LEDYARD, Conn. - Walk through the dim cigarette haze and past the banks of slot machines and it feels like just about any casino.

But the Native American designs and nature themes announce this complex as an Indian venue - the Foxwoods Resort Casino, run by the Mashantucket Pequots - and that point is driven home at Rainmaker Square, where a 12-foot urethane statue of an Indian brave dominates the space. The rainmaker, who appears crystalline, prepares to shoot an arrow into the sky to bring the water that represents life and vitality in the native culture.

The Foxwoods casino sure could use a modern version of a rainmaker.

Like all casinos in the nation, Foxwoods and Connecticut's other Indian casino, Mohegan Sun, are suffering from the deep recession's impact on gambling. However, the Pequot tribe is on the edge - in danger of defaulting on $2.3 billion in debt on the Foxwoods complex. The uncertainty of how a sovereign tribe that can't use the bankruptcy courts to restructure its debt is causing strife among tribal leaders.

Revenue at casinos nationwide slipped 7 percent through the first six months of the year, according to the American Gaming Association, the casino industry's trade group. Sixty percent of casino customers have reduced their gambling budgets, the AGA found in a national survey.

That cutback - far more severe in Atlantic City and Las Vegas - has casinos reeling everywhere. Many of those are not the highest rollers, but they are the consistent, frequent visitors who have pared down the amount of money they set aside to gamble.

Last week, Foxwoods gambler Howard Wong, 78, was visiting from Framingham, Mass., with his brother. He said he formerly visited the Foxwoods bingo hall once a week. One year, the casino treated him and three guests to a birthday dinner. Incentives don't flow as freely now, he said. And the bad economy has forced the retiree and his brother to cut back.

"I used to play the $5 slots," Wong said. "Now I'm down to playing pennies and nickels."

Bill Palermo, chief executive of Gaming & Resort Development Inc., a California-based consultant, said steady pre-recession gambling revenue growth was fueled by easy credit. Now, many gamblers have burned through their savings or tapped out their credit cards.

"So instead of going to the casinos and dropping $100, they are spending $50 now," Palermo said. "There was an over-exuberance on the spending side that made it look like never-ending spending in the casinos."

Taking the biggest hit are the country's two largest gambling markets, Las Vegas and Atlantic City, where gambling revenue has tumbled nearly 15 percent in each. Declining revenue has translated into thousands of layoffs.

Jobs and revenue also have dipped in Detroit and suffered even bigger declines in Mississippi. Midwestern markets dominated by riverboat casinos have fared better, although some are sinking.

Connecticut's two Indian-run casinos - which jointly poked fun at Atlantic City's "boredwalk" and the "Jersey snore" in a New Jersey billboard campaign this summer - have been among the world's biggest and most successful gambling facilities. But money gambled on slot machines at both Mohegan Sun and the Foxwoods has dropped by more than $1 billion in recent years, Connecticut state revenue figures show.

The Mashantucket Pequot tribe plays it close to the vest involving Foxwoods finances. When news about fiscal distress and tribal feuding erupted last week in public view, it showed how they are being hammered by the recession and gambling competition.

The tribe provided a rare glimpse into its finances Aug. 26 by signaling efforts to restructure a reported $2.3 billion in debt. Tribal Council Chairman Michael Thomas warned of "dire financial times" in a letter to the tribe. But he ignited controversy by promising to first fund tribal government and make $100,000 annual payments to tribe members before creditors line up for whatever money is left.

Market and industry analysts questioned whether the Pequots would default on their debt, raising complex questions over whether a sovereign tribe can work through bankruptcy. Then things got ugly.

The six other council members stripped Thomas of his duties Monday night because of his actions, which included using up a line of credit to guarantee tribal funding. The council placed Thomas on leave, closed his office and called for his resignation. Thomas, who is running for re-election, vowed to seek removal of the six councilors, according to The Day, a New London, Conn., newspaper.

Like other non-tribe members, Fred Allyn Jr., mayor of Ledyard, could only watch from the sidelines in amazement and worry about what a complete Foxwoods meltdown would do to eastern Connecticut's economy.

"We are truly in uncharted territory," he said.

