Sports book operator poised to exit bankruptcy

Thursday, Sept. 16, 2004 | 10:38 a.m.

The company that operates the largest chain of sports book operations in the state expects to emerge from bankruptcy by the end of the year following the approval of a settlement with the company's largest creditor.

American Wagering Inc., which operates more than 50 Leroy's Horse and Sports Place race and sports books statewide and expects to be approved for nine more locations by the end of the month, settled a claim with Michael Racusin, a financial consultant whose company, M. Racusin & Co., holds a $1.3 million judgment against the company.

The settlement spells out four possible dispositions of an appeal to that judgment claim, with arguments to be heard next month by the 9th Circuit Court of Appeals.

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 the completion of (the) common offering or IPO."

At issue was whether Racusin's compensation would be based on the value of the IPO, about $1.5 million, or on the total value of the company at the completion of the IPO, about $45 million, and whether he should be paid interest.

In a November 2002 court ruling, Racusin was awarded $1.3 million, but Racusin appealed, seeking compensation of $2.7 million. AWI also appealed, seeking a judgment that would enable the company to pay the claim in company stock.

The settlement agreement reached in U.S. Bankruptcy Court in Reno outlines four possible appeal outcomes and how much AWI would pay under each scenario. Depending on the outcome of the appeal, the company would pay $1.3 million, $2.9 million or, under two of the scenarios, the transfer of 239,819 shares of AWI stock to Racusin.

AWI filed for Chapter 11 bankruptcy protection in July 2003 in the wake of Racusin's court award. The company has operated as a debtor-in-possession ever since.

Tom Lockinger, AWI's chief financial officer, said now that the settlement has been approved, the company can move toward exiting bankruptcy.

He appeared before the state Gaming Control Board last week, shepherding a series of gaming license applications for nine new sports book outlets.

The Nevada Gaming Commission next week will consider recommendations for books to be allowed at the Westward Ho in Las Vegas, the Club Fortune casino and Casino Montelago in Henderson, the Alamo Travel Center in Sparks, Sturgeon's Log Cabin in Lovelock, Winners Hotel and Casino in Winnemucca, the Comstock Casino in Carson City, the Silver Springs Nugget in Silver Springs and the Bonanza Inn and Casino in Fallon.

Six of the applications involve the use of technology that reflects AWI's revamped business strategy, an increased emphasis on self-service wagering kiosks.

The kiosks enable the company to operate books in low-traffic rural locations and to provide around-the-clock wagering in urban areas where sports books are open part time.

In a recent Securities and Exchange Commission filing, AWI said it would focus on its core business of operating race and sports books with part of that strategy being to increase volume by expanding into new markets.

"The self-service sports wagering kiosks allow the company to operate profitably in smaller casinos where labor costs have been prohibitive," the filing says.

Another key to emerging from bankruptcy is for AWI to satisfy a state regulation requiring the company to have cash reserves of $2.2 million to cover wagering liabilities such as unpaid tickets, futures bets and telephone account deposits.

According to the SEC filing, the company obtained a $1.1 million letter of credit collateralized by $1.1 million in certificates of deposit, currently classified as restricted cash on the company's balance sheet. In addition, chief executive Vic Salerno personally secured an additional $1.1 million letter of credit by obtaining a second mortgage on his home.