Page 88 - Acertaining Economic Damages Calculation

In re, Emerald Casino, Inc., 530 B.R. 44 (Bankr. N.D. Ill. 2014) fn 34

Frances Gecker, the trustee appointed by the Bankruptcy Court on behalf of Emerald Casino, Inc. (Em-
erald) alleged that its former officers, directors, and shareholders were responsible for the loss of Emer-
ald's gaming license, the loss of which resulted in Emerald’s bankruptcy. The trustee's damages expert
opined that the loss of Emerald's license resulted in damages of approximately $520 million. This analy-
sis, however, was rejected by the court as being unreliable. Among other things, the expert relied upon
proprietary data and methodologies that could not be tested or replicated by the court.

To calculate base-year revenues, trustee’s expert used his "gravity model" to predict the number of gam-
ing visitors that would likely visit the new casino, which he multiplied by the "win per visit" for each
visitor. While the court agreed that gravity models appeared to be generally accepted within the gaming
industry, plaintiff’s expert used his own variation of the model:

[Expert] has submitted his projections to the [Illinois Gaming Board] to calculate his error rate,
but he does not know whether the error rates are publicly available, and the court itself has no
access to the data to evaluate the error rate... [Expert] tested it in Iowa, predicting revenue
streams for casinos in Iowa in 2004 and then tracking the data through 2008, yielding forecasts
that were within two percent of the actual results. Impressive as those results are, they appear to
involve just a single analysis by [Expert] himself and his colleagues, and do not satisfy the court
that his model is reliable for the purposes of this case. fn 35

With respect to the win-per-visit rates used by trustee’s expert, the expert took the average revenues of
other area casinos and divided them by the total visits to calculate a base win-per-visit rate, which
ranged from $72 to $136 per visit. Although the $128.41 rate that the expert adopted was within this
range, his methodology was unclear about how he reached his conclusions:

Without more details, however, the court cannot conclude that [Expert] used a sufficiently relia-
ble method to compute the "win-per-visit" rate for a proposed Rosemont casino. fn 36

Like the gravity model, the court found the trustee’s expert use of proprietary data for estimating the ca-
sino’s operating expenses to be similarly troubling.

One of the final steps in [Expert’s] calculations of a base-year revenue amount was to subtract
from gross revenues the operating expenses for the year, using a proprietary expense model to
predict those operating expenses... [Expert’s] report simply identified "operating expenses" in a
generic way, and [Expert] did not explain how he determined the payroll, the costs of goods, util-
ities, or insurance. [Expert] admitted at the bankruptcy proceedings that the expense model had
not been tested or replicated anywhere. Without more information on the specifics of the expense

fn 34 Aff’d in part, vacated in part, In re: Emerald Casino, Inc., 867 F.3d 743 (7th Cir. 2017).

fn 35 In re, Emerald Casino, Inc., 530 B.R. at 217-18.

fn 36 Id. at 218-19.

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