Beating the craps out of each other

Beating the craps out of each other

A Massachusetts-Connecticut border war over gambling stirs fears of an Atlantic City meltdown

Illustration by Phil Foster

CASINOS ARE ABOUT GAMBLING. Take away the restaurants, the shops, and the entertainment and what remains is the foundational reason for a casino’s existence—getting people to come and leave their money behind, lured by the slim chance they might walk away with a fatter wallet.

Those who build and operate the glitzy gaming halls are also gamblers, betting billions that they can draw enough customers—and their cash—to pay the millions to state and local governments that are required to operate and turn a healthy profit to justify their investments and placate shareholders. The question they are now facing is whether oversaturation of the casino market could tilt the odds so much against them that opening a new gambling facility seems as much of a sucker’s bet as those placed by customers frantically working the slot machines inside them. A battle now unfolding between Massachusetts and Connecticut will be the latest test of the question.

A key to casino success is tamping down competition and forging as much of a regional monopoly as possible. But that variable ultimately is out of the control of most casino operators, especially those in states abutting other states that also have legalized gambling. It is a dilemma now facing MGM Resorts International as it nears completion of its lavish $950 million casino in Springfield with competition sprouting up even before the first croupier spins the first roulette wheel.

Connecticut, where revenue from Foxwoods and Mohegan Sun has been in steady decline—and with more losses projected once Massachusetts casinos are up and running—decided that holding pat was not an option. Two years ago, state leaders there approved an initial plan to allow the two Native American tribes that run Foxwoods and Mohegan Sun, New England’s first and oldest casinos, to form a commercial partnership to open up a third facility in East Windsor, a mere 12 miles down Interstate 91 from the MGM complex now rising in Springfield.

“It’s primarily a response to Springfield because that’s what’s on the immediate horizon,” says Clyde Barrow, a University of Texas professor and former New Englander who has studied the gaming industry for decades and is a consultant to the new tribal casino partnership in Connecticut. “On a larger scale, it’s a response to a whole set of issues [Connecticut officials] have not responded to in a long time.”

That set of issues ranges from casino market competition to saturation as the Nutmeg State watches gambling revenue in a free-fall, a slide that means a major drop in money going into state coffers from the exclusive agreement with the Mashantucket Pequot and the Mohegan tribes.

Connecticut’s struggles look like a cautionary tale for the nascent gambling industry in Massachusetts, where two approved resort casinos have yet to even swing open their doors. With a new Connecticut facility, revenue the Massachusetts gaming facilities projected would come from Connecticut and New York, especially to MGM in Springfield, could now stop at the border, cutting into the take the global resort and entertainment giant counted on to justify its investment.

MGM officials claim they are not worried. “We know how to drive traffic,” says Uri Clinton, senior vice president and general counsel for MGM Resorts International, dismissing concerns about depleted gambling revenues. “We don’t shy away from competition. We already knew we’d be competing with Foxwoods and Mohegan Sun.”

But MGM was concerned enough about a third Connecticut casino that the company tried to derail the statutory handout to the tribes through lobbying, legislation, and litigation. That included an MGM pitch—some say a show—to open up the process to commercial bidders and a proposal to build a Connecticut resort casino in Bridgeport.

Massachusetts officials say the border competition is a “fact of life,” something they always anticipated could happen, but which they say they can do very little about. But they acknowledge that continuing to dot the landscape with casinos and slot parlors at some point reaches a level that can’t be sustained. And there’s an easy example to point to.

“Nobody in this business who has seen what happened down in Atlantic City can’t not see what expanding regional competition does to the industry,” says Stephen Crosby, chairman of the Massachusetts Gaming Commission. “But there’s nothing we can do, there’s nothing we should do. It is what it is. It’s one of those competitive facts of life.”

Massachusetts Gaming Commissioner Stephen Crosby says casino competition between states is “a fact of life” of which little can be done.

That may be the case. But declaring now that it’s an unavoidable fact of life will do nothing to lessen the bite if fears of a casino overload come true.

POINT OF NO RETURNS

For a quarter century, Connecticut has had a stranglehold on the New England gambling industry, a bit of Las Vegas in the woods. While the state enjoyed a de facto monopoly on the region’s gambling dollars, the two tribes running the casinos had huge leverage over any expansion of gaming in Connecticut.

