When the Michigan Lottery introduced Internet Lottery (or “iLottery”) in 2014, the idea was to find new ways to reach people who want to win a jackpot, but don’t necessarily want to make their way to a retailer or a convenience store to buy a ticket.
The Detroit casinos know this story well. The days are long past when the only option local gamblers had to play roulette or blackjack were brick-and-mortar establishments equipped with slot machines and table games.
With the rise of exclusive internet gaming from the Michigan Lottery, MGM Grand Detroit, MotorCity Casino, and Greektown Casino (the latter will be renamed JACK Detroit Casino-Hotel later this year) now place an even stronger emphasis on the on-site experience. That means everything from upgraded hotel rooms to new bar and restaurant offerings to performance venues, all to lure people who want to play a game but need a pretty compelling reason to leave home to do it.
As online gambling options keep expanding, including playing the lottery from the comfort of one’s own family room, land-based casinos find themselves challenged like never before.
“Is it taking money away from land-based casinos?” asks Mike Neudecker, COO of MGM Grand Detroit. “I don’t doubt it. I think I would argue we offer a whole different experience than just buying a lottery ticket. We’re probably a pretty mature gaming market, although it’s still a pretty solid gaming market.”
For some years now, casino operators have realized there are only so many people in and around the metro Detroit region who are going to come downtown to go to the casinos. That’s reflected in the fact that while the Detroit casinos still see some year-over-year growth, it tends to be small.
The Michigan Gaming Control Board reports that the Detroit casinos collectively generated $1.4 billion in aggregate revenue last year, an increase of 1.1 percent compared with 2016. Broken down by individual casino, that’s $592.2 million for MGM (an increase of 0.01 percent over 2016), $478.6 million for MotorCity (up 2.3 percent), and $329.7 million for Greektown (up 1.3 percent).
Comparatively, the iLottery posted $97 million in revenue in Michigan for the fiscal year ending September 30, 2017. That represents a relative explosion in revenue compared with the $48 million the iLottery earned the previous fiscal year.
So how much of that revenue came from metro Detroit? “Total annual online lottery was $97 million,” says Bruce Dall, president of MotorCity Casino. “We think that $34 million is coming out of southeast Michigan.”
Dall further estimates that as much as half of that $34 million could have come from prospective casino patrons who are playing the lottery online. If true, the $17 million lost to the Detroit casinos represents the difference between a brisk year of growth and modest profits.
The iLottery site isn’t just an alternative way to buy lotto tickets, either. It’s rich with online gaming options, including games like Queen of Diamonds, Moji Money, Lucky 7×7, Instant Football Payout, VIP Gold, Instant Keno, and 25 Card Cash. “If you go to their site, it’s almost an online gaming site now, similar to what you’ll see in New Jersey,” Dall says.
The obvious solution for the casinos is to establish their own online gaming sites; who would know better how to do it? But there’s a problem: It’s not legal in Michigan for brick-and-mortar casinos to offer internet gaming, although the casinos have advocates in the Michigan Legislature who believe they can change the law this year.
State Sen. Mike Kowall (R-White Lake) and State Rep. Brandt Iden (R-Oshtemo Township) have sponsored bills in their respective chambers that would allow the casinos to branch into online gaming. Both bills have cleared the necessary committees, and Kowall and Iden are working on getting floor votes scheduled.
“If you’re a current land-based casino and you have a brick-and-mortar operation, you would be able to go through an internet platform,” Iden says. “You could provide gaming, and that could be any type of gaming. You could do poker, blackjack, roulette, craps — whatever it would happen to be.”
The Detroit casinos have steadily invested in upgrades, including the refurbished AXIS Lounge at MGM Grand Detroit, below, and the gambling area at MotorCity Casino, above.
What you couldn’t do is leave the state while playing — regardless of the IP address being used. “If I’m an MGM Reward player, I could sign up and become an M-life player, and then play through their portal on MGM’s website if I’m within the boundaries of the state,” Iden says. “The way the software’s set up, if I went over the line into Indiana, I wouldn’t be able to play anymore. It’s GPS, not the IP address.”
As soon as GPS figures out a player has crossed over to Indiana or Ohio, it’s game over.
Iden says the Legislature is trying to find a way to include Indian casinos, but that gets tricky because of jurisdiction issues. “The tribes are sovereign nations, and it’s tough to craft state law that oversees sovereign nations,” Iden says. “But we’re trying to get to where tribal casinos would be able to offer the same internet gaming.”
The casino operators aren’t at the forefront of the legislative effort. According to Dan Reinhard, senior vice president of governmental relations and general counsel for JACK Entertainment (the Dan Gilbert-owned subsidiary that operates Greektown), it’s only natural to see the casinos enter the online playing field. “Innovation is a cornerstone in the gaming and hospitality business,” Reinhard says. “We support a legislative solution that allows Detroit casinos to offer regulated online gaming to compete in this evolving landscape within our industry.”
