A settlement between a Native American tribe and a pair of casinos paves the way for a casino-building frenzy in Detroit.
Late Wednesday night, the Lac Vieux Desert Band of Lake Superior Chippewa Indians agreed on a $94 million settlement with Greektown Casino and MotorCity Casino, which is 50% owned by
Mandalay Resort Group
, over allegations that the tribe was shut out of a 1997 bidding process to build casinos in Detroit. With those two lawsuits settled, building by the two companies on hotel-casinos will conclude in time for the 2006 Super Bowl, which will be held in Detroit.
With the tribe settling claims against both casinos,
, which owns the MGM Grand Detroit, remains the only party to the 1997 lawsuit that has not settled. While this means MGM's plans to build a permanent casino in Detroit remain in limbo, analysts said new construction would likely bring in more gambling revenue -- a rising tide that will even lift MGM's boat. (All three companies in the lawsuit had built temporary casinos in the city.)
"This settlement finally paves the way for Detroit to experience incremental capital investment with the development and construction of permanent casinos," said Marc Falcone, Deutsche Bank gaming analyst. "Given that market revenues have been roughly flat over the last several years, we believe the new permanent casinos will likely expand the market and once again grow revenues."
As Mandalay and its Detroit-based partners move forward with their plans to break ground, MGM will benefit in other ways, analysts said. Because the temporary casino is cheaper to operate than a permanent structure, Smith Barney analyst Michael Reitbrock said MGM will gain a temporary advantage over rivals.
It's unclear how MGM's situation will be resolved, but
the delay is good news, as MGM's temporary casino is likely to be meaningfully more profitable than the permanent," he said in a note. "For Mandalay,
the settlement lifts some uncertainly, but requires the company to move forward with a less-profitable permanent casino." (Both Deutsche Bank and Smith Barney have sought or plan to seek business from the companies mentioned in this story.)
Shares of MGM and Mandalay traded higher at midday Wednesday, with MGM up 22 cents, or 0.6%, to $36.99, while Mandalay rose 47 cents, or 1.1%, to $42.48. Overall, casino stocks were lower, with the Dow Jones Casino Index off 0.2%.