Tough financial questions confront Connecticut's two beleaguered tribal casinos as they propose joining forces in a major investment to fend off new competitive threats looming in Massachusetts.
Mohegan Sun and Foxwoods Resort Casino — weakened by debt and a yearslong decline in gamblers — are looking to build a third scaled-back casino in the state to try to stem an expected flow of gamblers to a resort casino set to open in 2017 just across the Massachusetts border in Springfield. First, they must raise the money.
"You've got to wonder. Where are they going to get it?" said Keith Foley, an analyst at Moody's Investors Service. "The financial situation of both is not the strongest."
Foley said Mohegan Sun is financially stronger than Foxwoods, which negotiated a "forbearance agreement" with lenders allowing it to defer payments on a $1.7 billion debt-restructuring deal.
But even Mohegan Sun, which faces similar problems related to a surge of new competition in the Northeast and weak consumer spending, "doesn't have a lot of flexibility, either," Foley said.
Still, the parent company, the Mohegan Tribal Gaming Authority, reported an increase in first-quarter profit in January due largely to rising income and debt payment related to refinancing before it was due.
The two casinos are looking to the Connecticut legislature to authorize up to three gambling halls that could cost as much as $300 million each. It's a far cry from the $800 million Springfield casino to be operated by MGM Resorts International, about 10 miles from the Connecticut line.
Robert Soper, president of the Mohegan Tribal Gaming Authority, which also has a casino in Pennsylvania, said the Mohegans and Mashantucket Pequots, who run Foxwoods, are focused on establishing one site initially. He said it's "premature to focus on cost" as planners put together details for the venture.
"We're going to take it step by step," he said.
Felix Rappaport, president and chief executive of Foxwoods, said it's too early to discuss specifics on how a new casino would be financed.
Foxwoods has a "great relationship with lending sources" and doesn't expect trouble getting financing, Rappaport said.
Foley said another challenge confronting the two casinos is that their proposed venture will hinge not just on business and financial considerations, but on the political back-and-forth in the General Assembly.
"One of the problems is that they have to go through the legislative process to defend their revenue," he said.
Clyde Barrow, a gambling market expert, said tribal officials realize that a new casino will rob the Mohegan Sun and Foxwoods casinos of revenue. But it's better than losing money to the Springfield casino, he said.
"The question is whether it goes to the satellite casinos or to Massachusetts," he said.
Observers and participants say that regardless of potential financing hurdles, Mohegan Sun and Foxwoods executives will make the venture work because they must.
"When and if we get to that point, we will certainly find a way to fund a project that's good for Connecticut," Rappaport said.
"They came to us for the opportunity to expand," said Sen. Bob Duff, Senate majority leader. "I would imagine they wouldn't have spent the time or the effort if they didn't have the means to make this happen."
"If this is happening, they're thinking of ways to do it," Moody's Foley said. "It would be silly if they're pushing it without knowing if they can do it."
Follow Stephen Singer on Twitter at https://twitter.com/SteveSinger10