Meadows revenue projections called “fantasy”
Questions surround a lawsuit filed last week against Cannery Casino Resorts by Pennsylvania-based Gaming and Leisure Properties (GLPI), the real estate investment trust created by operator Penn National Gaming—an action that could derail the REIT’s planned purchase of Cannery’s Meadows Racetrack and Casino outside of Pittsburgh.
Gaming and Leisure Properties had entered into a $465 million agreement last May to buy Meadows, a popular harness racetrack and casino in the suburbs around 20 miles south of Pittsburgh, with an agreed-upon final closing date of November 13, 2015. Last week, GLPI announced in its third quarter report that it had filed a lawsuit against Cannery “alleging, among other things, fraud, breach of the membership interest purchase agreement and breach of a related consulting agreement.”
The complaint, filed in U.S. District Court for the Southern District of New York, is seeking a declaration that Cannery breached the terms of the April purchase agreement because “Cannery did not truthfully disclose the Meadows’ declining performance.”
The lawsuit attacks the earnings projections for the Meadows put forth by Cannery in the purchase agreement as “fantasy,” noting that Cannery’s latest 2014 earnings projection, made in September, was $44.1 million, down 23 percent from the original projection of $57.7 million, and 18 percent below 2013 earnings, the lawsuit said.
The statement in GLPI’s quarterly report said the lawsuit could affect GLPI’s plan to purchase the Meadows.
“While the company has completed and submitted the information required for its gaming and racing applications to the Pennsylvania Gaming Control Board and the Pennsylvania Racing Commission, the timing and resolution of the claims set forth in the lawsuit are unpredictable, and the company is not able to predict any effect this suit may have on closing of the transaction,” the statement said.
Cannery Casino Resorts issued its own statement later in the week denying allegations of fraudulent projections, and charging GLPI with filing the suit as a way to back out of the sales agreement.
“Cannery Casino Resorts LLC believes that the lawsuit is without merit and intends to defend it vigorously,” the statement said. “Cannery Casino Resorts intends to take all available measures to ensure that the transaction closes by the contractually agreed deadline of Nov. 13, 2015, and that GLPI complies with its contractual obligations to use best efforts to receive applicable gaming approvals.”
Some analysts predict that GLPI’s lawsuit could in fact derail the sale. “It appears that Gaming and Leisure Properties may have legal recourse to unwind the proposed transaction or at least negotiate a lower purchase price,” J.P. Morgan gaming analyst Joe Greff told investors.
Peter Carlino, CEO of Gaming and Leisure Properties, told the Las Vegas Review-Journal that the lawsuit was filed as a “last resort” after repeated failed attempts to discuss details of the transaction with Cannery officials.
The lawsuit is seeking unspecified damages from Cannery.
Industry experts have pointed to potential saturation and new Pennsylvania opportunities for Penn as reasons Penn National may want to pull out of the Meadows deal. Penn is a partner with Philadelphia-based Endeka Entertainment in a planned multimillion-dollar racetrack casino in Lawrence County, also in Western Pennsylvania, and recently opened Hollywood Gaming at Mahoning Valley Race Course in Austintown, Ohio.
The Meadows, meanwhile, announced it is closing its off-track betting facility in New Castle, Pennsylvania, a result of declining business it attributes to the opening of Penn’s Ohio racetrack.
