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October 18, 2018

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Nevada sports book operator files plan for reorganization

The bankrupt operator of the state's largest sports book chain has filed a proposed disclosure statement and reorganization plan in U.S. Bankruptcy Court in Reno.

Under terms of the plan, most of the creditors of American Wagering Inc. (AWI) would receive all of what they're owed plus interest. In addition, investors who own common stock in AWI would retain their shares.

AWI operates the 50-unit, 160-employee Leroy's Horse and Sports Place sports book operations in casinos across Nevada.

A court hearing is scheduled in Reno in April. If the court approves the disclosure statement, the reorganization plan would be put to a vote of creditors.

AWI filed for Chapter 11 bankruptcy protection in July, listing assets and debts of about $13.7 million. The Las Vegas company has operated as a debtor-in-possession since the filing.

When the company filed for bankruptcy protection, it said two court judgments pushed it into financial trouble.

Both judgments are addressed in the company's disclosure statement with settlement agreements.

In one settlement, the company agreed to pay $1 million instead of the original judgment of $1.2 million to Las Vegas Gaming Inc., which acquired Imagineering Systems Inc., maker of the computerized keno game Nevada Numbers.

Imagineering Systems had filed a breach-of-contract suit against AWI in 1998 in a dispute stemming from a failed merger between the two companies.

Under terms of the disclosure statement, AWI would pay Las Vegas Gaming part of the settlement when the reorganization plan takes effect, part of it when AWI subsidiary Computerized Bookmaking Systems Inc. refinances some of its real estate holdings and the rest over 24 months, paying 6 percent interest.

The other settlement is more complex and involves a court claim from AWI's largest unsecured creditor, financial consultant Michael Racusin.

Racusin assisted in AWI's initial public offering in May 1996. According to the contract, Racusin was to be paid "4.5 percent of the final valuation in the form of Leroy's common stock and $150,000 cash upon completion of (the) common offering or IPO."

Claims and counterclaims were filed in court in Las Vegas over whether Racusin's compensation would be based on the value of the IPO, about $15 million, or on the total value of company at the completion of the IPO, $45 million, and whether he should be paid interest.

An appeal is pending on a ruling in November 2002 that Racusin is owed $1.3 million. His appeal seeks compensation of $2.7 million.

In addition, AWI is seeking a judgment enabling the company to pay the claim in company stock.

"In essence, there are three directions this could go," said Tim Lockinger, AWI's chief financial officer.

Under the proposed plan, if the Racusin claim is for less than $1.5 million, it would be paid in 48 monthly installments, plus interest. If the claim is for more than $1.5 million, it would be paid as $500,000 principal per year plus interest for 60 months with a final balloon payment at the end of 60 months, plus interest.

If AWI prevails on paying the judgment in stock, the Racusin debt would be reclassified as a secured claim and would retain liens to secure it.

Both court appeals are expected to be heard within six months.

Racusin could not be reached for comment on his opinion of the proposed plan.

In addition to filing the reorganization plan, AWI filed its monthly operating report summarizing the company's financial status for January.

The company reported a net loss of $364,143, which included revenue of $259,928 and expenses of $734,223, which included write-offs and reorganization fees. In December, the company showed a loss of $383 on revenue of $132,430 and expenses of $132,813.

Sports book revenues are seasonal, with revenue dropping significantly at the end of the football season. Leroy's generates 56 percent of its annual revenue during the months of September through January. College and professional football account for an estimated 40 percent of the company's revenue.

Lockinger said the company is continuing to grow, with Gaming Control Board consideration of new locations on upcoming agendas.

Three new locations already approved are planned at the Hotel Nevada in Ely, the Bordertown Casino in Reno and the Topaz Lodge in Minden. The Control Board will be asked to approve locations at the Klondike Hotel and Casino on the Strip and the Klondike Sunset Casino in Henderson, the Lake Mead Lounge in Henderson and the Stagecoach Hotel in Beatty.

The Klondike and Reno operations would have staffed sports books, while the other operations would utilize the company's kiosk technology, an ATM-like device that was approved for operation by gaming regulators for AWI in 2002.