Coming Up Aces

Penn National Gaming’s acquisition of Greektown Casino brings capital to Detroit.
Greektown Casino and Hotel
Last year, Penn National Gaming acquired the Greektown Casino and Hotel in downtown Detroit for $300 million. Penn owns 41 gaming properties.

When Penn National Gaming agreed last year to acquire the Greektown Casino and Hotel in downtown Detroit from Dan Gilbert’s JACK Entertainment for $300 million in cash, it appeared to be the latest case of the city dressing itself up to attract outside capital — and succeeding.

After Gilbert bought Greektown out of bankruptcy in 2014, he proceeded to invest in significant upgrades to the facility, including raised casino ceilings and new chandeliers to 2,000-thread-count bed sheets and a completely new heating and cooling system.

“They’re purchasing a turnkey operation,” says Alex Calderone, managing director of Calderone Advisory Group, a boutique financial advisory and litigation support consultancy firm in Birmingham. “I’m not of the impression that Greektown is a property that would substantially benefit from someone injecting more capital into the bricks and mortar. Dan Gilbert put a lot into it.”

The Detroit casino market is largely considered to be “mature, and not likely to grow much,” according to industry observers. Greektown, MGM Grand Detroit, and the MotorCity Casino and Hotel, plus nearby competitors in Windsor and Toledo, are competing for their share of the same pie. However, there may be growth opportunities in online gaming and legalized sports betting, which are under consideration in the Michigan Legislature.

“Assuming Gilbert’s going to use some of the proceeds for Detroit projects, which I think is a good assumption, it’s good in terms of bringing investment money into the city,” says Jacob Miklojcik, a gaming expert and president of Lansing-based Michigan Consultants. “When Penn National splits up point systems and reward and promotional systems, they can offer resources from more properties. And you have a deeper team of talent. Greektown had a good team, but if you have ups and downs, you have a deeper team.”

One note of caution for Miklojcik is that Penn National, which owns 41 gaming properties, has to be careful not to take on too much debt. The Greektown acquisition is being financed with a combination of cash on hand and debt, and observers of the local industry will recall that Greektown’s bankruptcy — even as it was operating profitably — occurred because it was too highly leveraged.

“The upside, as it relates to the future of the Detroit Three casinos, depends on whether online gaming and legalized sports gambling come to fruition,” Calderone says. “Those two items are the most important catalysts on the horizon, and the upside largely will be driven by how the state slices and dices the pie of new revenue.”