Mashpee Wampanoag tribe has clear path for casino, but a mountain of debt
TAUNTON — Seven years ago, the Mashpee Wampanoag was landless and nearly broke, its leadership riven by a corruption scandal. A Supreme Court ruling went against them, and the odds that the tribe would realize its dream of opening a casino seemed bleak.
But Genting Group, one of the world’s largest casino operators, saw opportunity in the long-shot bid, even if any payoff would be years away. In the depths of the recession, the deep-pocketed patron sunk millions into the tribe, bringing hope to its decades-long quest.
That investment, short money for a company valued in the neighborhood of $25 billion, now looks like a coup. The state Gaming Commission recently voted down a rival casino planned for Brockton, clearing the way for the tribe to open the state’s first full-scale gambling mecca next summer.
That breakthrough, however, has come at a high cost. Genting’s corporate office in Malaysia recently reported it had already invested nearly $250 million in the project through “interest-bearing promissory notes” issued by the tribe.
Genting, one of the early financiers of Foxwoods Resorts and Mohegan Sun in Connecticut, has not disclosed what interest rate the loan carries, but it could well be substantial. In 2002, the corporate giant loaned $80 million to the Seneca tribe of New York for a casino in Niagara Falls, N.Y., the astounding rate of 29 percent.
Genting will also receive as much as 40 percent of net revenue for managing the casino on the tribe’s behalf, an arrangement slated to last seven years. And the state will pick up 17 percent of gaming revenue under a 2013 agreement, further squeezing the tribe’s bottom line.
Those obligations, coupled with a heavy debt burden, leave the tribe with limited financial leeway. That has raised concerns that the Mashpee will be forced to scale back the scope of its casino, projected to cost $1 billion.
“That debt looks like a big rock to push up the hill going forward,” said Stephen M. Simon, an casino operations specialist from Albuquerque with more than 35 years of experience in the casino industry. “But the hill might not be as steep as it seems.”
During last month’s deliberations on the Brockton casino, some commission members voiced concerns that the Mashpee’s pledge to build the “Taj Mahal of casinos” might prove beyond its reach.
But Cedric Cromwell, the Mashpee’s tribal chairman, dismissed the debt concerns and pledged to “see this through all the way.”
“Our financial house is in order and we have a solid financial plan moving forward,” he said earlier this month. “We have come too far to turn back — or scale back — now.”
In March, the tribe announced plans to open the casino by the summer of 2017, then begin a second phase of construction on three 15-story hotel buildings and entertainment space.
Genting did not respond to requests for comment. But concerns about the casino’s fate go beyond the tribe’s debt and management fees burden. While work is underway on the 60-acre property, near the interchange of Routes 24 and 140, a federal lawsuit brought by a group of Taunton residents threatens to upend the entire project. The suit challenges the US government’s designation of the site as a Native American reservation. Federally recognized tribes are allowed to build casinos on reservation land.
Lawyers for the Taunton residents stepped up their legal challenge on Friday by filing a request that a judge order construction on the casino halted until the lawsuit is resolved. In a response to that filing, Cromwell said on Saturday the tribe does not view the lawsuit “as having any impact on our progress.’’
The casino will also confront an increasingly crowded marketplace, casino specialists and some commission members noted, a reality that could force the tribe to tamp down its ambitions.
“There’s a limited amount of demand for gambling and you have to wonder about market saturation with all the casinos going up in the Northeast,” said Steve Cochrane, an economist for Moody’s Analytics who is based in Boston.
But other specialists said the Taunton casino is likely to carve out a lucrative niche among its competitors.
“Does this tribal casino make good business sense? Absolutely,” said John Knott, head of global gaming for the Los Angeles-based consulting firm CBRE. “The Northeast is obviously a mature market, but has it hit the saturation point? No. There’s still market share out there for the right casino.”
Knott said the Taunton casino will lure gamblers away from the two tribal casinos in Connecticut, Foxwoods Resorts and Mohegan Sun, both about a 90-minute drive away, and from Twin River Casino in Rhode Island, about 45 minutes away.
Andrew Klebanow, a partner in Global Marketing Advisors, a Las Vegas-based casino consulting firm, said specialists expect the Taunton casino to be quite profitable, even after Wynn Resorts opens a $2 billion casino in Everett, about 75 minutes away.
“Will the Mashpee casino be of the same quality and finish as Wynn? No. But it certainly will compete strongly with the Connecticut casinos,” Klebanow said. “And very strongly with Twin River in Rhode Island. There’s great anticipation and high expectations for the tribal casino.”
Such positive predictions are in keeping with the state’s high-end vision for its casinos. The state’s political leaders required casino developers to make substantial investments in their buildings — a minimum of $500 million — to ensure premium developments featuring high-end restaurants, hotels, and entertainment venues.
To help offset the high capital costs, including $85 million for a license, the state established a 25 percent tax on gambling revenue for commercial casinos, far lower than most casinos in the Northeast. The plan was to make up for the lower rate with higher volume, drawing customers away from casinos lacking “the wow factor,” as Gaming Commission chairman Stephen P. Crosby has called it.
But the Mashpee’s tribal status means the state-mandated threshold does not apply to them, and they could opt for a more modest development if revenue doesn’t meet expectations, exactly what the state’s casino law had hoped to prevent. Knott said the tribe’s willingness to build a $1 billion casino will likely hinge on market conditions.
“If there’s more demand by the time they finish phase one, they’ll definitely go to phase two,” he said.
The tribe has taken a winding — and expensive —
But when the future seemed darkest, Genting, which operates casinos in Asia, Britain, and New York and is building a multibillion-dollar casino in Las Vegas, reached out to tribal leaders. Now a payday, for Genting and the tribe, could be close at hand.
“Genting is a great company: well-heeled and with lots of experience,” Knott said.
Sean P. Murphy can be reached at email@example.com. Follow him on Twitter@spmurphyboston.