The B.B. King’s Blues Club on the Las Vegas Strip says it needs more time to come up with a bankruptcy reorganization plan as it tries to amend what it calls an unfavorable lease.
The club filed for bankruptcy in February to restructure $3.8 million in debt and to block eviction by its landlord, the Mirage hotel-casino, after the Mirage charged B.B. King's had defaulted on lease payments. The club remains open.
B.B. King's Las Vegas is part of a Memphis-based group that has clubs in Memphis, Nashville, Orlando and West Palm Beach, Fla.; and another planned in Jackson, Miss.
The Las Vegas location opened on Nov. 6, 2009, in 11,155 square feet formerly occupied by Caribe Cafe. B.B. King’s in Las Vegas is a supper club-style restaurant with four bars and live music.
In court papers filed this week, B.B. King’s said it’s negotiating with the Mirage on changes to the lease – but also is pursuing a bankruptcy court complaint against the Mirage.
That complaint charges that prior to signing the lease in August 2009, Mirage officials didn’t fully disclose dishwashing and restaurant and kitchen cleaning costs B.B. King’s would have to pay.
The five-year lease called for B.B. King’s to pay base rent of $500,000 per year, with additional rent based on varying percentages of annual sales in excess of $6 million.
Tommy Peters, managing director of the club, said in a court declaration that in 2009 he was under the impression that "stewarding" costs for dishwashing and cleaning provided by the Mirage would not be significant.
B.B. King’s agreed to share stewarding costs with the Mirage buffet, Samba Brazilian Steakhouse and the Mirage’s room service operations – and for B.B. King's those costs immediately came in at more than $40,000 per month.
Peters in his declaration said he was "alarmed" at these "excessively high charges," but efforts to gain an accounting from the Mirage about the calculation of these costs have not been successful.
With his company investing more than $3 million in the Las Vegas club, Peters complained in a letter to the Mirage about the costs last year.
"B.B. King’s would never have entered into a lease which calls for a 10 percent percentage rent at the $500,000 per month (sales) threshold if we had been given complete financial data and full disclosures that reflected the stewarding costs actually incurred by the Mirage on our behalf to be $35,000 to $40,000 per month," his letter said. "At this rate, B.B. King’s will recoup its capital investment in about 10 years with no return on investment. Over that same period of 10 years, the Mirage will have made $13.556 million from B.B. King’s.
"This was certainly not the intent of the parties and was not reflected by the financial information we were provided when we made our initial decision to open B.B. King’s Las Vegas location," Peters’ letter said.
Peters proposed last year amending the lease so B.B. King’s could save money by washing its own dishes and cleaning its own kitchen and asked that the lease be amended so that percentage rent didn’t kick in until sales reached $800,000 per month.
The club generated sales in 2010 of $8.636 million, court records show.
For its part, the Mirage -- part of MGM Resorts International -- was owed at least $585,000 as of March by B.B. King’s and it’s filed a counterclaim in the bankruptcy case.
That counterclaim asserts the Mirage terminated the lease on Feb. 15 – the day before the bankruptcy filing – and that B.B. King’s has no right to occupy the premises.
In its latest court filings this week, B.B. King’s asked the bankruptcy court in Las Vegas for a 120-day extension of the period in which it can exclusively file a reorganization plan, to Oct. 14. This may allow time for continued negotiations with the Mirage and development of the complaint against the Mirage and the counterclaim against B.B. King’s.