Penn Gaming parts ways with tribe; SEC filing cites concerns over unpaid loans
By Miriam Raftery
March 1, 2018 (Jamul) – In a press release issued tonight, the Jamul Indian Village Development Corporation, a wholly owned entity of Jamul Indian Village, announced termination of Penn Gaming and a transition to a new management team at the Hollywood Casino Jamul-San Diego, which will be rebranded as Jamul Casino.
The JIVDC press release describes the transition as a “natural next step toward economic self-sufficiency for JIV.” Penn Gaming’s filing with the Securities and Exchange Commission on February 27, 018 does affirm that the decision for Penn’s local entity, San Diego Gaming Ventures LLC, to cease management of the casino effective May 28, 2018 is a “mutually agreed” upon decision.
But the filing also indicates serious financial difficulties, including outstanding loans that Penn suggests it may be unable to collect. The filing states:
SDGV previously made a $98 million loan to JIVDC for the construction, development, equipment and operations of the Casino and, in addition, provided additional delayed draw term loans and a limited completion guarantee for certain post-opening construction costs related to roadway improvements. As of December 31, 2017, these future funding commitments totaled approximately $29 million. On February 8, 2018, the Company issued a press release summarizing its results for the fourth quarter and year ended December 31, 2017. These results included an impairment charge of $48.5 million on the Company’s loan and unfunded loan commitments to JIVDC. Based on the pending termination of various agreements between the parties, the Company recorded additional charges of $29.4 million on the loan and unfunded loan commitments to JIVDC for the fourth quarter and year-ended December 31, 2017.
“SDGV’s loans and any future funding obligations are subordinated to the substantial senior debt on the property. SDGV’s loans to JIVDC remain outstanding; however, SDGV’s only material recourse for collection of these loans is from positive cash flow, if any, from the Casino operations or from the sale of these loans to a third party. The Company may realize little or no value for its loan, which could result in additional charges of up to $27.9 million (which represents the Company’s remaining loan and loan commitments, net of reserves, at December 31, 2017). Additionally, the Company may incur unexpected costs related to the termination and transition of its management contract with the Jamul Tribe.
The $460 million casino opened in October 2016 with a Hollywood theme but has faced challenges to attract and retain customers in a rural location in San Diego County, a county which already has several other successful tribal-run casinos, notably Viejas, Sycuan, Barona and Campo's Golden Acorn in East County, but has also seen two casinos in remote locations, Santa Ysabel and La Posta, close their doors in recent years.
The Jamul casino has long been opposed by many neighboring residents concerned primarily with traffic congestion on State Route 94.
Kim Hamilton, editor of the Deerhorn Valley Antler and an opponent of the casino, said of the news, “The situation is clearly not a rosy one— neither for the Jamul Indian Village, nor those holding its mortgage debt. It is a financial disaster.” Hamilton recalls elderly tribal members displaced from their homes and disenrolled from the tribe over their opposition to the casino. She calls the tribe’s current troubles “karma.”
JIVDC Chairwoman Erica Pinto says in the press release, “Our announcement today represents an important step toward our long-held goal to manage our own casino. We are grateful to Penn National for all their hard work and leadership in bringing what was a very challenging development project to fruition”
The tribe is betting on a new management team to boost revenues.
Transition team leader David Patent, a former corporate vice president at Ceasars Entertainment and current CEO of Patent Enterprises gaming consultancy, states, “Most tribes in the Kumeyaay National self-manage their casino properties, and JIV is no different in that regard. JIVDC is fortunate to have a highly qualified, seasoned executive management team already I place, which will remain after the transition.” He adds that the transition team has over 70 years of combined experience in casino development, operations and marketing.
No lay-offs or changes in staffing are anticipated during the transition, according to Chairwoman Pinto. The casino has provided about 1,000 permanent jobs locally, with revenues helping to benefit healthcare, education and housing for tribal members as well as $25 million in donations to the County Fire Authority, $100,000 to the California Department of Fish and Wildlife, community causes, and road improvements though some of the latter remain uncompleted.
Members of the casino’s Marquee Rewards program will retain all earned comps and tier status with comparable or better benefits in a rebranded loyalty program. The casino features slot machines and live table games as well as multiple restaurants, bars and lounges.
“We look forward to Jamul Casino continuing to provide a high-quality gaming experience, and to building on our already strong relationship with our guests and employees,” Chairman Pinto e concludes, “We are also committed to being a supportive member of the community for generations to come.”
Updated 3/5/18 with a statement from Kim Hamilton, Deerhorn Valley Antler Editor, and clarifications on tribal donations.