As Connecticut looks to expand its gaming industry in search of new tax revenue, state lawmakers won’t be the only power brokers with a say or vote.
The state’s two Native American tribes will also wield significant authority, thanks to their exclusive rights to operate slot machines and casino games in Connecticut.
The Mohegan Tribe and Mashantucket Pequots just cashed in the latest benefits of that power: They’ve approved an agreement with the state Office of Policy & Management that will allow Connecticut to operate Keno outside the casinos, in exchange for 25 percent of revenues generated by the bingo-like game, said Chuck Bunnell, Mohegan’s chief of staff for external and government affairs.
The casinos are now waiting for the state to sign off on the deal, which will mark a major development in Connecticut’s efforts to expand gambling options.
“For all intents and purposes, that agreement is essentially done,” Bunnell said.
OPM could finalize the Keno agreement in less than a week, OPM Deputy Secretary Karen Buffkin said, although the final tweaks could take a bit longer.
“The lawyers are wordsmithing it,” Buffkin said.
The long-awaited contract deal has held up Connecticut Lottery Corp.’s implementation of Keno, which was approved by state lawmakers last year to help plug a budget deficit.
The game could be installed in hundreds of bars and restaurants around the state sometime this year, although lawmakers led by House Minority Leader John McKinney (R-Fairfield) said they will seek to repeal the game during the upcoming legislative session.
Because of the implementation delay, however, OPM expects Keno to generate less revenue than originally estimated: $13.5 million by the end of June 2015, instead of $31 million.
The Keno agreement, which should net the tribes about $4.5 million each by July 2015, is one of the first times — if not the first — that any American state government has authorized regular payments to Native Americans, said Joe Smith, spokesman for the Mohegan Tribe.
The rare move demonstrates the Indian tribes’ significant power and influence over Connecticut’s gambling policy and industry, which has been in place since the 1990s when the Pequots and Mohegans got the exclusive right to operate casino games at their Foxwoods and Mohegan Sun resorts, in exchange for ceding 25 percent of their slot machine revenues.
It’s a power that has grown more significant in recent years as legislators seek to expand gaming options to drum up new state tax revenue.
During the upcoming legislative session, for example, a handful of legislators are expected to lobby for slot machines at off-track-betting (OTB) facilities, a move that, Bunnell said, would violate the tribes’ exclusivity agreements, setting the stage for a potential legal and political fight.
If lawmakers want more slot machines, they can’t have the tribes’ money too, Bunnell said. The tribes have contributed $6.5 billion in slots revenue to the state since 1992 and are expected to contribute up to $300 million annually over the next four years.
Representatives from the Mashantucket Pequots did not return calls for comment.
The tribes were willing to negotiate with the state over Keno because their exclusivity agreements only cover casino games and not lottery games, Bunnell said. Some states consider Keno to be a lottery game while others and the National Indian Gaming Commission consider Keno a casino game.
Rather than go through a lengthy legal battle to determine Keno’s proper classification, the state and tribes compromised: Connecticut has agreed to pay each casino 12.5 percent of Keno revenues.
Slot machines, though, are a casino game, Bunnell said, and expanding slots beyond Foxwoods and Mohegan Sun would create a more contentious legal fight.
The Mohegans and Pequots could opt to modify their exclusivity deals, but they would need the proper motivation.
The only argument in favor of modifying the agreements, Bunnell said, is to keep Connecticut’s border town residents from traveling to slot parlors in Rhode Island, New York, and possibly Massachusetts.
Even then, the tribes would not want what legislators are proposing — putting slot machines at OTB facilities. The slot parlors would have to be joint Foxwoods-Mohegan ventures, Bunnell said.
“We would want to operate it,” Bunnell said. “We would be hard-pressed to say, ‘We want a third-party operator in the state.’”
A tribal exclusivity agreement has been modified significantly only once since they were implemented, when the Mashantucket Pequots agreed to allow the Mohegans to open Mohegan Sun in the 1990s.
“Everybody agreed and came together and sang Kumbaya, and here we are,” Bunnell said.
Even if the tribes agreed to OTB slot parlors run by third-party vendors, the move might not make sense economically for the state, according to a recent report from the offices of Fiscal Analysis and Legislative Research.
Opening slot parlors has reduced casino slot revenues by 7.8 percent on average in other states with similar situations, the report said. If Connecticut approved slot parlors, the state would miss out on $22.3 million annually in slot contributions from Foxwoods and Mohegan Sun.
In addition, the Department of Consumer Protection would need an extra $1.5 million annually to regulate and oversee the industry.
To make up for that lost $23.8 million, Connecticut would need to allow at least 2,500 slot machines at OTB parlors. That would provide enough revenue to cover the state’s losses, assuming the state received 25 percent of the OTB slots take as well, the report said.
