Regional casino operator Penn National Gaming (PNG) has severed ties with a California tribal casino operation after the tribe failed to honor its financial commitments.
On Thursday, PNG informed the US Securities and Exchange Commission (SEC) that its subsidiary San Diego Gaming Ventures (SDGV) would no longer manage the Hollywood Casino Jamul-San Diego or provide branding and development services to the property, which was PNG’s only California-based operation. The wind-down is expected to finish by May 28.
The casino is owned by Jamul Indian Village Development (JIVDC), a company founded by the Jamul Village of California tribe. The $460m property opened in October 2016 on the tribe’s East County reservation about 20 miles outside San Diego but has so far struggled to attract sufficient customer traffic.
SDGV made an initial loan of $98m to the tribe to spur the casino’s development and provided future funding commitments that amounted to $29m as of December 31, 2017.
However, PNG’s recent Q4 earnings report indicated that the company had taken a $48.5m impairment charge based on the tribe’s inability to honor its loan repayment obligations. As a result of the termination of the Jamul deal, PNG says it will book additional charges of $29.4m on its 2017 results, with the potential for further charges depending on how orderly the wind-down process plays out.
PNG emphasized that the tribe’s loan obligations remain outstanding, although the only options for PNG to collect are to wait for the casino to generate positive cash flow or to sell the loans to a third party.
The Jamul tribe put out a press release on Thursday indicating that its gaming venue would be rebranded as Jamul Casino. Putting the best possible spin on the situation, JIVDC chair Erica Pinto said the demise of its PNG deal “represents an important step toward our long-held goal to manage our own casino.”
The tribe says the casino’s existing executive management team will stay in place during the transition, and the tribe has retained a “highly qualified transition team” led by David Patent, a former Caesars Entertainment VP and current CEO of his own gaming consultancy Patent Enterprises, to oversee the rebranding and management transfer.
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