Mashantucket Pequot Indian Reservation, Connecticut: With hundreds of millions of dollars in annual profit flowing in from their gambling business, the Mashantucket Pequots first floated the idea of building a large amusement park. But those plans were shot down by neighbors already unhappy with the huge Foxwoods casino in their midst.
The tribe then bought into a ferry-building business in hopes of diversifying its holdings, but that only provided a costly lesson, said Michael Thomas, the tribe’s chairman.
So maybe it should not be surprising that Pequot tribal leaders would choose to stick with what they know best. In doing so, however, they have moved far beyond their reservation here in eastern Connecticut, halfway between New York and Boston. They have been scouring the United States for new market opportunities in gambling just like any other large casino concern.
That is how the Pequots came to be one of the main investors in a large casino-resort being considered by officials in south central Kansas, which earlier this year added its name to the ever-swelling list of U.S. states legalizing casino gambling.
And that is how the tribe, which has operated one of the world’s most profitable casinos since 1992, ended up as the prime mover behind a USD 500 million slot parlor and hotel planned to open in Philadelphia by the end of 2009, beating out Trump Entertainment Resorts, Pinnacle Entertainment and several other established gambling companies.
The Pequots are hardly alone. Last November, the Mohegan tribe, which operates the giant Mohegan Sun casino hotel in Connecticut, opened a slot parlor in Pennsylvania. At about the same time, the Seminole Tribe of Florida paid $ 965 million to buy Hard Rock International, the rock-and-roll-themed chain of restaurants, hotels and casinos.
„This is bringing tribes into unchartered territory,“ said Steven Andrew Light, co-director of the Institute for the Study of Tribal Gaming Law and Policy at the University of North Dakota, who called the moves a „harbinger for a new wave within the Indian gaming world.“
The move began after Congress in 1988 passed the Indian Gaming Regulatory Act, which recognized the right of sovereign Indian tribes in the United States to establish gambling and gaming facilities „as long as the states in which they are located have some form of legalized gambling.“
Today Mohegan and Pequot tribes are competing with traditional gambling companies like Harrah’s on a second front: the lucrative management deals that give operators a large cut of the profits in exchange for managing casinos on behalf of tribes with less experience in the gambling business.
For several years, Indian country has been defined by a new brand of leader as well-versed in the nuances of casino management and corporate accounting as tribal politics. But now add to their ranks Native American-elected officials who call to mind nothing so much as aggressive corporate chief executives using the profits generated by one property to open others on a new front.
„My answer to your question of why is, ‚Why not?‘ “ said Thomas, the Pequot chairman.
Other tribes are certainly watching the trend with keen interest. Bruce Bozsum, chairman of the Mohegan tribe, said he had heard from many of his fellow tribal leaders, as well as conference organizers, interested in the details of his tribe’s off-reservation economic activities.
„That’s all people want to talk about,“ Bozsum said.
The first effort to move gambling operations off-reservation dates back to 2000. That is when the Sault Ste. Marie Tribe of Chippewa Indians, which was already operating several casinos in Michigan’s Upper Peninsula, opened the Greektown Casino in Detroit, a commercial casino well away from their reservation land.
The Greektown generated USD 351 million in revenue last year. Adding that to revenue from its other casinos, the Chippewa have used the money to expand their land holdings while building health centers and offering other services for the tribe’s 29,000 members.
More recently, the Mohegan and Pequot tribes – fierce rivals that for years have operated wildly successful casinos only a short drive from one another – have taken steps to expand their gambling operations off reservation. When Pennsylvania passed a law in 2004 authorizing up to 61,000 slot machines at 14 sites around the state, both tribes jumped at the chance to diversify their operations.
Under the Pennsylvania plan, horse racing tracks were automatically granted a slot license. So the Mohegan Tribal Gaming Authority, a corporation wholly owned by the tribe’s roughly 2,000 members, spent USD 255 million to buy the Pocono Downs Raceway, a harness racing track 110 miles, or 175 kilometers, northwest of Philadelphia.
Renamed the Mohegan Sun at Pocono Downs, the property generated USD 55 million in revenues in the second quarter of 2007, though it is only a temporary facility while the tribe builds a more permanent home that will accommodate 2,500 slot machines, or more than twice as many as the present site.
„We knew that staying here on the reservation with a single stand-alone business was probably not enough to maintain and secure the future looking generations ahead,“ said Bozsum, the tribe’s chairman, when asked why the tribe was expanding beyond its borders when the Mohegan Sun already generated hundreds of millions in profit each year.
A large portion of that profit is reinvested: the gaming authority, for instance, is spending USD 740 million to build a new casino-hotel next door to its current property. The bounty is also spent on benefits for tribal members like free medical care and tuition to college and private school.
The rest of the profits are shared by tribal members, who last year each received USD 28,000, Bozsum said.
The Mohegan tribe has also been pushing plans for a USD 1 billion casino hotel in Massachusetts, where Governor Deval Patrick has recently endorsed casino gambling. That project, if approved, would be financed with the help of the „hedge funds who have contacted us because they want to put money behind our brand in other jurisdictions,“ said Jeffrey Hartmann, the Mohegan gaming authority’s chief operating officer.
The Pequot are just as ambitious as the Mohegan – in part because revenue from its Foxwoods casino has been flat in recent years. Aside from proposed properties in both Philadelphia and Kansas, the tribe’s redevelopment corporation is exploring the possibility of building resort properties in St. Croix and the Bahamas.
Both tribes are also pursuing the lucrative business of running casinos on behalf of less experienced tribes. The Mohegan have struck deals to develop and operate new properties on behalf of tribes in Wisconsin and the state of Washington. The Pauma Band of Mission Indians selected the Pequot to develop a new casino resort under construction 50 miles north of San Diego. The Pauma band received bids from more than a half dozen management companies but chose the Pequot, a Pauma spokesman said, both because of their expertise and because they are fellow Native Americans. The money generated by this project and other gambling-related enterprises, Thomas, the Pequots‘ chairman, said, will help secure the long-term future of his 900-person tribe, which was nearly extinct a generation ago.
The Pequots have also joined with MGM Mirage to create Unity Gaming, a new venture to search for smaller-scale opportunities otherwise below the radar of MGM, a company that tends to focus exclusively on billion-dollar-plus properties. The Pequot and MGM have already agreed to build a USD 700 million MGM-branded hotel-casino next to Foxwoods.
„Sometimes we are competing head-to-head with the giants,“ Thomas said. „In some instances we’re partnering with the giants. And then as you saw with my Seminole relatives in Florida, we’re even acquiring the giants.“
The Seminole’s purchase of Hard Rock International, which was concluded this year, did not include Hard Rock’s Las Vegas and Biloxi, Mississippi, casino hotels. But Gary Bitner, the spokesman for the Seminole, said „the tribe fully intends to explore the possibility of expanding the Hard Rock hotel-casino brand whenever the opportunity presents itself.“
So far, only a few tribes have broken out of their local niche. Of the 562 tribes in the United States, according to the National Indian Gaming Association, 224 of them offer some form of casino gambling. Of those, only 23 tribes account for nearly half the revenue generated each year by tribal casinos, according to W. Dale Mason, a political science professor at the University of New Mexico at Gallup and the author of „Indian Gaming: Tribal Sovereignty and American Politics.“
„The stereotype is that all Indian tribes are super-wealthy because of gaming operations,“ Mason said. „That’s simply not accurate.“
Still, people associated with both the Foxwoods and the Mohegan Sun are convinced that in time they will find themselves competing not just against the major gambling companies but with other tribes as well.
„It’s a natural progression for a tribe,“ said John O’Brien, president of Foxwoods.