Any moment now we expect to learn who might be saving the Atlantic Club in Atlantic City from closing its doors. The Casino, owned by Los Angeles based private equity firm Colony Capital, filed for bankruptcy protection and put itself on the auction block. For the last few weeks, discussions have been ongoing with interested companies and bid proposals have been discussed during the last few days, not in an open courtroom, but behind closed doors. One can only hope the new buyer plans to keep it as a casino.
Speculation is rampant as to who might be interested in buying the casino/hotel for a bargain basement price, including current casino owners in town, local hedge funds and interested internet gaming companies from the US and abroad. As part of their bankruptcy filing, The Atlantic Club, listed numerous debts to creditors, including an unfunded employee pension fund. While they listed the value of the fund at “unknown”, reports earlier this year were that the pension fund was short approximately $ 32 million. While the judge handling the bankruptcy has some discretion, it is commonly believed that the pension fund liability will be discharged when the bankruptcy is complete. The list of employees with an interest in that fund hovers around 2000 names and more than 1600 current employees are now unsure whether they will have a job tomorrow or how they will manage without their retirement funds.
The Atlantic Club has been on shaky financial ground for some time, with owner Colony not interested in adding funding. They made an agreement with online poker giant PokerStars to purchase the property around this time last year for a sales price of $ 15 million. Once they signed their term sheet with PokerStars, they accepted $ 11 million of financing from the buyer between fall of 2012 and February 2013 to help keep their doors open while the sale and the licensing process was ongoing. In late April 2013, the Atlantic Club chose to terminate the sale agreement with PokerStars rather than extend the terms while licensing was still ongoing. By that time, New Jersey had adopted an internet gaming statute that allowed for igaming to take place in conjunction with brick and mortar casinos in Atlantic City. While their stories varied as to why they terminated their agreement, it was clear from statements made in the early spring, that they believed they could now garner much more for the property, as they had one of only twelve casinos in the state that could be permitted for online gaming. Obviously they failed to find any suitable buyer that would have met their expectations for a higher sales price. It should be noted that although the sales price of the casino to PokerStars was $ 15 million, PokerStars also agreed to accept the liability for that unfunded pension fund and to refurbish the casino, including a multi-million dollar poker room, bringing the actual price to well over $ 50 million. They have been unable to find a buyer for the casino for anywhere near that amount and that now leaves almost 2000 employees future at risk. It should not be overlooked that Colony are the ones that set the price for the auction at a reported $ 25 million. Using that precise number, they would guarantee that 7 key employees get a bonus payment, but just as important with that number is the fact that they planned from the outset not to include the employee pension fund in the transaction.
Failing in the casino business is not anything new to Colony Capital. Not only has it happened to them in other locations, they also previously owned the Resorts Casino in Atlantic City. They defaulted on their mortgage debt there and sold the casino at a bargain price in 2010, just days before it was scheduled to close its doors.
Reportedly, in addition to the backing they received from PokerStars up until February 2013, the casino claimed to be on an upswing monetarily, making some marketing changes and looking forward to the high season summer months when traditionally the casinos in New Jersey flourish. Immediately after the summer though, they were already in dire straights, being severely behind on debts, including that pension fund.
No one really knows what they spent their money on, but they never gave up their fight to try and prove they made the right decision terminating their prior agreement with PokerStars. This summer, at the height of the season, this full size billboard was right on the boardwalk very near to Resorts Casino (and a very long way from the Atlantic Club) for all to see:
It was clear who that message was aimed at, since PokerStars had signed a licensing agreement with Resorts for internet gaming following the collapse of their deal with the Atlantic Club. I stood on the boardwalk near that sign, and asked numerous casino patrons walking by it, if they knew what it was all about. No one had any idea. Not one person. The billboard was a silly message, one meant not for their patrons, but possibly for patrons of their competition, or more likely, just their “statement”. I have yet to find anyone who doesn’t agree that the money spent on keeping that billboard (and others) visible would have been better spent on keeping their promises to employees.
There are many many factors that go into finding suitability for a casino owner. One of course is whether they have the financial capability to keep that casino running. Colony Capital has plenty of money, they just refused to invest it back when needed, more than once. Any jurisdiction in this country, or anywhere else, that finds themselves with an application for suitability from Colony Capital would be wise to look at their history and deny any participation whatsoever. It’s not just about having the money, it’s about using it for what you promised you would.