Jake's 58 Hotel & Casino in Islandia / Photo by Judy Walker
Suit: Suffolk OTB claims financial scheme at Jake’s 58
Suffolk OTB has filed a lawsuit claiming that the operators of Jake’s 58 Hotel & Casino in Islandia have been misappropriating funds from the casino to benefit their other business interests.
The lawsuit, filed Monday in U.S. Bankruptcy Court Eastern District in Brooklyn, is part of an ongoing dispute between Suffolk OTB and Delaware North, the company OTB contracted to manage its video machine gaming business.
In the suit, Suffolk OTB claims that Buffalo, N.Y.-based Delaware North has used proceeds from Jake’s 58 “as a pot of money to enrich its owners at the expense of Suffolk County and the state,” asserting that Delaware North has diverted money due to the state and county to its own hotel and other businesses.
Suffolk OTB is seeking $5 million in damages and termination of Delaware North’s management of the Islandia casino.
“Suffolk OTB is seeking relief from the courts because we have an obligation to protect taxpayer dollars and stop Delaware North’s abuse and self-dealing,” Suffolk OTB President and CEO Phil Nolan said in a written statement. “As the complaint outlines, Delaware North has been enriching itself by millions of dollars at the expense of Suffolk County taxpayers.”
Among the allegations in the lawsuit, Suffolk OTB claims Delaware North paid itself “millions of dollars in construction costs for the Islandia hotel and restaurant,” overcharged Suffolk OTB in rent by inflating the building’s square footage and incurred tens of thousands of dollars in fines issued by the state’s Gaming Commission for “repeated regulatory violations” that also put OTB’s gaming license at risk.
In an emailed response, a Delaware North spokesman said the suit contains “contrived allegations of wrongdoing” and the company will vigorously defend itself in court.
“Under Delaware North’s management, the property has consistently out-performed financial projections, resulting in higher-than-anticipated returns for Suffolk OTB, the citizens of Suffolk County, and the State of New York,” the statement read. “Delaware North invested tens of millions of its own dollars in Jake’s 58, which includes the design, construction and financing of the property. Employing its deep experience in the gaming and hospitality sectors, Delaware North has developed Jake’s 58 as a professionally-run business that makes millions of dollars for the state and community.”
The lead attorney for Suffolk OTB, Bryce Friedman, of Manhattan-based law firm Simpson Thacher & Bartlett, said the agency has asked the court to stop abusing its position to enrich itself at the expense of a public-benefit corporation.
“We expect the court will force Delaware North to live up to its contract with Suffolk OTB and to open its books so we can demonstrate the full extent of Delaware North’s abuse of its position as manager of Jake’s 58,” Friedman said in the statement.
After Suffolk OTB received state authorization in 2013 to operate a gaming facility with 1,000 video lottery terminal machines, Delaware North was chosen as the agency’s development and management partner in May 2016. Delaware North purchased the former 279-room Marriott Hotel on 8 acres in Islandia for $40.415 million in August 2016 and opened Jake’s 58 at the property in Feb. 2017.
Casino operations at Jake’s 58 have been wildly successful, especially when compared with other video lottery terminal locations in the state. In the last six months, almost $2 billion has been gambled at Jake’s 58, which has reported net winnings during that period of $114.28 million and an average net winnings per machine of $625, nearly double the state’s average per machine of $335.
Sources close to the situation say Suffolk OTB has been trying to break loose from its deal with Delaware North for a while. OTB has even offered to buy out the company’s management deal, sources say, but Delaware North has so far refused, which ultimately led to the filing of the lawsuit against it.
Meanwhile, Suffolk OTB has revived its plans to build a nearly 200,000-square-foot casino on 32 acres it owns in Medford, a plan that faced stiff opposition from nearby residents and the Town of Brookhaven, which would have to give approvals for the project.
A Brookhaven Town spokesman said Supervisor Ed Romaine would not comment on the proposed Medford casino since no formal application has yet been filed.
Suffolk OTB, which has 1,000 gaming machines at Jake’s 58, has been lobbying Albany to get an additional 1,000 machines. The agency has revived its Medford plans in anticipation of those additional machines and the possibility of the state making sports betting legal statewide, which sources say would require more space than is available at the Islandia facility.
Sources say Suffolk OTB is also interested in pursuing one of the three downstate casino licenses that will likely be granted by the state in 2023, which would be located at the Medford site if that project moves forward.
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