August 20, 2012

Casinos Coming to Massachusetts: An Update on the State of Play

The first Massachusetts casino is unlikely to open for at least another two years, but one would never know it given the fast and furious pace of recent casino-related developments.  Indeed, every day brings with it front page Massachusetts casino news.  No one has yet obtained a casino license, and there is no casino site in Massachusetts that is shovel-ready, but the landscape of who’s who, and who is going to develop, own, and operate the three potential Massachusetts casinos and one slots parlor is rapidly taking shape. 

The most significant events of the past several weeks and months include:

  • The Massachusetts Gaming Commission has developed a license application process, and has started accepting $400,000 application fees and letters of intent from prospective casino and slots parlor developers. 
  • The Mashpee Wampanoag Tribe signed a gaming compact with Governor Deval Patrick, and the Massachusetts legislature approved the compact.  This development gives the Mashpee Wampanoag a huge leg up on the competition for the development of a casino in “Region C,” the southeastern region, which is one of the three eligible regions for casinos under Massachusetts law. 
  • Notwithstanding the signing of the compact, KG Urban’s hopes (and the hopes of other commercial developers) to build a casino in Region C stayed alive when the United States Court of Appeals reversed the lower court’s earlier dismissal of KG Urban’s challenge to the constitutionality of the provision in the Massachusetts gaming law that gives Native American tribes – most immediately, the Mashpee Wampanoag – a decided advantage over the competition to build and operate a casino in southeastern Massachusetts. 
  • Patriots owner Robert Kraft and Las Vegas casino developer Steve Wynn have abandoned their plans to develop a casino adjacent to Gillette Stadium in Foxboro, Massachusetts.  The withdrawal of Kraft and Wynn appears to have cleared the path for Suffolk Downs in partnership with Caesars Entertainment to obtain the coveted casino license in “Region A,” the region that covers Boston to Worcester, and has far and away the largest in-state population of any of the three casino-eligible regions. 

This article discusses these and other recent casino-related developments in Massachusetts and more generally updates our April 20 article – Casinos Coming to Massachusetts: The Current State of Play – regarding the “State of Play” on the Massachusetts casino front.

Recent Actions of the Massachusetts Gaming Commission

Based on a proposal from its gaming consultants, Michael & Carroll and Spectrum Gaming, the Commission is poised to move forward with a bifurcated license application process.  The Commission will first employ a preliminary Request for Application (RFA-I) that will evaluate the credentials and economic stability of each prospective project, and “prequalify” the bidder.  Background checks into prospective licensees would happen at this stage of the application process.  Bidders would only proceed to the next step—responding to the second Request for Application (RFA-II) and outlining the details of their specific projects—if they clear the RFA-I, and obtain host community approval for their proposed casino. 

The Commission elicited public comments on its anticipated two-step application process, and at least one developer has weighed in negatively.  MGM Resorts International, a prospective bidder for a license in Region B, told the Commission that its proposed process would be a waste of “significant resources, time, and money.”  MGM believes that only applicants who have first negotiated an agreement with the host and surrounding communities should be entitled to bid for a casino license.  Conversely, Sterling Suffolk Racecourse LLC (“Suffolk Downs”), the lead contender for the Region A license has articulated its support for the bifurcated approach in its comments to the Commission.  Despite MGM’s critical comments, the Commission and its consultants are moving forward with the preparation of regulations governing a two-step application process.  The draft regulations, which will be officially published for public comment by the Secretary of State on August 31, were previewed on the Commission’s website on August 17.  The Commission will entertain public comment on the draft regulations on September 30.

Notwithstanding the fact that the Commission has yet to finalize its application regulations, it has started collecting $400,000 application fees from prospective developers.  The payment of the fees enables prospective developers to achieve official status as “applicants” within the meaning of the Massachusetts gaming law.  Official “applicant” status in turn enables developers to gain access to key Massachusetts agencies, and obtain the information, e.g., building code details, necessary to complete their casino proposals. 

Thus far, only two parties have paid the requisite application fee.  Plainridge Racecourse has paid the fee and is seeking the sole slots parlor license.  Suffolk Downs, a horseracing track that has partnered with Caesars Entertainment and is the frontrunner for the Region A casino license, is the only other prospective developer to pay the fee. 

Current State of Play Among Prospective Casino License Contenders

As of August 2012, the following private casino operators remain publicly interested in entering the Massachusetts gaming market: (i) Ajax Gaming Ventures, partnered with Warner Gaming LLC; (ii) Ameristar Casinos Inc.; (iii) Hard Rock International; (iv) Jencent LLC; (v) KG Urban Enterprises; (vi) MGM Resorts International; (vii) Mohegan Tribal Gaming Authority; (viii) Northeast Group; (ix) Penn National Gaming Inc.; and (x) Suffolk Downs, partnered with Caesars Entertainment. 

