The parent company of online global gambling giant PokerStars went to court Monday to try to salvage its purchase of the Atlantic Club Casino Hotel — and in doing so, revealed it is looking to acquire the property for a record low price.
The Rational Group has proposed buying the Atlantic Club for just $15 million, the company disclosed in a state Superior Court lawsuit filed Monday. It was the first time the purchase price has been made public.
Shortly after the Rational Group filed suit, a Superior Court judge issued a temporary restraining order barring the Atlantic Club from selling itself to anyone else. Judge Raymond Batten scheduled a May 17 hearing on whether to make the restraining order permanent.
“This step has been taken to protect Rational Group’s rights and interests under the purchase agreement and reflects the group’s desire to complete the acquisition of the Atlantic Club,” company spokesman Eric Hollreiser said in a statement.
Atlantic Club spokeswoman Cathleen Kiernan declined to comment on the legal battle.
Atlantic Club’s $15 million price tag would be the lowest amount ever paid for an Atlantic City casino. Previously, the California-based Meruelo Group had offered to buy Trump Plaza Hotel and Casino for $20 million, but that deal fell through last month.
Casino prices have tumbled in recent years amid the city’s real estate slump. Resorts Casino Hotel was sold for just $31.5 million in 2010. The old Trump Marina Hotel Casino, since rebranded as Golden Nugget Atlantic City, went for $38 million in 2011.
The Atlantic Club sale, if it goes through, would set an even lower standard. But first, the Rational Group has to reach final agreement with a casino that walked away from their apparent deal last week for undisclosed reasons.
In the suit, Rational Group said it has paid more than $11 million toward the total $15 million purchase price. The Rational Group also claims that the Atlantic Club’s owners are now seeking an additional $4 million termination fee for ending the deal.
“Should Rational comply with this demand, Rational would have paid the entire purchase price and received exactly nothing in return,” the company said in its court papers.
The Rational Group also alleges that Atlantic Club’s owners are demanding an additional $6 million payment to extend the sale talks for 10 more days. However, the Atlantic Club would be free to negotiate with other potential buyers during that period, according to the lawsuit.
“The circumstances of the termination and the outrageous nature of the terms of the extension demonstrate that the defendants have breached the contract and the duty of good faith and fair dealing,” the suit says.
Rational Group’s papers also indicate that the company has helped to keep the casino afloat. Atlantic Club’s owners, the suit said, warned of a “difficult financial situation” stemming from more than $30 million in unfunded pension liabilities.
“The Rational Group has funded Atlantic Club shortfalls throughout the winter season since October 2012, preventing its bankruptcy and the loss of over 1,800 jobs,” Hollreiser said.
According to the suit, the Rational Group agreed to cover the Atlantic Club’s operating shortfalls — up to $750,000 per week — as an additional advance payment toward the purchase price.
Atlantic Club suffered a $19.2 million gross operating loss in 2012, following a nearly $20 million loss in 2011. So far this year, the casino is showing signs of a recovery. Its gambling revenue is up a combined 24 percent through the first three months of 2013, including an industry-leading 33 percent increase in March.
Atlantic Club and the Rational Group originally announced in January they had reached a deal for undisclosed terms. However, the sale unraveled amid the Rational Group’s delay in getting regulatory approval to take over the casino.
Michael Frawley, Atlantic Club’s chief operating officer, issued a statement last Wednesday saying that the casino’s purchase agreement with PokerStars “had been terminated in accordance with its terms.” Frawley did not elaborate. The casino has declined to comment beyond Frawley’s statement.
Based on the Isle of Man, the Rational Group is trying to become the first online gambling company to buy a land-based U.S. casino. The Atlantic Club deal would allow the company’s PokerStars affiliate, the world’s largest poker website, to capitalize on New Jersey’s new Internet gambling law.
PokerStars’ involvement in the deal has been controversial from the start. The American Gaming Association, the national trade group representing the casino industry, has called PokerStars a “criminal enterprise.” Arguing against the sale, the AGA had applied to the New Jersey Casino Control Commission to participate in the Rational Group’s licensing hearing to buy the Atlantic Club.
The Rational Group has strongly denied the AGA’s allegation that PokerStars acted illegally. 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.
PokerStars’ plan for using the Atlantic Club as a platform for Internet gambling has been jeopardized by the sale dispute. Starting Nov. 26, Atantic City casinos may offer online wagering on 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.
The 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.
Rational Group would pay a fraction of what Colony paid for the Atlantic Club, formerly called the Atlantic City Hilton Casino Resort. The then-Hilton was valued at $513 million when it was acquired by Colony in 2005 as part of a $1.24 billion deal for four casinos in New Jersey, Mississippi and Indiana.
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