ONTVILLE, Conn. - On the Mohegan Reservation, it is the $430 million question.
What exactly did the tribe get for paying that amount to a group of South African developers?
The $430 million was part of a huge buyout announced by the Mohegan tribe and their development partners in 1998. At the time, the South African group owned a contract to manage the tribe's casino, which was projected to pay the group about $240 million over four years.
But then the tribe announced plans that would, in rough numbers, pay the developers $670 million - about $430 million more than what they would have gotten under the original casino management contract.
But what was the extra $430 million?
Had the tribe been shrewdly outmaneuvered by businessmen with decades of experience on the rough-and-tumble international scene? Had they been forced to cough up that much money to avoid a potentially business-ruining lawsuit? Had they been taken? Or was it just a cost of doing business?
At the time of the deal, the tribe and the South African group, known as Trading Cove Associates, provided an obvious explanation for the extra $430 million in its legal documents and public announcements.
Besides selling the four remaining years on its lucrative casino management contract, Trading Cove was also giving up its ownership of a 14-year contract to develop and manage a hotel on casino grounds, according to the documents and announcements.
Moreover, a top Mohegan Sun executive explained in an interview last November that the $670 million broke down into $240 million for the casino management contract and $430 million for the hotel-development rights.
''It was because they [Trading Cove] had the development rights to expand the hotel and resort for 14 years,'' Jeffrey Hartmann, Mohegan Sun's chief financial officer, said of the $430 million.
But then questions were raised about the propriety of that hotel deal. The Globe questioned whether the hotel deal circumvented a federal law that attempts to limit the amount of profits going from Indian casinos to non-Indian financial backers, such as Trading Cove, which is headed by international casino mogul Sol Kerzner, creator of South Africa's Sun City.
Wary of outsiders using tribes as ''fronts'' for their own profits, Congress said operators helping to set up casinos could not get more than 40 percent of gaming profits for seven years.
Yet, in the case of Mohegan Sun, Trading Cove was already receiving the maximum allowable amount - in this case, $60 million a year as the casino ''manager.'' So the hotel deal appears to be the only possible consideration for the extra payout.
Officials at the National Indian Gaming Commission, the federal agency responsible for enforcing the restrictions on profit-taking by outsiders, said they were unaware of the hotel agreement when they reviewed and approved Trading Cove's casino management agreement in 1995.
Ultimately, the question of whether Trading Cove could get extra compensation for its hotel rights was never addressed by the commission because the hotel agreement, originally submitted with the casino deal, was separated and withdrawn from the commission's consideration.
For months, Trading Cove officials simply said all necessary documents had been submitted and approved by federal authorities. Then, earlier this month, Trading Cove for the first time said in a letter that the hotel agreement not only had never been approved by the commission, and was therefore null and void, but that neither Trading Cove nor the tribe had ''ever ascribed any value to these contracts'' when negotiating the buyout.
The hotel agreement was mentioned in legal documents ''only as a clean up matter to formally terminate'' the agreement, the letter, written by a Trading Cove lawyer, said.
Yet if the Mohegans did not get the hotel rights for the $430 million, what did they get for it?
Hartmann, in a brief interview, said, ''I would go along with what the lawyers say.''
The lawyer's letter said the extra $430 million is explained by the way the money is to be paid out. Under the original casino management contract, the tribe was obliged to pay Trading Cove a projected $60 million a year for four years ending in 2003. But under the buyout plan, the payments are spread out over a longer period of time, ending in 2015.
The tribe, therefore, agreed to pay less in the short run - when it wants to divert significant cash into financing its ongoing casino expansion and new hotel - but more in the long run, the letter said. But the tribe's obligation to Trading Cove, currently on the Mohegans' books as $670 million, is in present value, meaning it has already been discounted to take into consideration the declining value of money over time.
Hartmann said the $670 million, while discounted for present value, does not account for the risk that Mohegan Sun might fail.
Mohegan tribal leaders, meanwhile, say privately that they wanted nothing so much as to avoid time-consuming litigation when they negotiated with Trading Cove over the buyout. And they worried about Trading Cove taking them to court to enforce the hotel contract.
Sean P. Murphy's email address is [email protected]
