Cleveland Cavaliers owner and billionaire Dan Gilbert is selling a Detroit casino for $1bn (£782.5m).
A large portion of Gilbert’s wealth comes from his property business and he has long been a key player in the gambling sector. He was one of the leading players in the push to legalize casinos in Ohio.
Gilbert has owned the Greektown Casino Hotel in Detroit since 2013. Previously, the Sioux Tribe and Bondholders were the owners, but they were forced to put it up for sale after they went into bankruptcy.
Gilbert invested heavily in the casino’s interior facilities and hotel rooms, resulting in a hefty debt burden of almost $400m (£313m). That’s one of the main reasons that Gilbert is selling the casino. He wants to get rid of this debt and focus on his more profitable assets. He also wants to free up capital to invest in other projects in the Ohio area.
Ownership of the casino
Two parties have reached an agreement for taking over this casino. The parent company for Caesars Palace, VICI Properties, will now be the new owners of the real estate and Penn National Gaming Inc. will operate the casino.
VICI Properties will pay $700m (£548m) for the real estate. Penn National, which already has a gambling facility in Ohio called the Hollywood Casino, is investing $300m (£235m).
Gilbert spoke about the sale during a recent press announcement: “Our purchase of Greektown Casino Hotel five and a half years ago, soon after its bankruptcy, allowed us to work with the great team at the property to create a winning culture and a vibrant business. The sale to Penn National and VICI Properties will allow that strong trajectory to continue and provide additional capital to continue our strategic investments in our Detroit real estate and business initiatives.”
What happens next?
This is an interesting time for Greektown Casino, which has already have undergone numerous makeovers in recent years.
Currently, the gaming space of more than 14,000 square feet contains 2,700 slot machines, a comprehensive poker room, more than 60 table games, and a hotel with 400 rooms and all of the other usual casino trappings. The workforce numbers about 1,700.
Gilbert was considering this sale for some time, and Caesars Entertainment had a keen interest even though Greektown is the smallest casino in Michigan and accounts for only a quarter of the gaming revenues in Detroit. The casino’s profits rose by 7% in 2017, which shows the property’s potential.
Gilbert plans to use the money from this sale to fund more property developments in the region. He is also looking to invest in startups throughout the Detroit area and other businesses that help employ people in the state.
The Michigan Gaming Control Board has to approve the deal before it can go through. That might take until the middle of 2019.
Penn National is constantly on the lookout to expand its portfolio. The company operates about 40 casinos in 18 states. As part of this Detroit deal, Penn is entering into a triple net lease with VICI Properties for 15 years. That could mean annual rent in the region of $56m (£43.8m).
Other recent casino deals
Several states have opened up their gambling laws recently. While the focus has often been on sports betting, casino legalization is still being considered in certain states.
This creates a lot of potential for well-known casino operators such as MGM and Caesars to capitalize on a new market. When the casino space was made legal in Ohio, for example, there was a race for licenses that made for a competitive bidding process.
One of the big moves so far in 2018 by MGM Resorts was in Ohio. They took over the biggest resort casino in the state, the Hard Rock Rocksino. This deal was worth about $1bn.
Caesars is constantly watching competitors to see what moves they are making so they can match them over time. This acquisition in Detroit will be the latest response in this dogfight.