Squeezed By Competition, Casino Slots Sink–What To Do?

The State of Connecticut receives 25 percent of the slot take from Foxwoods and Mohegan Sun as part of a gaming compact that flows moolah to Bridgeport. Greg Hladky of www.ct.com writes that a major funding hit is on the horizon as new gaming operations surround Connecticut. Check it out:

Connecticut’s two tribal casinos are under siege, and Connecticut taxpayers are going to be suffering some heavy collateral damage.

Heavy as in a potential loss to the state treasury of $137 million a year.

“That’s a big hit,” says state Rep. Stephen Dargan, co-chairman of the legislature’s Public Safety Committee. “That’s a big revenue stream for the state that we could lose.”

Massachusetts has approved three new casinos and a slot parlor. New York’s racetrack casinos are adding thousands of additional slots and video lottery machines. Atlantic City is upping its competition ante. Pennsylvania has 11 casino operations. Maine just opened its own casino in Bangor. Rhode Island’s two slot parlors are roaring.

Between the Great Recession’s impact on consumer spending and the tidal wave of competition, the Mohegan Sun and Foxwoods Resort Casino are hurting.

Connecticut’s two tribal casinos “experienced their fifth consecutive year-to-year decline in gross gaming revenues,” according to the latest report on New England’s casino industry from the Center for Policy Analysis at the University of Massachusetts, Dartmouth.

Mohegan Sun last month announced more than 300 layoffs, barely two years after cutting its workforce by 475. Foxwoods Resort Casino has suffered its own repeated waves of layoffs and just concluded a massive loan restructuring to avoid default.

The most damaging and dangerous indicator–for the casinos and for state taxpayers–is that slot revenues are plunging. Connecticut’s state treasury gets 25 percent of all the money wagered at the two casinos’ slots, and that cash flood has been rapidly dwindling.

At the peak, in 2005-06, the state of Connecticut pulled in a sweet $427.5 million from those slots. By last year, the state’s share had dropped more than $83 million–down nearly 20 percent in barely six years.

According to the General Assembly’s Office of Fiscal Analysis, the damage to our state pocketbook could be even uglier.

Once casinos are up and running full bore in Massachusetts and New York, one OFA memo warned, they could “reduce Indian gaming payments to the state [of Connecticut] by up to 36 percent, or approximately $137 million annually.”

Mitchell G. Etess, CEO of the Mohegan Sun Tribal Gaming Authority, says there’s no doubt the new casinos in surrounding states will siphon off some casino business. “But it’s difficult to quantify what the impact will be,” he adds, because of uncertainty over which will be opening where and when.

“I think the whole state has to be concerned,” says Tony Sheridan. He’s president of the Chamber of Commerce of Eastern Connecticut, a region that’s developed a serious addiction to casino jobs and all the economic ripple effects of having the two largest casinos in the western hemisphere.

“Will there be a reduction in [casino] payments to the state? Most likely there will–how much is the big question,” says Sheridan.

Sheridan has his doubts about that grim forecast by legislative fiscal experts. He doesn’t think the new casinos being planned in Massachusetts and elsewhere in the Northeast will be able to match the size and glamour of Mohegan Sun or Foxwoods.

“It would take a significant amount of investment to duplicate in Massachusetts what we have here,” says Becky Carr, Foxwood’s chief marketing officer. She says the tribe remains “very confident.”

Scott Capano, owner of the Harp & Dragon Pub on Norwich’s Main Street, is one of the many area businesses enjoying that casino ripple effect. His popular watering hole sits four miles from the Mohegan Sun and less than 10 miles from Foxwoods, and lots of his regulars are casino workers.

Layoffs, sagging casino revenues and threats from out-of-state operations are serious issues for Capano, and he’s keeping a wary eye on what’s happening in Massachusetts and New York.

The UMass Center for Policy Analysis estimates that 43 percent of Foxwoods customers and nearly 36 percent of Mohegan Sun patrons come from Massachusetts and New York.

According to the center’s calculations, Massachusetts gamblers at this state’s casinos “contributed $86.9 million to the Connecticut state treasury” in 2010-11.

Connecticut’s legislative researchers at the OFA noted that the data also indicates that “approximately 86 percent of patrons would no longer frequent out-of-state casinos if similar casinos were established in-state.”

All of which adds up to that potential $137 million annual hit for Connecticut.

“We haven’t done any precise estimates yet,” says Gian-Carl Casa, a spokesman for Gov. Dannel Malloy’s budget office, “as we don’t yet know when the casinos in other states will open or begin to draw customers.”

Sheridan says Connecticut “needs to embrace both casinos as important regional and state businesses.”

Back in the good old days before the economic train wreck of our Great Recession, casino gambling was considered by many industry gurus to be “recession proof.”

Both the Mashantucket Pequots and the Mohegans counted on that false assumption in planning for the future.

In 2005, just two years before the economy went wrong, the Mashantuckets began a three-year, $700 million expansion that put the tribe in deep fiscal waters. They recently refinanced their massive $2.2 billion worth of debt, a move tribal leaders say will put their business on a “solid financial footing” and let them go ahead with non-gambling retail and entertainment development projects.

The Mohegan Sun was forced to cancel a planned hotel expansion in 2008. In 2010, the tribe was forced to cut five percent of their workforce. After the most recent round of layoffs, their top business guy warned the Mohegans are planning to actually downsize their gambling operations and, like the Mashantuckets, concentrate on expanding retail and entertainment attractions.

Etess says Connecticut’s huge casinos need to play to their entertainment and retail strengths. “Our best bet is to create more and more reasons for people to come here,” he says of those non-gambling expansion plans.

How well that’s going to work in our post-recessionary, gambling-crazed region of North America is anybody’s guess.

So far, Capano says his pub has been doing well despite the recession and the casinos’ troubles. He also believes his business can survive what’s coming, but that it’s going to be a rough economic road.

Says Capano, “We’re prepared to weather the storm, but not without bumps and bruises.”