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Edited Transcript of FLL earnings conference call or presentation 8-Aug-19 8:30pm GMT

Q2 2019 Full House Resorts Inc Earnings Call

Las Vegas Oct 8, 2019 (Thomson StreetEvents) -- Edited Transcript of Full House Resorts Inc earnings conference call or presentation Thursday, August 8, 2019 at 8:30:00pm GMT

TEXT version of Transcript


Corporate Participants


* Daniel R. Lee

Full House Resorts, Inc. - President, CEO & Director

* Lewis A. Fanger

Full House Resorts, Inc. - Senior VP, CFO, Treasurer & Director


Conference Call Participants


* Chad C. Beynon

Macquarie Research - Head of US Consumer, SVP and Senior Analyst




Operator [1]


Good day and welcome to the Full House Resorts second quarter earnings call. Today's conference is being recorded. At this time, I would like to turn the conference over to Lewis Fanger, Chief Financial Officer of Full House Resorts. You may now begin.


Lewis A. Fanger, Full House Resorts, Inc. - Senior VP, CFO, Treasurer & Director [2]


Thank you and good afternoon, everyone. Welcome to our second quarter earnings call.

Before we begin, a couple of things. One, we have some slides up on our website, so if you go to investors.fullhouseresorts.com and click on News & Events and then Presentations on the side, you'll see those slides pop up.

As always, before we begin, we also remind you that today's conference call may contain forward-looking statements that we're making under the safe harbor provision of federal securities laws. I would also like to remind you that the company's actual results could differ materially from the anticipated results in these forward-looking statements. Please see today's press release under the caption forward-looking statements for the discussion of risks that may affect our results. Also we may make reference to non-GAAP measures such as adjusted EBITDA. For a reconciliation of those measures, please see our website as well as the various press releases that we issue.

And lastly, we're also broadcasting this conference call at fullhouseresorts.com, where you can find the slides I mentioned, today's earnings release as well as all of our SEC filings.

And with that said, we're ready to go.


Daniel R. Lee, Full House Resorts, Inc. - President, CEO & Director [3]


All right. Good afternoon, everyone. This is Dan Lee with a bad cold, so if I sound a little under the weather, it's just a cold. I actually feel fine, but...

And we put these slides up because a picture's worth a thousand words, and it helps keep me a little bit on schedule. And Lewis already covered the safe harbor language, so I'd start with Slide 3. And the story of the quarter and really for the company in recent times has been the Silver Slipper doing well. This is near Bay St. Louis, Mississippi, the closest casino in Mississippi to Louisiana, and it's about an hour from New Orleans, about 1.5 hours from Baton Rouge, but it's also the closest casino to the 400,000 people who live on the north shore of Lake Pontchartrain.

We've added quite a bit to this property in the last 4 years. The hotel opened in late 2016. We added the swimming pool and improvements to the central arrival in mid-2017, the oyster bar in mid-2017. The sports book opened in August 2018, which is a joint venture with William Hill. Of course, William Hill. And then we just recently renovated the casino and the buffet, the first renovation it's had in the 12 years since the property opened.

So Slide 4 shows the look of the property today. All those palm trees are Zahidi palm trees, which we spent over $100,000 on, but it vastly improves the arrival at the property. And the pool right on the beach and the oyster bar, which we added.

Slide 6 shows the new sports book, which adjoins the oyster bar and is doing quite well. And then Slide 7 shows the new carpeting in the casino. We also changed the wallpaper, changed all the seat cushions in the buffet and went to warmer colors and kind of brighter colors and stuff that was a little more reminiscent of the beach, of our beach location.

Put all that together, the property continued to do well as it has in most recent periods, and the second quarter revenue was $18.9 million versus $17.5 million and the EBDIT was 3.6% versus 3.2%. So that was the bright spot in the quarter, and it's always good when your most important property is doing well. And hats off to John Ferrucci and his team, who have really done a great job with it.

If you were to look back when Lewis and I joined this company 4 years ago, this property's cash flow was less than $8 million, and it's at a run rate of about $13 million now. And if you added up everything that's been invested, the biggest part of that was the hotel tower, which was about $20 million. Everything else we've invested, including the update in the Konami system, which was about $1 million and the pool, everything else was probably a total of about $5 million. So we've invested about $25 million, and the EBDIT has gone from $8 million to $13 million over 4 years. So it's been very successful.

