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Mohegan Tribe welcomes end of management agreement costing millions

By Brian Hallenbeck

Publication: The Day

Published June 01. 2014 4:00AM

Mohegan - It's only June, but already the Mohegans are looking forward to New Year's Day.

That's because the dawn of 2015 will mark the end of the tribe's so-called "relinquishment agreement" with its original partners, Trading Cove Associates, the people responsible for developing, building, marketing and, in the early days, running Mohegan Sun, the tribe's flagship casino.

At long last, the Mohegans will be free of the terms of that agreement, essentially a buyout of Trading Cove's exclusive rights to manage the casino and its hotel, which, at the time the agreement was signed, had yet to be built.

Intent on controlling its own destiny, the tribe agreed to pay Trading Cove 5 percent of Mohegan Sun's gross revenues for 15 years.

By early next year, the Mohegans will have paid Trading Cove more than $900 million to not manage the casino. If not for the Great Recession's effect on Mohegan Sun's revenues - growing competition in the Northeast is another culprit - the payments would likely have cleared the billion-dollar mark.

So was it a good deal for the tribe? Or would the Mohegans have been better off letting Trading Cove's original seven-year management contract run out in 2003? That deal called for Trading Cove to earn up to 40 percent of the casino's net revenues.

"I don't feel it appropriate to comment on a decision made nearly 15 years ago," said Kevin Brown, the Mohegan Tribal Council chairman, who was elected to the nine-member body in August. "I can tell you that I and the tribal council are looking forward to the last payment."

Brown's brother, Mark Brown, who's been a council member since 1995, chose not to elaborate on Kevin's statement. "Talk to Roland Harris," he suggested.

Harris, the council chairman when the relinquishment agreement was forged and signed in 1999, has at times been vilified by those who believe the terms were overly generous to Trading Cove.

In an interview Friday at his Griswold home, Harris stood by the agreement, which the council approved.

"For the tribe, it was the right thing to do," he said. "It wasn't just me (who favored it); I was just the chairman. … It was a business decision, as simple as that. Given all the same conditions, I'd do it again."

In 1994, Harris resigned as Griswold first selectman to work as the tribe's planner. Elected to the tribal council in 1995, he left in 2006 and has been unsuccessful in attempts to reclaim a council seat.

"Hey, I'm glad the payments are coming to an end, too, just like everybody else," Harris said.

One has to remember, he said, that back in the late 1990s, the tribe needed to expand Mohegan Sun's original footprint, and fast, or risk being crushed by Foxwoods Resort Casino, its nearby competitor, which had a head start.

Gaming experts told the council it had a five-year window in which to grow, Harris said. At the same time, the tribe yearned for autonomy.

"I don't even like to call them 'relinquishment payments.' It sounds anti-business," he said.

"I'd call them a cost of self-determination."

Harris dismissed the suggestion that the tribe agreed to relinquishment terms that were overly favorable to Trading Cove out of a desire to short-circuit protracted negotiations or even litigation.

"It had nothing to do with sweetening the pot," he said.

He noted that the agreement was already in place when the tribe obtained the financing for its Sunburst expansion project, which included the hotel. That's evidence, he said, that the financial markets considered the agreement's terms appropriate.

"Where would we be if we hadn't expanded?" Harris said.

Much of the second-guessing over the relinquishment agreement can be traced to the economic conditions that have taken a toll on the gaming industry in general, in Harris' opinion.

"Two thousand eight changed everything," he said. "You can always second-guess business decisions, but we made them (regarding the agreement) predicated on the conditions at the time. If it wasn't for what happened in 2008, you wouldn't be writing this story."

During the Great Recession and in the years since, revenues at Mohegan Sun and Foxwoods have declined by roughly a third, complicating the casinos' ability to finance their long-term debts. The windfall that the end of the relinquishment payments represents could help Mohegan Sun pay off obligations early and improve its standing with credit-rating agencies.

"The net result of this change for the tribe is that this yields the ability to pay down our debt at a faster rate," Kevin Brown, the tribal chairman, said of the end of the payments.

Over the past 15 years, the payments have fluctuated, reflecting ever-changing estimates of the total amount to be paid to Trading Cove over the life of the agreement. While payments approached $80 million annually in the years before the recession, they've ranged between $50 million and $60 million in recent years.

"No doubt, the expiration (of the agreement) will immediately improve our balance sheet and many of our financial calculations," Mitchell Etess, chief executive officer of the Mohegan Tribal Gaming Authority, said.

Revenues from Mohegan Sun at Pocono Downs and other tribe-owned or operated properties are not included in the relinquishment-payment calculations, nor are revenues from Mohegan Sun's Casino of the Wind expansion.

In response to a request for comment on the impending end of the relinquishment agreement, Len Wolman, a Trading Cove managing partner, provided a statement.

"Our relationship with the Mohegan Tribe began with a handshake with Chief Ralph Sturges in 1992," Wolman said. "It has been our privilege to partner with the tribe for many years, to assist them in their quest for federal recognition, in developing and operating Mohegan Sun, in developing the second phase of the project and, ultimately, assisting the tribe to achieve their goal of independence."

The paths of the Mohegans and Trading Cove, which has long been a partnership between Wolman's Waterford Hotel Group and South African gaming mogul Sol Kerzner, are intersecting again in New York's Catskills region, where both are involved in casino projects.

Trading Cove, in partnership with another Indian tribe, the Stockbridge Munsee Band of Mohicans, has proposed a commercial casino in Thompson, the same Sullivan County town where the Mohegans and developer Louis Cappelli hope to develop a casino on the site of the former Concord Hotel.

In nearby Liberty, N.Y., Foxwoods is also partnering on a casino project.

b.hallenbeck@theday.com

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