ONTVILLE, Conn. - It rises out of the rolling hills with the promise of grandeur, its massive glass towers designed to loom 440 feet over the reflected countryside, an instant landmark, a beacon to a palace built for gamblers.
At a cost of $1.1 billion, this expansion of the Mohegan Sun Casino is one of the country's largest private construction projects, a steel testament to the extravagant profits in the rapidly expanding Indian gaming industry.
But it also stands as a monument to a classic American deal, a latter-day version of Indian treasure being carried off by non-Indians, despite a federal law designed to keep Indian gaming money firmly in tribal hands.
When Congress approved the Indian Gaming Regulatory Act in 1988, it was determined to spur development on blighted reservations by exempting tribes from widespread prohibitions on gambling. President Reagan, for one, exhorted tribes to provide more of ''the cost of their self-government'' and ''reduce their dependence'' on federal funding, a policy his administration backed up by eagerly providing aid to tribal bingo enterprises.
Leery of non-Indian investors turning tribal casinos into their personal cash cows, Congress created a new agency to ensure outsider managers get no more than 40 percent of net casino revenues, and for only seven years.
But the investors behind the Mohegan tribe found a way to receive at least $430 million above those limits, due in part to an apparent regulatory ambiguity and a sympathetic federal official. In all, the investor group headed by Sol Kerzner,cq developer of the Sun City Casino in South Africa, will take at least $800 million out of the Mohegan Sun Casino.
The Mohegans were almost penniless and landless and relying on lawyers apparently financed by the Kerzner group when they struck the deal that cost them so dearly. Since then, the terms of the deal have largely been kept quiet by the Mohegans and the investors. At least two of the three members of the regulatory agency responsible for reviewing the finances of Indian casinos only learned of the lucrative hotel component when contacted by the Globe.
The heavy share of profits being carted off by non-Indian businesses like Kerzner's is only one failure of the federal Indian gaming system. Born partly of a desire to apply the '80s faith in free enterprise to the nation's poorest ethnic group, the story of Indian gaming is now one of congressional intentions gone awry.
- The gaming act has failed to broadly improve the living conditions of most Indians. A Globe analysis revealed that just 2 percent of the country's Native Americans earn 50 percent of the country's $10 billion in Indian gaming revenues, and two-thirds of Indians get nothing at all.
- The act has bred widespread skepticism about Indian tribes' motives and, in many cases, authenticity. The gaming successes of Indian casinos in Connecticut, California, and New York - where combined revenues are already over $4 billion annually - has prompted a dizzying number of groups to step forward as new ''tribes,'' including one group that the Bureau of Indian Affairs says has submitted altered documents creating Indian ancestors and two tribes with only one adult member each.
- The fight for the right to build casinos has ignited virulent disputes between eastern tribes and local townspeople, and, in other cases, between the tribes themselves. In one instance, a Connecticut tribe has accused another of stealing its entire family tree.
- The explosion in Indian gaming casinos, already allegedly infiltrated in some places by underworld figures, is occurring with little government oversight. The commission responsible for policing more than 241 Indian gaming operations has a budget of only $8 million and a staff of 70. By contrast, the commission supervising the 12 Atlantic City casinos spends $58 million and employs a comparative army of 800 regulators.
- While hundreds of millions of Indian dollars are being spent on lobbying and campaign contributions in states where gaming is prime - including more than $100 million in California alone - tribes have witnessed per capita government spending on Indian health, education, and housing drop in real dollars, while human service spending for all Americans has soared.
Buffeted by political attacks, buried in paperwork, beleaguered by legal maneuvers, the Bureau of Indian Affairs finally threw in the towel earlier this year, saying the process for authenticating new tribes should be taken out of its hands.
''The stakes these days are just much, much higher than they were when the process originated back in the 1970s and 1980s,'' declared the bureau director, Kevin Gover, himself a Pawnee Indian. ''I, too, am concerned about the effect of money on the process.''
Kay Davis, a Chippewa who worked at the Bureau of Indian Affairs, put it this way: ''Before Indian gaming, it was a very nice little process. People would come in and bring their stuff. We could sit down and talk to them. We didn't have all the big lawyers, the big backers. And we made good decisions.''
