Atlantic City owes Borgata $170 million in a tax refund and has not paid the debt in years.
The Borgata Casino in Atlantic City said it plans to stop paying taxes. It wants a $62.5 million refund on from Atlantic City, which is part of $170 million in tax funds the casino believes it is owned by the city.
Atlantic City says it cannot pay the debt to Borgata. The city has considered bankruptcy, due to a drastic loss of tax revenues these past few years. Last year at this time, Atlantic City took a $40 million loan from the State of New Jersey, when it could not get low interest loans from New York City banks.
Atlantic City’s Debts
At the time, Atlantic City had a $70 million budget deficit. After a plan to sell bonds fell through — bonds require trust by the public in the financial solvency in the issuer — AC Mayor Don Guardian had no choice to accept New Jersey’s loan. Along with it came two overseers for the city’s finances.
Those overseers foreshadowed a wider influence by state officials. In January, Gov. Chris Christie announced he was placing Atlantic City’s finances under the supervision of the state. For the next 5 years, New Jersey state officials will control every aspect of Atlantic City’s finances, including the hiring and firing of government employees.
AC Bankruptcy Would Be a Disaster
The decision from Borgata appears to be motivated by bankruptcy concerns. If Borgata cannot get a refund on its taxes, it will withhold that refund from the taxes it is supposed to pay. If the city declared bankruptcy, Borgata might never receive its refund.
With a North Jersey casino proposal on the November 2016 election as a referendum, the chances that Atlantic City is going to have a powerful new in-state rival for gamblers has increased greatly. Even though AC casino companies are being given preferential treatment in the licensing process, that does nothing to help Borgata recoup its lost gaming taxes from Atlantic City itself.
In such a light, Borgata does not want to take the chance on blind faith alone that it will be paid back by Atlantic City, whether it is state or city officials making the decision.
Borgata: “Did Not Come to This Decision Lightly”
Joe Corbo, an attorney and spokesman for Borgata, said the company did not take its decision lightly. Corbo said the decision was made after a long internal dialogue, as well as years of patience.
Corbo said, “We did not come to this decision lightly. We have been tremendously patient, giving city officials every opportunity to pay the amounts we are owed, or to engage us in good-faith negotiations. But after years of delays and unsuccessful appeals by the city, we can wait no longer.”
“We have a fiduciary duty to the shareholders of our parent companies to pursue collection of the amount we are owed, which currently stands at over $170 million with interest.”
State Control Might Cause Issues
Another reason Borgata might be taking this step is concern about the attitude of state officials. Atlantic City owes $240 million and the bulk of that money is the $170 million owed to Borgata. The casino might be concerned that the state would unilaterally decide on a plan which would pay the casino less, or otherwise wring concessions in exchange for debt repayment.
Borgata is the city’s most successful casino. Of the $2.4 billion in revenues the city’s 8 casinos collected in 2015, Borgata generated over $700. The casino’s take was up 8% from year-to-year.
Despite that, $170 million is a huge amount, representing 25% of the company’s yearly revenues. Borgata, which is owned in a 50/50 split between MGM Resorts and Boyd Gaming, is also involved in a lawsuit with poker professional Phil Ivey.
Phil Ivey Lawsuit
The casino says Phil Ivey and a friend used a technique called “edge sorting” to win $9.6 million in 2012 from Borgata at the baccarat table. Borgata’s contention is Ivey knew the cards were faulty, which nullifies the results. Phil Ivey claims he won through “sheer skill”.
Borgata also is seeking $170 thousand in credit from former NFL star Clinton Portis, who made $43 million in a 10-year NFL career with the Denver Broncos and Washington Redskins. Clinton Portis is currently involved in a bankruptcy case in which he owes $5 million to various creditors.
