Wednesday in Vanderbilt, 8 miles north of Gaylord, catching many people by surprise. The news carried extra weight when Port Huron City Manager Bruce Brown told the Times Herald newspaper that the Bay Mills Indian Community recently had purchased 16 acres along the St. Clair River, where the tribe long has sought to build a casino.

"This has not been the traditional way for approval, and they have a legal theory they are leaning on," said Rick Kalm, executive director of the Michigan Gaming Control Board. If the theory that a casino can be opened without the normal approval process holds up, "the impact would be huge. There are so many groups vying to expand casino gaming."

The Sault Ste. Marie Tribe of Chippewa Indians recently purchased land near Pinnacle Race Course in Huron Township in western Wayne County. Gaming facilities there or in Port Huron would compete directly for local customers with Detroit's three casinos, which count on exclusivity to fuel their business. The Detroit casinos are an important source of revenue for the City of Detroit.

State officials plan to meet with Bay Mills tribal leaders by next week to discuss the move, attorney general spokeswoman Joy Yearout said.

Tribal officials couldn't be reached Thursday but in a story in the tribal paper, www.baymillsnews.com, tribal chairman Jeff Parker announced the opening.

"This is something we've been working on for a long time."

Officials from other tribes with casinos in northern Michigan were angry.

"We believe this is an illegal operation," said Ken Harrington, chairman of the Little Traverse Bay Band of Odawa Indians, which operates a casino near Petoskey. "No approvals or applications were obtained or submitted, and this is off their reservation."

The Vanderbilt casino opened in a former nature center attached to the TreeTops resort complex.

"We knew that something was going on," said Vanderbilt Village President Edward Posgate. "Frankly, we were hoping it was a casino" because of economic spin-off.

Posgate said the building has 38 slot machines and offers customers free pop, coffee and hot chocolate.

Casino Money to Aid College Scholarship Plan

Chicago Tribune

Legislation headed for Gov. Jennifer Granholm's desk would allow Michigan school districts to use money received through agreements with tribal-run casinos to fund college scholarship programs.

The Senate unanimously approved the bill on Wednesday.

Michigan has more than 20 casinos run by American Indian tribes. The tribes have agreements with the state that typically provides 2 percent of certain gaming revenue to local governments, including schools.
The bill would allow school districts covered by those agreements to use their proceeds for scholarships for their graduates.

The legislation sponsored by Republican Sen. Ron Jelinek of Three Oaks was sparked by a plan from New Buffalo schools to fund a scholarship program.