Region A: Boston to Worcester Region

As noted above, Suffolk Downs, the horseracing track in East Boston, is the first and only aspiring resort casino licensee to pay the application fee and achieve “applicant” status.  Suffolk Downs has long been considered the front-runner for the Region A (Boston to Worcester) license and has the backing of Boston Mayor Thomas Menino.  Mayor Menino appointed a five-member advisory panel in April to help the city prepare for the development.  Mayor Menino has stated that although the gaming law allows the city to pursue a citywide referendum on the proposed facility, he will seek to limit the vote to East Boston residents, i.e., those who would be most immediately and directly affected by the proposed development.  This would prevent anti-casino residents who live in other areas of Boston from blocking the development. 

Suffolk Downs’s prior main competition in Region A, Las Vegas developer Steve Wynn and Patriots owner Robert Kraft, pulled the plug on their plans for a $1 billion dollar destination resort in Foxboro, Massachusetts after Foxboro residents voted two anti-casino advocates onto the Foxboro Board of Selectmen.    

Ajax Gaming Ventures is still moving forward with its plan to potentially develop a casino resort in Milford, Massachusetts in Region A.  Ajax’s Chairman, David Nunes, has publicly partnered with Bill Warner of Warner Gaming for the envisioned $850 million casino complex.   Chairman of the Milford Board of Selectman Bill Murray has stated that the residents of the town seem willing to consider the proposal.

Jencent LLC CEO Vincent Iuliano has also expressed an interest in seeking Region A’s resort casino license.  Jencent, a land developer, has attracted the interest of casino developers Penn National Gaming and the Seminole Tribe of Florida.  Iuliano has stated that he has the opportunity to purchase 90 acres in addition to the 114 acres he already owns next to the Charlton eastbound service plaza on the Massachusetts Turnpike.  Iuliano has indicated an interest in pursuing a casino license or a slots-only license or both on his property. 

Region B: Western Massachusetts

The Mohegan Tribe continues to pursue its proposal to open a Mohegan Sun casino complex in Palmer, Massachusetts similar to its complex in neighboring Connecticut.  The tribe has an agreement to pay Palmer $50,000 for expenses related to the host community agreement.  In addition, the tribe recently partnered with the Naismith Memorial Basketball Hall of Fame to bring a retail store to the Palmer casino.  While local residents largely seem to welcome the idea of a Mohegan Sun casino in Palmer, some have voiced criticism over Mohegan’s delay in paying the $400,000 fee.  

MGM Resorts remains interested in building a casino in Western Massachusetts, but the company has determined that the 150-acre, undeveloped parcel it had been eyeing in Brimfield cannot accommodate its development.  It now appears as if MGM is looking at Springfield as its casino location.  Springfield City Council President James Ferrera III has announced that MGM has purchased an option on property in the South End of the City.  Mr. Ferrera has further stated that he has heard that Paul Picknelly, once an investor in a potential Palmer casino project, is working with MGM on its Springfield project.  Mr. Picknelly’s involvement with MGM has yet to be officially confirmed.

Paul Picknelly’s brother, Peter Picknelly, Chairman and CEO of Peter Pan Bus Lines, is considering building a casino in the north end of Springfield.  He submitted an offer to purchase an option on The Republican’s 1860 Main Street building in late June.  While both Picknelly brothers were at one time investors in the same prospective Palmer casino project, they now appear to be pursuing separate casino ventures in Springfield.  Neither of the brothers has commented publicly about the possibility that they could be moving forward with competing casino bids.  Peter Picknelly has, however, stated that he and his brother are not working together but they both believe downtown Springfield would be the best location for a casino. 

Ameristar Casinos has stated that it will also pursue a development in Springfield.  Ameristar has already spent $16 million to acquire a 41-acre site for a proposed $500 million complex, and on June 15 it announced plans to spend another $50 million in road and bridge improvements to connect its site to Interstate 291.  Ameristar has hired Jonathan G. Little — who represented the operator in its $16 million acquisition — as its Springfield-based director of government and community relations.  Thus far Ameristar is the only Springfield contender to submit a formal casino proposal to the city.     

Penn National Gaming, which may be partnering with Iuliano in Region A, also has its eye on Western Massachusetts.  Westfield Mayor Daniel M. Knapik has announced that he has spoken with Penn National about potentially opening a resort casino at the former Pavilion Mall site near the Massachusetts Turnpike. 

Not everyone in Western Massachusetts welcomes a potential casino development, however.  For instance, Holyoke Mayor Alex Morse has been vocal in his opposition to casino gambling in his town.  In fact, Hard Rock Casinos abandoned plans for a Holyoke casino (though it is still exploring other options in Western Massachusetts) as a direct result of Mayor Morse’s opposition. 

