U.S. Markets closed

Edited Transcript of **MTGA earnings conference call or presentation 8-Aug-19 3:00pm GMT

Q3 2019 Mohegan Gaming & Entertainment Earnings Call

Uncasville Aug 13, 2019 (Thomson StreetEvents) -- Edited Transcript of Mohegan Gaming & Entertainment earnings conference call or presentation Thursday, August 8, 2019 at 3:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Drew M. Kelley

Mohegan Tribal Gaming Authority - Senior VP & CFO

* Mario C. Kontomerkos

Mohegan Tribal Gaming Authority - CEO

* Michael Silberling

Mohegan Tribal Gaming Authority - SVP & COO

* Thayne D. Hutchins

Mohegan Tribal Gaming Authority - Treasurer & Member of Management Board

================================================================================

Conference Call Participants

================================================================================

* Dennis Michael Farrell

Wells Fargo Securities, LLC, Research Division - MD and Senior High Yield Analyst

* James Forristall Kayler

BofA Merrill Lynch, Research Division - MD

* Joshua Joseph;Black Diamond Capital Management, LLC

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good day, and welcome to the Fiscal 2019 Third Quarter Earnings Call. My name is Rence, and I'll be facilitating the audio portion of today's interactive broadcast. (Operator Instructions) At this time, I would like to turn the show over to Mr. Drew Kelley, Chief Financial Officer. Sir, the floor is yours.

--------------------------------------------------------------------------------

Drew M. Kelley, Mohegan Tribal Gaming Authority - Senior VP & CFO [2]

--------------------------------------------------------------------------------

Thank you. Good morning, everyone. Thank you for joining our call this morning. Before we begin, I would like to remind everyone that our comments today may contain forward-looking statements made under Safe Harbor provisions of the federal securities laws, and actual results may differ materially from any predictions contained in these statements. In addition, our comments may also refer to non-GAAP financial measures. A reconciliation of these measures to corresponding GAAP financial measures can be found in our press release available on our website under the Investor Relations section at mohegangaming.com.

One more comment about this quarter's earnings release and associated supplemental earnings deck. On October 1, 2018, the company adopted a new revenue recognition accounting standard, ASC 606. By now, most investors with the gaming space should be familiar with this, as most of our peers have also adopted this standard. However, to be explicitly clear, in today's earnings release and similar SEC filings, results for the June 30, 2019 period are presented in ASC 606 while prior period results, or June 30, 2018 remain in ASC 605. While this is the proper accounting treatment, it does make quarterly comparisons difficult. Therefore, for ASC 606 results for both periods, please see our supplemental earnings deck available on our website under the Financial Information tab.

Finally, all figures discussed in today's call will be on a comparable 606 basis. I would add this is how we intend to report for the remainder of fiscal 2019 and beyond.

With all that said, I will now turn the call over to Mario Kontomerkos, President and Chief Executive Officer of Mohegan Gaming and Entertainment. Mario, please go ahead.

--------------------------------------------------------------------------------

Mario C. Kontomerkos, Mohegan Tribal Gaming Authority - CEO [3]

--------------------------------------------------------------------------------

Thank you, Drew. Good morning, everyone. Before we begin, I'd like to introduce the participants of today's call. We have with us Thayne Hutchins, Treasurer of the Mohegan Tribal Council and MGE Management Board; Mike Silberling, our COO; and Drew Kelley, our CFO, who you just heard from. In addition, we have a number of others in the room and on the phone that are available to answer any questions that you may have.

So as we begin today, Thayne and I will provide some introductory comments, followed by Mike, who will briefly discuss our operating results for the last quarter, and then Drew will review our financial and other results, after which we can open up the call for Q&A.

So with that, I'm pleased to turn the call over to the Treasurer of the Mohegan Tribal Council and MGE Management Board, Thayne Hutchins. Thayne?

