Sometimes obscured within the purchase agreement for a casino are liabilities amounting to several hundred thousand dollars, depending on the deal. The liabilities arise from progressive slot machines, progressive table games, progressive pool programs, or any game with a progressive feature. Although a player has not “hit the jackpot,” the casino incurs a fixed liability for the difference between the progressive jackpot and the base jackpot that is recorded on the financial statement as an accrued liability with a corresponding charge against gaming revenue (see United States v. Hughes Properties, Inc., 476 U.S. 593 (1986); FASB ASC 924-405-25-2). These accrued progressive jackpot liabilities are known as “progressive liabilities.”

The purchase agreement may be completely silent about progressive liabilities, in which case they will fall within the scope of the general definition of liabilities. The purchase agreement may also only provide a single reference to progressive liabilities, such as “Buyer agrees to assume any progressive slot machine liability existing on the Closing Date.” However, because progressive liabilities can add up to a large amount and arise through different gaming assets, the purchase agreement should incorporate them through exact language.

A purchase agreement robustly addressing progressive liabilities will do so by the following mechanisms:

Definition of Progressive Liabilities

Although the purchase agreement already defines “liabilities” generally, it should contain a concrete definition of progressive liabilities. The definition can be standalone or incorporated into other sections of the purchase agreement, such as the section describing assumed liabilities. The definition can ideally include an approximate dollar amount and accounting standard, and utilize schedules. The following is an example of one such definition:

“Progressive Liabilities” means the Liabilities of the Casino as of the Time of Possession, determined in accordance with GAAP, in respect of (i) slot machines with an in-house progressive jackpot feature (if such slot machines are not removed by the vendor at or before the Closing) in the cumulative amount of approximately $750,000.000, (ii) table games with an in-house progressive jackpot feature, (iii) progressive pool programs in which Seller participates with other gaming entities as set forth on Schedule 10.2(e)(i) attached hereto, and (iv) all progressive games as set forth on Schedule 10.2(e)(ii) attached hereto.

Assumption of Progressive Liabilities by the Buyer

The purchase agreement should make it clear the buyer will assume the progressive liabilities. For example, the assumed liabilities section of the purchase agreement can specifically list progressive liabilities and, if not previously provided, include a definition. The purchase agreement can go another step further by requiring the buyer to deliver an assumption agreement expressly for progressive liabilities as a condition to closing, with a form of the assumption agreement attached as an exhibit.

Calculation of Progressive Liabilities at Closing

The purchase agreement should set forth precisely how progressive liabilities will be calculated and accounted for at closing. For example, the net working capital calculation can include a distinct line item for the dollar amount of progressive liabilities as a part of the total current liabilities to the working capital adjustment. Alternatively, the purchase agreement can require an accounting of progressive liabilities to be included in the estimated and final closing statements. Another approach is for the purchase agreement to include language reducing the purchase price by the amount of progressive liabilities outstanding at the time of possession.

As buyer and seller are negotiating the definitive purchase agreement for a casino, it is important to work through the details of progressive liabilities because they can comprise a sizable liability assumed by the buyer. As part of this process, the parties should not let progressive liabilities get lost in the language of or entirely omitted from the purchase agreement. Utilizing a definition, language across other sections, schedules, and exhibits specific to progressive liabilities in the draft purchase agreement will ensure everyone is on the same page about the amount of progressive liabilities assumed by the buyer, the assets generating them, and the calculation at closing.

Brenda Roubidoux Taylor is an Of Counsel in Dickinson Wright’s Las Vegas office. Brenda can be reached at 702.550.4470 or