The Detroit Gaming Market

The last Bulletin featured an overview of the gaming industry nationally. This follow-up article takes a closer look at the industry in Detroit where contracts covering 2,700 UAW members expire October 16, 2003.

The Detroit gaming market includes four casinos: MGM Grand Detroit, Greektown, MotorCity, and Casino Windsor in Windsor, Ontario. Since the three Detroit casinos began operations, revenues have increased every year. Each of the Detroit casinos’ revenues have benefited from increased U.S.-Canadian border security. Several issues are currently confronting the gaming industry in Detroit: the duration of the casinos’ revenue growth, the outcome of litigation challenging the existence of the casinos, the effects of the scheduled construction and opening of permanent casino/hotel facilities in Detroit and increasing competition from proposed casinos close to Detroit.

Detroit Gaming: Corporate Overview

MGM Mirage

MGM Mirage is the second largest gaming company in the world in terms of annual revenue and number of properties. It owns such casino-resorts as the MGM Grand, Bellagio, and Mirage casinos in Las Vegas as well as the MGM Grand Casino in Detroit. Since the merger of MGM Grand and Mirage Resorts in May 2000, the Company has had positive revenue growth, although the effects of September 11, 2001 briefly curbed this growth. The Company’s current economic health is evidenced by its recent investments and expansion. It is opening the Borgata hotel/casino (a joint venture) in Atlantic City for $1.06 billion, and it plans to build a $1 billion hotel/casino in Las Vegas or Atlantic City by the end of the decade. However, while revenues have recovered, employment levels have not returned to their pre-September 11 levels at many of the Company’s properties, especially those in Las Vegas.

Kewadin Casinos

Kewadin Casinos, a wholly-owned operation of the Sault Ste. Marie Tribe of Chippewa Indians, owns 90 percent of Greektown Casino. Kewadin owns five other casinos in northern Michigan. In November 2002, the Tribe announced capital renovations of all the Upper Peninsula casinos, while it plans on closing three Kewadin Casino Inn facilities in Sault Ste. Marie, Mackinaw City and St. Ignace. In January 2003, the Sault Ste. Marie Tribe reached an agreement with Michigan Governor Engler to open two casinos in one of the Governor’s final acts in office. Possible locations of these casinos include Romulus, Monroe County and Flint. However, actual construction and licensing of the casinos require additional approvals.

Mandalay Resort Group

Mandalay Resort Group is the fourth largest casino company in the world. Its properties include Mandalay Bay, Luxor, and Excalibur in Las Vegas and MotorCity Casino in Detroit. The Company’s annual revenue has remained level for the last few years, partly due to the short-term effects of September 11, 2001. Like MGM Mirage, Mandalay Resort Group is continuing to expand its casino/hotel operations. In January 2003, Mandalay Resort Group completed construction of a convention complex next to the Mandalay Bay Conference Center in Las Vegas for approximately $245 million. It is also building a hotel addition at Mandalay Bay to open November 2003 for approximately $230 million and a retail center between Mandalay Bay and Luxor for approximately $30-40 million. As with MGM Mirage, employment levels have not returned to their pre-September 11 levels despite the Company’s economic recovery.

Detroit Gaming: Overview

The Detroit gaming market has surprised many observers with its excellent performance. Analysts speculated that the gaming market in Detroit was not large enough for three casinos to perform well, especially since Casino Windsor already had high revenues. The Detroit market’s total revenue, which was less than $2 million when MGM Grand first opened, has skyrocketed to over $1 billion worth of annual revenue in 2002. The opening of MotorCity Casino and Greektown Casino only briefly affected the performances of the other casinos in the city, as all three casinos maintained overall revenue growth. Some of the growth in gaming revenues at Detroit’s casinos has come at the expense of Casino Windsor, which has seen a steady decline in revenues since 2000.

Despite the rapid growth of the Detroit casino market during the last few years, total revenue growth is beginning to slow down. Casino executives suggest that revenues have peaked until the completion of the permanent casino/hotel facilities in 2005/2006.

Detroit Gaming: Recent Developments

September 11
In the months following the terrorist attacks, Las Vegas gaming revenue declined precipitously because of reduced air travel. As a result, both MGM Mirage and Mandalay Resort Group took drastic cost-cutting measures: MGM Mirage laid-off approximately 6,400 employees from its Nevada properties, and an additional 315 people from the Biloxi, Mississippi property; Mandalay Resort Group laid-off 4,500 employees at Las Vegas properties, wages were frozen for non-union workers and bonuses were reduced for management level employees.

In contrast, gaming revenues increased at Detroit casinos because increased border security impeded access to Casino Windsor in Ontario, Canada; as a result, many American gamblers stayed in Detroit.

Detroit Lawsuits
Lawsuits have been filed in state and federal courts challenging the constitutionality of the Detroit Casino Competitive Selection Process and the Michigan Gaming Control Revenue Act, seeking to appeal the issuance of certificates of suitability to the Detroit casinos. One such suit, the Lac Vieux litigation, has caused the 6th Circuit Court to issue an injunction prohibiting the Detroit Casinos from developing their current or new properties pending resolution of this litigation.

Possible Detroit Tax
In May 2003, the Michigan House of Representatives passed a bill that would tax four percent of nonresident winnings at the Detroit casinos beginning October 1, 2003. Such a law could deter out-of-state customers and could potentially give more business to Casino Windsor.

New Michigan Casinos
Detroit casinos could also lose customers to a casino in Port Huron that that city hopes to build. The City of Detroit is lobbying against the construction of a Port Huron casino. Also, Kewadin Casinos might build a casino in Romulus, possibly attracting Detroit casino customers.