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Mohegans restate concerns

July 06, 2006

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Plans for a new $135 million casino complex at the Mohegan Sun at Pocono Downs have been dealt a setback, according to a published report in the New London, Conn., newspaper The Day. According to the story Pennsylvania officials have issued rules the company said will force it to pay higher-than-anticipated taxes on slot-machine revenues.

The newly finalized regulations, from the Pennsylvania Department of Revenue, could prompt the Mohegan Tribal Gaming Authority to pull the plug on plans for a 400,000-square-foot facility in Plains Township.
The company is weighing its options, said Robert J. Soper, the president and chief executive officer of Pocono Downs.

“Essentially, by their interpretation, it could effectively raise our tax rate well above the 55 percent tax rate that was always contemplated,” Soper told The Day. “We\'ll have to evaluate our options in light of the decision and see what options we have in regards to obtaining a solution.”

One of those options, the company warned the state in May, would be to “reconsider” going forward with the casino. The proposed facility, part of the Mohegan\'s diversification efforts, would house 2,000 slot machines, restaurants, a nightclub and retail shops.

At issue were regulations governing the company\'s tax obligations to Plains Township and Luzerne County. The rules could raise the tax rate on slots to about 63 percent, which would reduce operating income by about $8 million in the first year of operation.

The regulations impose a $10 million minimum for the local share of taxes on slot-machine revenue, Soper said. He said that would create “enormous inequity” between casinos in large markets and those that generate less revenues in smaller markets.

In a filing with the state in May, the company said that under state law it should pay Plains Township 2 percent of gross slots revenue or $10 million annually, whichever is greater. The payment, however, is limited to 50 percent of the town\'s budget in 2004. Plains Township\'s budget that year was about $4 million.

The Mohegans acquired Pocono Downs and five off-track betting parlors from Penn National Gaming Inc. in 2004 for $280 million. The tribe will pay Pennsylvania a one-time licensing fee of $50 million and will spend about $70 million to improve the existing facility and $135 million to build the new casino.

Under the purchase agreement, Penn National could be required to buy back the race track since the Pennsylvania Gaming Control Board had not issued any gaming licenses by July 1.
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