Foxwoods Casino faced with staggering debt

GLYNN: Foxwoods Casino faced with staggering debt
Niagara Gazette The Niagara Gazette Wed Mar 21, 2012
Column by Don Glynn —

If you're still convinced that casinos are cash cows, you need to look at what has happened at Foxwoods in southeastern Connecticut.

At a glance you might think they're on easy street with nearly 40,000 patrons flocking every weekend to the tables and 6,300 slot machines. It employes upwards of 10,000 people in the sprawling complex that claims some 6.7 million square feet, large enough to accommodate the Pentagon.

It's not all a bed of roses though for the Mashantucket Pequot Tribal Nation that operates Foxwoods. In fact, the tribe today is faced with a debt of $2.3 billion, according to a New York Times report earlier in the week.

How could that possibly happen with the revenues they generate?

Cynics might simply conclude that it's just an example of mismanaging money, especially when it rolls in daily by the millions.

For starters, the rapid growth of casinos across the U.S. — they're in 36 states at present —has generally wiped out the novelty element. After Congress approved the Indian Gaming Regulatory Act in 1988, it wasn't long before dozens of tribes decided that was the route to take. Today, there are some 480 Indian owned and operated casinos in the country including three in Western New York.

Some people looking at the dismal financial sheets point to one of the first investments the Pequots made when they launched their enterprise in Ledyard, Conn. They spent $225 milliion on a museum that they wanted to commemorate the tribe's tragic history and its unbelievable resilience to bounce back from a series of misfortunes.

Also, Foxwoods has competition virtually in its backyard, the Mohegan Sun, owned by the Mohegan tribe.

In addition, in an effort to spread the wealth, Pequot officials decreed that every adult member of the nation should receive an annual dividend of at least $100,000. Those handouts have totaled upwards of $500 million over nearly two decades. Children are entitled to the disbursements when they reach age 18.

When Foxwoods first pursued a lender for their grandiose project, they found firm support in a Malaysian conglomerate. While that was an enormous boost to start-up operations, the casino soon got involved with a number of other banks and bondholders, the Times reported. To compound matters, the lenders apparently cannot foreclose and take control of the casino business and, at the same time, Foxwoods doesn't qualify for Chapter 11 protection under the federal Bankruptcy Act.

Meanwhile, the Pequots are counting on Scott Butera, the CEO of Foxwoods since 2007, to reverse their downfall. He gained a reputation for "restructuring" businesses at risk (e.g. helping Donald Trump's casino operations recover).

While Foxwoods looks to fix its problems, Gov. Andrew Cuomo wants to amend the state Constitution to permit the kind of gambling that Las Vegas has had for years. That's everything from table games and live dealers to slots. In a recent meeting with the editorial board of the Syracuse Post-Standard, the governor referred to the "hodgepodge" of Indian casinos and state-sanctioned racinos.

Cuomo said: "We have 29,000 gambling machines in this state, more than they have in Atlantic City. You have gaming! ("Gambling" sounds offensive, right?). You're just in denial of the reality."

What does it say about casino capitalism, investors and financial institutions that continued to loan to Tribes beyond any reasonable ability to repay the debt? Foxwoods is not the only Tribe to default on its debt and Mohegan Sun is in a similar predicament.