Rising Star, a little more challenging location, but again, we've been making improvements and we recently made a whole bunch of management changes. And I'm actually more optimistic about Rising Star than I have been in a long time, although the quarter's results don't show that. But I'll explain a little bit why.

The RV park, which we opened in mid-2017, was really too late in 2017 to do much then, and even in 2018 was just so-so. The occupancy this summer is like twice what it was last summer, and it's really getting some good usage. And I think it's the sort of thing that it takes time for RV owners to know it's there and start using it. And that's been a nice addition.

We just pretty extensively renovated the pavilion and the hotel lobby. It's not on here, but we also renovated the hotel itself, the original hotel, in 2018. Ferry service began in the third quarter of 2018, and now we're getting ready for the opening of Ben's Bistro in the next couple of weeks, which is the first new restaurant at the property in 25 years.

The next page shows the pavilion at the RV park on a day when there weren't very many RVs there. It holds about 50, and most weekends in the summer it has close to 50, and midweek it's probably 2/3 that. Obviously, it doesn't do much for us in the winter, but in the summer, this used to be just a vacant parking lot, so it's a pretty nice addition.

Slide 11 is the ferry service. You can see we're limited to 10 cars per trip. The ferry is actually capable of carrying 15 cars, but Boone County, when they gave us approval, there were neighbors concerned about the amount of traffic, so we have a restriction we may try to lift that allows us to carry more than 10 cars per trip as long as we don't average more than 10 per trip. Theoretically, it say 10 vehicles, so we've built some that can carry 2 buses and 8 cars, but it gives us some flexibility.

And you could see from Slide 12 the ferry ridership has gotten better virtually every month, and it really improved in June and July, when we started making it free. Now part of the reason we made it free is that Highway 50, which is the main road in Indiana leading to us, is being repaved, and so there's pretty extensive delays on that road between Hollywood and us. And so not surprisingly, we think people are stopping in Hollywood instead of driving the extra 10 miles to us, and so we decided let's try to make the ferry free to offset that, and the ridership is up quite a bit, as you can see.

And when you look at the additional cars, and I think we can do a better job of getting those cars into our casino, but the first step is we have a lot more cars using it. And the ferry revenues we were getting were pretty minor anyway, so we're going to keep it free for the foreseeable future and focus on getting more cars on the ferry and getting the cars on the ferry to come into the casino. And so that's going.

So when you look at EBDIT in the quarter was down a couple hundred thousand, mostly because revenue was down. And then probably the biggest part of that was the road construction, which is still going to go on for another month or 2. But there's also some management transition costs that we have. Our General Manager, Ben Douglas, has just done his 1-year anniversary now. We've changed the finance person. We've changed the food and beverage person just recently. And we have a new head of marketing that just joined recently, so there's a pretty much mostly new management team.

And in that second quarter result there's some headhunter fees, there's some relocation costs, there's some severance pay in there, and so there's some onetime items that account for probably half of that decline. And so it was really only off a little when revenue was off almost $1 million. And so they've cut costs and appropriately.

Now we hope to build revenues, and fixing the place up is a big part of that. But this restaurant that's about to open, we used to have like a deli. It wasn't even a very nice deli, called the Queen City Deli, and we revamped the facade, moved the parking -- moved the seating out into the pavilion -- and renamed it Ben's Bistro. And there's a section of it, if you're looking at page 14, the section on the right has a sliding wall that opens, and we now offer breakfast here and a free buffet breakfast.

This property has operated a buffet 3 meals a day, 7 days a week, for 25 years. It doesn't do enough volume to justify that buffet, and the buffet loses over a couple of million dollars a year. But we didn't have another food venue where we could have people have lunch or dinner or something. And so we've done a number of things to try to mostly get out of the buffet business, or at least get out of the low-volume buffet business. We still do enough volume at lunch and dinner on weekends for it to make sense, and frankly, our buffet down in the Silver Slipper does extremely well, but it runs much higher volume.

Here we introduced a resort fee at our hotel of $10 per room per night, and we now give people a free breakfast. Well, they used to get a free breakfast at the buffet that cost us a lot of people to operate. Now they get a free breakfast like you would get at a Hampton Inn or a Fairfield Inn, which is a pour your own coffee, make your own waffles type breakfast. And frankly, more people are eating that than used to eat the breakfast in the other buffet, where we were comping virtually everybody because they were all casino customers. And so in effect, people are paying $10 for a self-service buffet instead of getting a free expensive-to-operate buffet. So that was one thing we did was try to reduce our cost of feeding people breakfast. We're still feeding a lot of people free breakfast, like 300 or 400 people a day, and we're doing it much more efficiently than we used to.

