Long Island’s Suffolk County OTB is suing Delaware North, claiming the hospitality and food services giant is fraudulently siphoning money from operations at Jake’s 58 Hotel & Casino into its own coffers.
In a complaint filed in U.S. Bankruptcy Court, where Suffolk has been sheltered since 2012 in a Chapter 9 reorganization, the company accuses Delaware North of “knowing and intentional bad faith conduct and malfeasance,” using the lucrative VLT and electronic table games facility as a “piggy bank,” alleging that it has “unjustly enriched” itself by overcharging Suffolk to pay for construction, rents and other expenses and used an OTB marketing budget as a “slush fund” to pay for hotel rooms and related operations.
The suit also says Delaware North “has obfuscated and willfully blocked Suffolk OTB’s access to records” to conceal bogus accounting.
Bryce Friedman, lead attorney for the OTB, said, “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.”
Suffolk wants damages of more than $5 million along with punitive damages and also seeks a declaration that the OTB may terminate Delaware North’s management of Jake’s 58 for cause.
Buffalo-based Delaware North blasted what it called the lawsuit’s “contrived allegations.”
“Having landed in bankruptcy after years of ineffective operations, Suffolk OTB, with approval of the U.S. Bankruptcy Court, turned to home-state, industry-leading Delaware North to develop and manage its video gaming operations,” the company said. “Delaware North invested tens of millions of its own dollars in Jake’s 58, which includes the design, construction and financing of the property (and) has developed Jake’s 58 as a professionally run business that makes millions of dollars for the state and community.”
Suffolk is one of five regional companies authorized to operate off-track betting in New York under a quasi-public setup unique to the state. The boards of directors of these “public benefits corporations,” as they’re known, are appointed by elected officials in their host regions. But unlike government agencies they’re exempt from many state and local regulations and can issue their own debt. They can also run private businesses.
As their name suggests, they’re supposed to be operated for public benefit, but the system has come under increasing scrutiny across the state as one ripe for abuse.
Amid declines in the popularity of horseracing and race betting, Suffolk, which runs four OTBs in Long Island, has come to rely on Jake’s to rectify what has been a troubled financial history.
Delaware North entered the picture when Suffolk contracted with the company to develop and operate a home for its state VLT license in return for a lease on OTB space and share of the profits.
Privately owned Delaware North, a major global player in food services and retail management at stadiums and arenas, also operates resort hotels in the U.S. and Australia, where it also owns two casinos. Its U.S. gaming holdings include a casino in Illinois, casinos and racinos in West Virginia and Arkansas, racetracks, card clubs and machine gaming in Florida, Arizona and Ohio and the Hamburg and Finger Lakes racinos in New York.
Jake’s opened in 2017. Now with a 227-room hotel, it’s grown into one of the most successful operations of its kind in New York, attracting more than $1 billion a year in wagers from its 1,000 machine and electronic table games and generating more than $200 million for the state and millions more for the OTB and for Suffolk County and Islandia.
