Wednesday, December 31, 2008

Mohegan Gaming Authority Issues Annual Audit Report

Feather News

The Mohegan Tribal Gaming Authority, the business arm of the Mohegan Tribe, issued its annual audit report yesterday. A brief summary of some key components follows.

The report can be found in the upper right-hand corner of this website in the link called MTGA Annual Audit FY 2008.

The annual audit report includes, among other financial data, the Tribe's income statement and cash flow statement for the 12 months that ended on September 30, 2008 and MTGA's balance sheet for September 30th.

Despite expansions at both the Mohegan Sun on the Reservation and at the Pocono Downs racetrack-slot parlor in Pennsylvania, the total amount customers spent at the two facilities (gross revenue) decreased by about 2.5 percent to $1.71 billion from $1.75 billion last year.

Yesterday's audit report also reflects a change in the net income, or profits, that were previously reported by MTGA earlier this month. Profits for fiscal year 2008 were previously reported at $152.8 million, a decrease of 11.5 percent compared to last year. The annual profit had been changed in the annual audit report issued yesterday to $149.3 million, a decrease of 13.5 percent when compared to last year's profits of $172.6 million.

It is crucial to keep in mind that this year's profits of $149.3 million includes a $68.9 million accounting adjustment that had nothing to do with actual operations. The $68.9 million adjustment reflects a change in the estimate that MTGA will pay its former management company, Trading Cove Associates, over the life of its contract that ends in 2014. Excluding this $68.9 million adjustment, the adjusted profit would be $80.4 million, or a decrease of $92.2 million compared to last year's profits (53 percent less than last year's profits). Cash flows from operations in fiscal year 2008 fell even steeper, by $111 million, compared to fiscal year 2007.

The same type of accounting adjustment related to Trading Cove Associates was done last year but it was only $3 million and that has not been taken into account (since the amount is small by casino terms) in the determination that profits fell 53 percent over the prior year.

A significant portion of the decline in MTGA revenues continue to stem from the corporate diversification department, which accounted for $29 million in expenses in fiscal 2008 compared to about $11 million in fiscal year 2007. The corporate diversification department oversees the portfolio of diversification projects, which over the past year included proposed casinos or slot parlors in New York, Kansas, Massachusetts, Washington and Wisconsin. Much of the increase in the corporate diversification expenses in fiscal year 2008 is due to write-offs related to the proposed Menominee Tribe casino project in Wisconsin and the failed attempts in New York and Kansas.

The Feather News has consistently reported that the Tribe's Pocono Downs racetrack-slot parlor (which is not included in the corporate diversification department) is losing money. Although Pocono Downs was not open for a full year in fiscal year 2007, its operating results in 2007 were higher than it was in fiscal year 2008. The number of slot machines were also doubled in July 2008. In the audit report issued yesterday, the explanation given was that "The decrease in operating margin at Pocono Downs was primarily attributable to the continued weakening of the regional economy, new competition from Mount Airy (slot parlor) and the increased operating costs and expenses." How much is the Pocono Downs losing? An exact number cannot be determined with precision because MTGA only reports earnings before interest expense is calculated. A follow up article will provide readers with further analysis of the Pocono Downs operations supporting our conclusion that the facility is losing money. Also, a Feather News article earlier this month outlines these calculations.

Additionally, the balance sheet reveals: 1) The total long term debt at September 30th was $1.55 billion, 2) Accounts receivable increased 63 percent to $40.7 million, and 3) Cash decreased by $21 million.