Fertile riches in the East
The fertile plains for the latest Indian hunt are not in the Dakotas or anywhere else in the West: They are in the midst of three small, rural towns in eastern Connecticut, colonial settlements of clapboard that happen to be equidistant between Boston and New York. For that reason above all others, eastern Connecticut has proven to be the most lucrative gambling site outside Las Vegas and Atlantic City.
Mohegan Sun was the second casino to grow out of these wooded hills, after Foxwoods stunned the entertainment industry by quickly becoming the world's largest and most profitable casino soon after its opening in 1992. But Foxwoods was something of an anomaly, the product of a special congressional act recognizing the Mashantucket Pequot tribe - a 1983 measure intended to help the state of Connecticut settle an old land claim.
Mohegan Sun, by contrast, was the fruit of the gambling system established by Congress in 1988. A small band of Indian descendants who first sought federal recognition in 1978 to receive federal health and education benefits, the Mohegans' fight for tribal status blossomed into a cause worthy of $9 million in backing only after the advent of Indian gaming in 1988.
Kerzner and two other businessmen spent freely for lawyers and other professionals to negotiate the tribe through a labyrinth of federal and state regulations, Mohegan leaders say. Buoyed by the infusion of cash, the Mohegans won recognition in 1994 and, with it, a veritable license to print money. Status as a tribal nation empowered them to open a casino, and they moved quickly to capitalize on it.
Mohegan Sun, an immense, cavernous space somewhat like a theme park crossed with a convention hall, appeared in the fall of 1996. Soon, plans were put in place for a 34-story hotel, a 10,000-seat arena, restaurants, convention center, stores, and, of course, more slot machines and gaming tables - lots of them.
Within three years, Kerzner and his partners got back $90 million plus interest in loans they had raised for the casino, financial records show. They also received 40 percent of all the net gaming revenues as the casino ''manager'' - about $145 million. They even got their original $9 million back, according to the tribe.
But the most lavish payday was yet to come.
In structuring the National Indian Gaming Act during hearings in 1988, Congress foresaw that non-Indian businesses would try to use tribes as fronts for building casinos. Thus the law limits any group's share of casino profits to 30 percent - and then only for five years. Under special circumstances involving great risk to investors, an outside share could go as high as 40 percent for seven years.
When Kerzner and his partners, a company known as Trading Cove Associates, became involved in Mohegan Sun, two of the three members of the oversight board, the National Indian Gaming Commission, were firmly opposed: They thought Trading Cove, in seeking 40 percent, was getting too fat a piece. By then, a casino in Connecticut seemed hardly a risky deal; Foxwoods was already operating almost next door, with buses from Boston and New York arriving every few minutes.
Commission chairman Harold Monteau overrode those objections to approve Mohegan Sun.
But what members of the commission apparently did not realize was that Trading Cove also had a second deal - this one more valuable than the first.
While commission members were arguing about the size of Trading Cove's casino management fees, the Kerzner group was in possession of an agreement giving it the sole right to develop and manage any hotel at Mohegan Sun for 14 years.
In 1998, Trading Cove cashed out. Their take: a flat five percent of all money spent at Mohegan Sun, not just profits, for every year until 2015, without doing any further work. Based on the tribe's estimate, it's worth $675 million to Kernzer and his two partners.
The remaining years of the management contract - the subject of all the commission's wrangling - was worth $245 million, according to federal disclosures by the tribe.
The largely unnoticed hotel portion of the deal was worth $430 million.
Combined with the $145 million already paid out on the management contract, the Kerzner group will leave the deal with more than $800 million.
Jana McKeag, one of the two associate commissioners who had filed written objections to the management deal, expressed shock at the value of the hotel agreement when informed by the Globe last month.
''Amazing,'' McKeag said. ''This is the first I've ever heard about it.''
Former associate commissioner Tom Foley also said he never knew of the hotel management contract. It was the same for former general counsel Michael Cox.
Monteau, who resigned in 1996 while facing pressure from senators who criticized his lack of oversight, did not return repeated calls to his law office, where he specializes in Indian law, including financing for gaming tribes. His secretary said he was on ''extended travel.''
Mohegan tribal chairman Mark Brown defended the casino deal, saying the 1,300-member tribe has done very well despite the payouts to Kerzner and the other investors. ''Bottomline: As far as we're concerned, we got a great deal,'' said Brown.
