Tribe moves to shut down Detroit casinos

David Strow

Monday, Jan. 14, 2002 | 11:05 a.m.

Detroit's billion-dollar casino industry was in legal limbo this morning, as a Michigan Indian tribe launched an effort to shut down all three of the city's gaming properties.

On Friday the Sixth Circuit Court of Appeals ruled Detroit's casino licensing process was unconstitutional, as the city had given preferential treatment to two applicants -- Greektown Casino LLC and Atwater Entertainment Associates LLC. Atwater is a partner in Detroit's MotorCity Casino with Mandalay Resort Group of Las Vegas.

A city ordinance gave preference to casino bidders that had made significant contributions to bringing gambling to Detroit, including actively promoting and supporting a ballot initiative on the gambling issue.

The circuit court remanded the case back to a Michigan federal judge, but did not recommend any specific action.

The Lac Vieux Desert Band of Lake Superior Chippewa Indians, which filed the suit challenging the Detroit licensing process, immediately asked Michigan gaming regulators to shut down all three Detroit casinos, the Detroit Free Press reported. The tribe operates a casino in Michigan's Upper Peninsula.

The tribe's effort includes MGM MIRAGE's MGM Grand Detroit, though that casino was not included in the tribe's original lawsuit, the Free Press said.

"The federal court has plainly said they are illegal," the tribe's attorney, Conly Schulte, said. "We believe the (Michigan Gaming Control) Board has a duty to revoke their licenses and shut the doors."

Regulators said they will review the request, but have no intention of immediately shutting down the casinos.

In a statement Friday, Mandalay said the casino "followed the procedures set forth by the state of Michigan and the city of Detroit" in winning a license.

Mandalay also said: "The mayor of the city of Detroit unequivocally stated that MotorCity was selected without regard to any preference set forth in the ordinance."

"MotorCity expects to continue to operate its gaming facilities pursuant to that license while these issues are resolved in appropriate legal proceedings," the Mandalay statement said.

Greektown said far less in its official statement, saying merely that the company's attorneys "are reviewing the (circuit court) opinion to determine exactly what it means."

The $210 million MGM Grand Detroit was the first Detroit casino to open, in July 1999. It was followed by the $150 million MotorCity in December 1999 and the $150 million Greektown in November 2000.

All three are temporary casinos of about 75,000 square feet, and have no hotel rooms. MGM Grand has 2,700 slots and 80 table games; MotorCity has more than 2,500 slots and 100 table games; and Greektown has more than 2,400 slots and 100 table games. Combined, the three casinos grossed about $1 billion in gaming revenues last year.

Gaming law experts agree the casinos aren't at immediate risk of closure. But they aren't as sure when it comes to the longer term.

"You have a situation now where the court, in applying the law, has the alternatives of allowing this situation to continue ... or being a strict interpreter of the law and invalidating billions of dollars of investments," said Bill Eadington, director of the Institute for the Study of Gambling and Commercial Gaming at the University of Nevada, Reno. "The logic of the case is intriguing. It certainly seems reasonable, and the argument they're making is one judges will certainly find acceptable."

Even if state regulators or a court ordered the casinos to close, the properties could immediately file for an injunction that would keep the casinos open while appeals were decided, Eadington said.

"It's fairly easy to say what will happen in the short-term ... nothing will happen to operations, and there will be a whole slew of appeals," Eadington said. "It may be one step away from going to the (U.S.) Supreme Court, and there may be reason to expedite this case."

The city, state and casinos could be expected to base at least part of their argument on the economic impact of Detroit's casino industry -- and the severe blow shutting those casinos would have, Eadington said. That argument would carry great weight with a state court or gaming regulators, but not with a federal court, he said.

"Common sense would say they (a federal court) will place less priority on a local economic impact," Eadington said. "I would suspect they'll be far less likely to be politically persuaded."

If the casinos fail on appeal and the tribe ultimately prevails, it's still unlikely the casinos would be shut down, said Shannon Bybee, executive director of University of Nevada, Las Vegas' International Gaming Institute. Instead, it's likely whoever won the two licenses in a new bidding process would be compelled to buy the Greektown and MotorCity, Bybee said. The two casino owners would probably compete in this process, he said.

"They might have a claim that they spent a large sum of money because of their reliance on (Michigan's gaming regulations)," Bybee said. "That's one way, if they don't get selected, that they can come out OK."

Mandalay hinted at this argument in its statement, saying $150 million was invested in MotorCity "in reliance on the legality of this process."

But while MotorCity and Greektown's future may be in doubt, both Bybee and Eadington believe the MGM Grand Detroit is at far less risk. Though it opened before Greektown and MotorCity, MGM Grand Detroit didn't have preferential status, and won its license in a competitive process.

"As a nonfavored bidder, they could make a stronger case their bid was not tainted," Eadington said.

And that's how MGM MIRAGE views the case.

"Ours was part of a public bid, so they would have no basis upon which to ask the state to shut us down," MGM MIRAGE spokesman Alan Feldman said. "This (the case) had nothing to do with us."