http://www.cardplayer.com/poker-news/12981-epic-poker-bankruptcy-leaves-mountain-of-debtOn Feb. 28, the Epic Poker League shut its doors, filing for Chapter 11 bankruptcy.
Announcing the bankruptcy, Federated Sports and Gaming, Epic Poker’s parent company, Executive Chairman Jeffrey Pollack said via a statement on the company website: “Our company needs a new start. This reorganization filing is an important first step in that direction.”
However, Pollack’s optimism could be short lived, considering court filings show that Federated Sports and Gaming has racked up sizable debt in its short existence and, to date, reorganization plans have been rejected by the bankruptcy court.
Epic Poker ran just three poker tournaments, adding $400,000 to each prize pool and paying for TV time buys for the programming. It cancelled its fourth tournament, along with a fifth, which promised a $1 million freeroll for the league’s top 27 performers in the inaugural season.
Bankruptcy filings show more than 100 creditors are owed, in total, more than $5 million.
Federated Sports and Gaming had, at the time of the filing, only $15,000 in cash.
The majority of Federated’s debt is owed to two companies; $2 million to Las Vegas-based regional casino operator Pinnacle Entertainment (PNK. NYSE) and more than $2 million to All In Production, the Fargo, N.D., company that agreed to sell Federated its Heartland Poker Tour last year.
Some of the significant creditors include television production company 411 Productions, $541,373, lawfirm Kirkland & Ellis, $250,000, public relations giant Rogers and Cowan, $71,391 and Savage Tournaments, $33,333. A number of Federated employees, smaller poker support companies, independent contractors and even the charitable Disabled American Veterans are listed as creditors.
Federated’s bankruptcy is actually for two entities; Federated Sports and Gaming, the company that operates the Epic Poker tour, and a subsidiary company, Federated Heartland, that operates the Heartland Poker Tour per a acquisition mired in non-payment.
Documents Show Large Loans, Unpaid Acquisitions
Court documents show that Federated Sports and Gaming burned through cash at such accelerated levels that it did not even make its first payment when acquiring its largest and only profitable asset, the Heartland Poker Tour.
Heartland Poker Tour, acquired by Federated on June 10, 2011, hosts poker tournaments in 15 states. The company got its start in 2005 and recently held its 100th casino event. Its poker programming is broadcasted in syndication to more than 100 million U.S. homes each week.
Court documents show that Federated was obligated to pay All In Productions $2.95 million to complete the acquisition of the Heartland Poker Tour.
Federated failed to make even make its first payment related to the acquisition.
On Oct. 24, All In Productions filed a complaint against Federated for failing to make the first payment of $1 million due by Sept. 30, 2011.
Federated, per the original deal terms, was to have the entire Heartland purchase paid by Dec. 15, 2011. According to court documents, it paid nothing by that date.
Instead, Federated Sports and Gaming borrowed more money.
Court documents show the company borrowed $2 million from Pinnacle Entertainment via a Secured Promissory Note dated January 9, 2012.
According to court documents, “$1,000,000 of the funds Pinnacle advanced were
utilized by the Debtors to pay down a creditor of Federated Heartland, All In Production, LLC, by $1,000,000.”
After Heartland received this payment, according to court documents, it extended the date its remaining debt from Federated was owed, over $2 million, until Mar. 31, 2012.
The $2 million was due back to Pinnacle on Feb. 29, 2012, the maturity date on the Promissory Note.
Federated Sports and Gaming filed for bankruptcy Feb. 28, 2012, the day before Pinnacle’s money was due, preventing All In Productions from taking back control of Heartland Poker Tour’s assets.
Still Trying to Spend Big After Bankruptcy
Court filings show that Federated Sports and Gaming budgets are still bloated in bankruptcy.
A budget submitted by Federated Sports and Gaming to the bankruptcy court proposed that executives use cash collateral from Heartland Poker Tour operations to spend $458,092 in Federated salaries for three months, March 2012 through May 2012.