--------------------------------------------------------------------------------

Thayne D. Hutchins, Mohegan Tribal Gaming Authority - Treasurer & Member of Management Board [4]

--------------------------------------------------------------------------------

Thank you, Mario. Good morning, everyone, and thanks for joining today's call. We are pleased to report our fiscal 2019 fiscal third quarter earnings where, despite the impact from new competition in Massachusetts and some temporary hold pressures, our properties performed better than expected, certainly helped by property enhancements focused on non-gaming revenue production, namely our new Expo Center. Both continue to perform ahead of expectations.

In addition, we welcomed over 4,000 new team members to the Mohegan family with the closing of the acquisition of the Niagara bundle, an important step in driving both increased influence on the East Coast while also diversifying free cash flow as to ensure continued financial stability at Mohegan. Additionally, it ushers in a new and expanding chapter of the over 13 generational story of the Mohegan people as we assume control of our next international operation.

Meanwhile, our development team continues to make significant progress on our growth pipeline. Our global diversification efforts and continued non-gaming amenity enhancements here at the flagship in Uncasville.

And with that, I will turn it back over to Mr. Mario Kontomerkos.

--------------------------------------------------------------------------------

Mario C. Kontomerkos, Mohegan Tribal Gaming Authority - CEO [5]

--------------------------------------------------------------------------------

Thank you, Thayne. As Thayne mentioned, the June quarter was an important one in the evolution of MGE as on July 11, the company closed on its acquisition of the Niagara bundle, welcoming into the family, as Thayne said, 4,100 new associates and the 2 new operations, Casino Niagara and the impressive Fallsview Casino Resort. This transaction not only represents another meaningful step in our efforts to further diversify our overall free cash flow profile, but also represents our next successful international endeavor with access to the attractive Toronto market.

Now, all of our guests around the world will have an opportunity to experience a truly unique group of MGE bucket list destination geographies in Niagara Falls, in Connecticut, in the Poconos, in Atlantic City, in the Pacific Northwest, and, in 2022, in Asia with the opening of our Inspire project. And over time, others are sure to be added to this list, all of this with the overriding goal of generational sustainability for all of our stakeholders.

Speaking of unique and diverse geographical experiences, we are also focused on giving our guests the choice to be entertained both in our brick-and-mortar facilities and online. And to that end, we recently announced our new partnership with iPro, a cutting-edge digital gaming platform developer. With iPro's assistance, we've already successfully launched our Mohegan Sun Beyond mobile application, where guests can easily book a visit, check in, unlock their hotel room, and explore a never-ending range of offerings and experiences here at Mohegan Sun.

Further, the new mobile app and online product features free-to-play casino-style games and an online sportsbook, allowing fans to play at home or on the go, earning Momentum loyalty dollars for future visits to our resorts. This platform also allows us to flip the switch to begin to accept real-money sports and online gaming wagers as well as to generate the significant associated economic and tax benefits of such activities as soon as the Connecticut State Legislature allows that to happen. It is important to note that we are already approved to successfully operate some form of sports betting in 3 other surrounding jurisdictions.

So with that, let me now turn it over to Mike Silberling for a more detailed review of our operations. Mike?

--------------------------------------------------------------------------------

Michael Silberling, Mohegan Tribal Gaming Authority - SVP & COO [6]

--------------------------------------------------------------------------------

Thank you, Mario. Before we get into property-specific performance, I wanted to start the call highlighting that revenue for the quarter on a comparable 606 basis increased by 1.3% and adjusted EBITDA decreased 9.8% respectively in the third quarter '19. However, adjusting for the impact of lower-than-expected table hold, revenue for the quarter increased by 4.6% while adjusted EBITDA was essentially flat. We are encouraged with the quarter's performance, given it is the third full quarter of operations facing the new competition in the region, and the gaming volume and non-gaming performance are ahead of our overall expectations.

