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American Wagering: Bankruptcy Won't Affect Betting

28 July 2003

by Liz Benston

LAS VEGAS -- American Wagering Inc., the financially troubled owner of the state's largest sports betting chain, filed for Chapter 11 bankruptcy Friday but expects to operate normally while it develops a reorganization plan, a company official said.

"It's business as usual," American Wagering Chief Financial Officer Tim Lockinger said. The sports books will remain open, honor bets and pay current and future winning tickets, he said.

American Wagering owns nearly 50 branches of Leroy's Horse and Sports Place in casinos and smaller venues statewide. It also serves as Nevada's dominant supplier of sports betting data to casino sports books.

The bankruptcy filing involves Leroy's and does not affect other subsidiaries such as Computerized Bookmaking Systems Inc. and AWI Manufacturing, two entities involved in the making and distributing of interactive gambling services, the company said.

Last November, American Wagering was ordered by a federal jury to pay $3.8 million to a former consultant who helped the company go public in 1996, according to the company's statement. The award dealt a financial blow to American Wagering, which has suffered a decline in cash flow over the past several months.

Bankruptcy reorganization presented the best option given the court verdict, though the company has "reduced operating costs and increased profitability" over the last several quarters, company President and Chief Executive Officer Victor Salerno said.

A separate financial blow came last month when the Nevada Supreme Court upheld $794,600 of an award against American Wagering in favor of Imagineering Systems Inc. in another breach of contract case.

Imagineering Systems, which makes computerized keno games in Nevada, proposed a merger with American Wagering. American Wagering instead agreed to buy the keno company. Imagineering sued after American Wagering ended the purchase agreement, saying the keno maker's financial condition had significantly deteriorated.

A District Court judge reduced a $1 million jury verdict to $500,000 for a total of $897,500 plus attorney fees and costs. The supreme court further reduced the verdict to $794,600.

The company warned investors of a potential bankruptcy in its latest financial statement of June 9.

The company reported a profit of $134,646 for the three months ended April 30 compared to a profit of $106,933 for the same quarter of last year. But the company's cash on hand also declined by $1.4 million from the first quarter, to $2.9 million. That compares to $3.1 million for the same quarter a year ago.

Revenue increased 14, percent, to $2.6 million, due to increases in wagering revenues and betting equipment sales.

According to documents filed in U.S. Bankruptcy Court in Reno, the company has about $13.7 million in debts, about equal to its total assets.

The consultant who sued the company, Michael Racusin, is owed about $2.7 million and is American Wagering's largest unsecured creditor, court documents show.

American Wagering is in the process of filing an adversary proceeding seeking to subordinate Racusin's claim, which is estimated at around $1.4 million after offsets for amounts previously paid to Racusin, according to the company's bankruptcy announcement. It has requested relief from the bankruptcy court to pay winning wagers, continue making payments to vendors, obtain financing and pay employee salaries, wages and benefits "without interruption."

The company has not yet filed its plan of reorganization with the court.

"American Wagering and Leroy's will continue to provide our customers with the same experience and level of service they have come to expect," Salerno said in a statement.

"More importantly, throughout this process, our responsibilities to our customers will continue to be our number one priority," Salerno said. "We have a solid record as a reliable race and sports book operator and we intend to maintain and build upon that record."

Last year, Nevada regulators approved a kiosk concept by the company that would allow bettors to gamble on sporting events 24 hours a day. The kiosks would supplement ATM-like devices that allow for gambling on pari-mutuel horse races.

The company also is known for becoming the first Internet gambling operation in Nevada to be disciplined by Nevada regulators. The company was fined $10,000 in 2000 for allegedly allowing a subsidiary to accept illegal Internet bets from the United States. The company was then required to sell off the Australian-based subsidiary that accepted the bets.

American Wagering doesn't have an exclusive licensing arrangement with the state, meaning that other companies can offer competing systems to casinos, according to state regulators.

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