In other words, while Federated Sports and Gaming had no tournaments scheduled to run during these three months, they attempted to use revenue from a company they acquired, but hadn’t fully paid for, to support lavish Federated executive paychecks.
Unsurprisingly, All In Productions contested this filing and, subsequently, the bankruptcy court approved a significantly reduced budget.
The court agreed with All In Productions petition filed in March 2012 that Federated Sports and Gaming “has little cash, generates no receivables and intends to use Federal Heartland’s cash and the receivables generated by Federated Heartland to fund its business operations.”
Around the same time, Federated Heartland filed an Emergency Motion because employees of the Heartland Poker Tour did not get paid in late February. This money, totaling $42,898.70 for unpaid wages, event labor and expense, was requested during a time when Heartland Poker Tour was executing its 100th live poker tournament.
Federated Heartland, in an attempt to keep its tour operational, submitted a plan to the court showing it needed only $113,493 for March 2012 operations.
Surprisingly, Heartland’s entire monthly operational budget, which included salaries, television production and event set up, was lower than the rejected March 2012 salary and wages request, which would have funded Federated Executive paychecks, of $170,611 that Federated submitted to the bankruptcy judge.
Heartland Poker Tour representatives declined to comment, given the matters of the bankruptcy court.
Blame and Board of Directors Shake Up
As bankruptcy filings details have emerged, some critics have blamed Federated Sports and Gaming’s fall on Jeffery Pollack.
Annie Duke in 2010
In 2005, Pollack was hired by Harrah’s Casino as its Vice President of Marketing and, in that role, he headed the 2005 World Series of Poker. In 2006, he became the Commissioner of the World Series, a post he held until in 2009. He then was hired as executive chairman of the Professional Bull Riders, a post held for about a year. He then went on to form Federated Sports and Gaming with Annie Duke, who served as Executive Vice President and League Commissioner.
“The truth is, he’s (Pollack) been running a bluff on many in the poker community for a long time,” Daniel Negreanu stated in a video blog. “He was booted from the WSOP [as commissioner] but saw a day when legalized online poker was coming and thought he could get his hand in the cookie jar at the absolute right time. He thought, throw together and create a brand and hope to hit a big score. Under this strategy, you just don’t care about having a sustainable business plan.”
It’s been reported the Pollack has used his past poker connections to secure financing for Federated Sports and Gaming. Reports have surfaced that Pinnacle employs a number of ex-Harrah’s executives that Pollack formerly worked with at the World Series of Poker.
“The concept of the pro poker league was a good idea and an idea that could have worked,” said a creditor who spoke to Card Player on a condition of anonymity. “But Epic should have done it on beer budget and, instead, tried to do it on a Dom Perignon budget.”
While bankruptcy documents show Federated Sports and Gaming owing more than $5 million, that number does not include an initial round of private financing that has long since been spent.
According to Chicago Business website, J.B. Pritzker, principal owner of Hyatt Hotels Corporation and TransUnion Corporation, was part of an initial investment group that provided Federated Sports with an initial infusion of $2.5 million in private-equity financing.
At one point, J.B. Pritzker was listed as Director, Board of Directors on Federated Sports + Gaming’s website but it appears he has resigned as his biography has since been removed from the public site.
Countryline LLC, a private equity firm held by parent company The Pritzker Group, is listed as Federated Sports and Gaming largest Debtor’s equity security holder in bankruptcy filings, holding more than 42 percent of Federated Sports and Gaming Debtor equity.
Pritzker was an investor in YouBet, a company former Federated Co-Chief Executive Michael Brodsky ran as Executive Chairman. Brodsky also formerly acted as Managing Partner for the investment arm of Pritzker’s New World Opportunity Partners. Brodsky has also since been removed from Federated Sports and Gaming’s public website.
Court records show that there will be follow up hearings and motions scheduled for later this month.
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