Come Friday, Foxwoods and Mohegan Sun will have company
MGM Springfield’s debut is set for Friday, a long-awaited and, for some, much-dreaded event that will mark the start of a new era for southeastern Connecticut’s casinos.
For the first time, Foxwoods and Mohegan Sun, for decades New England’s only resort casinos, will have company — nearly $1 billion worth of it little more than 70 miles away. Occupying three downtown blocks in Massachusetts’ third-largest city, MGM Springfield is expected to stem the southward migration of Bay State gamblers, as well as divert many Connecticut casino-goers, particularly those residing in the north and central parts of the state.
Patrons won’t be able to smoke inside the new casino but, so long as they’re gambling, they’ll be able to get a drink there as late as 4 a.m.
Estimates of the Massachusetts market’s importance to the Connecticut casinos have been consistent over time. Massachusetts has long supplied about a third of Foxwoods’ customers and a fifth of Mohegan Sun’s, according to Clyde Barrow, a gaming expert who’s done consulting work for the Connecticut casinos’ respective owners, the Mashantucket Pequot and Mohegan tribes.
Mohegan Sun likely will feel more of MGM Springfield's impact, since it draws more people from western Massachusetts than Foxwoods does, Barrow said.
In a 2015 report, Barrow, chairman of the political science department at the University of Texas Rio Grande Valley in Edinburg, Texas, estimated that by 2019, four new resort casinos — MGM Springfield and Encore Boston Harbor in Massachusetts and two in upstate New York — could be diverting more than $703 million a year from the Connecticut casinos, costing Foxwoods and Mohegan a combined $570 million in annual gaming revenue and $133 million a year in nongaming revenue.
Barrow said last week that the projected revenue losses still hold, though they now won't be fully realized until “a couple of years” later than 2019.
In a report this month on Mohegan Gaming & Entertainment’s most recent quarterly results, Deutsche Bank analysts wrote that MGM Springfield’s proximity to Mohegan Sun “will result in significant cannibalization.”
“We believe that many casino patrons in Massachusetts will likely switch to MGM owing to the shorter driving distance, the newer facility and the benefits from the MGM rewards program,” the report says. A Hartford casino-goer, for example, would spend 34 minutes less driving back and forth to MGM Springfield than he would to Mohegan Sun.
The Deutsche Bank analysts calculate that by the end of the 2020 fiscal year, Mohegan Sun’s gross gaming revenue will have declined by 32.5 percent since the end of fiscal 2018, while its nongaming revenue will have dropped 21 percent.
During a conference call with investors, Mohegan Gaming executives said they have a $100 million plan to help offset such declines over the next several years.
A merger in Connecticut?
But how will the Connecticut casinos survive?
Richard McGowan, an associate professor in Boston College’s Carroll School of Management, said the two Connecticut gaming tribes may have to consider combining their casino operations.
“I have a feeling they might have to (merge),” said McGowan, who has studied Northeast gaming for years. “They’re already showing signs, collaborating on a project now.”
Indeed, the tribes formed a joint venture in 2015 to pursue a “satellite” casino in East Windsor to lessen MGM Springfield’s impact on Foxwoods and Mohegan Sun. While the tribes once hoped to have the third Connecticut casino up and running before MGM Springfield opened, a groundbreaking in East Windsor has yet to take place.
McGowan said each of the tribal casinos could focus on different facets of the business, with one, say, concentrating on gambling and sports offerings while the other provides concerts and other forms of entertainment. It would be complicated, he said, because of the distance that separates the two casinos.
Barrow rejected the notion of a combined Connecticut resort casino, saying each tribe’s sovereign status would make such an arrangement unlikely if not impossible.
“The casinos will survive (separately),” he said. “They have the capacity to remain profitable. But they will have to downsize considerably. ... They've done it before.”
From 2006 to 2015, the casinos lost about 40 percent of their business, Barrow said.
“If you looked at the size of the two, they were the biggest casinos on the planet,” he said. “Mohegan Sun was as big as three Atlantic City casinos and Foxwoods was as big as four of them. They’ve already closed the equivalent of three Atlantic City casinos — by reducing the number of slots, fewer table games, reconfiguring space to bring in more restaurants, more entertainment, even closing sections.”
Another observer of the Northeast gaming scene, Wayne Schaffel, a former marketing executive for casinos in Atlantic City and Las Vegas, believes the Connecticut casinos will struggle to survive.
“Within three months of Wynn (Encore Boston Harbor) opening (in 2019), the market in Connecticut will only be large enough to support one of the two properties,” Schaffel said. “The best scenario for the state at this point is to let Foxwoods and Mohegan Sun duke it out ... but sign a law allowing a limited number of tabletop slot machines in bars and restaurants.”
Longer liquor service
While some believe Massachusetts’ ban on smoking inside casinos will work to the advantage of the Connecticut casinos, which allow smoking except in designated smoke-free areas, Barrow and McGowan share a different view.
“I’ve done surveys around the country that consistently show that casinos actually do better by banning smoking,” Barrow said. “Seventy-seven percent of Americans don’t smoke. Three-quarters of those who do smoke are low income, so when you allow smoking, you’re attracting people without money.
“I don’t see that it gives the Connecticut casinos any advantage at all,” he said of Massachusetts’ smoking ban.
McGowan, too, said MGM Springfield probably will be able to successfully market its smoke-free environment. He said the percentage of adult smokers in the Boston area is much less than it is nationally.
“The vast majority of gamblers don’t smoke — not like they once did,” McGowan said.
Extended hours of liquor service may be a bigger deal than the smoking ban.
MGM Springfield won permission from the Massachusetts Gaming Commission to serve alcohol to active gamblers up until 4 a.m. daily, two hours later than otherwise permitted. The Connecticut tribes are expected to seek legislation that would allow their casinos to follow suit.
“It is a big deal — in New England especially, where there’s a wide range of professions with second and third shifts,” Barrow said. “Health-care workers, people in aviation, police, fire all work second and third shifts, and when they get off work, that’s when they want to gamble. It makes sense for Connecticut casinos to push for the longer hours.”
McGowan said Encore Boston Harbor likely will seek longer liquor service hours than MGM Springfield, perhaps even around-the-clock service, as is the norm in Las Vegas and Atlantic City.
“I can’t imagine Foxwoods and Mohegan Sun won’t eventually want 24-hour service,” he said.
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