As was rumored the last week in Atlantic City, the Atlantic Club has filed for Chapter 11 bankruptcy protection and put itself on the auction block. Reports say that $ 15 million is being put up by a hedge fund to finance the bankruptcy and keep it running while the bankruptcy is pending. It is expected that any auction bids would have to exceed that value.
Documents show that the company lists their employee pension plan as a creditor, with “unknown” in the value column. It was reported during the spring that the Atlantic Club’s employee pension fund was unfunded to the point of $ 32 million. The documents also show legal fees owed to three firms totaling more than $ 1.4 million. Bally Gaming (technologies) is owed $ 615,000, US Food Service is owed $ 560,000, and WMS $418,000. The electric company, and IGT, along with other various companies listed under “trade services claims” round out the list for the largest 20 creditors. All total (the top 20), not including the pension fund, are more than $ 5.5 million. The full creditor matrix lists more than 2000 creditors, most appearing to be personal names, potentially those that would be owed via the pension plan or other employee compensation due.
This same time last year, Atlantic Club was already crying poverty and threatening bankruptcy. They were bailed out by PokerStars, the online gaming giant from Isle of Man, who had hoped to purchase the casino, potentially looking toward online gaming being approved in New Jersey. The purchase price at the time was $ 15 million, including bonuses for the Chief Operating Officer Michael Frawley and the Chief Financial Officer Eric Matejevich. In order to save almost 2000 jobs, PokerStars immediately began funneling some of that purchase price monthly into the Atlantic Club coffers, keeping the casino afloat. By February 2013, they had already paid $ 11 million of the $ 15 million to the casino but shortly after Governor Christie signed the internet gaming law into effect in New Jersey,the Atlantic Club killed the deal with PokerStars, with the casino admitting they thought that now the property was worth so much more. Atlantic Club’s COO, Michael Frawley stated at the time “The Atlantic Club remains committed to the aggressive pursuit of the opportunities presented by online gambling.”
The situation publicly got ugly, with PokerStars calling foul on the contract termination and Atlantic Club seeking the additional $ 4 million purchase price before even considering re-opening talks. PokerStars filed suit to try to keep the contract intact, but a court found that terminology in the contract allowed for the termination. Subsequently, PokerStars discontinued their quest to buy the casino and filed for damages to recoup their investment, and Atlantic Club has filed for summary judgment. The case was moved from the Chancery Division to the Law division and the summary judgment remains pending.
Not The First Time
The owners of the Atlantic Club, Colony Capital of California, also owned Resorts Hotel and Casino in Atlantic City. In 2009, they defaulted on their mortgage and a consortium of banks that held the paper took control of the casino. Shortly thereafter, it was sold to Dennis Gomes and Morris Bailey for $ 35 million. (The casino sold in 1996 for $ 301 million.) Reports say the casino suffered operating losses of $ 18 million in 2009 under Colony’s ownership, and was on track to lose even more in 2010 before the property was sold. Gomes passed away and Bailey now is overseeing the resurgence of a new Resorts Casino. Resorts has partnered with PokerStars as an online gaming partner, both currently awaiting permits and licensing from New Jersey.
The Atlantic Club, previously known as the Atlantic City Hilton, and also under the ownership of Colony Capital at the time, defaulted on its $ 359.5 million debt in 2009 because of “economic conditions” at the time. In 2009, the Hilton posted a $ 16.9 million gross operating loss. After losing the Hilton name, it then rebranded as the Atlantic Club.
What About That Pension Plan?
In court papers that became public when the Atlantic Club and PokerStars contract was upended, it was disclosed that Atlantic Club had underfunded their employee pension plan by $ 32 million. PokerStars confirmed that they would have funded that shortfall once the sale had been finalized, making the actual purchase price much higher than only $ 15 million. With the bankruptcy filing now looking for some relief for the casino as to the pension fund creditor, where does that leave the employees? The sale of the casino to PokerStars could have closed before the summer months, contingent upon receiving their interim casino license from the state. That license was only to operate the casino and there were no stipulations at the time that PokerStars would have to also be approved for online gaming. Most sources close to the casino business in Atlantic City believe that PokerStars would have eventually received that license, the casino would have changed hands, the casino would have been in a process of refurbishment, there would have been a new live poker room built in the casino, and nearly 2000 employees would not be wondering if they would be stripped of their pensions. The company never found another buyer, did not file for an online gaming permit, and proceeded instead to start racking up additional debts. By filing now and asking for relief, even if the casino has a buyer interested in the casino, (which some believe they do) there is no indication that the pension fund, believed to be short over $ 32 million, will be a requisite part of that sale contract.
In much worse shape than April, when the Atlantic Club was funded by PokerStars and the casino instead terminated the sale of the casino, they may now have to explain to hundreds, if not thousands, of employees, why they didn’t deliver as promised. Again.