The Other Money Makers
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Ailing Greektown shells out nearly $41M to
lawyers, accountants, others
Nathan Hurst / The Detroit News
Detroit -- Lawyers, accountants and other professional firms have billed Greektown Casino-Hotel more than $40 million over the past 18 months for fees related to the casino's bankruptcy case.
One noted bankruptcy fees expert estimates the $40.8 million billed to Greektown is at least double what is customary in cases involving a similar debt load, asset values and duration.
But the firms submitting the bills say the amounts are reasonable for a bankruptcy complicated by surprise purchase bids, litigation over a development agreement and intervention by local and state authorities.
Details of the professional fees are outlined in a document obtained this month by The Detroit News. It breaks down monthly professional and legal bills paid in the Greektown case from May 2008, when the casino filed for Chapter 11 bankruptcy, through last month.
The document is significantly more detailed than monthly income and expense reports required by the bankruptcy court. The amounts were verified by Greektown's Chief Executive Officer Randall A. Fine. Daniel Weiner, an attorney with Bloomfield Hills-based Schafer and Weiner, said most of the firms in the case bill by the hour, and the total bill illustrates the intrinsic complexity of Greektown's bankruptcy. Schafer and Weiner, the casino's lead counsel in the bankruptcy, has billed more than $3 million, making it one of 10 firms that each have generated more than $1 million in fees from the case.
"There have been many, many twists and turns," Weiner said. "The case has been very complex and very litigious, and it's extended over an 18-month period.
"The fees are based on hours worked, and the hours worked have depended on many situations that are out of our control."
Court scrutiny limited
The case has included surprise bids for ownership, the submission of three bankruptcy exit strategies for the casino, wrangling with the Michigan Gaming Control Board -- considered by industry experts to be among the toughest such boards in the country -- and continued spats with the city of Detroit over a complex development agreement.
Additionally, Weiner notes, the value of the casino in January was estimated at $375 million, while the most recent exit plan estimates a 60 percent increase to $600 million, a bump attributable to a slowly improving market and the completion this year of Greektown's hotel complex and new gaming floor.
Lynn LoPucki, professor of law at the University of California, Los Angeles, has compiled decades of research on the cost of bankruptcies. He estimates fees in the Greektown case should run from $15 million to about $22 million. That calculation is based on the value of Greektown's assets at the time of the bankruptcy filing, what it owes and the number of firms working on the case.
LoPucki says that while it ultimately is up to the judge and bankruptcy trustees to determine if fees are fair, courts frequently don't question professional expenses to avoid losing cases to other districts.
"Because a (bankruptcy) case can basically be filed anywhere, there's a reluctance to question fees too closely," LoPucki said. "The lawyers will realize they'll have better luck getting paid what they want to in another court."
Fees are paid out of the debtor's estate -- in this case, essentially what's left of Greektown after all of the "good" assets have been reconstituted under a new ownership structure and secured lenders have been paid.
Small creditors lose out
Many of Greektown's unsecured creditors -- collectively owed $243 million, according to court filings -- were small businesses whose contracts with the casino were shed as part of the bankruptcy process. That means every dollar in legal and professional fees charged in the case reduces whatever payoff they may get in the end -- if any.Among the details in the document outlining the professional spending in the Greektown case:
• In the 18 months since Greektown's bankruptcy filing, 10 professional firms have collected more than $1 million in fees each; those firms have accounted for nearly 94 percent of professional fee spending.
• The three biggest payouts have been to Birmingham-based Conway MacKenzie, a restructuring and turnaround firm that guided Greektown into bankruptcy; Chicago-based Mayer Brown, a law firm representing a group of secured creditors led by investment firm Merrill Lynch; and Las Vegas-based Fine Point Group, which was hired in January to turn around the casino's operations.
• Fees increased rapidly in the last few months, as the beginning of the end of Greektown's bankruptcy has drawn near; almost $5 million was spent in October alone.
Fees increase with success
Fine, the Greektown CEO who was hired as part of the Fine Point Group contract, believes the nearly $8 million paid to his firm is fair.
As part of the contract, he and two associates -- operations head Chris Colwell and marketing chief Amanda Totaro -- were brought on board to turn around operations at Greektown. Totaro stopped working at Greektown this month after she withdrew from a required licensure process with the state.
A total of eight Fine Point employees work on the account, Fine said.
"Unlike virtually every other professional, Fine Point's fees are not based on hours worked," Fine said in an e-mail response to questions from The News.
Instead, Fine Point is paid a base of $150,000 monthly. In addition, it's paid a "success fee" equal to 10 percent of operating income higher than Greektown's internal forecasts, plus another 30 percent of income that's at least 22 percent above the company's estimates.
"Had we not exceeded the expected performance to the extent that we have," Fine said, "our fees for the first nine months of the year would have been $1.35 million." To date this year, Fine Point has been paid nearly $8 million.The casino's operating forecasts were revised downward shortly before Fine Point was hired in January after numerous complaints from the state's gaming authority that Greektown wasn't hitting its own targets.
Fine believes his company's work has helped increase the casino's value. The current estimate puts Greektown's value at roughly $600 million, compared to buyout bids some months ago in the $375 million range.
Fine attributes the higher value estimate to Greektown's improving revenue situation. Since the beginning of the year, the casino has improved its revenues by double-digit percentages most months, while eating away at the market share of rivals MGM Grand Detroit, MotorCity and Caesars Windsor. Last month, for example, Greektown's monthly revenue rose 18.7 percent to $29.3 million, from $24.7 million a year ago, while its competitors saw declines.
Charges questioned
Jake Miklojcik, a Lansing-based gaming consultant and a member of Greektown's three-member board, questions the amount of fees charged to the case, and the number of firms that are working on it.
He also questions paying Fine's management group as a restructuring cost. Normally, executive pay is an operating cost, but Fine Point was contracted as a restructuring firm.
"It's like a self-fulfilling prophecy, to have your fees paid based on operating income when your own pay isn't being drawn out of the same pot," Miklojcik said. "If things were being paid the way they normally would, the operating income situation wouldn't look the same way it does."
The Sault Ste. Marie Tribe of Chippewa Indians is incensed about the fees. The tribe spent millions to persuade Michigan voters to legalize casino gambling in Detroit, started Greektown Casino and ran it until the gambling hall's fall into bankruptcy.
Under the exit plan pending with the court, the tribe would get nothing for its original investment.
"Since the filing of this bankruptcy in May 2008, the Sault Tribe has questioned the motivation of the professionals," tribal vice chairwoman Lana Causley said in a statement.
"It was entirely on their advice and counsel that the tribe agreed to file for Chapter 11 reorganization. Our concerns and suspicions continued to grow with their fees."
Causley said the tribe is confident that the court and the U.S. trustee overseeing the case will "analyze the professional fees closely and take appropriate actions to reduce any improper fees."
Lawyers now estimate Greektown will emerge from Chapter 11 in June, more than two years after it entered bankruptcy protection.
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