On that note, I will provide a quick update on the current competitive environment here at Mohegan Sun. At this point, the impact from recent underperforming competitive openings in the Springfield, Massachusetts market hasn't changed versus last quarter, remaining in line to slightly better than expected. Turning to the impact of the very recent Boston Encore openings, it's likely still very premature to make a statement. However, the early read is that impact is in line to slightly better than expected, particularly in slots. Now note, it will take several months before we have a more accurate read on this.

Unfortunately, this resilient top line performance, volume and handle is masked by the lower-than-expected hold at Mohegan Sun in the quarter, impacting EBITDA by $12.3 million in the period. All this is detailed within the supplemental earnings deck.

With that, I will move to the property-specific performance. Mohegan Sun, again on a comparable 606 basis, net revenues at Mohegan Sun decreased by 6.6% while adjusted EBITDA decreased by 19.4%. Adjusting for table hold, net revenues and adjusted EBITDA would have decreased more modestly at 2.7% and 8.4% respectively and in line with our overall plan when contemplating the new competitive pressures in the market. Note that table drop was up 0.6% on a year-over-year basis while slot handle was down 7.2%, both in line to better than contemplated going into this competitive period. Overall, non-gaming revenues were up 11.1%, reflecting a sequential improvement from 9.5% in the second quarter '19, including both entertainment and other non-gaming.

Entertainment revenues alone increased by 49.7%, benefiting from 3 more headliners and Barrett-Jacksons in the quarter, while food and beverage revenue increased 5% and hotel revenues increased 2.6% in the quarter. Collectively, overall non-gaming continues to benefit from the expanded Expo Center and the continued ramp-up of this important business.

Now, let's move on to Mohegan Sun Pocono results. Net revenues at Mohegan Sun Poconos decreased by 3.8% while adjusted EBITDA decreased by 1.4%. However, adjusting for higher-than-normal table hold, net revenues and adjusted EBITDA would have decreased by 2.7% and 5.5% respectively. Net revenues declined at the property, principally driven by lower table volumes. Fortunately in the Poconos, we're seeing improving trends within our rated customers as local competitive pressures have abated. However, we have seen some downward revenue and some increased trial by customers benefiting from aggressive marketing on the Atlantic City marketplace.

Just a few words on our managed properties, the ilani Resort and Casino, just north of Portland, Oregon, Resorts Atlantic City and Paragon, Louisiana. At ilani, we recognized approximately $8 million in management fee revenues, which is $3.8 million higher than the prior year. We continue to be pleased with the property's performance and with its rapidly ramping revenue profile as its player database is at over 306,000 in June, up 5.5% from March and 29% from the prior year, and continues to grow robustly. For the calendar second quarter, net revenues increased 20.8% while EBITDA was up 15%. The recently opened gas station and convenience store continues to run ahead of plan, and construction is ongoing for our future parking garage, which will anchor future development.

Moving to resorts in Atlantic City where the reported quarter is their 2019 second quarter, results reflect the direct impact of 2 new competitors in the market, with GGR down 9.6% in the period to $43.8 million, a decrease of $4.6 million. Excluding revenue from the 2 new market entrants, which have grown the overall market, same-store Atlantic City casino revenue is down 11.3%. So although the market is down 11.3%, we were outperforming the peers that were there before the new competitive entrants in this very ultra-competitive market. Management fees earned by MGE in the quarter were approximately $770,000. Looking at current trends, July has seen a continuation of performance experienced in the prior quarter as new competition and aggressive promotional activity adversely impact the incumbent operators.

At Paragon, we had a tough quarter. Management continues to improve margins, judiciously spend capital, have market-faced entertainment and marketing. The medium- and long-term story has been good. And although we had a decline in the quarter, which was a tough quarter overall in Louisiana, we are pleased with the trajectory of the business.

Over to you, Drew.

--------------------------------------------------------------------------------

Drew M. Kelley, Mohegan Tribal Gaming Authority - Senior VP & CFO [7]

--------------------------------------------------------------------------------

Thank you, Michael. As previously mentioned, the quarter was highlighted by the completion of the Niagara acquisition, where in the short time since close, operational and financial performance remains ahead of expectations. Similarly, we believe the Niagara acquisition financing to be exceptionally attractive both on a standalone basis and in consideration of the planned support to MGE's existing restricted group.