When Foxwoods opened in 1993, and then Mohegan Sun four years later, it was a mutually beneficial partnership between the tribes and Connecticut taxpayers. In exchange for the casinos paying 25 percent of their gross slot revenues to the state, the two tribes were granted the exclusive right to operate slot machines in Connecticut.

For the first 15 years, those numbers rose like the sun—predictably and regularly. In fiscal year 1998, the first full year of operations for both casinos at the same time, bettors laid down $13.1 billion, according to the Connecticut Department of Consumer Protection, which oversees the gaming industry. That resulted in $256.1 million for the state.

For the next 10 years, the good times continued to roll, with revenues for the casinos and new money for the state coffers pouring in, not to mention the thousands of jobs the industry created for the state’s residents.

“About 140 towns in Connecticut send workers down to both casinos,” says Connecticut state Sen. Catherine Osten, whose district includes both Foxwoods and Mohegan Sun, which together employ nearly 10,000 people.

But the easy money the two casinos have brought in to support all those jobs has been on a downward slide. In fiscal year 2007, the two casinos combined for their all-time high of $19.8 billion in gross gambling receipts with more than $411 million siphoned off into the state’s general fund. But, between the recession that hit the following year and the opening of slots in Rhode Island as well as casinos in New York, those numbers took a big hit.

The gross revenues—and Connecticut’s share—have both fallen every year in the last decade. Gross revenues for fiscal 2016 were down more than 35 percent from 10 years earlier, to $12.9 billion, and the slots contribution to the state, in turn, dropped to $266 million. Incomplete data for the fiscal year that just ended look no brighter, with revenue and payments to the state relatively flat for the first 11 months of fiscal 2018.

With the impending opening of two high-end resort casinos in Massachusetts as well as the slots parlor already operating in Plainville, the outlook looked even grimmer for the once-booming Connecticut gambling market. Projections for MGM and Wynn Resorts, which is building a $2 billion complex in Everett, as well as those of consultants to Connecticut gaming officials, showed that 45 percent of gambling revenue at MGM Springfield and 15 percent of revenue at the Wynn casino in Everett would come from Connecticut gamblers.

Connecticut’s elected officials, watching the bleeding about to turn into a hemorrhage, knew they had to do something or the state would lose money and jobs.

Expanding gambling to include a commercial venture would have threatened the revenues from the two Indian casinos. Under the state’s compact with the tribes, only the Pequot and the Mohegan could run slots. If the state opened the gambling door to any other entity, it would terminate the tribes’ deal and Connecticut would get nothing from their casinos. That $266 million in state revenue that had been trending down would plummet to zero, and Connecticut would be hard-pressed to replace it, never mind add to it, with a new commercial casino.

“The exclusive right is truly exclusive,” says Chuck Bunnell, a spokesman for the Mohegan tribe. “In order to preserve the agreement, [a third casino] would have to be owned and operated by the two tribes or a joint venture.”

Connecticut state Sen. Catherine Olsen, whose district includes Foxwoods and Mohegan Sun casinos, is a supporter of a third casino in the Nutmeg State.

Connecticut lawmakers devised a plan in 2015 to allow the two tribes to form a partnership and build a casino on non-reservation land, a deal that retained the tribes’ exclusive control of the gambling market and kept the cash flowing into state coffers. That plan, though, was fraught with an equal number of obstacles, not the least of which were legal and legislative challenges by MGM to open up the process to bidding among commercial entities.

MGM, which is prohibited by agreement with Springfield from building another casino within 50 miles, had told Connecticut officials it was eyeing a site in the southwest seaport city of Bridgeport, a facility company officials said would be aimed at drawing gamblers from New York.

Lawmakers, tribal officials, and Gov. Dannel Malloy said the numbers wouldn’t add up and that a commercial casino could not make up the revenue lost by breaking the pact with Foxwoods and Mohegan Sun.

“If you were to build another large resort casino, it would be cannibalizing other casino resorts,” says Barrow, the University of Texas professor and consultant to the tribal partnership who previously spent years studying the industry at the University of Massachusetts Dartmouth. “That would have been a mess.”

If Connecticut were to put a commercial casino license out to bid and give up its tribal gambling revenue, Barrow says, it would come out $85 million or more behind current gaming revenue based on a 25 percent tax on gross revenue. Even at a higher 35 percent tax rate, he says, a new commercial casino would leave the state with a loss of $15 million compared with its current take.

