Here’s Why The Tribes Should Reconsider Their Stance On MGM Bridgeport

MGM’s proposed casino project in Bridgeport, Connecticut may initially appear absurd, but the company is sincerely committed to its development.

The concept is being largely disregarded due to the exclusive rights to casino gambling held by Connecticut’s two gaming tribes, the Mashantucket Pequot Tribe and the Mohegan Tribe, as outlined in their compacts.

Due to this, the construction of a commercial casino in Connecticut necessitates the consent of both tribes. In the event that the tribes refuse to endorse the commercial casino and the state proceeds with its development, their agreements with the state would become invalid. Consequently, both tribes would have the right to promptly cease paying the state the 25 percent tax on slot revenue.

It should come as no surprise that the project is opposed by Connecticut’s two tribal casinos, Foxwoods and Mohegan Sun.

Should they, though? The answer is yes, but only if the state is not giving serious consideration to MGM’s proposal. In the event that the state is genuinely considering MGM’s proposal, the tribes might need to reconsider their opposition.

Examining the gaming dynamics within the state and region presents a contrasting perspective on the southern Connecticut casino. It can be argued that Foxwoods and Mohegan may reap benefits by proactively embracing the idea of a third casino.

Who is my real casino competition?

The focus of concern should not be directed towards a Southern Connecticut casino, but rather towards the casinos in Massachusetts and the ongoing expansion of Twin River in Rhode Island.

The proximity of Massachusetts casinos to the proposed Bridgeport casino implies that competition will be unavoidable in the future. Considering this, it may be more beneficial for the tribes to have control over the terms and conditions of this competition, especially in terms of their gains within Connecticut’s boundaries.

The presence of the MGM Bridgeport casino in the same state does not necessarily imply that it will have a greater impact on tribal casinos compared to the Massachusetts casinos.

Initially, the investment will be reduced to $650 million, allowing Foxwoods and Mohegan Sun to maintain their appeal in attracting visitors with a wide range of entertainment, dining, and shopping opportunities.

Looking closely at casino geography

Furthermore, despite being located in the same state, Bridgeport is just as distant from other casinos.

• It takes approximately an hour and a half to drive from Bridgeport to either Foxwoods or Mohegan Sun.
• The journey from MGM Springfield to Foxwoods or Mohegan Sun takes approximately 10 minutes less.
• Traveling from the location of Wynn Boston Harbor to either Foxwoods or Mohegan Sun typically requires approximately two hours.
• It takes an hour to travel from Twin River in Lincoln, Rhode Island to Foxwoods or Mohegan Sun.

Bridgeport has the potential to become a bottleneck for the tribal casinos’ customer base coming from New York City. Nevertheless, the true concern lies with the patrons from the north that they might lose. If Foxwoods and Mohegan Sun provide superior non-gaming alternatives, they can continue to attract visitors from New York City and even further who are willing to make the additional hour-long drive.

Tearing up the compact isn’t good for anyone

Should Connecticut proceed with a commercial casino, the tribes must consider whether it is more advantageous to terminate their existing agreements or engage in sincere renegotiations with the state.

If the state approves the Bridgeport casino without requiring a new agreement with the tribes, they would be exempted from the current requirement to pay 25 percent of their slot revenue.

The state’s stance appears to be quite unconventional and highly advantageous for the tribes, but the situation is not as straightforward as it seems.

According to MGM’s projections, they anticipate sending $320 million to the state on an annual basis. This amount surpasses the combined revenue generated by Foxwoods and Mohegan Sun. Additionally, it exceeds the anticipated tax revenue from both Foxwoods, Mohegan Sun, and their joint satellite casino venture.

Putting the accuracy of the projection aside momentarily, another concern arises regarding the interim years – the duration in which the state will not generate any revenue from casino gaming.

Revenue for Connecticut an important part of the equation

No gaming revenue will be received by the state until the commercial casino is approved and opened.

Based on the 2016 tax revenue from Foxwoods and Mohegan Sun, the state can expect to lose approximately $530 million if the MGM casino takes at least two years to become operational.

MGM plans to compensate for part of the loss by receiving a $50 million licensing fee upfront. Additionally, they will receive approximately $12.5 million in local payments. However, this only totals to $37.5 million per year, which is significantly less than the $265 million paid by tribal casinos to the state in the previous year.

The state appears to be at a disadvantage in this arrangement. Nevertheless, if the tribal compacts are nullified, the state can easily permit the establishment of another commercial casino. Moreover, there is no hindrance preventing this casino from being situated in close proximity to the two tribal casinos.

However, engaging in such action would result in market oversaturation and significant harm to all casinos.

Upshot #1

When the compacts are torn up, the tribes experience an immediate increase in revenue, while the state suffers from a long-term decrease in revenue.

Moreover, the state would hold a distinct advantage in any forthcoming negotiations, not to mention complete freedom to expand casino gambling in every possible manner.

Renegotiating a better compact

Renegotiating the current compacts would be a wise move if a commercial casino is deemed unavoidable.

The tribes would receive a considerably lower tax rate in exchange for relinquishing exclusivity, primarily reducing their annual payments from $265 million to a range of $50-$100 million.

If MGM’s estimation is at the upper limit, and in case MGM’s tax obligation aligns with the current sum paid by the tribes, with an additional contribution of $50 million from the tribes, the state will ultimately benefit.

Furthermore, the tribes would be spared the hassle of proceeding with their collaborative construction and operation of an ancillary slot facility near the Massachusetts border.

Why would the tribes consent to making a payment when they have the option to pay nothing?

Initially, it ensures that the state maintains a vested interest in the prosperity of Foxwoods and Mohegan Sun.

Additionally, there is a possibility of incorporating certain advantages. For instance, by allocating a portion of the funds obtained through tribal grants or a percentage of the earnings generated by commercial casinos, they could contribute to the revitalization of tribal casinos and the neighboring vicinity.

Furthermore, the tribes possess the ability to utilize the compact as a means to exert pressure against the establishment of new casinos. As previously mentioned, the state would have complete freedom to act as it wishes if the compact is nullified. In the event of renegotiation, the tribes could introduce additional safeguarding provisions, such as implementing a restricted area surrounding the tribal casinos.

The issue of lost tax revenue persists until the MGM casino opens its doors as well.

In order to compensate for this, the state has the option to request a slight increase in the meantime, possibly maintaining the existing 25 percent tax on slot revenue until the opening of MGM Bridgeport. This presents another opportunity for the tribes to negotiate and secure the most favorable agreement in a revised compact.

Upshot #2

The tribes would incur a slight revenue loss by opting for a renegotiated compact, but they would gain various subsidy arrangements in return. Additionally, this would equip them with ample bargaining chips for future negotiations.

Final thought

Ultimately, competition is inevitable, whether it arises in Connecticut or a neighboring state. Therefore, it would be advantageous for Foxwoods and Mohegan Sun to seize any opportunities that come their way in the present.