In many regions of the U.S., Native American casinos got the jump on potential commercial competitors. That’s because tribes began opening casinos with bingo-style Class II games soon after President Reagan signed the Indian Regulatory Gaming Act in 1988. Some patrons were admittedly reluctant to patronize Native American properties, but for the most part they still came.
But since 1988, more and more state legislatures have approved additional commercial casino gambling. More casinos popping up across the United States means increased competition for tribes, including competition in some Native American strongholds.
The latest battleground is Connecticut, home of two Native American success stories: Foxwoods Resort Casino and Mohegan Sun. The two will be significantly affected by the arrival of four more casinos in the Northeast, according to Colin Mansfield, an analyst with Fitch Ratings.
The four new casinos are: MGM Springfield (Massachusetts), Tiverton Casino (Rhode Island), Resorts World Catskills (Thompson, NY), and the Hard Rock Hotel & Casino (Atlantic City).
“The Northeast is pretty saturated at this point, and with the prospect of three major casinos and one smaller one opening over the next year, there is a pretty good amount of supply coming on,” Mansfield said. “We see that having a negative impact to the Connecticut market.”
The Mohegan Sun is in a much healthier position to handle the cannibalization, Mansfield said, because management took steps to prepare. “They’ve reduced leverage and addressed major maturities a year ago,” he said. The Mohegan did some refinancing, and they also have a lot more geographical diversification, with a Pennsylvania property and projects in Washington, Atlantic City, and South Korea that provide fee income.
“They’re better positioned to handle it,” he said. “Foxwoods, unfortunately, not as much, but not for want of trying.”
Mansfield said Foxwoods’ credit is a little more strained. “They don’t have as many sources of liquidity and cash flow as Mohegan has.”
Casino followers can speculate that there will be many repeats of the northeast scenario – new casinos moving in on Native American properties – but Mansfield offered some cautions.
“One caveat is that a lot of the low-hanging fruit has already been picked,” meaning that commercial versus tribal competition already exists in what would be obvious region for commercial casinos to expand into.
Meanwhile, two large states with no casino gambling – Georgia and Texas – don’t have immediate prospects for adding anything. “States like those have a pretty decent track record of failed expansion,” Mansfield said.
And California, which has by far the most Indian casinos and leads the nation with $7.9 billion in gambling revenues, can’t even pass a law to legalize online poker, Mansfield noted.
“As gaming on the commercial side has proliferated it has started encroaching on what had been localized monopolies and that has slowly eroded away,” he said. “But there’s nothing really on a near term radar for major expansion.”
Fitch, a credit rating agency, keeps track of all the gaming bills introduced into state legislatures. “Always in the beginning of the year there’s a lot of interest of states thinking they’re going to pass gaming legislation. As the year goes on, the states that haven’t been able to do it continue to struggle to pass the necessary laws,” Mansfield said.
That includes Florida, where the Seminole tribe collected $2.3 billion last year, and recently completed a settlement agreement with the state that will give them blackjack through 2030. Fitch has assigned a BBB rating – the Las Vegas Sands is the only U.S. gambling company with a similar rating – partially because of that ruling and others in the Seminoles’ favor.
The BBB rating came this summer as an upgrade from the BBB- issued in December 2016. A Fitch news release this summer noted that the BBB rating reflects “the diminishing uncertainty over the tribe’s ability to continue offering table games and established track record of adherence to prudent financial policies.”
In some ways, commercial casinos and Native American casinos have the same general outlook, driven more by economic forces than competition with each other. Mansfield notes that regional gambling numbers state-by-state look relatively healthy, with a growth of about 2 percent so far in 2017.
“What we see is the dynamic really going is you’re having some factors like wage growth and strong consumer confidence helping drive some of that performance that’s trickling down to casino operators,” he said. “In the near term we see factors like that outweighing some more negative long-term concerns, such as a tough demographic shift and the proliferation of gambling and other entertainment options in general.
“It’s about competition for consumers’ wallet share,” Mansfield said.