MGM also filed a suit in federal court claiming the giveaway to the tribes was unconstitutional. That suit was rejected in district court and, again in June, by a federal Appeals Court, though MGM has vowed to fight on.

In the end, the Connecticut legislature approved a bill allowing the tribal partnership to build a $300 million casino on the site of a shuttered Showcase Cinema in East Windsor, an effort to stop day-trip gamblers from crossing the border into Massachusetts.

“The casino is all about saving jobs in the district that I represent,” says Osten, the Connecticut state senator. “I have a feeling we would have lost north of 6,000 jobs.”

But even some within Connecticut government are unsure whether it’s legal to give a Native American business entity a license to open a casino off its recognized tribal land without any competitive process.

“All men when they form a social compact are equal in rights; and no man or set of men are entitled to exclusive public emoluments or privileges from the community,” the Connecticut Constitution states in its first section. That language, according to the state’s attorney general as well as the nonpartisan Office of Legislative Research, which performs analysis for the General Assembly, could be the basis for an unraveling of the East Windsor casino license.

“The bill could conceivably raise constitutional questions in that it appears to provide what may amount to an exclusive public emolument to the Mashantucket Pequots and the Mohegans,” the research office wrote in its analysis when the bill came out of committee in May before the Senate and House voted on it. “The Connecticut Supreme Court has held that this constitutional provision invalidates state laws that grant emoluments or privileges to individuals unless there is a valid public purpose.”

Both state and tribal officials argue the casino license fulfills a “valid public purpose”—keeping an estimated $200 million a year and thousands of jobs from fleeing the state.

“We knew 9,000 jobs would be lost if we did nothing, and had the obligation to our employees to act,” says Kevin Brown, chairman of the Mohegan tribe. “We appreciate that the governor, House, and Senate came together to advance the project.”

ROVING EYE

MGM “hearts” Springfield, and vice versa. That’s the kind of love a $950 million private investment as part of a $3 billion revitalization of a tired downtown will bring.

The $950 million resort casino in Springfield is slated to open in September of 2018.

In addition to the casino, MGM is planning hotel, retail, entertainment, and restaurant space as part of the complex, scheduled for opening in the fall of 2018. While those amenities offer the promise of helping to revive Springfield’s economy, a guaranteed $17.9 million a year in direct payments to the city as part of the host agreement will also go a long way to easing the municipal budget crunch.

But much of that hinges on the rosy gambling predictions for the casino—an estimated $512 million in gross revenues after the third year of operations, according to MGM data presented in its license application. Even though the payouts aren’t tied to gambling receipts, a drop in cash flow will certainly hit MGM and Springfield where it hurts—in the wallet. While the payout to the city is a set amount, fewer bettors mean fewer consumers in shops and restaurants and a reduction in the need for workers.

In an effort to help ensure a healthy revenue picture at the new casino, Springfield officials got a concession from MGM that even if neighboring states opened up their doors to more casinos, the company would be prohibited from building a gambling facility within 50 miles of the western Massachusetts city to avoid eating its own.

State officials had a similar concern when Mohegan Sun entered into a pact with Suffolk Downs in 2013 to try to win the Region A license in eastern Massachusetts. That deal came after Mohegan Sun failed to woo voters in Palmer, another town near the Connecticut border, to win the western Massachusetts casino license. State gaming officials required Mohegan Sun to sign an agreement stating the company would not market the Connecticut casino in Massachusetts or low-ball the Boston facility, in effect making it the ugly stepchild and gain the license only to protect Mohegan Sun’s interests to the south.

Similar to Mohegan Sun, MGM sees the threat of cross-border competition, despite the bravado from company executives and from state and local officials. While MGM is prohibited from operating within 50 miles of downtown Springfield, mile 51 and beyond is open for business.

MGM made a strong lobbying push—spending more than $3 million since 2015, according to the Connecticut Office of State Ethics—to get the General Assembly to either scuttle the Foxwoods-Mohegan Sun tribal partnership bill or alter the measure to open it up to competition.

MGM’s CEO James Murren even played up his Nutmeg State roots in an op-ed in a local paper to convince lawmakers of the company’s sincerity in pursuing a license for a Bridgeport casino.

“For me, our interest in Connecticut is about seizing an exceptional business opportunity, to be sure, but it is also quite personal,” Murren wrote in the Connecticut Post in June, just ahead of the House vote. “That’s because Bridgeport welcomed my family when they emigrated from Ireland in the late 1800s and early 1900s. It is the city where I was born, and where a work ethic took root that has helped to advance my career.”

