When the house runs out of chips: Tribes teeter on financial brink

Changing economics tarnish success story of Pequot, Mohegan casinos
By Bill Cummings,
Investigative Reporter
Monday, November 23, 2009

The following story originally appeared in the Sunday edition of The News-Times.

At the top of a steep hill, high above the Thames River and the glimmering glass towers of the Mohegan Sun casino, a huge white building sits half-finished.

A newly paved road winds its way to the plastic-shrouded shell of the Mohegans’ new tribal office and community center. Construction equipment is scattered about, but work on the facility stopped months ago.

It’s a stark and unmistakable symbol of the financial crisis within Connecticut’s multibillion-dollar Indian gaming empire.

After making and spending billions over the last decade, the Mohegans and their nearby neighbors, the Mashantucket Pequot Indians, are teetering on the brink of a financial meltdown.

Expansion plans have been canceled, employees have been laid off, credit ratings are in free fall, and bankers and bond holders are knocking on the door. In a sign of just how bad it has become, the Pequots last week defaulted on a Wall Street bond, signaling to creditors the tribe cannot meet its obligations.

All of this adds up to a toxic mix of problems that only a few years ago would have been unthinkable for two tribes with economic engines that once seemed geared for never-ending growth.

The immediate cause is a national recession that has cash-strapped gamblers staying away or spending less when they do visit. The trend is similar across the country. Casinos in Atlantic City are reporting slot losses of 20 percent or more, and gaming revenue in Las Vegas is in a downward spiral. Three smaller Indian tribes have already defaulted on loans.

But the revenue drop at the Mohegan Sun and Foxwoods, the casino built by the Pequots, is being magnified by billions of dollars in debt the two tribes accumulated during a nearly decade-long building binge and dubious business deals that have crippled cash flow for both operations…

…The first public sign the Pequots were in trouble came in September when former Pequot Tribal Chairman Michael Thomas told tribal members in an e-mail that he would rather keep casino profits than make payments to bond holders and banks.

“These are dire financial times for the tribe,” Thomas wrote. “The situation is serious and threatens our tribe. Regardless of what may happen, I have made it clear that we will not accept Wall Street mandates for cuts to tribal government or the incentive.” The incentive is a stipend every adult member of the tribe receives. According to a variety of published reports and sources, the payments can be as much as $100,000 a year for each of the 450 or so adult members of the tribe.

The tribe also uses casino revenue to provide health insurance, day care and higher education for members, and operate tribal government.

Pequot spokesmen and other tribal members declined to comment on the stipend or the cost of other services. Some said reports of a $100,000 stipend are false, but they refused to say how much each member receives…

The rest of the article is here.

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