'No room for bankruptcy'

Foxwoods tribal officials refused to comment for this story, directing repeated requests to a public affairs officer who didn't return calls or e-mails. Analysts agree the Pequot tribe, which owns an MGM Grand casino at the Foxwoods resort, faces challenges trying to restructure its debt. It made a Sept. 1 interest payment, but another looms in a few weeks.

Private and publicly traded casinos typically reorganize through Chapter 11 bankruptcy protection. But federal law appears to bar Indian-owned casinos from filing for bankruptcy. The U.S. Bankruptcy Code considers Indian tribes sovereign "governmental units" and therefore ineligible to restructure in Chapter 11, one legal expert said.

"A tribe is a government and there's no room for bankruptcy," said attorney Tom Foley, an Indian gambling consultant and a former National Indian Gaming Commission official.

The Foxwoods case could test the legal limits of tribal gambling, Foley said. Also, restrictions imposed on Indian casinos could severely limit Foxwoods' options as it seeks to avoid default. Federal law says only tribes can hold an equity stake in Indian gambling, making it impossible for Foxwoods to give its creditors ownership in the casino or to sell off tribal land to erase debts, Foley said.

Foley noted the state of Connecticut and the tribal government and members are guaranteed cuts of the casino money, putting creditors last. How creditors are treated could possibly raise alarms on Wall Street about future financing deals with Indian casinos, he added, echoing what industry observers said privately.

"Depending on what happens in this financial restructuring, it will set some precedents for Wall Street financing in Indian country," he said.

Mohegan Sun Chief Executive Mitchell Etess declined comment on the Foxwoods problems, but said the recession's impact is evident in gamblers' changed spending habits.

"The pressure on disposable income has changed people's psyche. They're taking a hard look at what they spend," Etess said. "People are still coming here but are spending much less."

For example, casino visits by rated table players were up 10 percent last quarter, he said. However, those gamblers spent 20 percent less than a year ago. Etess said the casino's lower-priced restaurants are booming.

"People are looking for value," he said.

Howard Wong and his brother, Henry, 80, were among the sparse crowd at Foxwoods' Grand Cedar Casino on Tuesday night. Henry Wong said he visited the Foxwoods weekly when he worked as a Boston school bus driver.

"I retired a year ago because I got fed up with all the complaints about my driving, that I was taking the corners too fast," he said, adding with a grin: "They were right. That was how I drove. But I said I don't need to hear this.

"But I picked the wrong time to retire. The money markets went downhill," he said.

Wong said he needs dental work, and he cannot afford to visit the Foxwoods' bingo hall as often as in the past.

"I had to stop," he said. "When the economy goes bad, it affects everything."


Many casinos have downsized their workforce to match their customers' spending.

Atlantic City casino employment declined nearly 9 percent in the past 12 months. The number of jobs - 38,404 - has dropped to a level not seen since the late 1980s. The Las Vegas Strip casinos had 100,812 workers in the first quarter of 2009, a 10 percent decline from a year prior, according to Nevada state employment data.

Etess said Mohegan Sun officials considered how layoffs would affect their product as well as employee morale and the local economy, and adopted cost-cutting measures instead. The Mohegan Sun Tribal Gaming Authority put off a $734 million expansion of its Casino of the Earth and construction of a parking garage.

In addition to a hiring freeze, Mohegan cut its 9,500 employees' salaries by 4 percent to 10 percent, with executives taking the biggest hit.

"Our goal was to keep people working with benefits," Etess said. "It served us well. People came up and thanked us for the way we approached it."

Foxwoods did it differently. The casino has laid off about 800 of its 11,000 workers since September 2008.

News reports said the Mashantucket Pequots have also cut their tribal government and tribal member payments. The bad economy has also had cultural impacts. A scaled-back harvest festival last month drew only 3,000 visitors compared with its usual 90,000. The Pequots have already canceled a 2010 conference on revitalizing native languages, according to an Internet notice posted by tribal Secretary Charlene Jones.

The United Auto Workers union, which is negotiating a contract for Foxwoods dealers, did not respond to repeated calls for comment about how the layoffs and downturn are affecting casino workers.

