IS THE MOHEGAN SUN IN TROUBLE?

By WILLIAM SOKOLIC
For The Norwich Bulletin
Posted Jan 02, 2010 @ 11:14 PM

In its annual report filed this week with the Securities and Exchange Commission, the Mohegan Tribal Gaming Authority noted that the sluggish economy is making it more of a burden for the tribe to repay its backers.

In the report, the Mohegan Tribal Gaming Authority lists $61.7 million paid to Trading Cove Associates for fiscal 2009.

The money is part of a 15-year relinquishment agreement dating to Dec. 31 1999, that gives Trading Cove 5 percent of Mohegan Sun revenues in exchange for ending a management contract two years early.

The agreement expires Dec. 31, 2014.

In the annual report, the authority said: “Our obligations under the relinquishment agreement could affect adversely our financial condition and prevent us from fulfilling our debt service obligations.”

The Indian Gaming Regulatory Act permits such early buyouts, but this deal might be unique.
“I am not aware of any other relinquishment agreements between a tribal casino and a casino developer/manager,” said Clyde W. Barrow, director of the UMass-Dartmouth Department of Public Policy.

The management contract that preceded the relinquishment agreement called for Trading Cove to oversee operation of the casino hotel.

Trading Cove Associates, a partnership between South African gaming mogul Sol Kerzner and Waterford Gaming, the local firm operated by Waterford entrepreneur Len Wolman, developed and helped finance the construction of Mohegan Sun.

The seven-year contract called for Trading Cove to receive 40 percent of net revenues, more than the National Indian Gaming Commission standard of 30 percent. The tribe had to petition the commission for permission to raise the fee.

Tribe wanted controlAs the five-year mark approached, the tribe wanted to sever the management contract early to assume day-to-day operations.

“It was the desire of the tribal council at the time to have total control of management and the facility,” Chairwoman Lynn Malerba said.

But the early termination came with a price. The tribe agreed to pay Trading Cove 5 percent of all gross revenues for 15 years.

The ramifications meant little when the economy was good. But the recession has led to constant declines in gaming revenues.

“This obligation consumes a significant portion of our operating cash flows...” the report states. “As a result, our flexibility in planning for, or reacting to, changes in our business and the gaming industry in general is reduced. This may place us at a disadvantage compared to our competitors that do not have such an obligation.”

The relinquishment payments fall behind senior debt, which are bank loans. The payment is also subordinate to minimum tribal distribution. When the agreement was entered into in 1999, a provision was inserted that allows the tribe to take a minimum distribution, Chupaska said.
“We would be willing to renegotiate as long as it was more favorable to the tribe,” Malerba said.
Wolman deferred comment to the tribe.

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