Mohegan Casino Investment Group Reaps Ridiculous Rewards
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Loopholes in the law governing how proceeds from Indian casinos are split have allowed investors to collect far more than a reasonable return, to the detriment of tribes involved, say federal regulators.
The Mohegan Casino of Connecticut has paid $369 million to a small group of casino investors and advisors over the last six years, more than the entire Mohegan tribe has received.
Trading Cove, a company formed by Sol Kerzner, Len Wolman, and other investors, formed in the nineties to help the Mohegans build a casino to rival the Pequots’ Foxwoods Casino. Trading Cove invested $10 million directly, and guaranteed bonds sold to raise another $90 million; the payoff for this by the time the contract expires in 2015 will be over $1 billion.
The Indian Gaming Act of 1988 was passed precisely to prevent overpayment by the tribes, and to ensure that the lion’s share of profits went to help Indian tribal members, a group which consistently ranks among the country’s most poverty-stricken.
Even though outside groups are permitted to help manage casinos until tribal members have the experience to do so themselves, the payment for such services was limited to 30%of gaming profits; however, Trading Cove negotiated a contract which paid them 5%of all revenue, not just profit, and included all forms of income from hotels, restaurants, merchandising, and other sources.
The loophole allowing outside investors to take such profits is one in the existing law that applies restrictions only to contracts specifically for management; other contracts, such as for consulting, avoid restriction.
U.S. Senator John McCain attempted to revise the laws with a new bill this past year, designed to eliminate loopholes that divert money from tribes. The bill passed unanimously out of the Indian Affairs Committee, but was vigorously opposed by lobbyists and never brought to the Senate floor.
Perhaps the Mohegans and other tribes being taken advantage of should examine the history of the Seminole tribe in Florida. After entering a contract with Cordish Company to build the Seminole Hard Rock Hotel and Casino in Hollywood, Florida, the Seminoles subsequently refused payments due by the contract to Cordish on the basis that revenues were much higher than anticipated. And, therefore, Cordish would receive an unreasonable return.
Seminole tribal council members have stated for the record that is not only their right, it is their duty to the tribe to disregard any contracts that may become unfavorable to the tribe. Their position is that they are on sovereign land and will conduct themselves accordingly.
Perhaps Trading Cove and other such groups should fear their greed will result in losing their share of the golden goose.