After forecasting gaming industry struggles more than three years ago, the Mohegan Tribe in Uncasville this spring is realizing plans to branch out beyond the casino business.
The Mohegans, which operate three resort casinos out of their gaming division, made two announcements in late May and one in early June to invest in businesses completely outside their comfort zone and they expect to unveil more diversification plays this month.
“It is an obvious recognition on our part that in order to ensure the long-term health and self-sufficiency of the tribe that, much like businessmen, we had to have a more diverse portfolio than just being in the gaming industry,” said Kevin “Red Eagle” Brown, chairman of the Mohegan Tribal Council.
Mohegan’s most significant diversification deal so far is the acquisition of a wood pellet production plant in Ohio, with an agreement to buy a second plant in Indiana. The venture into the wood pellet production industry, called Northeast Wood Products, expects to sell more than 130,000 tons of wood-fiber pellets annually under the brand name ThermaGlow.
“The energy industry is growing, and we saw the opportunity to jump in,” said Guy Mozzicato, president of Northeast Wood Products, who helped the tribe put together the deal. “The European market for wood pellets has been growing at a rapid pace, and we are hoping to see some of that here.”
Mozzicato said he had been going back and forth with tribal members about the council’s desire to enter the energy industry, and he recommended woods pellets — instead of the proposed idea of a power plant — because it gave the tribe flexibility and room to grow in the new market.
“This is more fluid or liquid than building another power plant that can only serve one area like southeast Connecticut,” Mozzicato said. “Energy is important to all of us, and there are opportunities for us moving forward in the energy industry.”
Mohegan Tribe’s other diversification plays are its franchise agreements to open at least 15 Arooga’s Grille House and Sports Bar locations and 16 Smashburger locations in New England over the next five years.
The restaurant business will be a major part of the tribe’s diversification plays, Brown said.
All three business ventures resulted from the tribe’s formation of a strategic initiatives task force in September 2012 to look at revenue opportunities beyond gambling.
That task force was the result of more than a year of discussions about the financial future of the Mohegan Tribe, said Philip Cahill, chief operating officer for the Tribe. The Great Recession severely impacted revenues coming from the Mohegan Sun Resort Casino in Uncasville, and the council members realized they couldn’t rely solely on the gaming industry.
The tribe’s diversification comes just as the New England gaming market keeps getting more competitive, said Clyde Barrow, director of the Center for Policy Analysis at UMass Dartmouth, which tracks the gambling industry.
At one point, the Mohegan Sun casino and its competitor Foxwoods Resort Casino in Mashantucket were the only casinos north of Atlantic City. Now, New York and Rhode Island each has two casinos, while Massachusetts and New York each look to add four more.
“Regardless of the industry, when an industry reaches maturity, the big players look to diversify beyond the typical industry revenues,” Barrow said.
When non-tribal gaming companies diversify, they typically do so geographically by opening more casinos in other locations around the globe, Barrow said. They also diversify within their casinos, offering more hotels, spas, restaurants, and other non-gaming amenities; 50 percent of Las Vegas casino revenues come from non-gaming attractions.
The Mohegans have diversified inside the gaming industry as well, now operating three casinos in Uncasville, Atlantic City, and Wilkes-Barre, Pa. They are looking to add a fourth casino outside Boston. Non-gaming amenities have become increasingly important as well, such as Mohegan Sun’s various restaurants and the events at Mohegan Sun Arena.
What is unique about the Mohegan Tribe is how it has diversified beyond the gaming industry, Barrow said. Typically, Native American tribes diversify by offering camping on their reservations, waterparks, or aquaculture.
The Mohegan’s move to wood pellets is very atypical.
When the Mohegan strategic initiative task force recommended exploring non-gaming opportunities, it didn’t look to specific industries, just investments that made sense, Brown said. The restaurant industry will play an important role, but that won’t be the only one.
Having run successful gaming properties in three states gave the Mohegans confidence and the reputation that they could build successful businesses in any industry, provided the right opportunity and proper partners with industry-specific expertise, Cahill said.
“One of the things we learned early on is that we don’t know everything about everything,” Cahill said.
All revenues from the various business lines feed into the tribe’s general fund, which is used to support the 2,000 tribal members, Brown said.
Given enough profit from the various business ventures, tribal members could see their direct disbursements from the general fund increase over time, but those payouts will take a backseat to growing the companies and paying down their debts, Brown said.
“We don’t go into these ventures having those [payouts] in mind,” Brown said.
Tribal members can benefit from other uses with the general fund money, such as building up the infrastructure at the Connecticut reservation, Brown added.
Over the next three years, the tribe plans to have enough training so its members can take over prominent positions running these new business ventures, just like they do at the gaming properties, Cahill said.
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