Foxwoods Resort Casino in Mashantucket, Conn., opened in 1992 and quickly became the model for Native American gaming operations and generating income for struggling tribes. But fast forward to the recession of 2009 and Foxwoods stands on the brink of disaster.
A recent feature story in the Boston Globe described not only the litany of woes many casino resorts are enduring in the current recession, but how – in Foxwoods’ case – the problems are tearing apart the Pequot tribe itself.
Foxwoods, straining under more than $20 billion in debt from an enormous expansion project, has its work cut out for it. Gaming revenue has fallen off at the same time the nearly 20-year-old resort faces increased competition from newer venues.
More than 700 employees, or about 6 percent of its staff, were laid off last year – including many Pequot tribal members who had returned to their native land from across the globe with dreams of casino wealth, the Globe reported.
Despite the cuts, slot revenues continued to plunge, falling 13.2 percent in July to $63.2 million compared with the same period in 2008.
Still, that’s $3.2 million more than the cost of the original Foxwoods casino. When the Pequots decided to dive into tribal gaming, it had to look to Malaysia for funding of the $60 million casino because no one else would lend them the money, the paper reports.
But when the casino became a success and credit unlocked, banks “lined up to make loan offers” as fast as Foxwoods could bring in customers and cash. The resort rapidly expanded, adding hotels, restaurants, shops and more floor space to the complex that is now 4.7 million square feet – nearly 20 times its original size. Revenues began topping out at more than $1 billion annually.
The casino was a major boon not only to the Pequots – tribal members receive “distributions” that have made some fabulously wealthy – but to Connecticut, thanks to an arrangement that sends 25 percent of gross slot revenue, or a minimum of $100 million, to state coffers annually.
But now, according to the Globe, there is nationwide speculation that Foxwoods could fail. And with it could go what many consider the Pequots’ greatest achievement.
“The casino helped bring this tribe together. People were so proud,” Pequot member Debbie Frankovitch told the paper. “Now, the casino is a big embarrassment. It’s just a lot of greed. People wanted more and more. It’s like a nightmare. It’s a shame it’s come to this.”
An elected tribal council chairman, who led the tribe and the casino, was reportedly placed on leave Aug. 31 after publicly warning of Foxwoods’ “dire financial straits” and promising to continue making distributions to tribal members before paying its creditors.
And that’s where things could get dicey for Foxwoods’ lenders.
Foxwood is on tribal land that federal law considers part of a sovereign nation, meaning lenders can’t resort to the usual remedies, including foreclosure, in case of default. It’s not even clear if the tribe can file bankruptcy, a financial adviser trying to help the tribe restructure its debt told the Globe.
The suggestion that tribal members would get paid before creditors set off a chain of events that may affect other casinos in the region and beyond. Tribal bonds are now trading lower than prior to the Foxwoods debacle, and some openly worry that other casinos will find it more expensive to borrow money.
Pequot leaders declined to talk to the Globe for its story but in a statement said: “We remain in compliance with our covenants and are current with regard to our debt obligations. As we continue through this process, the Tribe will be pursuing a mutually beneficial resolution with its banks and bondholders.”
They’ve got their work cut out for them. In one expansion project, a partnership with MGM Mirage announced in 2006, the Vegas giant promised to provide up to $200 million in loans to fund casino expansions in other locations, including Kansas and Massachusetts. But by the time the MGM Grand at Foxwoods opened in 2008, the economy was in the dumper and so were the millions of dollars Foxwood expected before MGM itself began to wobble.
Two new towers were constructed as part of the MGM project at Foxwoods, which the Globe described as “a symbol of excess, with unbooked rooms, empty stores and a sparsely populating gambling floor.” The paper says that even with the new slot machines, Fowoods’ annual contributions to the state have dropped 14 percent since a high of $205 million in 2005.
The Pequot members themselves are seeing their distributions cut by about 30 percent, and tribal services normally funded by the casino such as a child development center, police force and post office are reportedly suffering. Many are losing their jobs and may lose homes.
“Everyone is reeling a bit from the Foxwoods issues. It has not made things easy,” Mohegan Tribal Gaming Authority CFO Leo Chpaska told the Globe. “What occurred at Foxwoods is a negative for the entire Native American gaming sector.”
As for the Pequots, it’s a hard lesson the tribe is learning.
“The casino allowed people to come forward and admit who they are, and it offered a sense of pride and stability. But then it evolved into a sense of entitlement,” Charles Roberts, a Pequot who recently moved to Massachusetts, told the Globe.
“This entitlement and one-upmanship and ego is really what’s ruining this tribe and ruining the casino. How much money is enough? At what point do you ask yourself that question? For some people, there’s never enough.”