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Mass. gambling threatens Foxwoods, Mohegan Sun

Already in debt, Conn. facilities brace for rivals

By Andrew Caffrey
Globe Staff / December 27, 2011
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LEDYARD, Conn. - Kyle Dacey is a regular at Foxwoods Resort Casino, driving the 100 miles from Brookline as often as five times a month. And he knows exactly what he’ll do once new casinos open in Massachusetts.

“There is no reason to drive an hour and a half when there’s one 20 minutes away,’’ said the 28-year-old Dacey as he concluded a recent evening of card-playing at Foxwoods.

Meanwhile, at the nearby Mohegan Sun casino, Dracut couple Luiza and Greg Harding recently caught a show by pop star Jennifer Lopez. They occasionally go for the full package - dinner, a show, maybe a little gambling, and a relaxing overnight.

The Hardings would certainly prefer to be entertained closer to home, but said they could be persuaded to return if Connecticut casinos make it worth their while, with special deals on hotel rooms, for example, and other promotions.

Such is the challenge facing the once invincible gambling tandem of Foxwoods and Mohegan Sun that - even before the threat of losing customers to Massachusetts - was struggling with declining revenues and big debts. The two are now plotting for the day when they will outright lose customers such as Dacey and scramble to keep those like the Hardings.

Industry specialists estimate that Connecticut’s two casinos could lose as much as 20 percent of their business to Massachusetts and other new competitors, in a mature market that is not producing many new gamblers to replace them.

“I don’t know where they go. Neither has much capacity to respond,’’ said Richard McGowan, an economist at Boston College who studies the casino industry.

While the recession was hard on the casinos, each remains a $1 billion enterprise and their executives said business appears to have stabilized lately.

Foxwoods and Mohegan Sun have mapped out overlapping strategies that will have them competing against each other even more intensely - for customers who live nearby and for the high rollers who flit from casino to casino, depending on the personal service and gambling adventure that awaits them.

In other respects their strategies diverge. Foxwoods, for example, aims to expand its convention meeting business, while the parent company of Mohegan Sun is trying to diversify with casinos in other states, including Massachusetts.

Foxwoods is the bigger of the two, a sprawling complex that rises from the Connecticut woods. Its roots go back to a bingo hall operated in 1986 by the Mashantucket Pequots, who opened the first casino in 1992. The Mohegans followed four years later, and their brightly lit 34-story tower can easily been seen from downtown Norwich a few miles away.

Both were immensely successful from the start. Foxwoods is the second-largest casino resort in the world, with four hotels, 6,600 slot machines, and 348 table games. Though smaller, Mohegan Sun does more business: about $1.25 billion in 2010, to Foxwoods’s $1.18 billion, said Clyde Barrow, who runs the New England Gaming Research Project at the University of Massachusetts Dartmouth.

So many people troop through the casinos - tens of thousands on a good weekend - that executives joke about having to change the custom-designed carpets every few years. The two casinos each pay 25 percent of slot proceeds to Connecticut, and over the years have pumped nearly $6 billion into the state’s treasury.

But since the recession Foxwoods and Mohegan have experienced a deep dropoff in business - around 20 percent each, according to Barrow’s calculations.

And now the advent of competition will eat into their base further. Foxwoods is arguably the more vulnerable, as it has bigger debt and a higher percentage of customers from Massachusetts, as much as 30 percent, compared to Mohegan’s 20 percent.

Scott Butera, Foxwoods’ chief executive, acknowledged the customer loss could get as high as 20 percent, but believes it won’t be so severe that Foxwoods will have to close portions of its complex. Instead, Butera suggested, he will be nipping and tucking - replacing underperforming slots areas with different uses, such as newer retail concepts, or refreshing stores, restaurants, and entertainment venues to make them more attractive and profitable.

“We don’t anticipate closing’’ operations, Butera said. “We may run them differently, scale them differently. Maybe we don’t need 6,000 gaming devices.’’

Like his counterparts at Mohegan Sun, Butera says Foxwoods will have to do a better job with its remaining customers. That means relying more heavily on loyalty programs that track how often customers visit and what they spend and reward them with points toward meals and other benefits, such as free hotel stays. The idea is that as customers accrue more points or benefits they remain loyal to that casino and, ideally, willing to spend more before switching to a competitor.

Butera also plans to promote Foxwoods within a larger experience, wooing customers with its proximity to the nearby Connecticut coastline and its many attractions.

“We have to be cognizant of what gives us a bit of a competitive advantage - a retreat away from the city, Butera said. “We have to be more than a casino with gaming devices.’’

Foxwoods is also pushing a major asset: a convention facility with an expansive ballroom. Butera has brought in new managers to expand the business, targeting anything from weddings to meetings of large companies. But this, too, is a fiercely competitive business threatened by overbuilding; many free-standing publicly owned convention centers, for example, typically operate at a loss.

At Mohegan Sun, Mitchell Grossinger Estess, the company’s chief executive, said the casino will better promote on-site amenities such as brand-name restaurants from chefs Bobby Flay and Todd English, and headliner acts, including upcoming shows by country music stars Reba McEntire and Toby Keith.

“What you have to do is to get those people who’ve made no trips to make two trips and three trips to Mohegan Sun. You do that by having activities, having entertainment, by having events like Jennifer Lopez,’’ said Estess, adding that he wants to make “people realize, ‘You know, that’s a real cool place.’ ’’

While Mohegan Sun has fewer customers from Massachusetts than Foxwoods, at 20 percent it’s still a sizable portion. Mohegan is also a tad closer to New York, which now has a huge slots facility at Aqueduct Racetrack in Queens that threatens to further drain business from the Connecticut casinos.

The casino’s operator, the Mohegan Tribal Gaming Authority, is expanding outside Connecticut, with a casino in Pennsylvania, and another under development with partners in the Catskills. Mohegan is also expected to be a formidable bidder for the gaming license for Western Massachusetts, where it has a site in Palmer.

The biggest issue is debt, and each has been in long talks with lenders.

Mohegan owes about $1.6 billion, about half of which is due next year - bills it accrued financing its expansion over the years. Left unresolved, the debt issue could hamper its expansion.

Foxwoods owes creditors $2.1 billion and has defaulted on payments as far back as 2009. It was especially hurt by the recession because it opened a fourth hotel, the MGM Grand in 2008, whereas Mohegan Sun cut short an $800 million expansion when the economy turned.

Butera was hired last year based on his experience running troubled casinos.

Foxwoods has cut payroll, and crucially, the Pequots agreed that individual tribe members would forgo cash stipends from Foxwoods; Barrows estimated that freed up as much as $40 million a year.

Butera said Foxwoods is close to a refinancing agreement with its lenders, with new repayment terms that will give it enough breathing room to respond to the Massachusetts competition. Though the terms under discussion are not available, financial specialists said troubled casinos have gotten new loans from lenders in exchange for wiping out portions of their debts. But renegotiating such amounts is difficult enough without the added complication that in a few short years Foxwoods’s income will probably drop significantly.

“They’re talking a lot of bravado, but they’re obviously in deep trouble,’’ said Barrow. “They’re boxed in by their debt, and so are their creditors.’’

Andrew Caffrey can be reached at caffrey@globe.com.

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