Making the News

Star Ledger

Originally Published:Monday, May 19, 2008

"What the industry is learning is that there are misconceptions," said Michael Pollock, publisher of Michael Pollock's Gaming Industry Observer. "And one of the misconceptions is that gaming can operate independent of normal economic cycles, and it can't. And the other is that gaming can continue to grow despite what's happening in other states."


Under pressure, Conn. casinos go big

By Judy DeHaven
Star Ledger

MASHANTUCKET, Conn. -- A red carpet. Celebrity chefs. Oscar-winning actors. Grammy-winning musicians. An invitation-only, black-tie event. And an after-party hosted by none other than Sean "Diddy" Combs.

Last night's festivities at Foxwoods Casino Resort had all the makings of a major Hollywood affair. Except it was held in the middle of the Connecticut woods, and the occasion was the opening of a casino expansion.

A very major casino expansion.

The MGM Grand at Foxwoods, which officially opened to the public at midnight last night, promises to add pizzazz to an already-palatial casino complex. At a cost of $700 million, the expansion brings a renowned Las Vegas brand attractive to high rollers, along with an 825-room hotel tower, 4,000-seat arena modeled after the Kodak Theatre in Hollywood, 50,000-square-foot ballroom and an outdoor pool.

It is all aimed at reclaiming some of the turf taken by rival Mohegan Sun, the trendier Connecticut gambling alternative, which, while smaller in size, has topped Foxwoods in slot revenue.

Mohegan is not taking it on the chin. This fall, it will fight back with the first phase of a planned $925 million expansion. A new casino area will mark the return of poker to Mohegan and add a Jimmy Buffet's Margaritaville restaurant. And by 2010, Mohegan will be adding a chic brand of its own -- House of Blues, with "H.O.B." hotel rooms and a music hall.

The growth of Foxwoods and Mohegan Sun will expand two casinos that already are among the largest in the world, and certainly bigger than anything in Atlantic City.

But as the Native American-owned casinos continue their contest over which one is bigger and hipper, which can draw more conventioneers and which can lure more high rollers, economic and competitive forces are starting to take a toll. Like Atlantic City, Connecticut is grappling with the effect of record-high gasoline prices and increased competition from slot parlors in neighboring states.

Empire City at Yonkers Raceway in New York and the Twin River slot parlor in Lincoln, R.I., have been stealing Connecticut's gamblers. And a sluggish economy hasn't helped matters. During the last 12 months, slot machine revenue at the two Connecticut casinos -- the only numbers the two operations are required to make public -- has fallen nearly 4 percent.

The lesson, industry experts say, is no casino is immune to market forces -- not even the mighty Connecticut casinos, which came out of nowhere in the 1990s to explode into a $1.7 billion gambling market.

SHAKING THINGS UP

Foxwoods, which is owned by the Mashantucket Pequot Tribal Nation, opened as a high-stakes bingo hall in 1986 and added casino games in 1992; Mohegan, owned by the Mohegan Tribe, opened in 1996.

Together, they have turned Connecticut into the fourth-largest gambling market in the country, according to the American Gaming Association. Atlantic City, the No. 2 market behind Las Vegas, has 11 casinos that generated $4.9 billion in revenue last year.

But both East Coast markets are being challenged now as casino gambling has spread to more and more states. In Atlantic City, casino revenue fell last year for the first time in three decades.

"What the industry is learning is that there are misconceptions," said Michael Pollock, publisher of Michael Pollock's Gaming Industry Observer. "And one of the misconceptions is that gaming can operate independent of normal economic cycles, and it can't. And the other is that gaming can continue to grow despite what's happening in other states."

To regain and grow market share, industry executives and analysts said, casinos need to move beyond gambling by adding nightclubs, restaurants and shops. Connecticut will put that conventional wisdom to the test, since both expansions include very little gambling.

"In order to take a casino to the next level, you add rooms, you add amenities and you add convention space, because you want to try to diversify business from daytripper to overnight and also fill midweek," Deutsche Bank analyst Andrew Zarnett said.