In Springfield, local clergy have protested the prospect of a casino by assembling on the steps of the Springfield City Hall.  Reverend Ramon Arce, president of the clergy coalition of Western Massachusetts, has publicly opined that a casino would make an already-bleak economic environment worse. 

Region C: Southeastern Massachusetts

As noted above, on July 12, 2012, the Mashpee Wampanoag Tribe entered into a compact with Massachusetts Governor Deval Patrick, and on July 26, 2012 the Massachusetts legislature approved the compact ahead of the July 31 deadline set in the Act. Under the terms of the compact, the Tribe has the exclusive right to operate a casino in the southeastern region provided its proposed Taunton site is taken into federal trust by the Secretary of the Interior.  The Tribe will pay the Commonwealth 21% of gaming revenue to mitigate the costs associated with the state’s enforcement of criminal and civil laws in relation to the casino operation.  This fee is less than the 25% that commercial casinos will be required to pay under the Act in the other two casino regions. 

Collection of fees from the Mashpee Wampanoag is a long way off.  Before the Tribe is able to start development it must wait for the fee-to-trust application for its Taunton land to work its way through the Department of the Interior (the “Department”) approval process.  Under the applicable federal law, Native American tribes must have land taken into trust for gaming purposes by the Secretary of the Interior (the “Secretary”) before they can commence gaming activities on “their” land.  The Department’s approval process has been known to take anywhere from three to over 15 years, with environmental impact review alone normally taking over a year to complete. 

In light of the U.S. Supreme Court’s 2009 decision in Carcieri v. Salazar, 555 U.S. 379 (2009), before the government will take Native American land into trust for gaming purposes, the Secretary must determine whether the tribe pursuing the application was federally recognized or “under federal jurisdiction” as of 1934.  The Mashpee Wampanoag were not federally recognized until 2007, so the Secretary will have to make a determination that the Tribe was “under federal jurisdiction” by 1934.  As discussed in Goodwin Procter’s July 12 article, A Tribal Casino Coming to Southeastern Massachusetts? Not so Fast, courts have yet to provide guidance on how tribes like the Mashpee Wampanoag that were not federally recognized can prove they were “under federal jurisdiction” as of 1934.  Two Native American tribes, the Cowlitz Tribe and the Match-E-Be-Nash-She-Wish-Band, both of which received federal recognition after 1934, are currently in court defending casino plans outside of Massachusetts against “Carcieri challenges.”  The Mashpee Wampanoag Tribe could find itself in the same situation if it should receive a favorable ruling from the Department. 

Independent of the prospect of a Carcieri challenge, there is ongoing litigation that could derail the Tribe’s efforts.   Casino developer KG Urban Enterprises is challenging the constitutionality of the Massachusetts casino law’s tribal gaming provision – the provision under which the Mashpee Wampanoag obtained its exclusive rights – on the ground that it discriminates based on race in violation of the Equal Protection Clause of the U.S. Constitution and the Massachusetts Declaration of Rights.  While the lawsuit was initially dismissed by the Federal District Court for the District of Massachusetts, the First Circuit reversed on August 1 of this year, and remanded the case to the District Court for further proceedings.  In so doing, the First Circuit rejected the Commonwealth’s two lead arguments in favor of the constitutionality of the exclusivity provision.  In addition, the court signaled the potential Carcieri problem that the Mashpee Wampanoag may face down the road, as there is a “serious issue of whether the Secretary has any authority, absent Congressional action, to take lands into trust” for the Tribe.[1]

Although the First Circuit gave KG Urban (and other prospective commercial casino developers in Region B) hope, it did not issue the requested injunction to enjoin the Commission from enforcing the exclusivity provision of the Massachusetts casino law.  And the Commission has announced that until such time as it becomes clear that the Mashpee Wampanoag will not succeed in its efforts to have its proposed casino site taken into trust by the Secretary, the Commission will not accept any applications from commercial developers to develop a casino in the southeastern region.  The bottom line is that the Mashpee Wampanoag’s road from compact to actual development is likely to be long and arduous, with no guarantees, but at least for the time being it has the field to itself, with the Commission committed to giving it the time it needs to comply with the law. 

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As events dictate, Goodwin Procter intends to provide periodic updates on the “state of play” in the Massachusetts casino developments market.  In the meanwhile, if you have questions regarding the developing legal, political and business landscape concerning casino gaming and gambling in Massachusetts, please contact David Apfel or Bob Crawford, co-chairs of Goodwin Procter's Gaming, Gambling & Sweepstakes Practice.

[1] KG Urban Enterprises, LLC v. Patrick, No. 12-1233, 2012 WL 3104195, at *7 (1st Cir. Aug. 1, 2012).