Second, once breakfast is over, this turns into a waiter-serviced restaurant. And the reason it's not open yet is that they used the kitchen for construction staging, so we're now putting the kitchen back together to get the Health Board's approval to open. Once we're able to serve people here for lunch and dinner, then we don't have to operate the buffet lunch and dinner, and that saves us a whole bunch of money. But it also frankly, provides better food. If you go to a buffet where volumes are slow, when you start looking at the piece of fish sitting there, it's been sitting there for 2 hours and it's dried and not very appealing, whereas if we make that same piece of fish to order, we can make it fresh and it's probably better. So -- and we think we have a little more creative menu here. So I think we're going to provide better food, better service and operate it less expensively than the buffet. And on weekends, when we do run high volumes, we'll operate the buffet and try to make the buffet really special on weekends.

Slide 15 shows some of the different angles of this. This wasn't very expensive, a few hundred thousand dollars. But part of what gets added is there's a kind of a coffee kiosk. You can see where it's pickup here. That's kind of a Starbucks clone that sits out in our pavilion, and that's about to open, too. So the first new food and beverage facility at the property in 25 years, and it's pretty exciting. But we're doing it also because we think it saves us money. We're still going to feed people for free, and we could do it far more efficiently at Ben's Bistro than we could at the buffet, which was expensive to operate.

Now Indiana, we're actually pretty lucky. We're a small company, and there were 2 states that legalized sports books this past few months, and one is Indiana and one is Colorado, and we happen to operate them both. And so we were kind of lucky on that. We're not actually in the sports book business ourselves; that gets a little scary, because if we operated it ourselves and let's say the Indianapolis Pacers were in the finals, everybody's going to bet on the Pacers. Or -- the Bengals aren't likely to be in the finals -- but if the Bengals got in on the Super Bowl, everybody would bet on the Bengals and we wouldn't have anybody betting on the other side. And so it's kind of important that we do this in partnership with people like William Hill who know what they're doing.

But there's another aspect. All the big companies have paired up with other big companies, and so we're not, and so we were approached by almost 20 companies. A lot of European companies are already in this business and some U.S. companies. And to form a partnership, because in Mississippi, we're allowed to operate a sports book in the casino. But in Indiana and prospectively in Colorado, you're allowed to operate online, so you can sit in your office in Indianapolis and make bets on football games. But the online operations have to be tied to a brick-and-mortar casino. And so we are in negotiations -- we're actually very close to an agreement, to agreements -- with 3 different sports book operators.

One of those agreements involves operating the sports book at the property, and so we would build out as quickly as possible the sports book at the property. And that partner would also operate in the online website, and we share in the profit on the property, of course, but we also get a share of the profit of any online bets made in Indiana on the website tied to our property.

And the other 2 are called skin, the other 2 websites. We would also share in the profits, being the brick-and-mortar connection that allows them to operate. And so this is all going to be up and running, probably in the next 4 or 5 months, by year-end and maybe quite a bit sooner than that. And just to give you some idea, in Mississippi our sports book in the first half of this year earned about $400,000. That's our share of the profit after paying William Hill their share of the profit. And that does not have an online characteristic. So we think this could be pretty material to this small property.

And then not mentioned on here, but the other thing that happened in the law is the tax rates were changed in Indiana, and so casinos with low revenues -- and we're the lowest revenue in the state -- our tax rate drops, and it drops on July of 2021. And that's probably $1.5 million to $2 million a year to us. I'm sorry, $2.5 million a year to us.

And so this property has a pretty bright future. Not only does it have a new management team and some new things they could do things with and a new approach to the business, it's about to get a new restaurant, it's about to get a new sports book, it's about to be involved in Internet gaming and it gets a reduction in tax rate 2 years from now.

And then on top of that, we're negotiating with -- well, I'm going to say it -- we have the Konami system at the Silver Slipper. We're very happy with it. We're negotiating with Konami to try to put that same system into both Rising Star and Colorado. We don't have a deal yet, but we're very close.

