MGM, Foxwoods
close to alliance

Aug 22, 2006 4:25 AM

What do you get when you marry a tribe that operates the world’s largest casino with one of the world’s biggest gambling companies?

Well, for one thing, a lot more casinos, possibly in southeastern Connecticut, elsewhere in Indian Country, in Atlantic City or on the Las Vegas strip.

That’s part of the vision of a "memorandum of understanding" signed this spring by the Mashantucket Pequots and their prospective partners at MGM Mirage, the publicly traded gaming giant that operates 23 casino properties, from the enormous MGM Grand, Luxor and Bellagio casinos in Las Vegas to a new resort on the coast of China.

In southeastern Connecticut, the Mashantuckets and MGM envision, in addition to the $700 million expansion already under way, the potential for more new casinos on the reservation using MGM brand names and other non-gaming, destination-resort development along Route 2 in North Stonington.

The tribe announced its intention to partner with MGM in April. The memorandum, released this week by the state Division of Special Revenue in response to a Freedom of Information request, includes these provisions:

”¡ The current expansion at Foxwoods, scheduled to open in 2008, will get an MGM brand name, probably MGM Grand, and the Mashantuckets will have access to additional MGM casino hotel brand names for future expansions here.

”¡ MGM will provide a wide range of management consulting and assistance in all aspects of tribal resort businesses on the reservation, including marketing, customer development, entertainment, retail outlets, food and beverage services, hotel operations, purchasing and employee benefits and relations.

”¡ With the opening of the first MGM-branded property, the Mashantuckets will begin paying their new partners 12 percent of all earnings above a pre-opening base line of what Foxwoods made before the expansion. Under this formula, MGM will share in all new revenues brought to the reservation, once the new property opens. MGM will also receive $5 million annually in fees prior to the opening and $6 million every year after.

”¡ MGM will lend the tribe $200 million. The loan proceeds could be used for various purposes, including new projects jointly developed by the tribe and MGM. In that instance, the loan could be paid off with revenue from the new venture, the agreement suggests.

”¡ MGM and the Mashantuckets will establish a new entity, jointly owned, that could develop casino resorts all over the country, including the Las Vegas strip. A specific 14-acre site in Atlantic City now owned by MGM is one location mentioned as a possibility.

”¡ MGM will appoint a representative to the Mashantucket Pequot Tribal Nation for strategic advice and consultation. The first will be James J. Murren, president, treasurer and chief financial officer of MGM.

The tribe submitted the memorandum to the state in response to requests for it from Paul A. Young, executive director of the Division of Special Revenue, and Attorney General Richard Blumenthal following the announcement of the planned partnership last spring.

Both Young and Blumenthal said they have reviewed the memorandum but will need to see the final agreement, still being drafted, before they determine whether the new partnership is allowed under federal gaming law and the terms of the tribe’s compact with the state.

One area of concern is that the tribe not give up ownership or control of the casinos on its reservation, Blumenthal said.

"The (memorandum) is an agreement to come to an agreement," Blumenthal said. "As they say, the devil is in the details, and we will look behind the structure and form to see where ownership and control are.

"So far, the dialogue has been constructive and positive and we are going to continue in that vein."

The National Indian Gaming Commission, which is required to approve anything considered to be a management contract with an Indian tribe, is also reviewing the Mashantucket/MGM memorandum, a spokesman said.

John O’Brien, president of Foxwoods Resort Casino, said in an interview last week that the Mashantuckets have no intention of giving up ownership or control of any casino on the reservation. He said a final agreement would be provided to the national gaming commission as a courtesy, but that the Mashantuckets are not seeking approval for a management contract.

"”˜The tribe has always owned and managed this, and they have been very successful," O’Brien said.

The partnership will allow both sides to draw on the strengths of the other, he said. For the Mashantuckets, that includes benefiting from MGM’s experience in and access to other gaming markets, as the tribe aims to diversify geographically.

Talks with MGM began about a year ago, O’Brien said, initiated by the Mashantuckets, as they considered the idea of distinguishing the new expansion from the rest of Foxwoods.

"We’ve always wanted to brand this property," he said. "Some said, ”˜Why don’t we approach the biggest and the best?’ And we did."