Jay Z's 40/40 Deal: Good Business Deal or Total Loss?

In the great ones lose every once in a while and it seems Jay Z lose this one.

Every poker player knows that you have to "know when to hold'em and know when to fold'em," and in a move predicted for months, Jay Z has just folded and sold the lease back of his famed 40/40 Club in Las Vegas back to the Palazzo.  

Earlier this week, the Palazzo and Jay Z released a carefully crafted press release announcing Jay Z and his partners' sale of the Las Vegas 40/40 Club for an "undisclosed amount," in what they called a"lucrative" deal.  The press release gave the illusion that Jay Z, the hustler and businessman, did it again and made another brilliant business move by selling the club at a huge profit.  But as more details are emerging it is becoming quite clear that this was not the great deal they hope we believe it is.

The truth is the Las Vegas 40/40 Club opened up to much fanfare in January but according to sources didn't live up to the hype.  Insiders claim that the club was hemorrhaging money.  A few weeks ago there were, unfounded, rumors that the furniture had been taken away and even the bouncers at the club said that business was "not what they expected."  

Ron Berkowitz, a spokesperson for Jay-Z, denies this, "The club was doing good business." Although Berkowitz admitted he had no specific knowledge of the details of costumer counts or grosses. However, he said "If you went there on a weekend you saw it was packed. Maybe, at other times it wasn't as crowded. But that is true everywhere. The club was doing fine. What is going on here is that (40/40's 24,000 square feet) is valuable real estate, and they came to us with an offer and this was a good business deal."

In Jay Z's press release he said, "The sale is a great business decision, we are delighted. We look forward to expanding the brand even further to Chicago and Tokyo."

Palazzo's spokesperson Ron Reese said, "This was a business decision pure and simple. As you have seen from being down there, our current sports book offering is less than ideal. We want to change that and taking back the 40/40 space is the ideal option. Additionally, we will offer new gaming, tables/slots, in the space, which will be a component 40/40 couldn't add as we obviously have a Nevada gaming license."

Through all the spin and press releases the truth is that the 40/40 Club in Vegas was not making money.  The club ran into problems from its inception.  It failed inspections, delaying its opening, and it was reported that over 100 employees walked out or were fired within its first month of operation.  According to reports, the club had been "bombarded with reports of unprofessional conduct, bad work ethics and the repeated use of the 'N' word."  Interestingly enough, the employees at the New York branch of the 40/40 Club recently filed a lawsuit against the company for its alleged illegal labor practices.

In the end regardless of how they try to spin the story, Jay Z invested millions in Vegas and didn't even last a year but he did what any good businessman would do, he cut his loses or in poker terms, he folded.  

Even Hova can't win them all.

Video tour of the Las Vegas 40/40 Club