And we think the Konami system, frankly, is the best system. It's designed for marketing, it has a lot of features that are good for the customer on the floor, it has a lot of good features that our marketing department can use to help market to our customers. We're very familiar with at the Silver Slipper. And in this case, the system at Rising Star is a different company, and it's Version 3. And if you were to buy their current version -- I think they're on Version 17 -- our slot system here is so old, we are the only people in the world still using that version, and it's not supported in anything else. So upgrading that system to Konami would be a pretty dramatic improvement in the customer experience sitting at our slot machines. So a lot going on at Rising Sun (sic) [Star].

Bronco Billy's, which is near Colorado Springs, again, we did the Crippled Cow, which is just a small food and beverage outlet. We opened the Christmas Casino in November. We've got a parking garage that's now under construction, and then we're still figuring out how to finance Phase 2. Whether Phase 2 is a high-yield bond or a partnership, or do we bring in a partner on the property, do we bring in a REIT, all of which we'll explore in the next 6 to 9 months. But we need to build the parking garage before we can build Phase 2, and so that's underway.

And sports wagering was recently legalized here as well, very similar to Indiana, but it is subject to a statewide vote, and it's on the ballot in November. The polling shows it will probably pass. So we think we're going to have sports betting at Bronco Billy's in the first half of next year. And similar to Indiana, in Indiana you're allowed 3 websites per casino. In Colorado, you're allowed 1 website per casino license, but technically, we have 3 licenses there. So we would again have 3 websites that we can deal with. And then again, we're going to try to put in the Konami system.

And then frankly, Mark Murphy, who's been the General Manager there for many years and did a fine job, but he retired, a well-earned retirement, and we now have Baxter Lee there, who was -- no relation to me -- but he was head of marketing at the Silver Slipper and did a good job there for many years and also ran the hotel at the Silver Slipper. And he's there with new ideas and new energy, and I think it's going to make a pretty big difference with the property in the next few months.

Now in the quarter, it wasn't a great quarter. And part of that is the Christmas Casino. It's a leased building and most of the machines in it are leased. We didn't want to buy new machines because when we go to build Phase 2, the first thing we do is tear down part of the existing casino, and we're going to have surplus machines. We didn't want to take machines and put them in a warehouse. So we opened the Christmas Casino with leased machines we can give back to the manufacturer when we start construction on Phase 2. But that means we have pretty significant lease payments, both for the building and on the machines, and in a seasonally strong quarter like the third quarter, the Christmas Casino is a plus, and it certainly was in the month of July, for example. But in seasonally weaker quarters, the incremental revenue don't offset all the incremental costs. And so that was a factor in the quarter.

There's some other stuff at play. Probably $100,000 of that was an increase in the minimum wage that we're dealing with in Colorado. It went up like $1.50, which not only affects people who are making the minimum wage, but if all of a sudden a dishwasher is making $11.00 an hour and you had a cook who was making $11.20 an hour, you end up giving the cook a raise also. So when you work that through, there's an increase in the minimum wage at the Christmas Casino and a little bit of relocation costs in there too for some of the management changes. Again, I think going forward, we'll have better comparisons out of Colorado, but certainly in the second quarter it wasn't a great quarter.

You could see the construction. The first thing they have to do for this parking garage, this alley behind their casino has these big ugly transformers in it. The power comes in overhead to get into our casino. And so the first thing in construction is take all that down, run the power lines underground into the building in different directions so that the parking garage can be -- the edge of the parking garage will be right where you see this alley. And so that's underway. The construction trailer's there, the precast people are working, so we're probably 6 to 9 months away from having a parking garage, which will be pretty important. Most of our competition has parking garages; we don't. And so even if Phase 2 never gets built, the parking garage should be a pretty good plus for us.

Phase 2, you see the picture there, Slide 22. It transforms the whole property, really transforms the town, much like Ameristar did for Black Hawk. We think that hotel could double the company's earnings. It's pretty significant. Ameristar in Black Hawk, we think, is making like $90 million a year. And the results before they built the hotel are public. You can go back and look, and they weren't making that much at all until they added a big hotel to their casino, and then it took off.

And so a little more modest scale, that's kind of what we have in mind, but we still have to figure out how to finance it and we need to find a way to do it that makes sense for our shareholders. So our Board is (inaudible) shareholders in the company, myself included, and we don't want to do anything silly, so we want to figure out the right way to finance it.

