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Mohegan sports investments hit their stride after a bumpy start

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UNCASVILLE, Conn. – After a period of uncertainty, the Mohegan Indian Tribe is moving ahead smartly in building a nationwide sports and gaming empire.

Its investment arm recently ended a game of hardball with the state of Pennsylvania over its half-billion-dollar project at the Pocono Downs harness race track. Tribal officials said the renegotiated terms allow it to carry forward the first phase of its racino development as soon as the state grants a slots license. The final hurdle, a public hearing before the Pennsylvania Gaming Control Board, is scheduled for Sept. 11; and officials of the new facility, Mohegan Sun at Pocono Downs, expect to receive their license shortly.

“Yes, we’re moving forward now,” said Robert Soper, president and CEO of the Mohegan Sun at Pocono Downs.

Mohegan Chairman Bruce Bozsum confirmed tribal support for its out-of-state investments in a recent telephone call to Indian Country Today. He also acknowledged reports that the tribe would announce a major expansion of its on-reservation Mohegan Sun resort sometime in the fall. “We have to keep up with the neighbors,” he said, referring to ongoing construction of a new casino and resort hotel at the nearby Mashantucket Pequot Reservation.

Bozsum’s personal support cleared up one major uncertainty. He was first elected to a vacancy on the tribal council two years ago as a critic of its ambitious business plan. His first-place finish in the regular council election last fall made him chairman by tribal tradition. It was widely read as reflecting tribal members’ concern over the huge amount committed to the aging Pocono Downs track in northeastern Pennsylvania.

The $550 million Mohegan Sun at Pocono Downs racino is a corporate project of the tribally-owned Mohegan Tribal Gaming Authority. Unlike the fabulously profitable Mohegan Sun on the tribe’s southeastern Connecticut reservation, it is not a tribal business protected by sovereignty, nor is it involved in any land-into-trust issues. It was an attempt to diversify holdings beyond an increasingly unfriendly Connecticut political setting and also to tap into a “new frontier” of slot machine gaming opened by Pennsylvania legislation more than two years ago.

But slot licensing bogged down in state political fights over dividing the projected spoils. The MTGA, which owns Pocono Downs through a subsidiary, Downs Racing LP, objected to a Pennsylvania Department of Revenue ruling that could potentially boost the tax rate. The 2004 act set the tax on gross slot revenue at the 13 authorized slot parlors at a very high rate of 55 percent; of that, 12 percent would support the horse racing industry and 2 percent would go to the host community. The state tax department said the bill also guaranteed a minimum of $10 million a year to the host locality, a reading the Mohegans vehemently disputed.

Through the early summer, the Mohegan tax dispute became a war of nerves. Soper said the real tax rate would now be an extraordinarily high 63 percent, which “would alter the financial model materially.” The Downs canceled job fairs for the racino. The MTGA put a hold on improvements at the track, in which it had already invested $36 million, and hinted it might withdraw from the project. When the Mohegans purchased the track from Penn National Gaming last year, they insisted on a buyback provision if the state changed its regulations. MTGA Chief Executive Officer Mitchell Grossinger Etess told financial analysts Aug. 1 that it “was continuing to evaluate its options,” including, presumably, the buyback.

Penn National was definitely not interested in taking back the track, since it sold it in the first place to comply with the state’s racino law, limiting corporations to full ownership of only one.

But within 10 days, the Mohegans won the standoff. The first to blink, though, wasn’t the state, but Penn National. On Aug. 9, the MTGA and its Downs Racing subsidiary announced that it had renegotiated the purchase agreement. Penn National agreed to pay a refund of $30 million, spaced over the next five years, to get out of the buyback.

The Mohegans also struck a deal with the host governments, Luzerne County, Plains Township and the city of Wilkes-Barre, which would garner the extra tax windfall. The local officials said they would funnel back some $15 million in economic development grants to help build the new racino. In return, Downs Racing said it would reschedule its two-day “career fair” for Sept. 12 and 13.

Said Soper in the announcement, “The local support we’ve been developing for local infrastructure grants, in conjunction with the Authority’s agreement with Penn National, has enabled us to believe that the Authority can receive an adequate return on its investment in Pennsylvania.” He said the Mohegans planned to spend $200 million for improvements, creating 800 to 1,000 new jobs.

Soper, a Mohegan tribal member, told ICT that the work would continue in two phases. Construction is still far away for two other Mohegan partnerships, but they have passed some significant barriers. In Wisconsin, the state supreme court dismissed a challenge to state/tribe gaming compacts that could have blocked Menominee Nation plans for an off-reservation casino in Kenosha. The $800 million project in partnership with the Mohegans would take over the failing Dairyland Greyhound Park on the federal highway between Chicago and Milwaukee, and build hotels and a 3,000-slot casino and entertainment complex. The Mohegans have signed investment and management contracts for the casino that would bring them 13 percent of net revenues for the first seven years. The tribe has already invested more than $4 million with the Menominee.