Mohegan Sun officials grouse that the Massachusetts Gaming Commission and local officials were holding MGM to a different standard, allowing MGM to dabble in Connecticut even as it was building a casino in Springfield. The Mohegan Sun officials say they were forced to pledge not to use a Boston-area gaming license to protect their Connecticut casino revenue, while the Massachusetts commission never publicly addressed MGM’s foray into Connecticut.

But Crosby, the chair of the Massachusetts Gaming Commission, threw up his hands and asked: “What would you have me do? I’ve never talked to anybody at MGM about it. Everybody does everything they can to protect their own operations and interests. We know they’re very concerned about the Connecticut casino but there’s been no ripple about that concern into our project.”

Springfield Mayor Dominic Sarno echoed that sentiment. Sarno said from the day Massachusetts passed its casino law in 2011, he knew Connecticut would respond. He said the response he sees will have minimal effect on the project or his city’s downtown redevelopment. He points to the renovated Basketball Hall of Fame, the newly opened Dr. Seuss Museum, the strengthened housing market, and the burgeoning restaurant and entertainment scene as a result of MGM’s investment.

“I’m not going to waste my time worrying about what Connecticut is doing,” he says, dismissing the East Windsor project as a pared-down gambling hall with few amenities. “There’s nothing we can do. What we have here is a world-class facility, not a glorified slot parlor. It might draw away from [MGM’s] customer who gambles and goes home. MGM derives 28 or 32 percent [of their revenue] from gaming. You’re going to get the full experience here in the city of Springfield.”

Sarno dismissed MGM’s dalliance with Connecticut, passing it off as due diligence from a responsible corporation.

“My concern was to keep the eye on the ball in Springfield,” he says. The Bridgeport proposal “would be drawing from a completely different territorial area. Every businessman or businesswomen deserves to make a dollar. MGM will do whatever they feel is best for their business model.”

MGM officials say they intend to pursue litigation to kill the Connecticut law and the competition it could bring, but they also insist the competition does not change their project or their prospects in Springfield.

“You don’t stop that massive investment because someone across the street decides to remodel a movie theater,” says MGM’s Uri Clinton.

LESSONS LEARNED?

There’s a lot to learn from the experience of casino gambling in Atlantic City. The oceanfront city, which had fallen into disrepair and disarray, saw casino gambling as a savior and voters and lawmakers, with visions of gold dust clouding their eyes, swung open the doors in the mid-1970s. Tower after tower shot up along the boardwalk in short order and East Coast gamblers, who had only Las Vegas and Reno as an option, started losing their money closer to home.

Four decades later, just seven casinos remain in Atlantic City and the city has fallen back to its destitute ways. Nine casinos have opened and closed, and another 12 that were once on the drawing board were canceled.

In 1981, gross gaming revenue in Atlantic City was $1.1 billion and began a steady rise year over year for the next 15 years, hitting a peak of $5.2 billion in 2006. But, like in Connecticut, that has taken a slide back each year since, with gross revenues now at $2.6 billion, half of what it was a decade ago.

“Both Connecticut and New Jersey had the luxury of a non-competitive market at the time,” says Barrow, the gambling company consultant and University of Texas professor. “The thought process was, ‘just build it and they will come.’”

But market saturation and competition have taken a huge toll on the gambling industry in both states. The cross-border war between Massachusetts and Connecticut has the potential to do the same.

Crosby, the gaming commission chair in Massachusetts, says watching Massachusetts residents gamble away elsewhere was the spur for the casino law. “Our people are gambling, they’re just not gambling in Massachusetts,” he says, summarizing the rationale many put forward in favor of the state entering the casino sweepstakes. “We picked probably two of the three strongest, most impressive, most stable operators in the world in part so they would repatriate Massachusetts dollars and compete with whatever competition came up.”

Crosby says industrial and state competition takes place in every sector; it’s just that casinos are a sexier topic and attract more attention.

“Banks are at war, too,” says Crosby. “The insurance companies are at war. It’s just a fact of life.”

Osten, the Connecticut state senator, says competition is healthy, but when it comes to the finite revenues available for gambling, it shows states they need to wean themselves from reliance on found money.

“I always think we should diversify our revenue base in all states,” she says. “I think we should be cognizant about what’s going on in the gaming world. Massachusetts clearly does think about it.”

