Making the News

The Day, New London

Originally Published:Sunday, August 3, 2008

”The regional convenience-based gaming outlets will have a distinct location advantage as we continue to see the economic downturn and people have a general lack of confidence with the economy,” said Harvey Perkins, senior vice president of the Spectrum Gaming Group, a consulting company located in Atlantic City.

Slot Revenue Slide May Have Way To Go
Portion of customer base for casinos stays closer to their homes

By Heather Allen and Ted Mann
The Day, New London

One billion dollars flowed into slot machines at the Mohegan Sun casino in July 2007, the best monthly gross either of the state's two tribally owned casinos has ever had.

But just a few months later, revenues began to slide - dramatically - at both Mohegan Sun and Foxwoods Resort Casino.

And when the state fiscal year wrapped up this June, the combined amount of slot revenue contributed by the casinos to Connecticut's budget had declined from the previous year, by $19 million. That, like the blockbuster month of a year earlier, has also never happened before - not since Foxwoods installed its slot machines in 1993, and Mohegan Sun opened its doors in October 1996.

The slide, just like the economic downturn facing the nation, has been quick and severe. Analysts and casino executives alike say there are no signs of it stopping any time soon.

"I wouldn't say we've hit bottom yet," said Clyde Barrow, the director of the Center for Policy Analysis at the University of Massachusetts-Dartmouth.

"I'm not an economist, but we probably have another year to work through this," said Jeff Hartmann, chief operating officer of the Mohegan Tribal Gaming Authority.

Even though high gas and energy prices compounded by a dwindling consumer confidence in the economy have been blamed for the slide, it's not necessarily true that slot revenues would rebound once the downturn bottoms out.

That's because the northeast gaming market has become more crowded, allowing out-of-state patrons to stick closer to home in New York, Pennsylvania and Rhode Island.

"The regional convenience-based gaming outlets will have a distinct location advantage as we continue to see the economic downturn and people have a general lack of confidence with the economy," said Harvey Perkins, senior vice president of the Spectrum Gaming Group, a consulting company located in Atlantic City.

Twin River, in Lincoln, R.I., is one outlet that has bucked the trend of declining revenues and appears to be cashing in from slot patrons from Massachusetts and Rhode Island who may have come to Connecticut in the past.

Forty percent of patrons who are signing up for the rewards program at Twin River are Massachusetts residents, with the balance residing mainly in Rhode Island, said Patti Doyle, a spokeswoman for the racino.

The revenues of the video lottery terminal revenues (which are similar to slot machines) have shot up 18.85 percent over the previous fiscal year.

Connecticut's tribally owned casinos "may lose some of those slot players permanently," Barrow said. The regional venues "are more convenient, and the cost of gas won't go down much."

Mohegan Sun has seen a drop-off in mid-week trips by New York residents.

Those who are staying closer to home are "recreational gamblers" who are mainly interested in playing the slots, said Hartmann.

Some people who go to the casino more than once a month are increasing the frequency of their trips, but they're spending less, said Mitchell Etess, president and CEO of Mohegan Sun. The average spent on slots per trip has decreased by $8.54 since last year to $144, he said.

"There's no question we're affected by the economic downturn," said Foxwoods spokesman Bruce MacDonald. "It's probably made worse because of $4-a-gallon gas and that has taken a toll on our drive-in market with slot machines. But other sources of revenue within the casino are holding up very nicely."

Foxwoods is being "buffeted by competition from Yonkers and Twin River," he said, but business has remained strong by diversifying, adding new high-end restaurants and increasing entertainment offerings through the new MGM Grand expansion.

"We think we're doing what needs to be done to weather the economic storm," he said. "We're no different than Las Vegas or Atlantic City. It's a phenomenon across the country."

As the competition, particularly for slot players, begins to heat up, the tribally owned casinos are diversifying to attract untapped consumer groups.

Mohegan Sun has cut the number of slot machines it will install in its new Casino of the Wind, from 825 to 670. The expansion will open Aug. 29.

MGM Grand at Foxwoods added 1,400 slot machines with its opening in mid-May but also added 115,000 square feet for convention and meeting space along with celebrity chef restaurants, a 20,000-square-foot nightclub, luxury hotel tower and new theater.

