Back In Hot Water: WV Casino Operator Delaware North Being Sued For ‘Bad Faith Conduct’

Posted on October 14, 2019 - Last Updated on October 15, 2019

.Delaware North finds itself back in the courtroom. Last week, Suffolk OTB filed suit against the embattled hospitality company in US Bankruptcy Court.

Delaware North operates Jake’s 58 Casino. The suit claims Delaware North committed “knowing and intentional bad faith conduct and malfeasance” that “unjustly” rewarded itself by charging inflated costs for:

  • Construction
  • Rent
  • Operational expenses

As reported in Newsday, lead attorney for Suffolk OTB Bryce Friedman of Simpson Thacher & Bartlett released a statement saying:

“We expect the court will force Delaware North to live up to its contract with Suffolk OTB and to open its books so we can demonstrate the full extent of Delaware North’s abuse of its position as manager of Jake’s 58.”

Most people know Delaware North as the owner of Mardi Gras and Wheeling Island casinos in West Virginia. It is also in the midst of a hotly contested lawsuit with Miomni, a sports betting operator for shutting down its mobile sports betting app.

Delaware North in court – again

In the first year, Jake’s 58 produced $158 million in gross revenue, but Suffolk OTB accuses Delaware North of not providing the OTB with its fair share.

There were expenses in addition to overcharging on construction and operational expenses. Delaware North allegedly used the OTB’s marketing budget to fill vacant hotel rooms and also used OTB’s trademarks without proper permissions.

The OTB suit goes on to claim:

“Hundreds of millions of dollars of VLT revenue have passed through Delaware North’s hands. 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.”

The OTB claims to have documentation of the diverted funds, which, according to the suit, should have been paid to the County. Additionally, the OTB claims Delaware North made almost 100 fraudulent construction orders, which resulted in “millions (of dollars) in overcharges, all of which favored Delaware North.”

Besides wrongdoing, the suit claims Delaware North “has obfuscated and willfully blocked Suffolk OTB’s access to records” to conceal bogus accounting.

“Delaware North also sought to keep the wool pulled over Suffolk OTB’s eyes by refusing to deliver the 2019 operating budget to OTB until the eleventh hour so that Suffolk OTB would be unable to meaningfully review it before it was submitted to the Gaming Commission.”

As if all that wasn’t enough, Delaware North allegedly “refused to take responsibility” for violations of state gaming regulations. The company charged Suffolk OTB $66,000 for casino gaming violations.

In total, Delaware North could face up to a $5 million in back payment plus damages to the OTB. The OTB is also asking the court to nullify the contract with Delaware North so it can seek a new partner to manage Jake’s 58 and try again to get back on course.

Delaware North’s side of the story

Delaware North’s version is, as expected, quite different. According to Delaware North’s spokesperson, Glen White, the company has not breached the contract.

White claims the company has conducted its business dealings with the OTB legally and abided by the agreement between the two parties.

White says that the claims against Delaware North are “contrived.”

He points out that Suffolk’s OTB operations have “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.

“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.”

White also states that Delaware North has poured “millions of its own dollars in Jake’s 58”. He says the infusion of money was to get it to a “professionally-run business that makes millions of dollars for the state and community.”

In addition to Jake’s 58, Delaware North operates other racetracks and casinos in:

  • New York
  • West Virginia
  • Florida
  • Arkansas
  • Arizona
  • Australia

It also owns hotels, tourism venues, and stadium catering services for some of the largest sports teams in the world.

It takes a village – or so they say

Suffolk OTB looked to the opening of the casino, operated by Delaware North, to offset declines in horse racing.

The casino, a video lottery terminal (slot machines) gaming operation with over 1,000 machines, has seen much success since opening. Last month, it took in $322.9 million in wagers and had earned millions for:

  • State of New York
  • Suffolk County
  • Village of Islandia

Delaware North is not the only one being sued, either.

The Village of Islandia recently faced a legal challenge in federal district court.  Casino opponents claim the village illegally approved the zoning for the casino. A district court judge ruled in Delaware North’s and the Village’s favor and is now awaiting appeal.

Huntington Station lawyer, Paul Sabatino finds the most recent lawsuit by Suffolk OTB surprising.

“It’s a classic case of no honor among thieves. Now they’re turning on each other, and they’re cannibalizing each other.

“It creates enormous pressure on the village to take a second look at what they did. … I never dreamed that OTB and Delaware North would have this kind of falling out.”

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Way Yuhl

Way Yuhl is a freelance writer and blogger. Way recently left his position as a Business professor at Clark University to write full-time while traveling the world. He holds an MBA in International Business and a BA in Geography. You can learn more about his travels at nomadingabout.com.

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