To recap more specifically, MGE took over operations of the Niagara bundle on June 11, 2019 following a competitive bidding process. As a result, working capital, certain FF&E, the right to operate and build and select assets were transferred to MGE for the next 20-plus years. Strategically, this opportunity gives MGE access to the lucrative greater Toronto area, or GTA. Within 150-minute drive time, there is a population of more than 14 million people with an average household income of more than CAD100,000. Furthermore, the Asian population is one of the fastest-growing segments, with Chinese making up more than 10% of the GTA population. Obviously, we believe this bodes well for us as we progress with our Korean development, Inspire.

In addition to the strong local residential population, Niagara Falls is a top 10 global destination, with more than 14 million annual visitors to the Canadian side of the falls. This creates more than 6.5 million overnight visitors. Furthermore, this also includes more than 4.5 million annual U.S. visitors, many of which come from existing MGE markets. To that end, we expect robust cross-property visitation.

As part of the casino operating agreement, MGE will operate the Fallsview Casino Resort, Casino Niagara, and the newly-constructed 5,000-plus seat Niagara Falls Entertainment Center located adjacent to the Fallsview Casino. This entertainment complex is scheduled to open later this year, and while we are excited about the overall Niagara opportunity, the entertainment venue in particular aligns well with our core competencies. Further solidifying our confidence in the acquisition is the fact that the existing management team and staff will remain in place, resulting in a stability of day-to-day operations. And again, we welcome them to the MGE family.

From an economic perspective, MGE will earn a management fee equal to 7% of EBITDAM and can distribute additional cash flow back into MGE once leverage is below the targeted 3X level. Both items will therefore benefit MGE's restricted group, and the prepayable format of this financing provides flexibility to evaluate alternative structures both in the near-term and as we approach MGE maturities.

More specifically, the acquisition was financed by a $300 million Canadian credit facility consisting of a $200 million revolver, none of which is drawn, and a $100 million term loan. Overall, the credit facility has a blended cost less than 5%. When you also factor in the $60 million Canadian equity contribution from MGE and the $40 million Canadian investment from our partners at Canadian Niagara Hotels in the form of a convertible debenture, we have a strong liquidity structure for the MGE Niagara Entertainment entity. Notably, MGE's aforementioned contribution of CAD60 million, or approximately $45 million, is significantly lower than our expectations when this transaction was announced.

On a final accounting note regarding this acquisition, we consolidate Niagara's results in the reported financials within the corporate segment, but we are reevaluating reporting segments in the upcoming fourth quarter in order to provide greater appropriate level of detail, going forward. Until then, I will direct those interested to the supplementary deck for an immediate breakout of the performance, although, again, we had roughly 20 days, and 20 days only, in the current quarter.

Turning to Korea, construction has commenced with site clearance complete now, and pilings has started to commence, with sheet piling for the below-grade items currently underway. There are approximately 200 men onsite, and the intention is to complete the below groundwork before the winter. Financing has made equally material progress during the quarter, and we expect to announce these developments on the next quarterly call.

Finally, let me provide a brief update on the balance sheet. Total debt as defined under the bank credit facility was $1.78 billion, which increased sequentially, up $45 million from the prior quarter primarily due to the Niagara acquisition. Our total leverage ratio as calculated on a gross basis was 5.27X, a sequential increase from 4.73X in the prior quarter, again primarily due to this acquisition.

Elsewhere, $114 million was drawn on our $250 million revolver as of 6/30. When factoring in outside letters of credit, we had approximately $134 million available for borrowing. Cash and cash equivalents totaled $162 million, with overall total liquidity approximately $162 million, as well, net of bankroll and restricted cash at the end of the quarter. Distributions to the tribe from MGE totaled $15 million for the quarter, as well.

