The Mohegan Tribal Gaming Authority will open an office in Palmer, Mass. The idea isn’t to promote Mohegan Sun in Connecticut, but to prepare for the potential expansion of the brand to Palmer should the commonwealth legalize gambling. The tribal authority already has a lease on a 150-plus acre site.

The office opening comes at an uncertain time in the gaming industry. The recession has throttled revenue from Connecticut to Atlantic City to Las Vegas. Development plans have taken a back seat throughout most of the country. The authority suspended work on a Mohegan Sun hotel addition until credit markets open up.

But the tribe wants to be ready when they do. The development in Palmer could create not only a Mohegan Sun-style casino, but eventually add a hotel, restaurants, entertainment arena and other amenities.

Meanwhile, Foxwoods Development Co., the St. Louis-based arm of the Mashantucket Pequot Tribal Nation, still struggles getting its long-delayed casino in Philadelphia off the ground. Will a development in Palmer or Philadelphia siphon construction dollars and jobs away from Connecticut? Will it stifle construction of the new tower at Mohegan Sun?

No, say a variety of sources.

“The main reason to diversify the revenue stream is to stop losing business,” said Dennis M. Farrell Jr., a gaming analyst with Wachovia Capital Markets LLC in Charlotte, N.C. “And ultimately, whatever opens in Massachusetts will take business away from Connecticut.”

The Mohegans have to answer to constituents such as investors and tribal ownership. These constituents decide that it’s better to develop outside in the long term, Mohegan Sun COO Jeff Hartmann said.

Massachusetts is not the only threat. In addition to other areas of New England, Farrell envisions up to 10,000 slot-style machines at Aqueduct and Belmont tracks in New York all ready to cannibalize Connecticut casinos.

Lose to yourself

“In that context, Mohegan’s plans for Palmer make perfect sense,” said Clyde W. Barrow of the Center for Policy Analysis at the University of Massachusetts Dartmouth. “If you are going to lose customers to an adjoining state, why not lose them to yourself? At the same time, the corporate headquarters for those facilities will remain in Connecticut.”

It is also likely that many of the employees at a Palmer facility would be Connecticut residents, so in that respect they are safeguarding employment by transferring it to another jurisdiction, Barrow said. The more revenue in the enterprise, the more employees stand to make.

Hartmann has not heard a discouraging word from local officials about diversification outside the state.

“I don’t see it hurting us,” Montville Mayor Joseph W. Jaskiewicz said. “Mohegan Sun has done good things. They haven’t laid anyone off.”

Jaskiewicz is confident the authority would finish the hotel tower at Mohegan Sun before turning to any development in Palmer or some place else.

“We have no concern over losing business to expansion,” said Thomas A. Sheridan, president of the Chamber of Commerce of Eastern Connecticut. “This will always be home of Mohegan Sun and the Pequots. This is their headquarters. So we wish them well in any expansion plans.
It will generate more money for both tribal nations in what is already a phenomenal success
story. It’s amazing to see how they’ve grown. Expansion, regardless of where it is, just adds to the story.”

Pocono Downs

The Mohegans first branched out by acquiring Pocono Downs in Pennsylvania and converting it to a racino. Revenues remain on the upswing and a hotel is in the grand picture down the road.
“But with capital markets it’s not feasible at this time,” Hartmann said.

Pocono Downs acts as a feeder to the Connecticut casino, as new individuals are introduced to gambling and eventually decide they want the full resort casino experience, Barrow said. In fact, customers are shared back and forth, Hartmann said.

The same could be said for Palmer if it comes online.

“We think we would be a great operator in Palmer, too. We understand the New England market,” Hartmann said.

Given the market situation, however, Palmer is unlikely to see the light of day in the near term, even with the legislation approved.

“We’re focusing now on our core Connecticut and Pocono assets,” Hartmann said. “As for the suspended hotel tower, we’ll evaluate the status at the end of the fiscal year.”

Atlantic City

Long term, Mohegan also has its eyes set on Atlantic City, where many of the executives came from, including president and CEO, Mitchell Etess.

Foxwoods has ruled out Atlantic City to concentrate on Philadelphia.

“We did not want to compete with ourselves,” said casino veteran Gary D. Armentrout, president of Foxwoods Development Co., established by the tribe as a vehicle to leverage resources and diversify. That the company is housed in St. Louis speaks to the extent of expansion opportunities away from Connecticut.

“The tribal council is very supportive of this,” Armentrout said.

Foxwoods’ first initiative was in Fresno, Calif., more than four years ago with a consulting agreement. The company also has a management contract with the Pauma Band of Mission Indians for a USD 300 million project in north San Diego County.

“We advanced funds to the tribe to design a major hotel casino resort and take it through the entitlement and negotiation process,” Armentrout said.

That process is still progressing. The hotel casino would replace a long-standing temporary gaming hall.

“The goal is to oversee construction. We would also manage on behalf of the tribe,” Armentrout said. “We contemplate additional funds from third party sources to build the project, which would be phased in.”

Indeed, it’s likely any development projects will rely on such financing rather than through the tribe, Farrell said.

Kansas

Foxwoods in conjunction with MGM Mirage and its Unity Gaming partnership, spent two and a half years working on a project in south central Kansas.

“We ended up withdrawing our application because we could not come to terms,” Armentrout said. After failing to reach agreement with other companies, the state expects to rebid the project for new RFPs.

“We’ll evaluate whether we want to step back into the process,” he said.

Foxwoods also has a consulting agreement and management contract with Harcourt Development in Dublin for a rebirth of the hurricane-damaged Royal Oasis in Freeport in the Bahamas.

“We’re also in discussions with other Native American tribes for consulting services,” he said.
Philadelphia reached Foxwoods radar in 2005, after Pennsylvania legalized gaming.

“We liked that market. We consider it our backyard,” Armentrout said.

The company looked at a number of sites with local partners before settling on one along the Delaware River on land already in the partners’ portfolio. But opposition about traffic and congestion resulted in Pennsylvania Gov. Ed Rendell suggesting examination of other potential sites, Armentrout said. Foxwoods is still in due diligence and evaluating the relocation to a site in the Gallery, a Center City mall, he said. But the company has not abandoned the riverfront as yet.

Costly delays

The first phase could take more than a year to open in a best case scenario, Armentrout said.
Eventually, a hotel would be included in the plans. So far, the delays have cost Foxwoods time and outlay of funds, he said.

“And it’s a different market than two years ago. Financing is more costly today,” Armentrout said.
In time, the recession will ease, and development from Foxwoods and the Mohegan tribal authority will push forward.

“To the extent the tribe is able to diversify its assets and generate revenue streams for other projects in the U.S., the tribe grows stronger and better able to invest in Connecticut in the future creating more jobs,” Armentrout said.

Such expansions into other jurisdictions are absolutely critical for long term financial health, Barrow said.

“These new facilities will have a significant impact on the revenue streams of the Connecticut casinos.”