Leonard Wolman, one of Kerzner's partners, said ''All the agreements were properly filed.''
Wolman, a South African native who has become one of Connecticut's leading developers, said he and his Trading Cove partners were ''fairly compensated'' for the ''incredible risk'' they took in the deal.
FROM OUT OF THE WOODED hills of Ledyard, Conn., Foxwoods has become the world's most profitable casino. (Globe Staff Photo / Evan Richman)
|
An economic opportunity
When Congress set out to regulate the Indian gaming system in 1988, assuring a profit was the least risky part. The architects of the Indian Gaming Regulatory Act knew they were giving Native American tribes - historically the poorest of minorities, with hundreds of thousands of Indians living in arid reservations - the key to a powerful economic engine.
From the earliest days, businesspeople had sought to build casinos and states had sought to prevent them, fueled by concerns ranging from corruption to morality to a fear of abetting dangerous addictions.
Indian tribes for many years had operated bingo and other small-time games of chance in parlors on reservations. But in 1987, when California tried to shut down a bingo hall run by the Cabazon tribe, the US Supreme Court ruled that the state lacked justification to interfere with a sovereign tribal nation governed by treaties with the federal government.
California was taken aback, but the Reagan administration was pleased. Reagan had spent nearly two terms as president preaching for market-based solutions to problems traditionally addressed by government. Poverty, disease, and lack of education on Indian reservations were particularly intractable. The Supreme Court, in ruling for the Cabazon tribe, cited Reagan's statements and those of an administration official praising gaming as a way to reduce government dependence.
Some in Congress agreed. Accepting the idea of Indian gaming in principle, most recognized the need for guidelines.
''I oppose personally gambling in my state,'' declared John McCain on the Senate floor. ''I oppose gambling on Indian reservations, but when Indian communities are faced with only one option for economic development, and that is to set up gambling on their reservations, then I cannot disapprove.''
Added Senator Pete Dominici, ''I hope we really do not look back 10 years from now and say that most of the jobs and economic prosperity is coming from gambling.'' Still, he said, jobs were needed ''desperately. If they have to resort to gambling, we have provided the right framework to do it in a fair and appropriate manner.''
Fairness, according to Congress, meant allowing tribes to establish gambling businesses only in states that already allowed them; if, say, Massachusetts allowed dog racing in some places, it could not reasonably oppose it on Indian land.
But after Congress passed the bill, a court decision opened the door much wider than some had intended: Indians, the court declared, must be allowed to open Las Vegas-style casinos even in states that allowed casino games only for charities, or even for as few as one night per year.
In the seven-year period after Foxwoods opened, applications from groups seeking to become federally recognized tribes jumped to 94, compared to 22 for the seven previous years.
Sweet revenge
For the ''Western Mohegans,'' a tangled branch of one of the original tribes of the East, it was to be sweet revenge: A ''gambling palace'' above the ''Hudson River homeland,'' scene of the ''genocide'' of tribal ancestors - and conveniently sandwiched between the gambling-starved population centers of New York and Albany.
When, in 1997, the Western Mohegans sent an application for tribal recognition and 600 pages of supporting documents to President Clinton, they invoked the poetry of an ancestor, speaking of ''the genocidal pressure on our people, the ecocidal pressure on our lands and waters, and our defence of American liberty.''
The Western Mohegan claim joined other applications from non-recognized tribes on the crowded shelves of the Bureau of Indian Affairs, where 11 researchers labor without any support staff to verify the claims by lawyers and geneaologists backed by millions of investor dollars.
But even the admittedly overworked bureau staff had no problem unraveling the Western Mohegan claim. When the bureau compared pages of Indian census documents supplied by the Western Mohegans to those in the agency files, it found ''significant alterations'': Names were added; family relationships changed; the name of another tribe erased and the ''Mohegan tribe New York Hebron'' substituted in its place.
There were Irish and English ancestors who went unmentioned; names of the wives of purported ancestors changed; ancestors from the federally recognized Mohegan tribe grafted on.
The bureau's official conclusion: The ''Western Mohegans'' descended from white settlers.
As for the poems, ''We were able to obtain a copy of the entire book at the Library of Congress,'' wrote the federal director of tribal services. ''There is nothing in the selections you submitted or the rest of the book which indicates that the author was Indian.... In fact, the voice used by the author celebrates the ascendency of the non-Indian in the selections you submitted.''
