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Mohegans Hint At Withholding Slots Revenue

Tribe considers halting payments to the state if litigation develops over casino smoking ban. When Mohegan Tribe officials threatened this week to sue the state if the General Assembly enacts a smoking ban at the casinos, they invoked a tactic that was not without precedent.

In a letter Wednesday to state Attorney General Richard Blumenthal, Helga Woods, the tribe's attorney general, said the Mohegans “would expect either to cease contribution payments or deposit them into court while such litigation is pending. Alternatively, we would consider an escrow agreement for slot contribution payments ….”

In fact, both the Mohegans and the Mashantucket Pequots are hewing to just such an agreement in connection with a lawsuit over “free slots play” promotions introduced at Foxwoods Resort Casino in 2006. Mohegan Sun introduced a similar promotion, dubbed “e-Bonus,” about a year later.

Nearly $42 million in disputed slots revenue - 25 percent of the face value of promotional coupons and mailings redeemed for free slots play at the casinos - has been escrowed in an interest-bearing account managed by Citizens Bank. The Mashantuckets have set aside more than $33.1 million over the last 30 months while the Mohegans have escrowed more than $8.7 million over the last 16 months, according to figures the casinos reported to the state Division of Special Revenue.

In 2008, the state's 25 percent share of the casinos' slots revenue totaled $393 million - $211 million from Mohegan Sun and $182 million from Foxwoods, including MGM Grand at Foxwoods. The dispute over the “free slots play” promotion, which prompted the state to sue the Mashantuckets in Hartford Superior Court in December 2006, turns on language in the 1993 agreement that governs the tribe's slot payments to the state.

That agreement, a “memorandum of understanding,” calls for the tribe to pay the state 25 percent of the “gross operating revenues” from its slot machines. The agreement defines those revenues as “the total sum wagered less amounts paid out as prizes.” While the state contends that the value of redeemed “free slots play” coupons should be included in the tribe's calculation of “gross operating revenues,” the tribe disagrees.

The tribe, in court documents filed in the case, claims the phrase “total sum wagered” refers only to money wagered by patrons “and does not include any notional 'value' assigned to coupons or credits.” The phrase “less amounts paid out as prizes” includes, the tribe says, “all money paid out to patrons, regardless of the amount, if any, of money remitted to play the machines.”

The Mohegans, who planned to introduce their “e-Bonus” promotion as early as 2006, have sought to file a friend-of-the-court brief in the case, whose outcome will apply to them. In a court filing, they cited a September 2006 letter to Paul Young, executive director of the state Division of Special Revenue, in which state Comptroller Nancy Wyman wrote, “Thus, it appears that the electronic plays proposed by the Mohegan Tribe would not constitute a wager to the IRS.

Similarly, the plain and ordinary definition of the term 'revenue' is 'income produced by a given source.' The electronic plays do not, in and of themselves, produce income.” The issuance of coupons or credits for free slots play is a common practice in the casino industry, according to Mitchell Etess, president and chief executive officer of Mohegan Sun.

He said the casino mails or e-mails credits to its member players in denominations commensurate with the amount of their play. ”It's an important driver of business,” he said of the promotion. “You give patrons free play, and if they win it becomes real money. We think it's an important element to have in our toolbox for marketing.” Etess said Mohegan Sun is careful not to overuse the promotion. “You overuse it, everybody stops using money,” he said.

In December 2007, “free slots play” coupons valued at more than $23.1 million were redeemed at Foxwoods, far more than in any month before or since. At the time, Etess said it had a major impact on slots revenues at Mohegan Sun, which that month experienced the worst year-over-year decline in slots revenue in its history. Foxwoods' slots revenue also slumped drastically that month.

But, in general, such promotions are considered a sure bet to boost casino traffic. ”The state should encourage their use,” Etess said, “because it means more business.”

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