Monday, August 2, 2010

Editorial: Follow Up On Local Coverage Of Mohegan's Earnings Report - Part II

Feather News

All of the local newspapers wrote an article for their websites the day the Mohegan Tribal Gaming Authority issued its earnings report last Thursday. We previously reported on those website articles.

One day after the earnings report these newspapers published new articles. The Norwich Bulletin's article on the earnings report failed to mention the earnings (net income or profit) just as they did on their website article the day the earnings report was issued.

The Day updated its website article entitled, "Mohegans report rough quarter as profits plunge" the day of the earnings release by taking out some figures related to the Tribe's Pennsylvania facility (but not noted as Pa. figures in the article) and, according to the paper, "Editor's note: This version corrects total handle for the quarter was $2.33 billion."

The day after the Mohegan Tribal Gaming Authority issued its third quarter earnings report, the Hartford Courant reported that "the Mohegans are trying to refinance about $775 million debt that comes due in 2012," becoming the first newspaper in Connecticut to report on that debt deadline.

Reporting on the finances of the Mohegan gaming arm without mentioning that approximately $800 million debt deadline is like reporting on the finances of Foxwoods these days without mentioning their $700 million debt deadlines.

To put the Mohegan gaming arm's financial picture into even more perspective, one year after the approximately $800 million comes due there is a bond package borrowed in 2001 in the amount of $250 million that needs to be paid. That's about a billion dollars and the interest rates on what will have to be refinancings will probably be at least double the rate they are now paying. The Feather News believes that the Mohegan Tribal Gaming Authority will pay at least $50 million more than they are now paying annually in interest expense and that is just on these two borrowings.

The Day's article the day after the earnings release didn't mention the debt deadlines. The headline is, "Casino marks 'disappointing' quarter; Mohegan Sun's declining profits cast shadow over tribal members' payments." The reporter assumes that if the Mohegan Tribal Gaming Authority reduces its distributions to the Tribal government that payments to tribal members will be threatened, which is not necessarily the case. The article is interesting and gives some good detail on the earnings report. The big picture, of course, is simply not there.

Below are the Hartford Courant and The Day articles in their entirety:

Mohegan Sun Has Cut Workforce By 1,000 Since Early '09
By Eric Gershon
The Hartford Courant
July 29, 2010

The owners of Mohegan Sun casino have eliminated about 1,000 jobs since early 2009, mostly at the flagship operation in Connecticut, executives disclosed Thursday during a conference call about dismal third-quarter earnings.

It's widely known that employment is down at Mohegan Sun and its neighbor and chief competitior, Foxwoods Resort Casino. But while Foxwoods has made headlines with layoffs, labor union fights and a huge debt default, Mohegan Sun has quietly reduced staff — almost entirely through attrition.

The job cuts, which leave Mohegan Sun's Connecticut workforce at about 7,700, underscore that the recent recession has taken a significant toll on the Mohegan Tribal Gaming Authority, which, along with Foxwoods had been a growth engine before the downturn. At its peak three years ago, Mohegan Sun had about 10,000 employees in the state.

On Thursday, the tribal authority reported an eye-popping 51 percent decline in third-quarter profits, citing weak consumer spending on gambling, price pressure on non-gambling entertainment and better luck for table games players.

Net income for the quarter ended June 30 fell to $11.6 million compared with $22.9 million a year earlier, on a revenue decline of six percent, to $354 million, the authority said. Financial results include the tribe's flagship casino in Uncasville as well the tribe's Pennsylvania casino in the Poconos.

Total gambling revenues fell 5 percent, to $321 million. Within that category, table games revenues fell 11 percent, to $71 million. Non-gaming revenues fell 9 percent, to $61 million.

"We are certainly disappointed with our results for the quarter," Mohegan Sun chief executive Mitchell Etess said.

Meanwhile, the Mohegans are trying to refinance about $775 million debt that comes due in 2012. The tribe has $1.64 billion in total debt. Chief financial officer Leo M. Chupaska said the refinancing could happen by the end of the year. At the same time, the Mohegans are trying to raise capital for a new hotel in Connecticut, having suspended construction of a 922-room hotel tower in September 2008 after pouring the foundation.

At Mohegan's Connecticut casino, operating income fell 17 percent, to $45 million, on a net revenue decline of 7 percent, to $288 million. At Mohegan Sun Pocono Downs, which introduced table games on July 13, operating income fell 30 percent, to $3.6 million.

Casino marks 'disappointing' quarter
Mohegan Sun's declining profits cast shadow over tribal members' payments
By Lee Howard
The Day
July 30, 2010

An increasingly competitive gaming environment put the crunch on profits last quarter at the Mohegan Sun casino and likely will reduce payments to tribal members in the next fiscal year, officials said Thursday.

