Making the News

The Day, New London

Originally Published:Sunday, January 3, 2010
http://www.theday.com/article/20100103/nws01/301039942/-1/nws

'Caution' is casino industry watchword
A new year won't change the numbers or trends overnight

By Brian Hallenbeck
The Day, New London

If it weren't for the recession, they'd have no bad luck at all.

But with economic recovery a good six months or more away, Connecticut's tribally owned casinos are likely to face a third straight year of declining revenues in 2010, experts say.

The problem is that to gamble, people need money they can afford to lose - also known as discretionary income - and that kind of dough figures to remain in short supply for some time to come.

"As the year goes on, we'll see a gradual flattening out of the revenue declines," said Mitchell Etess, president and chief executive officer of Mohegan Sun. "My personal feeling is that it will happen when people start feeling comfortable, when unemployment starts to go down, when people see the national trends looking up and they can straighten out their own personal balance sheets."

If Etess and others are right, slot-machine revenue, the leading barometer of the casinos' relative strength, will continue to dwindle at Mohegan Sun and at Foxwoods Resort Casino and MGM Grand at Foxwoods. The spiral began during the state's 2008 fiscal year, when the Division of Special Revenue's share of the casinos' slot winnings totaled $411.4 million, a 4 percent decline over the previous year, when the state's take peaked at $430.5 million.

The slide accelerated in fiscal 2009, which ended June 30, with the total falling another 8 percent to $377.8 million. State officials have anticipated a decline of similar magnitude over the course of the current fiscal year.

"It's going to be another challenging year," said Joe Weinert, senior vice president of Spectrum Gaming Group, a Linwood, N.J.-based research and professional services firm. "Spending on gambling is going to lag the economic recovery to the extent there really is one. Whether credit markets open up appreciably is another question."

Indeed, the economy's impact also has been felt on the capital side of the business. Casinos, ever bent on expanding and freshening the product, can no longer borrow as freely as they once did. With the Mashantucket Pequot Tribe in debt-restructuring talks with lenders, the prospect of capital improvements at either of the tribe's Foxwoods casinos seems remote, barring some kind of partnership with another casino operator, analysts say.

Mohegan Sun, meanwhile, which managed to refurbish its Winter Entrance last year, linking the formerly freestanding Winter Garage to the main building and upgrading its dining options, wants to proceed with construction of a $700 million hotel tower, the cornerstone of Project Horizon, which was suspended in September 2008. That could be contingent on the Mohegan Tribe finding a partner with deep pockets.

"Theoretically," Etess said, "we want to be successful with that (forging a partnership) and resume construction in 2010."

Still, caution is now the byword when it comes to casino expansion.

"The industry has changed its thinking," Etess said. "It's always been, 'If you build it, they will come' - the more you build, the more revenue you will generate. It's not that way anymore. We need to be more cautious about expanding. But we need to continue making improvements, to keep adding content so that we can compete better."

Mass. a likely player

Much has been made of the competitive pressures that loom for Foxwoods and Mohegan Sun. Additional gaming venues that will further fragment the New England and Northeast markets are virtually certain to materialize, though not necessarily in 2010.

Massachusetts would appear to pose the most immediate threat, given indications that the state's legislature will consider legalizing some form of casino gambling early in the year.

"Everything points to something passing by March or April," Clyde Barrow, director of The Center for Policy Analysis at UMass Dartmouth, said. "If it goes like the speaker's (House Speaker Robert DeLeo) been talking, it could be slots at three racetracks - Plainridge, Taunton-Raynham and Suffolk Downs in Boston - by the end of the year."

Other Bay State proposals call for up to three full-blown resort casinos, including one in western Massachusetts, where Mohegan Sun has optioned a site in Palmer. If such legislation is approved, it's unlikely a Massachusetts casino would open before 2012, according to Barrow.

Massachusetts' introduction of slots would also be expected to affect the cash flow at Twin River, the Lincoln, R.I., slot parlor hoping to emerge from bankruptcy this year. Even as Twin River sank deeper and deeper into insolvency in 2009, some Rhode Island lawmakers favored adding table games - blackjack, craps and roulette among them - to the gaming mix.

Such a move would likely require a statewide referendum, which, if held in November, would push any expansion of gaming in the Ocean State into 2011.

More competition also could come from New York, where the governor's office has delayed the awarding of a contract for construction of a casino at Aqueduct Racetrack in the New York City borough of Queens. However, the Empire City Casino at the Yonkers racetrack just north of the city already draws slot-playing patrons away from the Connecticut casinos, primarily Mohegan Sun, and Aqueduct might not pose much of an additional threat in Barrow's view.

Other potential gaming growth is either too far off and/or too far away to be of much immediate concern to Foxwoods and Mohegan Sun.

Just entertainment

Competitive pressures aside, casino operators and industry analysts agree that the public's appetite for gambling remains strong and that amounts wagered will eventually return to pre-recession levels.

"I don't think anything fundamental has changed," Barrow said. "This is the first time in history we've seen gross gaming revenue decline in a recession. But this wasn't just a recession, this was a great recession."

Research, in fact, has shown that people in their 20s and 30s have a greater propensity to gamble than those who are older. For more and more people, Barrow said, the moral stigma long associated with gambling is gone. "It's just another form of entertainment," he said. "We've found that up to 20 percent of the people who go to casinos don't even gamble."

The good news for casino-goers, whether they're big gamblers or not, is that they can expect the casinos to keep catering to them as never before, according to Robert Victoria, senior vice president of consumer marketing for the Foxwoods casinos.

The industry, Victoria said, has become more willing to accept a smaller profit margin in exchange for a loyal customer base. Casinos are offering more valuable coupons to all visitors, discounting hotel rooms and generally focusing on getting visitors to return again and again, he said.

In 2010, look for poker to make a comeback, Victoria added, and for the popularity of table games to continue growing, particularly among younger, more-skilled gamblers.

Casinos will continue to focus on the nongaming sectors of the business as well, including spas, retail stores, restaurants, golf, entertainment and lodging, all of which attract a younger, broader demographic, he said.

 

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