New York OTB Sues Delaware North for Malfeasance Over ‘Mismanagement’ of Jake’s 58 Casino

Posted on: October 8, 2019, 04:14h. 

Last updated on: October 8, 2019, 04:57h.

A financially stricken New York off-track betting operator (OTB) is suing multibillion-dollar gaming and hospitality company Delaware North (DN) for allegedly using a Long Island slots parlor as its own personal “piggy bank.”

Delaware North
Jake’s 58 is Long Island’s only slots parlor, but Suffolk County OTB claims operator Delaware North has been mismanaging the facility. (Image: John Paraskevas Newsday)

Suffolk County OTB has been trapped in chapter 9 bankruptcy since 2011. In 2017, it opened Jake’s 58 casino in Islandia, which it hoped would provide a route to profitability, allowing the OTB to pay off its creditors, which included the county and the state.

Though owned by the OTB, the slots parlor was tagged onto a hotel belonging to DN, which also manages the property’s video-lottery terminal (VLT) gaming operations for the OTB.

But the suit accuses DN of “unjustly enriching itself” and acting with “knowing and intentional bad faith conduct and malfeasance” by overcharging the OTB to pay for construction, rent, and other expenses.

Hundreds of millions of dollars of VLT revenue have passed through Delaware North’s hands,” it claims. “But at every opportunity, Delaware North has diverted money due to the state and county to its own hotel and other businesses. Delaware North’s secret business plan for Jake’s 58 is simple: Costs are charged to Suffolk OTB’s ‘Jake’s 58 Casino’ so that Delaware North’s ‘Jake’s 58 Hotel and Restaurant’ can make money.”

Allegations include that DN used the OTB’s marketing budget as a “slush fund” to fill empty hotel rooms, while misusing the OTB’s trademarks. According to the lawsuit, the Buffalo-based company filed 92 erroneous construction “change orders” to rack up “millions in overcharges, all of which favored Delaware North.”

The suit also accuses DN of overcharging the OTB by hundreds of thousands of dollars in rent by deceitfully inflating the size of the gaming space and of “willfully block[ing] access to records.”

OTB Claims Raw Deal

Established in 1970, New York State’s OTBs are public benefit corporations whose boards of directors are appointed by participating local governments.

The aim was to divert money going to black-market bookmakers into state and local government coffers. But the ventures have suffered with the decline in interest in horse racing over the past 40 years.

In 2011, after ten years of operation, Suffolk County OTB filed for bankruptcy protection, declaring $17 million in debts, most of which were owed to the county.

A state law enacted in 2013 allowed the Suffolk and Nassau OTBs to launch slot parlors. Jake’s 58 has been successful, generating $158 million in gross gaming revenues in its first full year. But the OTB believes it is not getting its fair share.

It’s seeking at least $5 million, along with punitive damages, attorneys’ fees, and other costs, and is asking the court’s permission to terminate its contract with DN.

‘Contrived’ Allegations

DN operates eight racetracks and casinos in New York State, Illinois, West Virginia, Florida, Arkansas, Arizona, and Darwin, Australia. It also owns hotels and tourism operations globally, as well as stadium catering services to some of the biggest sports teams in the world.

Delaware North spokesman Glen White said in an official statement that the allegations were “contrived,” adding that DN had invested “millions of its own dollars in Jake’s 58” to make it a “professionally-run business that makes millions of dollars for the state and community.”

“Having landed in bankruptcy after years of ineffective operations, Suffolk OTB, with approval of the US Bankruptcy Court, turned to home-state, industry-leading Delaware North to develop and manage its video gaming operations,” said White.

“Under Delaware North’s management, the property has consistently outperformed financial projections, resulting in higher-than-anticipated returns for Suffolk OTB, the citizens of Suffolk County, and the State of New York,” he added.