Finally, capital expenditures totaled $18.9 million for the quarter, comprised of maintenance and development capital of $13 million and $5.9 million for expansion CapEx generally related to project Inspire.

With that, I thank you all for joining the call, and turn it over to the operator for questions. Please go ahead. Operator, please open for questions. Thank you.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Your first question comes from the line of James Kayler from Bank of America Securities.

--------------------------------------------------------------------------------

James Forristall Kayler, BofA Merrill Lynch, Research Division - MD [2]

--------------------------------------------------------------------------------

Maybe just starting in Connecticut on the table side. I mean, the drop was pretty impressive, and I think it was the first year-over-year increase in drop in a number of quarters. I'm just curious if you can give any color around how you're able to drive that. Is it existing customers? Was it new customers? Were there specific promotions or something to sort of drive those visits?

--------------------------------------------------------------------------------

Mario C. Kontomerkos, Mohegan Tribal Gaming Authority - CEO [3]

--------------------------------------------------------------------------------

I think all of the above, really, existing new and blackjack tournaments and whatnot during the quarter. We're within historical norms of hold. We're below prior year in hold, and we're below where we budgeted as well, so at that higher end. I was looking at a sheet the other day that had a double-digit increase I customers that had win or loss of $100,000 and a double-digit decline in revenue from those folks.

So we're putting people in the door, and we're continuing to spend capital on the place with Novel and Game On! and new cigar bar and Aspire Hotel, and we're always in the market for casino marketing salespeople that can sell this tremendous facility. I do think, and this is probably more opinion than factual, but I think we have the nicest place in the region. I don't know how to quantitatively talk about that, but the number of restaurants, the number of amenities, the size and scale of the place, I would rather visit here than any of the regional places.

So it's nice to see strength in those numbers. And whether we do some more analytical things and looking at house advantage and game rules and side bets and gaming speed, or I'm not afraid to [listen] to more nontraditional things as well. So throw the salt. Let's start winning some more bets.

--------------------------------------------------------------------------------

James Forristall Kayler, BofA Merrill Lynch, Research Division - MD [4]

--------------------------------------------------------------------------------

To add to that, that was a sort of follow-on question. I mean, the hold's been a little bit lower for a few quarters now, although this quarter was better than the last 2. Is there anything structural that changed? Or should we still think that the sort of theoretical hold is around that 16% to 16.5% where it's been historically?

--------------------------------------------------------------------------------

Mario C. Kontomerkos, Mohegan Tribal Gaming Authority - CEO [5]

--------------------------------------------------------------------------------

Yes. I don't think that there's any real structural reason to do that. We've lost a little bit of convenience trips that you would expect from certain postal codes where a quick midweek trip is easier to a competitor than here. And to the extent you think that some of those quick convenience trips, and those are typically lower work tiers as well, to the extent that you think that they are less skilled player, which we would hold higher against. That's really the only kind of systematic change that I would think. Otherwise, it's business as usual.

--------------------------------------------------------------------------------

James Forristall Kayler, BofA Merrill Lynch, Research Division - MD [6]

--------------------------------------------------------------------------------

Just one more on Connecticut. Just bigger picture, since Encore opened, can you give any color in terms of what you've seen with customer business? Presumably, you've seen some trial. Have you already seen those customers come back? I guess just generally, what are you seeing?

--------------------------------------------------------------------------------

Mario C. Kontomerkos, Mohegan Tribal Gaming Authority - CEO [7]

--------------------------------------------------------------------------------

I mean, it's so early [to us]. I mean, I assure you we're looking at every kind of anecdotal story that we have out there in the short time that they've been open. One anecdotal story is that bus counts from Boston are -- counts have not decreased, so that is one example. I don't think we've noticed any substantive shift on a day of the week in slots or table volume. Looking at the business, they seem to be performing better, and I would be more concerned on the table side than on -- they seem to be less, just once again, usually walking around performing less well on the slot side. But it's too early for us to tell, really.

