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November 23, 2014

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Adult club owner: Purchase price based on ‘misleading’ information

Rick's Cabaret

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The Las Vegas topless dancing club at the center of Clark County's biggest political corruption scandal in memory is back in the news -- this time over charges the current owner was misled and overpaid for the club.

Rick's Cabaret International Inc., a publicly held topless club operator based in Houston, said in a Securities and Exchange Commission filing on Friday it would take an impairment charge of $20 million to $23 million in the fiscal fourth quarter ended Sept. 30, "primarily because of the poor performance of the Rick’s Cabaret Las Vegas nightclub, purchased in 2008."

In layman's terms, an impairment charge is a reduction in the value of an asset because it's producing less revenue or profit than expected.

The club is at 3355 Procyon Street, at Desert Inn Road and Valley View Boulevard west of the Las Vegas Strip.

Rick's purchased the club when it was known as Scores in September 2008 in a deal involving seller D.I. Food & Beverage of Las Vegas LLC and D.I. Food & Beverage owners Harold Danzig, Frank Lovaas and Dennis DeGori.

The deal was for $12 million plus a $3 million promissory note and 200,000 shares of Rick's stock.

Previously, Scores was known as Jaguars, which gained notoriety in May 2003 when it and other adult clubs owned by the Galardi family were raided by FBI agents in an investigation that later sent four then-current or former county commissioners to prison in an influence-peddling and bribery scandal orchestrated by adult business operator Michael Galardi.

Jaguars eventually closed before becoming Scores under the new ownership.

News of the impairment charge at Rick's Cabaret Las Vegas follows the Sept. 21 filing of a lawsuit against Rick's in federal court in Las Vegas by D.I. Food & Beverage charging breach of contract because Rick's had stopped paying on the $3 million note.

"Unfortunately, after taking over the operation of the business formerly known as 'Scores,' (Rick's subsidiary) RCI realized that certain information provided by DI Food during the due diligence period was not accurate. DI Food made numerous representations and warranties regarding the accuracy of the financial information provided to RCI concerning the business of 'Scores.' That information turned out to be inaccurate and misleading. Since RCI based its purchase price for the assets of DI Food on misleading financial information, RCI concluded that it overpaid for the assets of DI Food. Accordingly, Rick's stopped payment on the $3 million note," attorneys for Rick's said in an Oct. 15 response.

Attorneys for D.I. Food & Beverage haven't yet responded to that filing.

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  1. Reminds me of a local grocery deli that sold a few years back. The successful store sold for top dollar to a buyer who immediately began to cut corners, raised the prices of lunches in the deli while cutting the size. Many regulars (including me) quit stopping by. The previous owner knew us by name and always thanked us for our business. The new owner sued for "overpayment". When you buy at the top of the market, and the market sours, with or without your help, too bad. Valley View and D.I. isn't exactly a very "visible" location for the tourist business.

  2. Sounds like buyer's remorse rather than the presenting of misleading information. It's the buyers responsibility to perform due diligence and verify the information provided by the seller, including have accountants verify the financial information provided. It's cases like this in which I wish we had the English system in which the loser has to pay the opposing parties attorneys fees. In my opinion the buyer made a bad business deal in a bad market and now want's the court to bail it out. I'm also inclined to believe that the seller factored this in to the sales price when they sold this club, that the buyer might try to weasel out on the note and they would end up in litigation. In these times of high unemployment at least the lawyers are being kept busy.

  3. went for Monday night football a few weeks back, Rick's Cabaret is sub-par compared to what Scores was.

  4. You would think they would go to the club and count patrons before buying it.

    Just as there is a glut of room, and houses...there is a glut of clubs. Look at all the comedy clubs that have closed.

  5. Lots of changes since 2008, sounds more like it is just buyers remorse and poor business sense...