Lawsuit By US Bookmaking Founders Alleges Elys Breached Contract

Written By Matthew Waters on July 26, 2022
US Bookmaking

Elys Game Technologies is allegedly not supporting US Bookmaking by the terms of their contract from last July’s acquisition, according to court filings.

US Bookmaking’s three founders are suing publicly traded ELYS for damages, alleging multiple breaches of the Membership Interest Purchase Agreement agreed to on July 5, 2021, 10 days before the deal was finalized. The lawsuit first was filed June 20.

Elys Executive Chairman Mike Ciavarella told LSR he could not comment on the situation, as he is in Las Vegas addressing the lawsuit.

Details on US Bookmaking and Elys agreement

US Bookmaking’s three founders, Vic Salerno, Robert Kocienski and Robert Walker, had the chance to earn up to $41.8 million in a 50-50 cash/stock split as earnout payments based on adjusted EBITDA from 2021 through 2025. Elys paid $12 million in cash and stock up front for the purchase.

Per terms of the agreement, the three were to maintain control of US Bookmaking with support from Elys. That was to ensure US Bookmaking had the best chance of maximizing its earnout payment.

US Bookmaking claims multiple contract breaches

The lawsuit alleges at least four breaches of the contract between US Bookmaking employees and Elys:

  • Elys was supposed to fund US Bookmaking’s operations. According to the lawsuit, after four wire transactions through January, that totaled $520,000. Funding allegedly stopped in February.
  • Elys allegedly failed to develop and update its sports betting platform as promised. Dissatisfaction with the platform could cause US Bookmaking to lose some of its biggest customers.
  • The actions and inactions of Elys have hurt the reputations of the three plaintiffs and their ability to earn a maximum earnout payment, the suit alleges.
  • Last month, Elys allegedly began a hostile takeover. The lawsuit detailed an alleged Zoom call from June where Ciavarella “insulted Plaintiffs with homophobic slurs and threatened to harm Plaintiffs physically if they continued to resist” the takeover attempts.

The lawsuit claims the recent actions have made it “virtually impossible for USB to continue doing business.”

Salerno allegedly loaned money to keep afloat

The lawsuit alleges that Ciavarella and CFO Mark Korb told the plaintiffs in February that operational and management changes were needed if Elys was to keep financing US Bookmaking. Funding could continue if the plaintiffs amended the agreement to waive earnout payments, according to the lawsuit.

The plaintiffs were also given the choice to stop collecting paychecks and fund US Bookmaking themselves, or through capital raises from friends and family.

The lawsuit claims the plaintiffs had not been paid for their work for “several months.” Salerno made five personal loans totaling $260,000 that are now in default.

Potential business lost due to lack of funds

Elys refusing to provide operating funds led to the lost of at least two new potential customers in New Mexico and Oregon, the lawsuit alleges.

The lack of funding also led to US Bookmaking failing to pay its taxes, lenders, vendors and employees in a timely and full manner.

Elys allegedly misrepresented business

Elys was not the only company interested in buying US Bookmaking. Conversations between the two companies started in April 2021 while there was another company potentially interested.

Elys allegedly represented its sports betting platform as “one of the newest and best betting software platforms in the world.” Elys was committed to continuing to invest to make it “one of, if not the leading US-based sports betting platforms.”

In the deal announcement, Salerno said US Bookmaking “determined that the Elys platform was superior to all the other platforms.” That came after three years of vetting “virtually every sports betting technology in existence.”

According to the company’s most recent 10-Q from May 16, Elys has just two US sports betting operations. Elys operates sports betting at Ocean Resort in New Jersey and Grand Central Restaurant in Washington, DC, with other DC partnerships pending. The company also offers retail and online betting in Italy.

What’s next in lawsuit?

Elys is trying to move the lawsuit out of State Court and into US District Court, though the plaintiffs want the case to stay put.

The agreement from July 2021 says courts of the state of Nevada should be where issues are handled unless they do not have jurisdiction:

In any action or proceeding between any of the Parties arising out of or relating to this Agreement or the contemplated Transaction, each of the Parties: (a) irrevocably and unconditionally consents and submits to the exclusive jurisdiction and venue of the courts of the State of Nevada, or to the extent such courts do not have subject matter jurisdiction, the United States District Court for the State of Nevada or, to the extent that neither of the foregoing courts has jurisdiction, the Superior Court of the State of Delaware;

There are no federal claims made, so the case should not be moved, according to the plaintiffs.

Matthew Waters Avatar
Written by
Matthew Waters

Matthew Waters is a reporter covering legal sports betting and the gambling industry. Previous stops include Fantini Research and various freelance jobs covering professional and amateur sports in Delaware and the Philadelphia area.

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