This morning, Lakes Entertainment (the company backing the Jamul Indian Village’s attempts to build a casino) released their financial results for fiscal 2006. The press release announcing the results contained this nugget:
Based on recent meetings between the Jamul Indian Village (“Jamul Tribe”) and the State of California, Lakes and the Jamul Tribe are currently re-evaluating the Jamul Tribe’s alternatives for its casino project. Depending on which direction Lakes and the Jamul Tribe decide to take, the proposed gaming facility will be reduced in size and scope. As a result, during the fourth quarter of 2006, Lakes recorded unrealized losses on notes receivable related to the Jamul project of approximately $6.3 million, which reduced the overall 2006 net unrealized gain on notes receivable related to this project to approximately $2.0 million.
I’m no expert on corporate finance, and certainly not on the financial ins-and-outs of gaming companies — but here’s my stab at translating that into plain English:
First, the Jamul Indian Village has borrowed some amount of money from Lakes Entertainment, in one or more loans, which at some point in the future they will have to repay. My presumption would be that this money is to be used to promote, get clearance for, build, and operate the casino. My further presumption would be that the use of this money is essentially controlled by Lakes; I can’t imagine they would simply hand it over to the Jamul Indian Village. But — key point — repayment of this money will depend on the existence and profitability of the casino. The more profitable the casino, the more likely (and the faster) this note would be repaid.
For the purposes of their financial statement (which is the public disclosure of their financial condition), Lakes can’t simply record the loans (the “notes receivable") as if they are certain to be repaid. Obviously there is considerable risk to these loans, and that must somehow be disclosed. The conventional way to do that is for the firm’s financial officer (and auditor) to make a judgment about the probability that the note will be repaid, and to record current profits or losses based on that judgment. In most companies there would be a bias toward overstating the positives in such judgments, so when you look at numbers like this — pure judgments on someone’s part — generally it’s smart not to think of them as having been objectively arrived at. These judgments are what we’re seeing here with the recording of a $6.3 million loss. Since I don’t know the size of the entire loan, I don’t what percentage of it has been written off now as a loss — but it would have to be a huge loan for this to be an insignificant portion of it. I can’t quantify it precisely, but it sure looks to me like this was a significant write-down.
In other words, it looks to me like Lakes Entertainment isn’t very optimistic about their investment in the Jamul Indian Village Casino. If you’re a typical Jamulian, that’s very good news indeed — for who would know better than Lakes what the actual situation is?
Also interesting in that press release is the statement about reduced size and scope of the casino. Part of that, surely, is the recent announcement by the Jamul Indian Village that they’ve dropped out of the negotiations with the state, and that they’re going to switch to games not covered by the compact. This statement in the press release implies that the size of the casino may also be reduced. I don’t want to see the casino at all — but if the casino does get built, the smaller, the better. So I’ll take that as good news, too.
We certainly don’t see in this year’s statement of Lakes Entertainment financial results the same buoyant, upbeat assessment of the Jamul Indian Village Casino that we saw last year. Another difference you can see is that Lakes is making good money in other areas now — especially the televised poker tournament — and I would bet that leads the management team to focus more on those profitable areas, and less on the risky or unprofitable areas. That would also be good news…
Patrick Webb (attorney for Walter Rosales and Karen Toggery) made a statement the other day about things coming down to the wire from the perspective of the Jamul Indian Village. This financial report from Lakes Entertainment looks like validation of his musings…
In the old blog, Anonymous said:
ReplyDeleteCheck out the sample contract at this sitehttp://contracts.onecle.com/lakes/jamul.prom.2000.02.15.shtmlDo you think this was the “real deal” on which Lakes is losing money?
In the old blog, Anonymous said:
ReplyDeleteThanks for the pointer to this agreement. From a quick read, this documents a very straightforward open credit line of up to $20M. Assuming this document is real, this could easily be the loan that Lakes is writing down — and $6.3M is a very significant chunk of that, especially if the credit line is not completely drawn down. But…we’re missing the other documents referenced in here, so big details are missing. This web site is fascinating — there are lots of Jamul Indian Casino legal documents posted up there. I was able, for example, to find out what “commencement date” meant by looking here http://contracts.onecle.com/lakes/jamul.dev.2000.02.15.shtml. This tells me that the repayment of this line of credit is to begin as soon as the casino opens for business. However, if you search that site for “Jamul” you’ll find dozens of legal documents — this is a very complex relationship, and would require some forensic legal work to reverse-engineer. It seems likely that Patrick Webb has already done this. Furthermore, here’s a big caution: we don’t know which (if any!) of agreements defined by these documents are still in force — any or all of them may have been amended or superseded since the SEC filings from which this site captured them. There’s a web-based service called “Edgar” (which used to be free, but now charges a fee) from which current documents (as of their most recent filing) could be obtained, if you can find someone who has access…