--------------------------------------------------------------------------------

James Forristall Kayler, BofA Merrill Lynch, Research Division - MD [8]

--------------------------------------------------------------------------------

And then my other question is just around development. There's obviously never-ending news [fall] around Connecticut and potential expansion plans. I guess I was hoping to get the latest on East Windsor, the Bridgeport potential, sports betting, where those things stand and what the path forward is.

--------------------------------------------------------------------------------

Drew M. Kelley, Mohegan Tribal Gaming Authority - Senior VP & CFO [9]

--------------------------------------------------------------------------------

Absolutely. I think I'd be remiss if I didn't start by reminding everyone that the Connecticut tribes are the seventh and eighth largest employers in the state, accounting for more than 15,000 current jobs. And in the 25-plus years they have operated facilities here, we've contributed $8 billion to the state. Obviously as you said, there are a number of public stories and others surrounding MMCT, Bridgeport, sports betting, online betting, and probably another half-dozen topics, and they're all occurring real-time. And I can assure lenders that we are having conversations on a day-to-day basis at the highest levels of the government.

So I'll probably refrain from making any specific comments other than saying the Mohegan tribe welcomes the opportunity to assist in the further creation of jobs and economic growth in the state as they have done for almost 300 years. At the end of the day, though, we are a business enterprise, and we will make sure that our investment is prudent and is appropriate for the economics and others.

So we continue to evaluate, and we look forward to moving forward on a number of those ventures. I would say personally, I think the sports betting is among the ones where we could offer value to the state, to our existing customers, to new customers, and, quite honestly, be able to open sooner than others. So the benefit to the state from a revenue perspective, in my mind, is both material and near-term.

--------------------------------------------------------------------------------

James Forristall Kayler, BofA Merrill Lynch, Research Division - MD [10]

--------------------------------------------------------------------------------

My last question is just on the Niagara bundle. And so, I think the slides just got posted, so if it's in the deck, I can dig it up. But do you give an LTM or sort of like an annualized number, just so we can have a better sense for what the EBITDA contribution is? And then, can you just talk at a high level about the structure, so what the ownership split is between Mohegan and the partner?

--------------------------------------------------------------------------------

Drew M. Kelley, Mohegan Tribal Gaming Authority - Senior VP & CFO [11]

--------------------------------------------------------------------------------

Sure. Let me take that second part first. So again, we are very excited to have a very well-established local partner in CNHI. Obviously they are excited about this opportunity both as it relates to this opportunity and their vast network of lodging, entertainment, and other investments in the greater Niagara region. The structure which we have in place is such that MGE will own 100% of the entity, as we do now, and for at least the first 3 years there is a convertible mechanism that can be put forth in year 4. And at that point, it would be at least a 60/40 ownership structure, MGE/CNHI. So again, we, MGE, will continue to have the vast preponderance of the economics as the majority owner. But again, we welcome the partnership with them.

In terms of economic structure and benefit, again, regardless of the ownership, MGE will benefit from a 7% EBITDAM management fee. We've said that that will be a few million dollars per year USD. And again, our view is that the benefit in years 3, 4 and beyond will be materially more through tax distributions and other once we reach the targeted leverage. So for that, again, we think it's a very good investment overall and provides a significant near-term and long-term benefit to the restricted group.

--------------------------------------------------------------------------------

James Forristall Kayler, BofA Merrill Lynch, Research Division - MD [12]

--------------------------------------------------------------------------------

And I guess I can infer the annual EBITDAM, but it's sort of 40 ?

--------------------------------------------------------------------------------

Drew M. Kelley, Mohegan Tribal Gaming Authority - Senior VP & CFO [13]

--------------------------------------------------------------------------------

Yes, I'm sorry, let me -- again, at the end of the day, the historical financials are not necessarily applicable to the go-forward, given the changes in the bundle structure. So I'm reluctant to provide too much historical data, but we've generally said those facilities should generate in excess of CAD40 million EBITDA, going forward, and we feel pretty conservative in that approach, noting that all this takes into account likely competition in the near- and longer-term. So we do think there is significant benefit now, and certain opportunities, most notably on the non-gaming side, especially with the opening of the entertainment center, present low-hanging fruit for us for which we, MGE, should benefit economically disproportionately, given the tax structure and other.