Zarnett and others think the Connecticut expansions will be successful. But they may not show returns quickly.

"It might take them a little longer to ramp up their business," Zarnett said. "But given the population density, the question is not if it will ramp up. The question is, how long?"

That was one reason Moody's Investors Service last week downgraded Foxwoods' $1.5 billion debt. Moody's also has put Mohegan's $1.2 billion in debt on review for possible downgrade.

However, Moody's senior credit officer Keith Foley predicted that over time, the Foxwoods and Mohegan expansions would do well.

"These places are getting hit," Foley said. "But just to put it in perspective, the wheels aren't falling off the cart."

While Connecticut has become a major casino market in its own right, it is not considered a direct competitor to Atlantic City. After the Connecticut casinos opened, Atlantic City's growth slowed initially, but it never fell until competition opened closer to home, particularly the introduction of slot parlors in Pennsylvania.

Still, both Atlantic City and Connecticut compete for gamblers in New York. Zarnett of Deutsche Bank said A.C. could feel a pinch after a total smoking ban goes into effect in October. Right now, smoking is allowed on 25 percent of a casino floor in Atlantic City. In Connecticut and Pennsylvania, smoking is allowed, although there are movements to ban it.

"Foxwoods and Mohegan are different markets," Zarnett said. "That being said, if Atlantic City goes nonsmoking, then the majority of the Asian customers coming from northern New Jersey or New York will migrate to Connecticut to play."

Officials from both Connecticut casinos said they do not consider A.C. a main rival, with the exception of Borgata. Atlantic City's newest and trendiest casino, Borgata is co-owned by Boyd Gaming and MGM Mirage, which is licensing its MGM Grand brand for the Foxwoods expansion.

Borgata's chief operating officer, Larry Mullin, said he considers it a compliment Foxwoods and Mohegan think of his casino -- which is gearing up to open a new hotel tower next month -- as competition.

"We're on their radar, and that means the product and experience we offer is meaningful," Mullin said.

While Connecticut's casinos keep expanding and offering more attractions for nongamblers, Mullin said they still fall short of the kind of nightlife available in A.C.

"You do get more references of Las Vegas and Borgata in the media than you do about Connecticut and Las Vegas," he said. "I think that speaks to the brand we have and the excitement we offer the guests who come here."


READY TO ROAR

At Foxwoods a few weeks ago, hundreds of employees wearing black T-shirts that read "The Roar Next Door" -- a reference to the MGM Grand lion logo -- were getting their first taste of the expansion. As construction crews put the finishing touches on some of the new restaurants -- Elizabeth native Tom Colicchio is opening a Craftsteak, and the landmark Junior's Cheesecake also will open an outlet -- employees were receiving their first day of training in preparation for this weekend's opening.

 

Workers were making sure the theater equipment was ready to go. Employees were getting their IDs and training manuals. And a food and beverage consultant was handing out sets of the "Amazing Adhesive Bra" to cocktail waitresses.

Chris O'Connell, vice president of hotel operations for the MGM Grand at Foxwoods, said the expansion, which includes the largest ballroom in the Northeast, is clearly focused on boosting convention business. The fact that there isn't a major airport nearby to fly in conventioneers didn't seem to faze him.

"We're looking at conventions and groups for 30-to-35 percent of our hotel occupancy," O'Connell said. "And that's primarily midweek. And then on the weekend, we're looking for a cooler, hipper crowd, people who are young at heart and full of energy."

Key to that strategy is the MGM Grand Theater, which Gloria Estefan will inaugurate with three performances Memorial Day weekend. Upcoming acts include Jerry Seinfeld, Larry the Cable Guy and Huey Lewis and the News.

Melanie McNair, a 60-year-old self-described "retired homemaker," said she couldn't wait to get a glimpse of the MGM Grand at Foxwoods.

"I love this place," she said.

And while the Twin River slot parlor is just 40 minutes from her Boston home, she said it's too small. She likes having the options Foxwoods' six casinos offer.

