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TRIBAL GAMBLE: THE SERIES

Day One, 12/10/00
Casino boom benefits non-Indians

The $800 million deal for outsiders at Mohegan Sun

Day Two, 12/11/00
Few tribes share in casino windfall

Gaming success helps tribe gain community acceptance

California tribes hit the jackpot with gaming vote

Day Three, 12/12/00
It's a war of genealogies

Lineage questions linger as gaming wealth grows

Tribes scramble to get into the game

Day Four, 12/13/00
Tribes make easy criminal targets

Trump plays both sides in casino bids

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By Sean P. Murphy, Globe Staff, 12/10/2000

THE $1.1 BILLION expansion of Mohegan Sun is one of the largest private construction projects in the nation. (Globe Staff Photo / Evan Richman)

s the Mohegan Sun Casino more ''Mohegan'' or more ''Sun''?

The Mohegan tribe owns it, but for Sun International Hotel chairman Sol Kerzner and his partners, the mammoth casino in Montville, Conn., is a money machine, guaranteed to produce a steady stream of cash until 2015.

In all, more than $800 million will be extracted from the Mohegan Sun, half of it going offshore, to Paradise Island, The Bahamas, where Kerzner directs his worldwide casino and resort empire, and the other half to two partners in the United States, according to Mohegan tribe estimates.

The Kerzner group is being rewarded for its business know-how, a talent for deal-making, and timing - exquisitely good timing.

By the time the Kerzner group showed up in Connecticut in the early 1990s, the tribe had already spent 20 years filing claims for ancestral lands, supported by one attorney who was going unpaid. Among tribal leaders there was talk of doing light manufacturing on whatever lands were eventually returned to them.

Their application for federal recognition was rejected at first.

About that same time came the advent of Indian gaming, as federal officials gave tribes the unique privilege of building casinos on tribal lands, largely free of the state and local roadblocks that prevented high-stakes gambling elsewhere.

After a rival tribe began building the giant Foxwoods casino in the nearby Connecticut woodlands, Leonard Wolman, a successful hotel entrepreneur, took on the cause of the Mohegans, soon bringing Kerzner into a partnership called Trading Cove.

Trading Cove's money offset the cost of lawyers, including a high-powered Washington firm to help the Mohegans obtain federal recognition and, with it, the right to build Mohegan Sun.

Almost immediately, Trading Cove and the Mohegans formally joined forces. Mohegan chief Ralph Sturges signed an agreement granting Trading Cove the exclusive right to develop and manage a hotel at the casino, and to manage the casino itself. All the expenses were to come out of the cash flow, and of the profits, Trading Cove would take 40 percent, both of the casino and the hotel. The casino deal was for seven years, and the hotel for 14 years.

But Congress, hoping to prevent tribes from being lured into unfavorable deals with non-Indian outsiders, had required that all management agreements and ''collateral'' deals be reviewed by the National Indian Gaming Commission.

The Mohegans and Trading Cove dutifully submitted the casino-management deal but, according to commission chief of staff Richard Schiff, decided not to submit the hotel contract. Schiff said staff members told him that the Mohegans and Trading Cove had initially planned to present the deal to the commission but withdrew it, apparently because they were unsure about their hotel plans.

Trading Cove and the Mohegans declined to comment on the disclosure of the hotel deal, except to say that they followed the strictures of the Indian Gaming Act and obtained all necessary approvals.

And Schiff, for one, said the hotel agreement would not normally require the commission's approval because it was not directly related to gaming.

But two former commissioners and a former general counsel disagree. Former commission chairmen Tadd Johnson and Phil Hogen, and former general counsel Michael Cox all believe that Trading Cove should have disclosed the fact that the partnership retained the hotel rights as a ''collateral deal.''

The Indian Gaming Act defines ''collateral deals'' as any contract relating to ''any rights, duties or obligations created between a tribe (or any of its members, entities, or organizations) and a management contractor or subcontractor (or any person or entity related to a management contractor or subcontractor.)''

Said Cox, ''If the hotel contract was hidden or not submitted, there's an issue here, because Congress wanted all related agreements before the commission.''

For former associate commissioner Janna McKeag, the lack of disclosure of the hotel deal was significant because commission members were already raising questions about Trading Cove's high take in the management contract. ''There would have been questions,'' she said.

Congress had decreed that management deals amount to no more than 30 percent or profits for five years - and that they be extended to 40 percent and seven years only for unusually risky ventures. Trading Cove was arguing that it deserved the larger cut of the profits.

McKeag and fellow associate commissioner Tom Foley wrote a memo opposing the Mohegan-Trading Cove deal, citing its ''inordinately lucrative terms.'' They said Trading Cove's capital investment was ''minimal,'' and that Trading Cove's loan to the tribe - at 15 percent interest - did not constitute a capital investment.

But chairman Harold Monteau approved the management deal. Later, there were howls of protest from Senator Harry Reid, Democrat of Nevada, when Monteau's top assistant, Thomas Acevedo, left the commission a year after the Trading Cove deal to become the Mohegans' chief of staff.

The commission finally got a look at the combined Trading Cove deal in 1998. By then, there was no question of approval or disapproval.

Trading Cove was selling the hotel rights back to the Mohegans - for a cool $430 million, according to tribal projections and Mohegan Sun chief financial officer Jeffrey Hartmann.