--------------------------------------------------------------------------------

Operator [14]

--------------------------------------------------------------------------------

Your next question comes from the line of Josh Joseph from Black Diamond.

--------------------------------------------------------------------------------

Joshua Joseph;Black Diamond Capital Management, LLC, [15]

--------------------------------------------------------------------------------

Just a follow-up on the hold in Connecticut. Is this kind of number something that we may expect, going forward, given you mentioned some day trippers not coming back due to competition?

--------------------------------------------------------------------------------

Mario C. Kontomerkos, Mohegan Tribal Gaming Authority - CEO [16]

--------------------------------------------------------------------------------

We are expecting and budgeting a higher hold for next year. We are underperforming against a high-end tier that is -- with handle and trips actually up. And we believe that we are, although within historical norms of hold, below where we expect to be. We have budget below where we expect to be, below prior year. So we are currently underperforming where we think we would be on a go-forward basis.

--------------------------------------------------------------------------------

Joshua Joseph;Black Diamond Capital Management, LLC, [17]

--------------------------------------------------------------------------------

And then, with respect to Boston, you mentioned that thus far numbers are in line or a little bit better than expectations. Any way to quantify what were expectations in terms of percentage changes in GGR to the Connecticut property?

--------------------------------------------------------------------------------

Mario C. Kontomerkos, Mohegan Tribal Gaming Authority - CEO [18]

--------------------------------------------------------------------------------

I don't know if I want to get into the specifics. But suffice it to say that we are performing in line or better than expected, unlike when Springfield, Massachusetts. When Springfield opened, there were customers that now had Springfield. Our customers were now closer to Springfield than they were to Mohegan. When Wynn opened, all of our customers already have a casino closer to them than Mohegan, so a little bit different in looking at the 2 properties. I hope I explained that coherently. But no, we are still continuing, as I said. I'm trying to think of an anecdote besides Asian bus, largely Asian bus business from Massachusetts. But now just in summation, we're seeing once again from postal code analysis some pressure from that region but less than we, frankly, expected.

--------------------------------------------------------------------------------

Joshua Joseph;Black Diamond Capital Management, LLC, [19]

--------------------------------------------------------------------------------

Just one more, if I can, on the balance sheet. Can you walk through, again, what the driver of the I guess higher revolver is in the quarter?

--------------------------------------------------------------------------------

Drew M. Kelley, Mohegan Tribal Gaming Authority - Senior VP & CFO [20]

--------------------------------------------------------------------------------

Well, again, I think the biggest factor on the revolver was the $45 million payment for the Niagara acquisition. So that is, for all practical purposes, the driver of the change there. And again, across the balance sheet, we are now consolidating 100% of those operations and associated balance sheet items.

--------------------------------------------------------------------------------

Operator [21]

--------------------------------------------------------------------------------

Your next question comes from the line of Dennis Farrell from Wells Fargo.

--------------------------------------------------------------------------------

Dennis Michael Farrell, Wells Fargo Securities, LLC, Research Division - MD and Senior High Yield Analyst [22]

--------------------------------------------------------------------------------

Gentlemen, I was wondering if you could just give us your view of the promotional environment in Connecticut as well as in Massachusetts.

--------------------------------------------------------------------------------

Mario C. Kontomerkos, Mohegan Tribal Gaming Authority - CEO [23]

--------------------------------------------------------------------------------

Yes. Look, tough to tell exactly, but we do shop. And from our perspective, Springfield, Massachusetts is increasing its promotional activity. And there's no sign of that slowing down, and Encore, it's really too early to tell. Certainly we worry if the management team there thinks it's underperforming. One of the levers they have is increased marketing spend. I don't think we've seen that yet, but that's certainly something that we remain wary of at this point in time. So the place where we're really seeing the ultra-competitive, and it's impacting Poconos as well as Atlantic City, the AC market is where we're seeing high promotional spend, low hotel pricing.