"Twin River has a buffet," she said. "This has everything."

But Claudia Correia, a 72-year-old from Taunton, Mass., said she has curtailed her trips to Foxwoods since Twin River opened. The price of gas makes Foxwoods expensive.

Both McNair and Correia said they prefer Foxwoods to Mohegan because of its brightness. Foxwoods can feel like a shopping mall, with its Panera Bread and California Pizza Kitchen. The decor is small-town New England.

In contrast, Mohegan is dimly lit, and the theme is a celebration of Native American culture. The casino is decorated with beaded canopies, all made from scratch, as well as tribal symbols and lots of wolves. (Mohegan means "wolf people;" Mashantucket means "fox people.")

Jeff Hartmann, chief operating officer of Mohegan Sun, said the planned expansion will use entertainment to go after a younger crowd, although he said the casino already has the Wolf Den, where acts such as Ambrosia, Foghat and Chuck Mangione play for free, and the casino's 10,000-seat theater, which draws performers such as Van Halen, Stone Temple Pilots and Eric Clapton.

"We want to get a little younger and make Mohegan more appealing to the younger set," Hartmann said.

Even if Mohegan takes a hit from the Foxwoods expansion, or feels some heat from slot parlors in neighboring states, Hartmann was confident in Connecticut's future. And rather than take a shot at his main rival, he wished Foxwoods well.

"It's about reinvesting, it's about raising the bar," Hartmann said. "So it's a very friendly competition. And I think their MGM product will really enhance the Connecticut gaming experience."

COMPARING CASINOS

Foxwoods Casino Resort

Owner: Mashantucket Pequot Tribal Nation

Already there ...

Casino size: 340,000 square feet spread over six casinos

Slot machines: 7,200

Table games: 380, including 98 poker tables

Bingo: World's largest bingo hall, with 3,200 seats

Hotels: Three towers totaling 1,416 rooms

Restaurants: 30, including gourmet restaurants Paragon and Al Dente, as well as the Hard Rock Cafe and Fuddruckers

Shopping: 24 stores in a 20,500-square-foot concourse.

Entertainment: 1,400-seat Fox Theatre and two 18-hole championship golf courses

Next big thing ...

The MGM Grand at Foxwoods

Cost: $700 million

Casino: 50,000 square feet

Slot machines: 1,400

Table games: 53

Hotel: 30-story tower with 825 rooms

Restaurants: Gourmet eateries include Michael Schlow's Alta Strada and Tom Colicchio's Craftsteak. Casual dining includes Junior's Cheesecake and a food court.

Entertainment: 4,000-seat MGM Grand Theater

Other: 21,000-square-foot spa with 14 treatment rooms and 115,000 square feet of meeting and convention space, including the largest ballroom in the Northeast.

Opening: Today

Mohegan Sun

Owner: Mohegan Tribe of Connecticut

Already there ...

Casino size: Nearly 300,000 square feet

Slot machines: 6,074

Table games: 324

Hotel: 34-story tower with 1,200 rooms

Restaurants: 30, including Michael Jordan's Steak House, Todd English's Tuscany, Big Bubba's BBQ and Jasper White's Summer Shack

Shopping: 130,000 square feet of retail space

Entertainment: 10,000-square-foot arena that hosts headline entertainers and boxing and is home to the WNBA's Connecticut Sun. Also, a 350-seat cabaret theater and the 300-seat Wolf Den

Meeting space: 100,000 square feet

Next big thing ...

Project Horizon

Cost: $925 million

Casino: 45,000 square feet

Slot machines: 826

Table games: 28, plus a 42-table poker room

Hotel: 39-story tower that includes 261 House of Blues-themed rooms and 658 Mohegan Sun rooms

Restaurants: Jimmy Buffet's Margaritaville and Chief's Deli, plus other eateries not yet announced

Entertainment: 1,500-seat House of Blues Music Hall

Other: 22,000-square-foot spa and members-only House of Blues Foundation Room, an exclusive club

Opening: 2010

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