But others said they have hurt the region's families, especially in Norwich, the area's biggest city with 38,000 residents. The city, which was settled in the 1600s, is a picturesque center of majestic Empire-style buildings and brick sidewalks. But the federal government designates Norwich as financially distressed. With more than one in five working-age adults employed by the casinos, Norwich has borne the brunt of gambling's hard times. Empty storefronts dot the Broadway arts district just a few paces from City Hall.

Social Services Director Beverly Goulet has hired two full-time social workers to assist laid-off Foxwoods employees. She said the economic fallout was the worst ever caused by a casino slowdown. Many of the unemployed have never been out of work before.

Goulet said her office is coordinating with food pantries and other agencies to help workers find jobs. "But it's particularly difficult because there are so many people, and there are so few jobs to place them in," she said.

Unemployed workers have streamed into Jackie's Bake Shop in the city center looking for work.

"It's just my wife, me and one worker," said co-owner Pete Beaudet. "We have to make our money, so I can't hire."

Beaudet said his business has not been directly hurt by the casino cuts. But the former Mohegan Sun chef said he was upset that average working folks are suffering because the casino expanded and took on debt faster than it could handle. He said he fears what will happen if the situation gets worse.

"These are two of the biggest casinos in the world," he said. "I worry we could be stuck with more unemployment. And people won't be coming in here to buy sandwiches."

The future

Ledyard Mayor Allyn said the layoffs and Mohegan cutbacks have had a ripple effect in the local economy. Allyn said he ran for office a few years ago to confront the issue of how to handle major growth.

"Now there's no growth," he said.

Allyn, who said he has worked to strengthen local relations with the tribe, said he worries that taxes Ledyard collects on non-reservation and non-casino tribal property could be jeopardized.

"The greater prospect for harm to all these communities would be a complete meltdown of the Mashantucket tribe (casino operations)," he said.

Others remain optimistic and even bullish about the casinos' prospects. Tony Sheridan, of the Eastern Connecticut Chamber of Commerce, praised the Pequots for trying to reorganize their debt and predicted they will succeed. Sheridan and Norwich City Manager Alan Bergren said they had not heard any business people or residents express alarm over the Foxwoods' situation.

Local officials seemed protective of the tribes. Norwich planner Peter Davis said he was personally offended when asked if he worried about potential default by Foxwoods. He said the question was unfair to the tribe, and he refused to answer it.

So can the casinos in Connecticut, Atlantic City and elsewhere reverse their decline? How does the immediate future look? Analysts believe that while select markets such as Pennsylvania will continue to surge, the national outlook is bleaker.

Pennsylvania gambling has enjoyed robust growth - largely by keeping the Pennsylvania customers who once gambled in Atlantic City - since the first of nine slot parlors opened in late 2006. Pennsylvania gambling revenue increased 18 percent this year, and employment has soared 46.3 percent.

But even when consumer spending increases, slot machines and table games in other markets will be quieter than in years past, analysts predict.

"I think we're in for some belt-tightening into 2011 or 2012," said Palermo, who thinks gambling revenue nationwide could decline as much as 10 percent in 2010.

Casino analyst Jane Pedreira, of Clear Sights Research, said it doesn't appear the gambling market has hit rock bottom yet. She expects a slow recovery will occur in the casino industry when consumer confidence rises, unemployment levels off and the stock market stabilizes.

"Gaming certainly hasn't flattened out yet," Pedreira said. "July revenue figures were still negative. That's not indicating a bottom yet. It's still on the way down."

At Mohegan Sun, Etess said the casino would continue to market itself as an entertainment destination. He said that with three separate gaming areas, multiple retail shops and restaurants at varying price levels, a spa and a 10,000-seat arena, the casino can differentiate itself from racetrack slot parlors.

"You have to want to come here for the experience. It has to be worth the trip. That's been our mission, but it's more important now," he said.

Etess, who was a Trump Plaza marketing executive in the early 1990s, said Atlantic City also has to position itself well to survive slots competition around New Jersey's borders.

"Atlantic City has a tremendous amount to offer," he said. "People have always been ultra-critical of its negative aspects and not given credit for what it's done for that whole region and the state."

He said the resort faces challenges with the recession, competition and physical limitations of some of its properties.

"But it comes down to where your casino is and what's happening to your market," Etess said. "Atlantic City has to reset its market."

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