--------------------------------------------------------------------------------

Drew M. Kelley, Mohegan Tribal Gaming Authority - Senior VP & CFO [24]

--------------------------------------------------------------------------------

And I would just add, I think as we think about the existing operators in Northeast, we see them as disciplined and not resulting or moving towards higher promotions. So whether it be Foxwoods or Twin River, we've been I think very pleased that they've been disciplined, and we're all waiting to see what happens.

--------------------------------------------------------------------------------

Dennis Michael Farrell, Wells Fargo Securities, LLC, Research Division - MD and Senior High Yield Analyst [25]

--------------------------------------------------------------------------------

And in regards to the convention center, your convention space, can you just kind of walk through how the demand's been for that, and that on the gaming floor and on the non-gaming side?

--------------------------------------------------------------------------------

Mario C. Kontomerkos, Mohegan Tribal Gaming Authority - CEO [26]

--------------------------------------------------------------------------------

Well, the Expo Center is the new area, and not that semantics mean that much, but we've continued to be pleased at outperform expectations with that clearly as we added gaming revenue pressure from increased units in the Northeast in the region finding non-gaming revenue, finding additional people to stay in our hotel rooms is paramount. And not only have we done the Expo Center, but the Aspire Hotel, but Novell and Game On! and the cigar bar, and we hope to continue to spend and to increase the appeal of this property for gaming customers, but also to fill hotel rooms and our restaurants with non-gaming Expo business as well. So that continues to -- I don’t think it's stopped ramping up, like that business has not reached its zenith in capacity. We just continue to put more and more business into the hotel. Those things literally take a couple years with the lead times of some of the people that are booking to get on their calendars, but we continue to fill

--------------------------------------------------------------------------------

Dennis Michael Farrell, Wells Fargo Securities, LLC, Research Division - MD and Senior High Yield Analyst [27]

--------------------------------------------------------------------------------

You mentioned kind of revenue maximization on the casino floor. I'm just wondering where you are in that stage, maybe changing some odds or potentially moving out of somewhat of the participation gaming. So I'm just wondering where are we in that process.

--------------------------------------------------------------------------------

Mario C. Kontomerkos, Mohegan Tribal Gaming Authority - CEO [28]

--------------------------------------------------------------------------------

Well, some of the things are circular. We want to make sure we have a competitive and appealing -- it's revenue maximization, not house advantage maximization. But we continue to look at our slot table, electronic table games. We continue to look at size, at side bets. We continue to look at just hand speed, and should we be using shufflers on the floor or the games, the traditional blackjack roulette, but there's additional games besides that that we look at. So just like any retailer, we will continue to look at the product and pricing on the floor to maximize that. As demand shifts, what's the labor that we are deploying against that; continue to, hopefully constructively with the gaming manufacturers, look at the amount of participation games and what they are charging us for them. Those are all kind of continuous pieces, but we are very, very active right now. And credit to the management team prior to me getting here were active in that space, but I think that that activity has only increased as we look to have the best product available for customers and for maximizing the profitability of the business.

--------------------------------------------------------------------------------

Operator [29]

--------------------------------------------------------------------------------

(Operator Instructions)

--------------------------------------------------------------------------------

Drew M. Kelley, Mohegan Tribal Gaming Authority - Senior VP & CFO [30]

--------------------------------------------------------------------------------

All right. Well, if there are no further questions, we do appreciate everyone's time, and thank you for your participation. Look forward to speaking with you next quarter. Thank you.

--------------------------------------------------------------------------------

Operator [31]

--------------------------------------------------------------------------------

Thank you again for joining us today. This concludes today's conference call. You may now disconnect.