The Mohegan Tribal Gaming Authority reported Thursday that profits plunged by more than half in the third quarter of its fiscal year compared with the same period last year. Profits for the latest quarter amounted to $11.6 million for the months of April, May and June, said the gaming authority. This compares to profits of about $20 million in the previous reporting period and $23 million in the third quarter of last year.

Another common way of measuring casino performance - earnings before interest, income taxes, depreciation and amortization - showed a 13.6 percent decrease in the quarter compared with the previous year.

Most of the numbers reflect activity at Mohegan Sun, but the gaming authority also operates a casino at Pocono Downs in Pennsylvania.

"The quarter was disappointing," Mitchell Etess, chief executive of the gaming authority and Mohegan Sun, said in a conference call Thursday. In a later interview, he added: "It really is a lack of consumer confidence and a change in people's spending habits."

The gaming authority reported that it had distributed $48.7 million to the Mohegan Indian Tribe during the first three quarters of its fiscal year - a $2.1 million increase from the same time last year - and that another $10 million payment would be forthcoming in the final quarter.

But Leo Chupaska, chief financial officer of the gaming authority, said next year's payments to the tribe - still not finalized - will likely not reach the $59 million expected this year. "I think I can safely say it will be less than the current year," he said in a conference call.

Lynn Malerba, chief of the Mohegans, defended the tribe's expenditures, saying tribal government has reduced its budget over the past few years by about 30 percent and has not raised payments to individual tribal members since the year 2000. The tribe traditionally has kept members' distribution amounts private, but Malerba asserted in the conference call that "it's a fraction of what the Mashantucket Pequot (tribe) has distributed to their tribal members."

The Mashantuckets, who reportedly have been paying tribal members $90,000 to $120,000 a year, changed their distribution policy earlier this month, apparently responding to pressure from financial backers, according to analysts. The Mashantuckets as of December will discontinue payments to members as they try to dig out of about $2 billion in debt, much of which was amassed in its MGM Grand expansion two years ago.

Malerba said the Mohegan tribe is trying to think long term and be fiscally responsible in keeping down payments to tribal members, which she said would not increase.

"We think we have been extremely judicious in that number and in managing that number," she said.

An expected reduction in payments from the gaming authority to the tribe comes as Mohegan Sun faces both a down economy and the possibility of increasing competition on several fronts, including Massachusetts, which has been embroiled for months in a casino debate.

The Sun said it had increased its share of the slot market in Connecticut from 52.5 percent in third quarter of last year to 54.1 percent in the same period this year. At the same time, Etess said the net slot revenue in the most recent period was the lowest Mohegan Sun had recorded in the third quarter since 2002.

"That tells me the market is not strong," he said.

Etess, who had hoped a stabilizing market last quarter would translate into an upswing in Connecticut's casino industry sometime this year, said profits have been hit particularly hard because of higher marketing and promotional expenses. Mohegan Sun had to match free-play giveaways and other special promotions forced by similar perks offered by Foxwoods Resort Casino and the Atlantic City market, he said.

"You have to market harder to get less revenue," he said.

Etess said it is reviewing options for reducing expenses but plans no layoffs.

The gaming authority also noted that Sands Casino Resort in Bethlehem, Pa., only 70 miles away from Mohegan Sun at Pocono Downs, opened in May 2009, so this was the first quarter reflecting the year-over-year differences resulting from increased competition in that market.

The authority said gaming revenues totaled $321.1 million for the quarter, a decline of 4.9 percent from a year ago. Total Mohegan Sun revenues for the quarter were $286.8 million, down 6.6 percent.

Revenues from table games showed the biggest losses, with an 11.2 percent decline, on a total take of $70.6 million. Slot revenues were down only 3 percent, to $246.2 million, and nongaming revenues hit $61.1 million, off 8.7 percent.

The gaming authority said fewer headliner shows held at the Mohegan Sun Arena reduced costs during the quarter, helping offset lost revenue in other areas.

One area of weakness last quarter was in what is known as "table hold," the percentage of money bet that remains with the casino. Last quarter, the table hold was 14.5 percent, which Etess said is a cyclical downside beyond the casino's control and which translated into a nearly $10 million loss in revenues from the same period last year.

Some people, he said, think the gaming authority's results "weren't so horrible" when considering the effect of lower table hold.

Total handle for the quarter was $2.33 billion, just a fraction off from the same period last year.

The gaming authority said its outstanding debt totaled $1.67 billion at the end of the last quarter, just a hair over what it had been a year earlier.