THE HIGH ROLLERS HIT MOTOWN
Casino giants are circling Detroit, but how big is the payoff?
Detroit's Washington Boulevard has seen far better days. A center of commerce and nightlife in the 1950s and 1960s, the downtown street is virtually deserted now. Vacant buildings and empty sidewalks serve as stark reminders of the jobs and workers that have fled Motown since its heyday.
But if casino magnates Stephen A. Wynn, Kirk Kerkorian, and Donald Trump have their way, this downtrodden stretch of Detroit will glitter once again. The three moguls are among seven contenders vying for three coveted licenses to bring gambling to Washington Boulevard and two other downtown sites by 2000. The prospect of Detroit becoming a Midwestern mecca for high rollers already has civic leaders counting the lucre. "Casinos will make this a 24-hour city again," says Mayor Dennis W. Archer.
Of course, Archer and the city's power brokers aren't relying solely on gambling. There are several other economic-development projects under way, including two new downtown stadiums, a new African-American history museum, and a riverfront entertainment center being developed by General Motors Corp. But the casinos clearly are supposed to play a big part in Detroit's hoped-for rebirth. A city study estimates that the casinos' revenues will be as much as $1.2 billion annually, with $356 million in taxes being split between the city and state. Detroit's share of that will be about $200 million--a big windfall, given that the city's entire budget is $1.6 billion. Additionally, Detroit expects casinos to generate 15,000 new full-time jobs and 11,000 temporary construction jobs, much welcomed in a city with a still-high unemployment rate of 9%.
Even so, is Detroit making a foolish bet? For one thing, the city may be too late in joining the regional-gaming craze. Industry analysts warn that overcapacity is already the industry's biggest problem. And in cities that have opened themselves to casinos, results have more often been disappointing than spectacular. "The notion that there is an unlimited field of gamblers to harvest simply isn't true," says Thomas J. Irwin, director of the Missouri Gaming Commission. He notes that five Kansas City (Mo.) casinos had been expected to generate $700 million in revenues, but are only taking in about $450 million.
But that's not dampening the ardor of the moguls vying to bring casinos to Motown. Cities willing to embrace casinos as an economic-development tool are rare these days, and the gaming industry is eager for growth. So Detroit is seen as one of the industry's last frontiers. With 5.2 million adults within a 150-mile radius, "I think Detroit is one of the last great opportunities for casino development in the U.S.," says Trump.
For proof of Detroit's potential, casino execs point to the steady stream of gamblers filing through the Detroit River tunnel into Canada every day. A profitable casino and riverboat in Windsor, Ont., attracts 6 million gamblers and revenues of about $500 million annually. "All you have to do is walk into the parking lot in Windsor and count the Michigan license plates," says MGM Grand President Alex Yemenidjian. "When these folks have someplace closer to home, they're not going to go over there anymore." A Windsor casino spokesman, who acknowledges that 80% of his customers are American, says that gamblers will still prefer Windsor's safe, quaint setting to gambling in rough-and-tumble Detroit.
LONG ROAD HOME. That may be more than just whistling in the dark. Detroit's bleak reputation as the crime-ridden capital of urban decay is lodged in the national consciousness, though the city has come back a bit in recent years. Even Motown's biggest boosters admit it will be tough to turn the city around. "It took 20 years for Detroit to deteriorate, and it will take more than three or four years to get it back," says Chrysler Chairman Robert J. Eaton, who accepts casinos as a credible component of the city's comeback effort.
Detroit has wrestled with casino development for more than a decade. Political referendums failed twice before a statewide ballot issue passed last fall. Two local groups, Greektown Casino and Atwater Casino, bankrolled the successful referendum. Now, they hold so-called preference rights to two of the three available licenses. The preference rights don't assure them a license, but it gives them a boost. Archer says the preference rights aren't legally binding and that he will choose the bidders with the strongest financial wherewithal and the most attractive development.
TAX BITE. That leaves a game of musical chairs among Wynn, Kerkorian, Trump, Greektown, Atwater, and two other local investor groups to nab a license. One local entry is headed by Detroit's gravely ill former mayor, Coleman Young. The other applicant is Indiana riverboat operator Don Barden, who is based in Detroit.
The players who land licenses will face hefty government fees once the casinos are open. Los Angeles gaming consultant Saul Leonard notes that a strong regional casino typically sees a profit margin of 30% or more. But the costs of operating in Detroit will be high--so high that Harrah's Entertainment Inc. cited them as one of the reasons it dropped out of the bidding. The city isn't offering any property-tax abatements for the casinos, and the casinos must share the $25 million annual cost of funding the state gaming regulatory agency.
All in all, it comes to the highest tax burden for casinos in the country. Archer insists it's the right course: "I wish to take advantage of the hard lessons other places have had to learn," he says. And he knows that the city's revival will stall if the casinos are a bust, as they were in New Orleans. Half-empty or shuttered casinos "would frustrate our redevelopment," he adds.
So Detroit is motoring ahead with its plans. Archer narrowed the field of casino applicants from 11 to 7 on Aug. 22, and he chooses the three winners on Nov. 7. His picks will then be reviewed by state regulators, who have the final say. Once the casinos are built, Detroit may find that bringing gaming to town was the easy part. Whether gambling can drive Motown's overhaul requires longer odds.By Bill Vlasic in Detroit, with Ronald Grover in Los Angeles