Connecticut casinos expand as economy slows

Mashantucket, Connecticut – Two of the world’s largest casinos are getting a lot bigger this week, betting that they can draw more visitors by becoming entertainment destinations even as the gaming industry suffers nationally because of high gas prices and the weak economy.

Foxwoods Resort Casino, run by the Mashantucket Pequots Indian tribe, will open its USD 700 million MGM Grand this weekend. The 30-story, two-million-square-foot property includes a new casino, hotel, a 4,000-seat performing arts theater, restaurants run by celebrity chefs, luxury stores, the largest ballroom in the Northeast and new convention space to accommodate thousands.

Several celebrities, including Michael Douglas, Catherine Zeta Jones, Josh Groban, John Mayer and Sean „Diddy“ Combs, will participate in the grand opening ceremonies.

Mohegan Sun, run by the Mohegan tribe, held a groundbreaking ceremony Wednesday for a 39-story hotel and House of Blues music hall, part of a USD 925 million expansion.

The projects are part of a wave of investments by casino resorts trying to maintain and expand market share during tough times.

„I think they’re expanding their reach,“ said Keith Foley, senior vice president with Moody’s Investors Service. „There’s a risk to doing that because a lot of markets are doing that. Ultimately you’re going to see markets bumping into each other.“

Still, Foley described the risk as necessary.

Foxwoods will more aggressively target the New York market by tripling its advertising, said Gillian Murphy, senior vice president. That will put it in competition with its main rival, Mohegan Sun, as well as Atlantic City, which has been pouring billions into its properties.

Foxwoods expects to add about 10,000 daily visitors to its current draw of 40,000 to 60,000 and boost revenue by about 20 percent, Murphy said.

Most of the new space at Foxwoods and Mohegan Sun is non-gaming entertainment designed to attract visitors, a contrast to the traditional approach of using the casinos to get visitors to stay in the hotels and shops, said Clyde Barrow, who directs the University of Massachusetts New England Gaming Research Project.

„It’s really a reversal of the original business model,“ Barrow said.

Foxwoods is billing the project as a distinct third casino in Connecticut that is designed to attract a younger set than its original casino with night clubs, concerts and high-end restaurants and shops.

With the new performing arts theater, MGM Grand is attracting celebrities such as comedian Jerry Seinfeld and singers Celine Dion, Groban and Mayer.

„It just has opened all kinds of separate offerings that complement our core gaming business at Foxwoods,“ Murphy said. „We’ve really broadened the market.“

But the big moves, though in the works for years, come as Foxwoods and Mohegan Sun suffer declining revenue from slot machines due to growing competition from surrounding states and the weak economy. That has led to credit downgrades and plans to cut jobs.

Foxwoods reported Thursday a net slot win of USD 58 million, a USD 7.3 million decrease from April 2007.

„The timing of the expansions are not well aligned with what is happening in the economy,“ said Craig Parmelee, managing director of Standard & Poors credit rating agency. „We’re worried enough we have negative outlooks on each of the two companies.“

But Standard & Poors said in a recent report on Foxwoods‘ plan that the expansion will be successfully absorbed by the market over time.

The Mashantucket Pequots, which has about 850 tribal members, sent out a letter saying it planned to cut its staff of government employees and was seeking volunteers for severance. The job cuts, which do not involve casino employees, sparked a petition signed by more than 100 tribal members protesting what they called a plan to cut the budget by USD 40 million.

Mohegan Sun said last week it would cut about 600 jobs through attrition over time as it announced net income was down nearly 21 percent from a year ago.

Several gaming states, including Illinois, New Jersey, Nevada, Louisiana, Missouri and Iowa, have experienced declines in gambling revenue, according to a report by Moody’s that says the U.S. gaming sector is facing its toughest challenge since the Sept. 11 attacks. Still, the report says the long-term prospects for the industry remain favorable, noting a growing acceptance and popularity of gaming.

L.J. Acquafresca, a 37-year-old firefighter from Massachusetts, said high gas prices have stopped him from visiting Foxwoods as much and the new casino won’t bring him back.

„They’re terrible,“ Acquafresca said. „I haven’t been here in a month because of gas. I can’t afford it any more.“

Murphy acknowledged gas prices and the economy have hurt Foxwoods, but said the casino is convenient to 34 million people.

„The proof is up to us in terms of delivering that service and that experience to new customers,“ Murphy said. „Clearly it’s strategic spending. We know for the long term this is the right thing to do.“

As consumers cut back on travel, many may decide to visit regional gaming markets instead of Las Vegas or Atlantic City, Moody’s predicted in a recent report.

„As a result, many will get a first look at new, ‚Las Vegas-style‘ hotels, restaurants, entertainment facilities and casino-floor improvements meant to offer well heeled locals an alternative to the traditional gaming meccas,“ Moody’s wrote. „A lasting shift in gambler behavior could arise if these new developments are well received.“