And then northern Nevada, Grand Lodge went through a big renovation back in mid-2017, which was principally funded by Hyatt, and it's doing okay. It didn't have a great -- it was an okay second quarter, but second quarter's not seasonally important there. It's really all about the summer and then the ski season's also important. This year there was a great ski season and then the snow lingered, and so the usual summer activities of hiking and stuff, you really couldn't do because there was still snow on the trails. So it didn't have a great second quarter. It seems to be having a real good summer now.

Stockman's we've improved quite a bit. There, there's a big Naval Air Station there. That's where the Navy's Top Gun school is. And these carrier -- when an aircraft carrier goes in for maintenance, the whole air crew, with the mechanics and everybody else, they fly to places like Fallon and train over central Nevada, where you can break the sonic barrier and nobody hears you. And so our business kind of ebbs and flows a little bit based on what's going on at the Naval Air Station. A little frustrating to us; they don't tell us. It's like top secret when these carrier groups come and go. And so all of a sudden we'll find pilots start strolling in our place and we're doing well, and then the week later, they're all gone. But the Navy seems to be building something pretty significant at that Naval Air Station, and there's lots of rumors about it, but they seem to be making some pretty big improvements there, and we think ultimately that's good for our business.

We're also just east of the Tesla mega battery plant. There's a big industrial park there that's getting built out, and most of the people who work in there commute from Reno, which is about 45 minutes west, and we're about 30 to 45 minutes east. But we are getting some spillover. It's a lot cheaper to live in Fallon and Fernley than it is in Reno.

So anyway, the Slide 24 shows the casino at the Hyatt. Slide 25 shows Stockman's, which is dramatically nicer-looking than it was. We are looking to renovate the steak house at Stockman's. Not a big number, but it will make a big improvement. It hasn't been renovated in 25 years.

Northern Nevada was off a little in the quarter. It's not a seasonally big quarter, and I think it will more than recover that next quarter.

You could see on Page 27 the company has shown pretty good growth, a lot of that anchored by the Silver Slipper, but the other properties hold their own, and then the acquisition in Colorado. And if you look at EBDIT, it was $10 million when we got here, and it's now about $18 million. If you factor in the lower tax rate at the Silver Slipper -- no, at Rising Sun (sic) Star -- you're probably at $20.5 million, and then the different sports books, our run rate is probably in the mid-20s at this point. Obviously, we've got to get all that stuff open and going, but it's all in the works.

So meanwhile, Illinois legalized a whole bunch of new casinos. It's on a fast track. We didn't have a lot of time. We looked it over and decided the opportunity we liked was the City of Waukegan, which is north of Chicago, midway between Chicago and Milwaukee. The city is fast tracking because there's a deadline in the state legislation. The city wants to have a big say on who is the operator, so they put out a request for proposals. We only had a couple of weeks to respond to it. We looked at it and put in a proposal for a new casino and resort destination. It's in a high-traffic area. We would lease the land from the city. It has 1,500 slot machines, 60 table games and a very high-end boutique hotel.

One of the things we realized is in the change of legislation, they dropped the tax rate on table games in Chicagoland at 16%. And the tax rate on slot machines is pretty high. Well, 16% on table games should make money in the table game business.

And if you look at most of the existing casinos around Chicago, they're really grind places. Nobody has really tried to focus on the high end. But we can have a casino that can accommodate grind business, but it can also have a 20-room, super-high-end boutique hotel, kind of like the mansion at MGM. If you've ever been in there, most of the time it's just a secret. But if you Google Earth MGM and look on the northwest side of their property, you can see the mansion, which is really a beautiful setting for the very, very high end of Las Vegas. And we don't intend to -- I think they invested hundreds of millions of dollars in the mansion; we're not doing that.

But for Chicago gaming, we would have the preeminent accommodations and restaurants and so on to try to capture the high end of all the gaming that's done in Chicago and with a good, an important asset for Waukegan. And then just because there's a lot of people in the area, there's also a nice grind business, so it's almost like Red Rock Station, if you will. And we'll see. We know there's at least 2 other proposals. I think there's probably 5 or 6 proposals, but there's 2 others that have been announced. And this process is going pretty fast.

Slide 30 shows kind of a rendering of what we proposed. It was quickly done. That blocky building in the back is not a library, like it kind of looks like. It's actually the 20-room mansion we're talking about, and there will be a lot more architectural detail on it. And we have a major fountain in the front that's kind of a different take on Bellagio's fountains, if you will. That's the arrival as you go in.

