House Reward

Detroit’s casinos have hit a saturation point, so how do they drive more customers through their doors?
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Candy Crush and Farmville may be annoying game requests “friends” send along on Facebook, yet, for the gaming industry — whose fortunes remain very much linked to the long-term viability of Detroit — online games are quickly emerging as a potential key to their future prosperity.

Growth hasn’t come easy in recent years for MGM Detroit, MotorCity, and Greektown casinos. In fact, there’s been very little of it in the past three years. An industry that was on a perpetual upswing before the economic collapse of 2008 is saturated and looking for creative new ways to attract and hold loyal customers. Despite facility improvements and attractive amenities, the casinos are recognizing that there aren’t many untapped markets left to reach in southeast Michigan — at least not by doing it the traditional way.

With online gaming increasing for several years now, it would make economic sense that conventional casinos would want to operate in that space. However, with so much invested in their brick-and-mortar casinos, including gaming floors, restaurants, hotels, and top-of-the-line technology, any kind of move into online gaming would have to more than reach a new segment. It would have to lure customers to a casino as opposed to playing online.

Roger Gros, editor of Global Gaming Business magazine, says the industry is quickly embracing the potential for social gaming to deliver real customers to brick-and-mortar casinos. “This is like a stampede now,” he says. “They’ve already seen it work, so everybody’s trying to get into it. It’s more than a trend. It’s a must-have.”

How, exactly, does social gaming drive customers to established casinos? Gros says the key is to engage players with attractions such as ticket giveaways and entertainment discount coupons. Well-designed online games put a premium on points, which players need to keep playing. And the best way to get lots and lots of points is to visit a particular casino.

When Michigan voters approved the establishment of three casinos in Detroit, the development and details of the deal were seen as crucial to the city’s future for a variety of reasons. In addition to creating jobs and attracting visitors to downtown Detroit, the casinos were seen as catering to a potentially large and mostly untapped market — one that would be willing to skip vacations to Las Vegas or Atlantic City (well, at least some of those jaunts) if the same amenities could be found close to home.

In addition, the deals were negotiated to ensure the casinos were a stable source of municipal tax revenue. At the time, the gaming industry’s revenue was growing reliably every year, and local officials believed that any arguable downside to having the casinos would be trumped by the growth and revenue the city badly needed.

A lot has changed in 15 years. Casinos are practically ubiquitous throughout the Midwest, and in Michigan alone the proliferation of Indian casinos has given patrons many more choices than anyone might have anticipated at the dawn of the Detroit casino era. While the casinos have hardly fallen into poverty, their collective revenues have now declined slightly on a year-over-year basis for three consecutive years. In 2014, the Detroit casinos took in a total of $1.3 billion in total adjusted gross receipts. The breakdown shows:

• MGM Grand: $561.1 million (down approximately $5 million from 2013)

• MotorCity: $445.0 million (down approximately $9 million from 2013)

• Greektown: $326.7 million (down approximately $1.6 million from 2013)

While the decline is considerably slower than in previous years, there were also some hopeful signs, particularly for Greektown. After implementing a new customer loyalty program in July, Greektown’s monthly revenue consistently beat their 2013 counterparts, according to Mark Dunkeson, president and COO of parent company Rock Gaming. “You can see from these positive results that we’re growing and picking up market share,” he says.

While the local gaming industry can still grow, it seems unlikely the casinos will attract significant new numbers of patrons simply by offering the traditional proposition of coming down to spend an afternoon, or an evening, or a night — at least without something that germinates in the home and inspires the development of a patron’s interest.

“I don’t think we’re tapped out, but I would agree that there’s no room for gaming expansion that doesn’t take from some other existing gaming facility,” says Gregg Solomon, president and CEO of MotorCity Casino. “There’s no untapped market left. Everybody’s within a tank of gas of something. We’ve finally reached that saturation point where you’re not going to tap untapped revenue.”

That sounds ominous, but Solomon’s not done. “Just like those who said that the advent of high-definition TV at home spelled the end of the movie industry, for those movie theaters (that) didn’t keep pressing hard to see how they could be the next new thing in terms of entertainment, yes, they probably fell by the wayside. But now we have Sony 4K. We have 9.2 Dolby Digital Surround. We have full-blown 3-D — and most people don’t have that in their homes. So in the same way, it’s our job as casino operators to always provide a better gaming experience than what you can get online.”

Can online and social gaming really be the draw that brings people down to the casinos themselves? Gros says casinos that have jumped in are so far finding the impact is incremental, but promising. That includes MGM Grand Detroit, which is one of the partners in a venture called MyVegas. There, users can play various slot and blackjack games, and among the prizes are tickets to shows, dinners, and hotel stays. That’s the hook to get them out of the house and downtown to the casino.

“MyVegas has provided a great conduit to connect all of our corporate brands together in an entertaining environment,” says Steve Zanella, president and COO of MGM Grand Detroit.

Other major players include Zynga, which is the home of Words With Friends and Farmville; and International Game Technology, which bought the rights to the game Double Down for $500 million in 2012.

“People thought IGT was crazy, but now it’s producing 20 percent of their revenue,” Gros says. The Double Down revenue, however, has not prevented IGT from experiencing larger financial problems that have led some industry analysts to speculate a sale of the game could be coming in the near future.

Meanwhile, Caesars has worked with an Israeli development company to create Slot-o-Mania and the soon-to-emerge World Series of Poker. Players of these games are playing for free — for now — but Caesars, which operates Caesars Windsor Hotel and Casino, is still able to use the games as a lure to bring traffic into the casino. “This enables them to touch their players when they’re at home,” Gros says. “They can play these games at home, for free, and it allows them to offer prizes like a free (hotel) room. It’s proven to be very effective, and it hasn’t diluted their dedication to the land-based operations.”