The casinos hope to attract new customers, to replace those who'd rather stay close to home.

"We're prepared to weather out the storm and do that with a great product," Hartmann said. "We're just going to have to work a little harder now."

And while their portion of the slot market may never be what it was, both casinos seem confident they will continue to see success in other sources of revenue.

State may share the pain

After the casinos, the first party in a position to feel real pain from the lost slot revenues at Foxwoods and Mohegan Sun, may be the state of Connecticut. Under the state's compacts with the tribes, Connecticut receives 25 percent of slot profits, but does not get a cut of other gaming and non-gaming revenues.

State legislators have rarely expressed worry that the casinos could become a less robust source of funds, but that could be changing.

"We may have reached that point already," Senate Minority Leader John McKinney, R-Fairfield, said recently, citing the general pressure of a declining state economy and the specific challenge of slot competition in adjoining states.

"There are efforts in Massachusetts and Rhode Island to look at casino gaming expansion," he said. "That is something that would obviously impact our bottom line. How much, I have no idea."

The revenue drop offers a chance for an uncomfortable told-you-so to state planners from local lawmakers, who have occasionally warned about taking the financial benefits to the state for granted.

The slots decline represents "a wake-up call of what our expectations truly can be" for the returns from slot machines to the state, said Sen. Andrea Stillman, D-Waterford, calling the annual projections of constantly rising revenue dangerous to budget-makers.

The casinos' contributions to the state dropped for the first time in the fiscal year ending June 30: by 3.4 percent at Mohegan Sun and 5.6 percent for Foxwoods, totaling a $19 million slide from the previous year.

In the Hartford headquarters of Gov. M. Jodi Rell's budget staff, and in the nonpartisan Office of Fiscal Analysis, which advises the legislature, the drop-off in slot machine revenues is getting attention.

"Sure enough, 2008 appears it will go down in the books as the first year since the state started receiving money from Indian gaming that we will experience a decline in year-over-year growth," said Jeffrey Beckham, an undersecretary at the Office of Policy and Management, which analyzes and designs fiscal policy for the Rell administration.

Some of that shortfall is a result of a dispute between the state's Division of Special Revenue and Foxwoods over the proper accounting for a series of gambling vouchers, but not all, Beckham said.

"There is apparently a perceptible downturn in revenue from gaming, which we attribute to the general downturn in the economy," he said in a recent phone interview.

But the analysts' tone, in this year as in the flush years that have preceded it, is relatively sanguine.

Over all, revenues from slot machines have been relatively steady, compared to other funding sources, like the income tax, said William Lederman of the fiscal analysis office.

"This is the first year that it's been anything but predictable," Lederman said. "A new trend is probably starting, but it's really the first year of something new. If we see similar decreases year to year that we saw this year, then that could be a problem. But if it plateaus at the level it's at now ... it's easier to adapt to."

Analysts largely discount the potential effect of new competition.

"First of all, they haven't built anything in Massachusetts," said Beckham, of OPM. "We've assumed they were years away from doing that."

Rising, but barely?

In his most recent presentation to the legislature's Appropriations Committee about the state's effort to cope with sharply declining revenues, OPM Secretary Robert L. Genuario estimated that the state's slot share would fall $31 million short of the budgeted amount in fiscal 2009, a 7 percent drop to $417.7 million from earlier projections.

Still, the administration predicts slot revenues will rise at a rate of about 1.5 percent per year in 2009 and 2010.

The Division of Special Revenue, which receives the casino payments to the state, uses similar estimates: $420 million for the next fiscal year, and $422.5 million for 2010.

While the casino revenues make up a small portion of the annual budget, which hovers around $18 billion, the state has become dependent on the money, Stillman said.

"Let's face it, the state's addicted to gambling," she said, "whether it's the casinos, the lottery, Powerball. We do depend on that revenue to help fund our programs.

"I think some of us, through the years, have always said at some point we're going to hit a stone wall here, and we have to be careful how much we depend on revenues from gambling," she said. "And I think this is reflective of that."

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