The Detroit casinos note that they pay millions each year for casino licenses, which basically means they’re paying the state for the privilege of being regulated — the very same state that’s now competing with them in the form of the growing-by-leaps-and-bounds iLottery.
“The three casinos have $2 billion invested in the properties here, so part of it is just a fairness thing,” Dall says. “If we have the right to do internet gaming and go head-to-head with the lottery, then we’ll go internet gaming against the lottery all day long.”
The urgency for the Detroit casinos also stems from the reality of being in a mature market. David Brunori, who teaches public policy at George Washington University in Washington, D.C., and has studied gaming markets for years, believes there’s little chance of drawing large numbers of new customers to the brick-and-mortar casinos.
“In the old days you had to go to Las Vegas or Atlantic City to gamble, and then it was a vacation,” Brunori says. “Now there’s so much gambling available, whether it’s online casinos or Indian casinos. There are just a lot of different choices out there.”
And yet, all those choices serve a market that, while not tiny, has very limited growth potential. “The universe of people who will gamble on a regular basis is relatively stable and small, and you don’t really want it to grow because, if it grows, you’re going to be kicking into those problem gamblers,” Brunori says. “Some people like to go play a little blackjack, play some slots. My mother likes to go play the slots at the casino. She goes twice a year. She’s not going to go more than that. She can’t afford it. It’s entertainment and fun. In order to grow, what you need (is for) people who are doing it for fun to do it more.”
We welcome competition and that’s why we focus on delivering a great experience.
– Mike Neudecker, COO, MGM Grand Detroit
The Detroit casinos also realize they can’t draw lots of patrons who travel from around the country for a local experience, especially in the winter months. “We welcome competition and that’s why we focus on delivering a great experience,” Neudecker says. “When a guest arrives at our property, they’re getting away from home or getting away from work for a period of time. And this market is a little different; it’s not like you’re coming here like Vegas, for a vacation outing.”
The casinos know that while Detroit isn’t Vegas, it’s still the full casino experience that sets their offering apart from online offerings. “For most gamers, it’s a form of entertainment,” Neudecker says. “You come for a couple of hours and have a pleasant experience with whomever you interact with, whether that’s a blackjack table, a slot attendant, or someone when you’re eating in our restaurants. Once we take our eye off that, we have problems.”
From the valets waiting to park a car to the restaurants bearing the names of famous chefs, the Detroit casinos bend over backward to deliver a premium experience. But to the extent such experiences are tied to Americans’ interest in gambling, the trends seem to suggest up-and-coming gamers are interested in other things.
A 2016 Gallup study, for example, showed that 49 percent of Americans said they had bought lottery tickets that year, which is down from 57 percent in 1998.
The shift, the study states, represents a transition to other, more accessible forms of gaming. Michigan’s early experience with the iLottery certainly seems to suggest as much. The study also reports that nearly two-thirds (65 percent) of Americans gamble in some form. Playing state lotteries was by far the most popular form of gambling. While visiting a casino was the second-most popular, it was a distant second at only 26 percent.
“The same people who are used to going into the casinos and enjoy the casino experience inside the brick-and-mortar locations are going to continue to do that,” Iden says — but they’re not getting any younger, and younger people are, by and large, not replacing them. That’s one reason Iden believes a move by the casinos into the online realm is simply a recognition of reality.
“What we’re looking at is bringing a new gamer to the table,” Iden says. “We want to reach out and provide a platform for a younger generation of gamers to play on. The younger generation wants ease of access. They don’t often want to walk into a casino, but they still want to be able to play. I think this is going to open up a new avenue (of casino revenue).”
Is there growth potential for the casinos if they get the legal go-ahead to reach the online market? Iden thinks so, based on the Lottery’s experience.
“The casinos have seen iLottery revenue grow, and they see the potential for that type of platform to compete in the same space,” Iden says. “If you look at the revenue growth the first year the iLottery went in, it was fairly stable. After that you’ve seen tremendous year-after-year growth, and I think the same would apply to (casinos) because people are getting used to the system.”
Assuming the bill passes both chambers, it requires the signature of Gov. Rick Snyder to become law. But the measure isn’t a slam-dunk. Iden says there was resistance to the expansion of gambling in the late 1990s, when the casinos came to Detroit, and there’s still resistance.
In addition, if the state decides to legalize online gaming for land-based casinos, it will be passing a law that creates new competition for its own lottery. Another dicey issue is whether cities like Detroit will get a cut of any new online action. “That’s an issue we’re working on,” Iden says. “Our intent is to resolve that, too.”