States find it hard to resist what looks like the easy money of casinos. The danger is that the growing competition could water down the initial returns and turn the entire northeast into a sprawling Atlantic City. In addition to the three Massachusetts casinos, there is the potential First Light casino in Taunton, run by the Mashpee Wampanoag. There is a casino going up in Tiverton, Rhode Island. Foxwoods, Mohegan Sun, and the proposed East Windsor gambling hall are in Connecticut. And there are four newly approved casinos in New York, within a few hours drive of the three New England states, to further tax the loyalty and wallets of northeast gamblers. Finally, on the horizon several years out and approved by the New York legislature is a potential mega-casino in New York City, one that could completely disrupt the whole landscape.

Meet the Author

Jack Sullivan

Senior Investigative Reporter, CommonWealth

About Jack Sullivan

Jack Sullivan is a veteran of the Boston newspaper scene for nearly three decades. Prior to joining CommonWealth, he was editorial page editor of The Patriot Ledger in Quincy, a part of the GateHouse Media chain. Prior to that he was news editor at another GateHouse paper, The Enterprise of Brockton, and also was city edition editor at the Ledger. Jack was an investigative and enterprise reporter and executive city editor at the Boston Herald and a reporter at The Boston Globe.

He has reported stories such as the federal investigation into the Teamsters, the workings of the Yawkey Trust and sale of the Red Sox, organized crime, the church sex abuse scandal and the September 11 terrorist attacks. He has covered the State House, state and local politics, K-16 education, courts, crime, and general assignment.

Jack received the New England Press Association award for investigative reporting for a series on unused properties owned by the Catholic Archdiocese of Boston, and shared the association's award for business for his reporting on the sale of the Boston Red Sox. As the Ledger editorial page editor, he won second place in 2007 for editorial writing from the Inland Press Association, the nation's oldest national journalism association of nearly 900 newspapers as members.

At CommonWealth, Jack and editor Bruce Mohl won first place for In-Depth Reporting from the Association of Capitol Reporters and Editors for a look at special education funding in Massachusetts. The same organization also awarded first place to a unique collaboration between WFXT-TV (FOX25) and CommonWealth for a series of stories on the Boston Redevelopment Authority and city employees getting affordable housing units, written by Jack and Bruce.

A Boston native, Jack has lived in Massachusetts all his life. He was a major in English and history with a minor in political science at the University of Massachusetts, Boston. A father and grandfather, he lives in Plymouth with his wife, Susan.

About Jack Sullivan

Jack Sullivan is a veteran of the Boston newspaper scene for nearly three decades. Prior to joining CommonWealth, he was editorial page editor of The Patriot Ledger in Quincy, a part of the GateHouse Media chain. Prior to that he was news editor at another GateHouse paper, The Enterprise of Brockton, and also was city edition editor at the Ledger. Jack was an investigative and enterprise reporter and executive city editor at the Boston Herald and a reporter at The Boston Globe.

He has reported stories such as the federal investigation into the Teamsters, the workings of the Yawkey Trust and sale of the Red Sox, organized crime, the church sex abuse scandal and the September 11 terrorist attacks. He has covered the State House, state and local politics, K-16 education, courts, crime, and general assignment.

Jack received the New England Press Association award for investigative reporting for a series on unused properties owned by the Catholic Archdiocese of Boston, and shared the association's award for business for his reporting on the sale of the Boston Red Sox. As the Ledger editorial page editor, he won second place in 2007 for editorial writing from the Inland Press Association, the nation's oldest national journalism association of nearly 900 newspapers as members.

At CommonWealth, Jack and editor Bruce Mohl won first place for In-Depth Reporting from the Association of Capitol Reporters and Editors for a look at special education funding in Massachusetts. The same organization also awarded first place to a unique collaboration between WFXT-TV (FOX25) and CommonWealth for a series of stories on the Boston Redevelopment Authority and city employees getting affordable housing units, written by Jack and Bruce.

A Boston native, Jack has lived in Massachusetts all his life. He was a major in English and history with a minor in political science at the University of Massachusetts, Boston. A father and grandfather, he lives in Plymouth with his wife, Susan.

Something has to give, doesn’t it?

“Once you build out all of the facilities that have been planned or proposed, you would be at or near the saturation point,” says Barrow. “There are very few parts of the United States left where you’re going to see gaming expansion.”