MotorCity’s Solomon sees tremendous promise in social gaming, as both the platform and pertinent law have evolved.

“The concept would be that you did something at MotorCity that enabled you to be rewarded,” Solomon says. “So, for example, you got to a certain level in a game that you played at MotorCity and, as a result, when you go home and go into MotorCity’s online gaming site, it provides you with some sort of benefit. You then go into the game and progress the game along, and it’s kind of the first blending of traditional and online gaming.”

The online games don’t necessarily have to be traditional casino games, either. They could include popular online gamer attractions like World of Warcraft, Minecraft, or Candy Crush. But before any of it happens, the gaming industry will need some legislative help — particularly in Michigan. And until that happens, Solomon says, MotorCity will hold off on jumping in, despite the potential benefits.

“The industry has been attempting to obtain from (Congress) legislation that would authorize Internet gaming nationwide,” Solomon says. “That has been unsuccessful to date. As a result, several states have gone out and approved their own legislation that provides for full Class 3-type gaming for their respective state jurisdictions.”

Michigan isn’t one of those states, but if it were to pass such a law, there remains the question of whether non-free Internet gaming is permitted by federal law. If it’s not, as appears to be the case, states that “legalize” it are creating the same conflict between state and federal law that has occurred with marijuana legalization. That, Solomon says, makes it next to impossible to bring major banks on board as partners in the venture — and that’s a necessary step to enable credit card use for players.

The infrastructure for pay-for-play online gaming is still being developed. “Many operators have been going down the path of implementing free gaming sites in anticipation of enabling legislation on a national level,” Solomon says. “At this point in time, it looks unlikely that there will be any nationwide efforts in the near future.”

MotorCity was considering that very direction until Solomon examined the results in some states that had actually legalized pay-for-play online gaming. Finding them underwhelming, he decided it didn’t make sense for MotorCity to jump in just yet.

Greektown, likewise, has yet to leap into social gaming, although it’s not because the group doesn’t see the potential. The casino will more forward once the legislative and regulatory issues are clearer.

“Our hope would be that, No. 1, it continues to keep the Detroit gaming markets — which is a very healthy market respective to other markets in the country — competitive,” Dunkeson says. “No. 2, we would hope that it continues to satisfy our current customer base with another way to reach them, and also keep up with their growth and desire to move into maybe a different type of gaming experience that isn’t always the traditional gaming experience that’s existed for the last 15 or 20 years.”

It’s not as if the casinos have to do something drastic to remain viable. The overall revenue dip of 2014 was relatively slight, and a lot of factors that had been running negative for them may finally be turning around. That starts, of course, with the City of Detroit’s emergence from bankruptcy.

“The gut feeling when you just walk around and talk to people is like a big weight’s been lifted off people’s shoulders,” Solomon says. “The town just feels different. Getting this bankruptcy off the city, getting a mayor who really seems to be doing things, getting a council that’s elected by district — it really feels like everyone is pulling together. And now I’ve got a development on my doorstep that’s really transformational.”

He’s talking about District Detroit — the much-discussed project that will be home to the new Red Wings arena in addition to myriad shops and residential offerings — just north of the Fox Theater district and in close proximity to all three casinos. If the Red Wings and other District Detroit amenities can draw people to the area in the winter and early spring the way the Detroit Tigers do during the spring and summer, it’s a whole new potential market for the casinos to target.

“We love it,” Dunkeson says. “It adds more vibrancy to the reinvention and reinvigoration of downtown Detroit. We’ve made it no secret as an organization that anyone who wants to put their investment dollars to work within the downtown core is welcome, in our eyes.”

In recent years, the Detroit casinos have been investing in a variety of upgrades, particularly to the gaming floors, to ensure that those who decide to visit one of the downtown facilities find that the investment of time and dollars was worth it.

In December, MGM Grand Detroit opened the $3.5 million Axis Lounge in the center of the casino. The lounge features live entertainment daily and Motown-inspired décor, as well as 18 flat-screen televisions and 20 bar-top video poker games.

MGM Grand Detroit also updated its gaming floor. “Our main focus was to keep our floor vibrant, up-to-date, and cutting edge with new product, as well as to be first-to-market on top slot themes such as Ellen and, for table games, Free Bet Blackjack,” Zanella says.

In February, MGM Grand Detroit added a new table games pit featuring High Tie Black Jack and two additional Craps tables. “The new pit will nestle just off the curves of Axis Lounge so you can not only feel the exhilaration of the game, but the energy of the entertainment,” Zanella says.

Greektown Casino, having emerged from bankruptcy and been purchased by Dan Gilbert and others under Quicken Gaming, is working through a complete renovation of its entire casino facility, including a new $12 million HVAC system to improve indoor air quality. Dunkeson says the facility already has new carpets, new wall coverings, and ceilings. That’s in addition to new slot and table games.

“It already looks like a new property, although we still have a long way to go,” he says, adding that the full renovation will be completed over the summer.

With no shortage of improvements — whether with renovated facilities, technology, or new ways of rewarding customers — no one can say the casinos haven’t been investing in the quality of their brick-and-mortar offerings. But whether they can get people downtown using Candy Crush and Farmville may depend as much on Congress and the state Legislature as it does on the casinos themselves.

Gros emphasizes that the industry’s embrace of social gaming is growing at a rapid pace. The law rarely moves as quickly, but for a lot of reasons, Detroit might need it to do just that in this case. db

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