The one billion dollar expansion that the Mashantuckets embarked on last Spring was the topic in an article in The Day newspaper on Sunday. That article is reprinted below:
Upscale Aims Of MGM Grand Termed Mistake
But Foxwoods adviser says finances would be worse minus new facility
By Brian Hallenbeck , Patricia Daddona
Mashantucket - From the start, MGM Grand at Foxwoods had people shaking their heads, and not just in awe of its glitz, its style, its unabashed embrace of youthful excess.
There was the timing, too, charging as it did right into the open jaws of a recession. How long, some wondered, before the iconic lion on the Las Vegas brand's logo turned tail?
Now, 15 months after the hotel tower's May 17, 2008, opening, the wondering has grown more acute.
In interviews last week with The Day, a senior adviser to the Mashantucket Pequot Tribe, owners of Foxwoods Resort Casino and MGM Grand, said the marketing of MGM Grand to upscale clientele has been a mistake and that the tribe's relationship with MGM Mirage, the gaming giant whose brand the tribe adopted, is “tenuous.”
According to the adviser, who spoke on condition of anonymity, the tribe could default this week on the terms of a $700 million line of credit and is seeking to restructure a total of $2.3 billion in debt.
Still, the adviser said, “If we didn't do the deal with MGM we'd be in worse shape.”
The $1 billion MGM Grand, with its 825 hotel rooms, 4,000-seat theater and 21,000-square-foot spa, enabled Foxwoods to maintain its traffic count and secure a greater share of the market before the market tanked, the adviser said.
”Did we spend too much on it? Yeah, probably,” he said.
What benefit the tribe derives from the licensing agreement that allows it to display the MGM Grand name - at a cost of several million dollars a year - is anybody's guess. “We don't get a benefit from it,” the senior adviser said flatly. “A year from now, it wouldn't surprise me if there was a different name on it (the tower).”
A Las Vegas-based spokesman for MGM Mirage, which also has been battered by the recession, said last week the company's relationship with the tribe “is going well” and that there have been no changes in the agreement. Nor has notice of any alterations been filed with the Connecticut Division of Special Revenue, which oversees state gaming, said Executive Director Paul Young.
”MGM Grand at Foxwoods was a very attractive product from a business standpoint,” Gordon Absher, MGM Mirage's vice president of public affairs, said. “It was an attempt by Foxwoods to develop a new product in an already successful market. For our company, it was an opportunity to establish the MGM Grand brand on the East Coast and associate it with another well-established gaming company.
”We were very happy with the execution of the product and, barring the economic downturn, believe MGM Grand at Foxwoods had the potential not only to meet, but exceed our expectations.”
MGM Mirage's alliance with the tribe and its development arm, the Foxwoods Development Co., also included the formation of Unity Gaming, a partnership that would pursue gaming opportunities in other markets. Economic conditions, including the credit crunch, have stymied Unity, Absher said.
Despite adding about 1,400 slot machines to the more than 6,200 in place at Foxwoods, MGM Grand's presence has not kept the tribe from experiencing sharp declines in slot-machine revenues. In July, the casinos reported “winning” $63.3 million at their slots, the most of any month this calendar year but 13 percent less than July 2008. In June, the total was down 9 percent over the previous June and in May it was down 14 percent.
The Foxwoods casinos' slots held their own in February, March and April, bucking the industry-wide trend. However, its win continues to lag behind that of Mohegan Sun, its neighboring competition. Mohegan Sun's July slots win was $69.1 million. And it was achieved at 6,749 machines, more than 800 fewer than operated by Foxwoods and MGM Grand combined.
Slots, of course, aren't the only revenue producers at “destination” resorts. But they're certainly among the ones most affected by the tourniquet the recession has applied to discretionary spending. The convention and hotel businesses have also taken huge hits, industry analysts say.
“For casinos, it's actually the big destination resorts such as Las Vegas, Atlantic City and Foxwoods that have been the hardest hit,” Clyde Barrow, director of the Center for Policy Analysis at
UMass Dartmouth, said. “Hotels, conference centers - those are exactly the type of discretionary expenditures that people cut back on in a recession. In other places, you've seen a lot of slot parlors and racinos do OK, which is consistent with the 'staycation' approach.
”They just got caught flat-footed opening in what we now know is the worst recession since the Great Depression,” Barrow said of the Mashantuckets. “You couldn't have picked a worse time to open any business. … I think it was part of a grand plan that made sense at the time. The tribe thought MGM would insulate them from competition or scare it off, and it didn't succeed.”
Michael Pollock, publisher of the Gaming Industry Observer newsletter, holds out hope that MGM Grand will still be a major asset to the tribe once the economy recovers. “This recession will eventually end, and when it ends and the regional and national economies return to something normal, that project will do what it was originally intended to do, which was broaden the visitor base, bring in conferences and bring in a higher level of business,” he said.
Barrow, too, saw some hope on the horizon. “There's no doubt in my mind you're going to see the destination resort casino market come back because it's dependent on discretionary expenditures, so it's going to follow the overall economy,” he said. “But I don't think you'll see that before the second half of 2010, maybe even 2011.”
What's not clear is how the Mashantuckets will weather the storm in the interim.
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