SugarHouse casino alleges a rival made 'extortionate demands'

Ken Goldenberg, whose Market East group sought to build a casino at Eighth and Market Streets, told the main investor at SugarHouse Casino that he would pursue yet another Pennsylvania Supreme Court appeal if SugarHouse financed it, according to an email that is part of SugarHouse's latest court filing to intervene as an interested party in the awarding of the city's second casino license.

In an email that is part of SugarHouse's petition to intervene in a second Philadelphia casino license, Goldenberg asked the executive of the company behind SugarHouse to pay Market East $100,000 a month until it opened a casino at Eighth and Market.

The email, at 3:59 p.m. July 23, from Goldenberg to Neil G. Bluhm is Exhibit D in SugarHouse's Sept. 7 court filing, asking the Supreme Court to send the case back to the Pennsylvania Gaming Control Board, and to allow SugarHouse to fully participate in future proceedings, including taking depositions from witnesses to get to the exact source of the proposed Stadium Casino L.L.C. financing.

SugarHouse has been operating the city's only casino, near the Delaware River and I-95, since 2010. The longer the appeals drag out, the longer SugarHouse does not have a competitor.

It's the latest volley in a years-long effort to get a second Philadelphia casino.

SugarHouse said that when it reached out to Market East before a July 31 gaming board hearing, Goldenberg proposed a "series of extortionate demands," which SugarHouse "refused to do," court papers said.

The demands included payment of Market East's past and future court appeal costs, in addition to $100,000 a month until Market East opened a casino, and help with financing and sourcing funds for the project, if needed, SugarHouse alleged.

After the gaming board selected Stadium to build Philadelphia's second casino in November 2014, Market East, a losing bidder, and SugarHouse, the city's first casino, appealed. The appeals have delayed the project.

In June, the state Supreme Court sent the case back to the gaming board for a further evidentiary hearing, and on Aug. 9, the gaming board gave the OK — again — for Stadium Casino's proposed Live! casino and hotel in South Philadelphia. The board said wealthy businessman Watche "Bob" Manoukian would not hold a financial interest in Stadium that exceeded 33.3 percent and that Stadium was in full compliance with the state Gaming Act.

Manoukian said that he would transfer $34 million to a trust for his sons, who would own a portion of the proposed casino. Manoukian said that he would fund the rest by "irrevocable and outright gifts" and that he had no monetary right or claim or investment in the trust.

Market East did not appeal the gaming board's Aug. 9 decision. SugarHouse and its lawyers at Sprague & Sprague filed a "petition for review" on Sept. 7, asking the Supreme Court to vacate the gaming board's latest order, and to allow SugarHouse to intervene and take discovery. SugarHouse said it wanted to take the depositions of Manoukian and his sons, and to obtain documents about the Stadium transaction in which Manoukian transferred his interests to his sons, including information about gift-tax returns. The exact source of funds that will be used to build Stadium Casino "still remains unknown," the court papers said.

The Supreme Court ruled previously that SugarHouse's interests in the licensing were "vigorously pursued" by Market East and, accordingly, SugarHouse's intervention was limited to the question of market saturation.

SugarHouse asserted, in its latest court papers, that before the July 31 gaming board hearing, it sought confirmation from Market East that it would fully participate in the hearing. Instead, Market East sent SugarHouse "an email conditioning Market East's participation" on SugarHouse "meeting a series of Market East's extortionate demands," the court filing said, and referenced an attachment, Exhibit D, a July 23 email from Market East principal Goldenberg to SugarHouse principal Bluhm.

"In particular, Market East demanded that SugarHouse pay Market East's past and future appeal costs, pay Market East $100,000 a month until such time as Market East opens a casino in Philadelphia, and assist Market East with 'financing and otherwise sourcing funds' for the project," the court document said.

"And Market East further conditioned its continued participation in this case on SugarHouse's agreement that in the event SugarHouse recants or defaults in any way, with respect to Market East's demands, Market East would get the 'greater of $___ million or ___% ownership of [SugarHouse's] casino businesses.'"

SugarHouse "rejected outright Market East's demands," the court filing said. According to the email exchange, Bluhm, managing principal of Walton Street Capital, responded: "What you have proposed is ridiculous. I would not agree to any part of it."

As a consequence, Market East "did not adequately represent" SugarHouse's interests in the July gaming board hearing.

Goldenberg and Bluhm did not immediately respond to a request for comment.

A statement from Market East Associates said:  "Market East aggressively pursued a Category 2 license for their location at 8th and Market, even through the appeals process, in the belief that their proposed project would have the greatest positive impact on the City of Philadelphia and the Commonwealth of Pennsylvania.  In doing so, Market East invested significant time, effort and expense in each phase of the process.

"At this point in time, Market East has concluded that any further appeal of the Board's decision would not be productive, and so they determined to stand down.

"Market East is disappointed that SugarHouse has chosen to misrepresent their communications to further SugarHouse's own goals, but Market East will not comment further on the matter."

A spokesman for the gaming board said the board had no comment and was reviewing SugarHouse's petition.