Ronald A. Roberts, also known as Chief Golden Eagle, of the Western Mohegans, acknowledged in an interview some erroneous material was included in its application due to oversight. He has vowed to continue fighting for recognition.
He may have reason to hope, because BIA recommendations don't always stick. In the early- to mid-'90s, the agency's professional staff found deficiencies in genealogies submitted by three Connecticut tribes and recommended against recognizing any of them, but was overruled on each by the agency's political appointees. In the case of the Golden Hill Paugussett Tribe, a 82-member group intent on building ''the world's largest casino'' in Bridgeport, Conn., the professional staff's recommendation had been accepted by the former BIA chief over the objections of the Golden Hill's attorney, a prominent Indian lawyer/lobbyist named Kevin Gover.
Gover by then had already attended one of the famous fund-raising coffees hosted by President Clinton at the White House, and he would go on to help coordinate the Clinton campaign's outreach program to Native Americans.
In 1997, Clinton appointed Gover to oversee the BIA. Two years later, the BIA took the unprecedented step of reopening the Golden Hill case. Gover recused himself, assigning it to his deputy, Michael Anderson, another political appointee.
A member of the BIA staff who worked on the Golden Hill case said investigators could not document two full generations connecting the people seeking to build the casino to original tribal members. The former staff person, speaking on the condition of anonymity, said the staff was pressured by members of Congress, who made calls and wrote letters on behalf of the Golden Hill group.
Another Connecticut tribe seeking recognition, the Schaghticokes, filed suit against the Golden Hill tribe, saying it claimed Schaghticoke ancestors in its documents. ''They went from 1850 to the early 1700s using all the people on our ancestry chart,'' said Richard Velky, chief of the Schaghticokes. ''They're trying to steal my grandparents and great-grandparents.''
Chief Aurelius Piper of the Golden Hill Paugusetts called Velky a rival motivated by competition for casino revenues.
Gover also reversed the recommendations of the professional staff for two other would-be casino operators - the Eastern Pequots and the Paucatauk Eastern Pequots, backed by Donald Trump. In a memo, Gover acknowledged ''the evidentiary gaps in the historical record,'' but found it ''very reasonable to infer from existing documentation ... that these communities have always been there as organized political and social entities.''
Gover, through a spokesman, said his decisions on tribes were made on the merits, not influenced by other factors. He said the final decisions on the Eastern Pequot and Paucatauk tribes will be made after he leaves office.
David A. Rosow, a Southport, Conn., developer working with the Eastern Pequots, said in an interview that he's put together a team of nine lawyers and researchers - only two fewer than the entire professional research staff of the BIA. Rosow said the entire process may wind up costing him as much as $10 million.
''It's mind-boggling,'' he said. ''Researchers are expensive. Lawyers are expensive. But the poor Eastern Pequots are wonderful people who had to find somebody to finance their dreams and goals.''
''I'm your basic entrepreneur,'' Rosow added. ''I saw an opportunity to do two things: To make money over time, and to help a minority that's one of America's smallest minorities.''
Once he leaves government, Gover says, he will return to representing tribes, saying he is exempt from revolving-door statutes because of the tribes' status as sovereign nations.
He won't have to look far for business: Thousands of people are rushing to assert their Native American heritage.
A would-be tribe in Mississippi recently offered membership kits for $99 over the Internet.
In Connecticut, the 350 Schaghticokes have added about 30 new members recently, but rejected another 20 due to forged birth certificates, said Paulette Crone-Morange, a tribal leader.
''The phone calls are constant,'' said Crone-Morange. ''We get hundreds of calls. Hundreds of letters. It wasn't cool to be a Schaghticoke 20 years ago. But now we're close to the top of the [recognition] list.''
Arlinda Locklear, a prominent Native American lawyer, testified before Congress that one chief told her of receiving 1,400 applications a month for membership in his Cherokee tribe.
''It's a pretty good indication of how many people want to be Indian now,'' she said in an interview. ''I have to think that maybe some of it is for tradition, recognition, honor and respect. But I have to believe that part of that is the potential of money.''
Next: Among Indians, a rich-poor divide
Non-Indian investors have reaped Mohegan Sun profits. (Globe Staff Photo / Bill Greene)
