The chips are down for casino-owning tribe - Friday 27th of February 2009
The Indian tribe that owns the biggest casino in the country on 1,500 wooded acres here - and wants to expand its Foxwoods gaming brand to Philadelphia - is seeing the good life slip away.
Until just a few years ago, each adult in the 871-member Mashantucket Pequot tribe drew a six-figure annual "distribution" from casino profits. Even 18-year-olds were making $100,000.
Families built hilltop homes with panoramic views and price tags topping $400,000. Health care, child care, and college tuition were free.
But the days of over-the-top spending and boundless profits are over. Like the gaming industry nationwide, the tribe is seeing revenues collapse, and its debt has ballooned past $1 billion - all as it has taken on a one-third stake, and the role of operator, in the 3,000-machine Foxwoods slots parlor headed for the Gallery mall in Center City.
The tribes financial problems in Connecticut, gaming analysts say, could hold up the Philadelphia project by making it harder for the partners to borrow the hundreds of millions they need for a Gallery casino. Among the other investors are Comcast-Spectacor chairman Ed Snider and family trusts for real estate magnate Ron Rubin and entrepreneur Lewis Katz.
The tribes reach into Philadelphia was an attempt by tribal leader Michael J. Thomas to expand the gaming business beyond Connecticut.
When the Mashantucket Pequot tribe opened its first casino in 1992, Foxwoods had the market north of Atlantic City all to itself. It has drawn as many as 40,000 guests a day to a gambling fun house with 7,200 slot machines, poker rooms, and 380 tables for baccarat, blackjack, and roulette.
But the tribe has been facing intense competition from Mohegan Sun, another tribal mega-casino just five miles away that opened in 1997, as well as new casinos in New York, Rhode Island, and, most recently, Pennsylvania.
To one-up their rivals, the Pequots opened the $700 million MGM Grand at Foxwoods last May, adding a 26-story hotel, 1,200 slot machines, and 60 table games.
The timing could not have been worse.
Slots revenue in December dipped to $45 million, down 19 percent from a year earlier. The tribe laid off 700 casino workers, offered buyouts to tribal government employees, and named a new chief executive to run Foxwoods, the fourth in two years.
"Their plan for growth was built on an economy that no longer exists and is not coming back," said Fred Carstensen, an economist with the Connecticut Center for Economic Analysis at the University of Connecticut.
Gary Armentrout, president of Foxwoods Development Co., a wholly owned subsidiary of the tribe, said in an interview that the Philadelphia slots parlor was independent of the Connecticut casino business. This development arm, which Armentrout runs from a St. Louis office, is the Gallery partner, he said.
The subsidiary also is renovating a casino on Grand Bahama Island and partnering with the Pauma Band of Mission Indians to develop and manage a $300 million gaming resort near San Diego.
In Philadelphia, Foxwoods Development has put up $30 million as its share of startup costs for land, the casino license, and legal and design work. "Weve satisfied our financial obligation," Armentrout said. "Period."
However, the development company depends on cash flow from the tribe, and the tribes fortunes are dependent on the Connecticut casino, gaming analysts point out. If that venture is hurting, they say, it could affect future loans to all tribal businesses.
The repercussions might not end there.
Originally, the Philadelphia partners were going to spend $670 million to build along the Delaware River in South Philadelphia. But Mayor Nutter and neighbors of the proposed site fought to push the project off the waterfront. Foxwoods now has agreed to renovate existing space in the Gallery, a less costly option.
Before the project can be moved, the partners will have to return to the Pennsylvania Gaming Control Board for permission. In 2006, Foxwoods was one of only two slots projects approved for Philadelphia; the other was the SugarHouse casino on Delaware Avenue in Fishtown and Northern Liberties.
Douglas Harbach, a spokesman for the gaming board, said that if a petition were submitted to move Foxwoods to the Gallery, it would be "likely and logical for the board The board, he said, could revoke a license if it felt the partners could not fulfill all obligations of their license, including opening on schedule. Under its current license, Foxwoods should have 1,500 slot machines operating by May 2009. It can apply for extensions of up to 24 months from that date, Harbach said.
In less than two decades, gambling catapulted the Mashantucket Pequot from poverty to riches barely imagined.
The stone-and-shingle community center with indoor pool, handball courts, and weight room looks like a resort lodge. The $250 million the tribe spent on its museum of Eastern Indian history dwarfs the $150 million cost of the Barnes Foundations new Center City home.
But as recently as the early 1970s, the reservation consisted of only 214 forested acres near a swamp, and Elizabeth George was one of only two people living there. Fearing the state would seize the land for a park, the matriarch urged her nine grandchildren to return.
After her death at 78 in 1973, her grandson, Richard "Skip" Hayward, took up her cause. He worked with advocates for American Indians, including the Indian Rights Association in Philadelphia, to reclaim property and rebuild the tribe.
In 1983, the Pequots won federal recognition as a sovereign nation, with their own government, court, and laws. The tribe also received a $900,000 settlement to buy land and invest in economic projects.
Hayward was a quixotic leader, welcoming even those with only a tenuous Pequot pedigree. He hatched all sorts of job-making ventures: raising pigs, growing hydroponic lettuce, running a pizzeria.
In 1986, the tribe opened a bingo hall - a move the state couldnt stop, because it already allowed charities such as churches to raise money through bingo.
That was the start.
With congressional passage of the Indian Gaming Regulatory Act of 1988, the Pequots moved into gaming big-time.
The tribe had land, but not the millions of dollars needed to open a full-scale casino. It found a backer a world away - a Malaysian billionaire casino operator. The late Lim Goh Tong loaned the tribe $235 million to open a mega-casino. In return, his family business would get 10 percent of Foxwoods net income until 2018, according to a 2002 report in Time magazine.
The tribe is tight-lipped about its finances.
As a sovereign nation, it has its own gaming commission and does not disclose what it makes or spends.
Under a pact with Connecticut, the state gets 25 percent of Foxwoods take from 7,200 slot machines. For the six months ended Dec. 31, the state received $90 million on slots revenue of $360 million, a drop of 8 percent from the same period a year earlier.
"They really have to manage the business very tightly to get through this difficult economy to a point of achieving stability," said Craig Parmelee, a credit analyst for Standard & Poors, which in October downgraded the tribes debt rating.
In December, Foxwoods named a new chief executive - Michael F. Speller from the Seneca Niagara Casino, an American Indian casino in Upstate New York supported by the same Malaysian investors behind Foxwoods.
Sources with knowledge of the tribe say the leaders have asked the Malaysian investors for more help to ride out the current downturn.
Many members declined to talk about the tribe for fear of getting "banished," cut off from benefits and income.
About two-thirds of the members live exclusively on payouts from the casino. Last months payment was slashed by a third, the latest of many cuts in the last two years.
"When youre making $500,000 or $600,000 a year and now you dip down to $50,000, its a shock to the system," said Leo Fletcher, who lived on the reservation for eight years and wrote the newly released The Tribe of Foxes: The True Inside Story about the Mashantucket Pequot Tribal Nation.
to take a deep look at the finances of everyone involved."
At a tribal meeting last month at the reservations community center, about 100 members heard more grim news. The seven-person tribal council told them to brace for more cuts.
Someone asked about the Philadelphia project.
"The biggest question was how can the tribe afford it," a member recounted.
"We didnt get that answered."
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