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November 21, 2011

CT casinos to suffer 15 percent losses to Massachusetts

BRAD KANE (From left) Gaming analysts Chad Beynon of Macquarie, Dennis Farrell of Wells Fargo and Gregory Roselli of UBS said Connecticut’s casinos’ largese helps battle competitors.

Massachusetts’ approval of four commercial gambling properties will slice revenues at Connecticut’s tribal casinos by 15 percent, eroding the original mission of the now billion-dollar properties — improving the lives of the Native American tribal members.

“As tribal leaders, we have to come together,” said Hiawatha Brown, tribal council member of the Narrangansett Indian Tribe, based in Rhode Island. “We need to realize that people (establishing commercial casinos) are working against our greater purpose, providing a better lifestyle for our people.”

Foxwoods and Mohegan Sun will suffer 15 percent losses to their revenues in two or three years when Massachusetts opens the three commercial resort casinos and one slot parlor approved by the state legislature on Nov. 16, said David Katz, gaming, lodging and leisure research analyst for Stamford-based UBS.

“We are talking about creating three weekend destination and a weekday day trip in a slot parlor,” Katz said.

The Massachusetts casinos have the potential for $1.4-$1.5 billion in annual gaming revenues, some of which will come at the expense of the region’s other casinos, said Chad Beynon, securities gaming analyst for New York-based Macquarie Research Equities.

The New England gaming market isn’t saturated yet, but it is getting closer, Beynon said. In most of New England, there are 300 adults per gaming position at the various gambling facilities; but that number will drops to 200 adults per gaming position when more casinos open.

“Once you start getting down to that, you stop seeing growth, and we get concerned about saturation in the market,” Beynon said.

When Foxwoods and Mohegan opened in the 1990s, the properties held a duopoly over gaming in the Northeast. That stranglehold has loosened over the past decades as the many states in the region saw gaming as a source of government revenues and started approving gambling sites, including Rhode Island, Pennsylvania, New York, Maine, New Hampshire and now Massachusetts.

“The Northeast is the worst region in terms of the competitive environment,” said Dennis Farrell, managing director of high yield gaming, lodging and leisure research for New York-based Wells Fargo Securities, LLC.

Even before Massachusetts approved casinos in November, Foxwoods and Mohegan Sun were losing patrons to the Empire City Casino in Yonkers, N.Y. and the newly slot machines at the Aqueduct Racetrack in New York City.

Today, the Mashantucket Pequots’ Foxwoods Resort Casino and the Mohegan tribe’s Mohegan Sun casino are enormous, all-encompassing properties whose revenues from slot machines alone are three-quarters of a billion dollars annually. But when they opened — Foxwoods in 1992 and Mohegan in 1996 — the ventures were meant as an economic boon to the long-suffering Native American tribes of eastern Connecticut.

Before the Pequots opened a high-stakes bingo hall that was the precursor for Foxwoods, the tribe tried a number of ventures to aid their members, including a pig farm, a community garden, a maple syrup investment and a pizzeria. Before the 1970s, the tribe’s numbers had dwindled down to a few dozen members, and the Indians were trying care from their own while injecting a sense of pride that could bring more people back to the reservation.

With Foxwoods and Mohegan Sun, the tribes found a place where they could offer employment to any member who wanted it and provide funds for housing, health centers, reservation infrastructure and other community benefits.

Most importantly, the casinos provided direct payments to each tribal member, known as incentive or distribution payments from the casinos’ take. The exact amount paid to each Mohegan and Pequot is a closely guarded secret of both tribes, but several reports have put the payouts in six figures — fluctuating on the performance of the casinos. The Wall Street Journal reported in a 2010 article that Foxwoods paid $120,000 to each member of the Pequot reservation.

Other New England tribes aren’t so lucky. The region has 10 federally recognized Native American tribes, but only the two Connecticut tribes have established casino resorts, although the recent changes in Massachusetts might alter those numbers.

The Narrangansett Indian Tribe in Rhode Island and the Passamaquoddy Tribe in Maine both have recently tried to open casinos in their states but failed to win approval from voters. At the same time, both Rhode Island and Maine opened commercial, non-tribal slot parlors and are looking to add table games to those facilities.

“We have a responsibility to one another,” Brown said. “We are nations unto ourselves, and we need to share values.”

The proliferation of commercial gaming throughout the Northeast — particularly in New York and now in Massachusetts — takes away tribe’s ability to use casinos to improve the lifestyle of their members and rejuvenate their ranks, Brown said.

“The squeaky wheel gets the grease, and Indian tribes haven’t learned that yet,” Brown said. “We are falling into the mindset of our forefathers.”

The Mashantucket Pequots knew the Foxwoods and Mohegan Sun stronghold over the gaming market wouldn’t last forever, as the natural cycle in business is for increased competition, said Rodney Butler, chairman of the Mashantucket Pequot Tribal Council.

“We’ve prepared as best as we possibly can,” Butler said.

The Pequots and the Mohegans are responding to the increased Northeast gaming competition in completely different ways.

Foxwoods is no longer trying to entice gamers from New York and Boston with elaborate marketing strategies, knowing they aren’t likely to make the trek to rural Connecticut now that there are more convenient locations, said Scott Butera, Foxwoods president and chief executive officer.

Instead, Foxwoods wants to entice more people from the area immediately around Mashantucket to the resort’s many amenities, including the restaurants, shops, hotels, entertainment venues and gaming.

Foxwoods no longer shoots for ever increasing revenues and instead will focus on profitability, Butera said.

“It’s OK not to be the biggest; the biggest is not necessarily the best,” Butera said. “If your bottom line is going up, it’s all good.”

The Mohegan tribe, on the other hand, wants to expand its empire.

While Mohegan Sun in Uncasville remains the premier property, the tribe has opened a commercial casino in Pennsylvania — Mohegan Sun at Pocono Downs — and formed a gaming development advisory company to help and partner with other tribal and commercial ventures.

The Mohegan tribe is considered a frontrunner for one of the three commercial resort casino licenses in Massachusetts. The Mohegan Tribal Gaming Authority has lobbied for expanded Massachusetts gaming since 2009 and will open a resort casino in Palmer, Mass. if granted a license.

“When Massachusetts is ready, we’ll be ready; and we think they are almost ready,” said Mitchell Grossinger Etess, CEO of the Mohegan Tribal Gaming Authority. “The entire gaming landscape has changed as gaming has proliferated in the Northeast.”

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