I always thought that the most exciting way to see the fountains at Bellagio was from the maintenance boat in the middle of the lake. And so we decided to do something like that. As you walk in, there's water coming every which way. You don't actually get wet, but there's water falling and flying all around you, and we think we can do that in a fun way to create quite a sense of arrival. It happens that this piece of land was called Fountain Square because there was a mall on it at one time with that name, so it actually works pretty well. And we own the name American Place. We had used it for a proposal we had some time ago in Indianapolis, and we thought it was a very appropriate name here for Waukegan.

We also as most of you know, have a proposal in New Mexico, where a year ago, the New Mexico Racing Commission started a competitive process for the sixth and final race track-casino license. So we've put in a proposal called La Posada del Llano. We have option on land. So we designed something. The Racing Commission had that in study. The study had ours being the best proposal on virtually every criteria. But then the new governor replaced all the members of the New Mexico Racing Commission.

And frankly, they're pretty distracted by horse health issues. All these horses who have died at Santa Anita Race Track in California has the whole horse racing industry kind of not knowing exactly why. There are all these studies that's -- I think 24 horses or something -- and when you look at the statistics, New Mexico as a state does not have a very good record of horse safety at its tracks whether it's number of horses that are injured or died at the tracks is high relative to the number of racing days. And so the Racing Commission is pretty distracted by trying to resolve that and making sure that the racing done in New Mexico is done as safely as possible.

And so they've indicated they're not going to issue the sixth race track license at this time but may do so in the future. We don't know how far in the future. We don't know what that really means. But we're still there. If they're interested, the economics for the state are pretty significant, so I think it seems likely that the state would come back and try to use that license at some time. But at the moment, they've said they're not in any hurry to do so.

And then we threw a bullet on here for acquisitions only because we look at them all the time. We did in fact buy Bronco Billy's in Colorado. It's been a good acquisition for us. But we're pretty choosy on it and pretty price sensitive. So we don't have anything imminent, but we do look for stuff all the time.

And with that, I guess I'll open it to questions. Operator?


Questions and Answers


Operator [1]


(Operator Instructions) We take our first question from Chad Beynon from Macquarie.


Chad C. Beynon, Macquarie Research - Head of US Consumer, SVP and Senior Analyst [2]


I wanted to revisit your comments on sports betting because this is certainly one of the more meaningful things for the industry, and it sounds like it could be a very meaningful thing for you. You noted some of the details, and I think you said you would prefer to participate in a rev share model with you as the market access licensee holder, and then you would bring in a partner who could provide the technology and the brand. So a couple of questions on this.

Firstly, how big do you think this could really be, how meaningful for the company? Secondly, is it your intention to bring in a partner that would be exclusive to the skin you're providing? And then lastly, why not just sell the license, bring in the cash right now, let them run it, and why do you think the rev share model is best?


Daniel R. Lee, Full House Resorts, Inc. - President, CEO & Director [3]


Well, I don't think we really have the option of selling the license. We'd have to sell the casino because the license has to be tied to the brick and mortar. And -- but there is a couple of aspects. Obviously, when there's an onsite sports book like the one we have in Mississippi, we split the revenue, and we pay for the employee who's actually there. So William Hill kind of sets the odds. It's their technology; it's their everything. And they paid for it; they built it out, and we get half the revenue, and then we have to pay for the employee who's there, or sometimes 2 employees. And nevertheless, we still made $400,000 in 6 months, and I think we're pretty close to $800,000 over the past year it's been open, roughly. And so that's just the onsite one.

Now we will have an onsite one in Rising Sun (sic) [Star] that is actually a bigger sports book than the one we have at Silver Slipper, but we don't have as many people coming through the casino every day. So I'm not sure it's going to do more. It might do similar. But we made, even if we made $500,000 a year on a sports book at Rising Sun (sic) Star , it's pretty significant for a place that's doing EBDIT of $2 million or $3 million a year.

Then I guess it's almost anyone's guess as to what the online component would be, but we will get a piece of the revenues of if somebody sits in their office in Indianapolis, signs up for an account and starts making sports bets. The deals we're considering would give us a piece of the revenues with really none of the expenses, and that could be pretty material. And we know some of the deals we're negotiating, they're willing to guarantee us money in the first year. We don't have those deals signed yet, but they're material. And so I think it's fair to say the sports betting at Rising Sun (sic) Star could be as important as the Rising Sun (sic) Star Casino itself, which is making $2 million to $3 million a year. So it could be pretty material.

