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WILKES-BARRE, PA-Faced with delays in obtaining a gaming license and a higher-than-expected gaming tax burden, the Uncasville, CT-based Mohegan Tribal Gaming Authority considered walking away from its plans for a casino at the Pocono Downs harness racetrack. Now, however, in return for a $30-million commitment from Penn National Gaming, which sold the asset to the authority in October 2004, and anticipation of about $15 million in state funds, the new owner is set to break ground on the first phase of its $200-million Mohegan Sun at Pocono Downs casino and racetrack.

Entities cannot own in full more than one casino in the state. In order to retain its own ability to create Hollywood Casino at Penn National in Graniteville, Wyomissing-based Penn National sold the Pocono Downs track and five off-track wagering operations in the state to MTGA for $280 million. The purchase agreement, however, contained several post-closing termination rights, which could be exercised “in the event of materially adverse legislative or regulatory events.”

Among the adverse events that occurred following the 2004 sale were a delay in the state’s awarding of casino licenses and the institution of municipal gaming taxes that raise the overall tax burden on gaming revenues above the initial state’s stake. Given these events, Robert Soper, president and CEO of Mohegan Sun here, tells GlobeSt.com that MTGA had the right to sell the property back to Penn National.

The seller and buyer have now reached an amended purchase agreement under which Penn National will pay MTGA $30 million over five years. In return, Soper says, “we extinguished all post-closing termination rights.” The payments are in five installments of $7 million, $7 million, $6.5 million, $6 million and $3.5 million, payable upon each of the first five anniversaries of the opening date of slot machine operations at Mohegan Sun at Pocono Downs.

Soper says he anticipates the award of a gaming license by Sept. 1, and, although specific plans for groundbreaking of Phase I are not final, “we hope to open that phase by the end of this year.” He expects the opening phase to include major renovations of the existing grandstand, construction of a facility to contain 1,080 slot machines, a food court and other amenities at a cost of about $70 million.

The new building in Phase I may or may not continue to house slots, “but it is not a temporary facility,” Soper says. “It will be used one way or another, but the main casino will be constructed during Phase II.” That phase, which will break ground on completion of Phase I, is estimated to cost $135 million. Its main building will hold up to an additional 2,000 slots and also include nightclubs, lounges, retail and KidQuest. Soper says construction will take about 14 months.

To mitigate the municipal tax burden, Soper says MTGA plans to apply for up to $15 million in state development funds. Conversations with Luzerne County, Plains Township and Wilkes-Barre officials representing the entities that provide state grants, indicate the “relief will be granted,” he says. “They appreciate the magnitude of this project, its economic benefit and creation of up to 1,000 new jobs. The state has grant funds and other financial incentives available that are already designated for new development,” he adds.

These, combined with the amended purchase agreement with Penn National, will give the authority “adequate return on its investment,” Soper says. Consequently, MTGA has rescheduled a previously cancelled two-day job fair. It will take place Sept. 12 and 13.

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