The parent company of online global gambling giant PokerStars is appealing a ruling that allowed the Atlantic Club Casino Hotel to scrap the proposed sale of the financially troubled property.
Rational Group, based on the Isle of Man, had sought to buy the Atlantic Club for $15 million and become the first online gambling company to own a land-based casino in the United States.
However, a state Superior Court judge ruled May 17 that Atlantic Club could terminate the sale contract and keep the $11 million that the Rational Group had paid as an advance toward the $15 million purchase price.
Rational Group filed an appeal this week, claiming that the judge made a series of errors that resulted in a faulty ruling. Company spokesman Eric Hollreiser had no comment Thursday other than to confirm the appeal. Atlantic Club spokeswoman Cathleen Kiernan declined to comment.
In a 34-page brief accompanying its appeal, the Rational Group argued that Superior Court Judge Raymond Batten “misconstrued” the purchase agreement and effectively blocked New Jersey casino regulators from conducting their review of the sale.
Rational Group also contends that Batten “improperly considered” testimony from Atlantic Club’s witnesses and relied on documents that were not formally entered as evidence in the case.
Batten found that Atlantic Club had the right to end the sale because the Rational Group failed to obtain New Jersey regulatory approval for the deal by an April 26 deadline agreed to by both sides.
In his ruling, Batten also dissolved a temporary restraining order that barred Atlantic Club from seeking new buyers. Rational Group’s appeal shows that it is not willing to let the Atlantic Club go without a fight.
Rational Group’s appeal is the latest twist in a sale that has been controversial from the start because of the involvement of the company’s PokerStars affiliate. The American Gaming Association, the national trade group representing the casino industry, has called PokerStars a “criminal enterprise” that should not be licensed to own an Atlantic City casino.
Last year, PokerStars agreed to pay $731 million to settle a U.S. Department of Justice lawsuit that included charges of money laundering, bank fraud and illegal gambling. The company admitted no guilt or wrongdoing in the settlement. Rational Group has strongly denied the AGA’s allegation that PokerStars acted illegally.
PokerStars, the world’s largest poker website, had planned on using the Atlantic Club as a platform for Internet gambling. Starting Nov. 26, Atlantic City casinos are allowed to begin offering online wagering for their slot machines and table games.
The value of the Atlantic Club is in its potential as a hub for Internet gambling. The Atlantic Club deal would be PokerStars’ first foray into the burgeoning U.S. Internet gambling market. In New Jersey, Internet wagering is expected to provide a huge boost for the Atlantic City casinos, with revenue estimates ranging anywhere from $200 million to $2 billion annually.
Atlantic Club has been owned since 2005 by Resorts International Holdings, an affiliate of the California-based private real-estate investment firm Colony Capital LLC. Atlantic Club, formerly known as the Atlantic City Hilton Casino Resort, has struggled under Colony’s ownership. It suffered a $19.2 million gross operating loss in 2012, following a nearly $20 million loss in 2011.
Rational Group said in court papers that it helped subsidize Atlantic Club’s losses, up to $750,000 per week, as part of the purchase agreement. The company also alleged that it saved Atlantic Club from bankruptcy.
So far this year, Atlantic Club is showing signs of a recovery. Its gambling revenue is up a combined 27 percent through the first five months of 2013, including an industry-leading 25 percent increase in May.
Rational Group’s proposed $15 million purchase price would be the lowest amount ever paid for an Atlantic City casino. That price is only a fraction of what Colony paid for the casino in 2005, when it was still called the Atlantic City Hilton. The Hilton was valued at $513 million when it was packaged as part of Colony’s $1.24 billion deal for four casinos in New Jersey, Mississippi and Indiana.
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