Colorado is a state with 7 million people, if I remember correctly, and so it's a -- Indiana's 4.5 million. So you'll have online gaming in a state that's bigger than Indiana, so it's probably a bigger business. Now same thing -- we expect to have an onsite sports book, maybe not as many people going through it as we get at the Silver Slipper, but still material. And then we would intend to participate in the statewide stuff. And frankly, we get a piece of the revenues with none of the expenses, so it's all upside to us and it helps return on equity a lot when you can get a piece of revenue with no expenses and no investment. And we're a pretty small company, so this could be pretty material in both places.

Now does it take us from $20 million of EBDIT to $40 million? No, probably not, but it's still pretty important. And we're still negotiating, really, 6 deals, but we're pretty close to it. I think we'll probably get them signed, all 6 of them, in the next month or so.


Chad C. Beynon, Macquarie Research - Head of US Consumer, SVP and Senior Analyst [4]


Okay. Great. And then turning to Colorado, so Phase 1 parking garage, you mentioned that that's under construction and you kind of give an opening date. What's the total expected CapEx for the project? Where will leverage -- or what's your expected peak leverage before the property opens? And then do you have any type of ROI analysis on what you can get on just Phase 1?


Daniel R. Lee, Full House Resorts, Inc. - President, CEO & Director [5]


Well, we've got $24 million of cash we're sitting on. About $10 million of that is used in operations. So the $14 million will build that garage. It's -- obviously, we've spent some money already on the design piece and everything, but $14 million should get it completed. I think the all-in cost is around $15 million to $16 million.

It's not just garage. There's a back-of-the-house building that goes in between because the garage will block the access to the back of our casino, which is where goods and supplies come in and our garbage goes out. So we had to create a back-of-house corridor in there. It's a couple of million bucks. And they're relocating the utilities, as you saw in that slide. That's not a cheap thing, either. That's being done.

And so there's quite a bit of stuff that's being done that is a precursor for Phase 2. It allows us to get ready to roll into Phase 2. But if we never built Phase 2, I think the garage probably adds $1 million to $2 million a year of EBDIT to the property, just a guess. I know we looked at what some of our competition, there was periods where they added a garage. We looked at how much their revenues went up when they added it. And we worked backwards and said, “Yes, we'd probably get a pretty decent return on it.”

Now we've designed our garage to be easily the best garage in town. All the floors are flat. All the other garages are kind of slanted floors except for Wildwood, which is buried underground, which is inherently not -- if you have an underground garage, you get all sorts of weird smells and exhaust fumes and so on. And while theirs is underground, the other ones are all like the cheap garages where everything's on a slant, so you open your car door and it slams into the car next to you or vice versa.

And then you have to walk uphill or downhill to get to an elevator. Cripple Creek's at 10,000 feet and our clientele are elderly, so we will have a garage where you drive in and every floor is flat. There's elevators to take you directly down and into the casino. And so it will be the nicest garage in town, and we think it will be pretty important to the property.

I also think -- and I'm going to toot his horn a little -- Baxter deserves a -- Baxter, who's the new GM there, deserves a lot of the credit for the Silver Slipper the last couple of years. He's the marketing guy, and the Silver Slipper kind of boxes out of its weight class a little bit. And part of that is pretty smart marketing stuff. And so we have him up there, and he's only been there a few weeks, and already he's just a font of ideas. So I think that's going to be important to the property. In fact, that may be as important to the property as the garage. But we're -- you pull it all together, and I think it will be on an upswing. It didn't have a great quarter, but hang with us there. I think it will -- it's already doing much better than the third quarter, and I think it's going to have a good second half.


Chad C. Beynon, Macquarie Research - Head of US Consumer, SVP and Senior Analyst [6]


Okay. And then lastly, Dan, on Mississippi property's doing exceptionally well, as you noted. That's kind of been the bright spot for several quarters and actually a couple of years here. I believe that the Mississippi Gaming Commission just approved another casino proposal down in the region in Hancock County. If memory serves, this is not the first time that this has happened. So others have gotten to this stage and you haven't seen competition as some would have expected. Can you talk about the real likelihood of a competitor opening up, the timing of that, just what your team on the ground believes is and could happen in that market?


Daniel R. Lee, Full House Resorts, Inc. - President, CEO & Director [7]


Well, I think there has been a discussion at the Gaming Commission of putting a moratorium on new licenses or new permitted spots, and that's made a bunch of landowners nervous, so people have rushed in to try to get approval of their sites, thinking that if they want to beat a moratorium, if a moratorium happens. The particular site you're talking about is actually owned by our landlord. The land underneath the Silver Slipper is leased and we have an option to buy it out for $15.5 million, but it's leased for 37 years.

And at the moment, it's kind of a wash whether we buy it out or not. The rent is like $1.5 million or $1.6 million a year, and the buyout price is $15.5 million. But under our lease, we have the right of first refusal to buy that other piece of land if he was going to sell it to somebody else. The land is basically a swamp. You could (inaudible) that it's a lot of wetlands, but just a little sliver of dry land along the road. I don't think it's really practical to put a casino there. And if you did, I don't think the numbers would work.

There's another casino-zoned piece of land right off the freeway over in Diamond Head, and it's a far superior piece of land, and it's hard to make the numbers work there. If you take the Silver Slipper, the original cost that I think was $80 million, then we spent $20 million on the hotel. And if you adjust all that to inflation, it's probably $150 million if you were to build it today, and it's making $13 million of EBDIT a year. So if it got wiped out by a hurricane and we got $150 million insurance proceeds, I'm not sure you'd rebuild it.

And by the way, I did that once when Casino Magic at Biloxi got wiped out and we got $200 million out of an insurance claim. And when I started looking at the numbers, I said we were better off building in St. Louis than we were rebuilding in Biloxi, which is what we in fact did.

Now I'm not saying we're abandoning Bay St. Louis (inaudible), but we hopefully don't get hurt by a hurricane. We do keep good insurance just in case. But my only point is that it's hard to make the math work on building a new place, even if the Silver Slipper got wiped out.

And if somebody looks at trying to build a casino down the street from us, we're not going away. So it's not like they're going to make $13 million a year because we do. We're not going away. They're going to make less than $13 million a year. So I don't think they can make the math work. And I think this was just a landowner trying to keep the entitlement on his land just in case there's a moratorium.

So there's no new casinos been built here in quite some time, and the only new casino built on the Gulf Coast anywhere in the last 10 years was the one in Biloxi, the Scarlet Pearl, and economically, it's been a disaster. They spent like $300 million and I think their EBDIT is less than $10 million. So this is a pretty mature market. I don't think it makes sense for anybody to build anything new in this market.

By the way, now that I've said that, we do look at building an additional hotel tower, but that's because if we had more hotel rooms and maybe some meeting rooms and we don't have to add a front desk, we don't have to add to the casino, we don't have to add another buffet, we could make that math work. And I think you'll see other casinos doing the same sort of thing, of just adding to their existing plant. We could make that work. It's just hard to make a whole new casino work.


Lewis A. Fanger, Full House Resorts, Inc. - Senior VP, CFO, Treasurer & Director [8]


Chad, I'm going to add in a couple of comments, too. Dan there is at the end of a long, long table because he's out sick today. The thing to keep in mind for leverage is we're at a point right now where leverage is on the decline. We don't need to borrow any more to build this parking garage, and so we won't borrow any more. And when you look at EBITDA, EBITDA's certainly going up.

Between sports betting, you should expect, or I should say you have seen market access payments for recent deals. They're -- you should expect that we are trying to get the same. But EBITDA itself is inherently going up, and if you were to look at middle of next year, just on a total debt-to-EBITDA basis, I'd be disappointed if we were meaningfully off of 5x. So some food for thought there for you.

If you look at July as an example, we had a hurricane down at Silver Slipper, which affected business there. But everywhere else, we had a pretty solid month, and so even despite the hurricane, we showed some pretty decent growth in the month of July. Now 1 month doesn't make a whole quarter, so we'll see if all that continues. But that's right. And Dan mentioned as well that even despite the hurricane, Silver Slipper still is going to pull out a pretty decent July. So a little color there for you.


Operator [9]


[Operator Instructions.] This concludes today's question-and-answer session. At this time I would like to turn the conference back to our host for any additional or closing remarks.


Daniel R. Lee, Full House Resorts, Inc. - President, CEO & Director [10]


I guess Chad asked all the questions everybody else was thinking about. So anyway, thank you, everybody, and I don't feel as bad as I sound. It's the later stages of this cold. But thanks for bearing with me and I look forward to talking to you next quarter. Bye.


Operator [11]


Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.