Q3 2019 Earnings Call
Ladies and gentlemen.
For today's conference call.
Time were seven seas audience, that's the underway shocking.
She's your patient season.
Good day and welcome to the full house resorts third quarter earnings call Today's conference is being recorded.
This time I would like to turn the conference Dorky with singer Chief Financial Officer.
You may begin.
Thank you and good afternoon, everyone and welcome to our third quarter earnings call has always before we begin we remind you that today's conference call may contain forward looking statements that we're making under the safe Harbor provision to federal security laws I.
I would also like to remind you that the company's actual results could differ materially from anticipated results and these forward looking statements.
You see today's press release under the caption for forward looking statements.
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 were broadcasting This conference call at full house resorts Dot Com, where you can find today's earnings release.
As long as RCC filings.
As well as some slides that we posted a in the presentation section. That's label Threeq you 19 earnings calls flights so with all that said.
I didn't go do you already.
Me [noise].
So by far the most important thing in the quarter.
Was the sports wagering agreements, we signed up.
To some extent, we got we got Lucky and that's a the Supreme Court.
But a year ago little over a year ago approved sports wagering a in states other than Nevada, and I think was Delaware before and.
Had no.
Two of the states that opted to pass enabling legislation, we're Indiana in Colorado, and we happen to have casinos in those two places we're a small company levered, but ER the legislation in both places ties local sports betting a two brick and mortar it's different than men.
The city in Mississippi, They approve sports books in fact, we have one that's the silver slipper, that's been open about a year and Oh, we do it in partnership with William Hill, There and and we'll probably make something like six seven $800000. There this year on our share of.
And Ah, Indiana in Colorado, They actually permitted a sports betting that you can do from your phone or from your home or from the office you don't have to be in a casino.
And so its opening a whole new industry and at least the data. So far with this has happened. It shows it doesn't have any impact on the casino gaming itself, if anything it might be a slight positive.
No there that people bidding on sports for centuries, really and but I think in the U.S. has been largely controlled by bookies and the underworld and so we're a this kind of new industry kind of cuts into that and everyone's guessing how big it is but it's in billions of dollars. It's a it's very big industry.
We have not done this on her own some casino companies operate through a sports books, we don't have for what it's kind of.
Unique expertise to do it ER and a second we're pretty small company and we don't have the diversity. So like last year I was a fretting that the norland Saints make it into the Super Bowl.
Because our customers, we're all going to bet on the Saints in Mississippi, and it kind of didn't matter how much we moved the line and Oh. Unfortunately, there was a bad rough call and they didn't make the Super Bowl.
But once you start having sports books in different places than you're somewhat hedged and so if they end up or.
You know against a Indianapolis team well then we'd probably hit that's on both sides were somewhat hedged up but being a relatively small company not having that kind of specialized expertise for not having the diversity of locations or a large sportsbook in Las Vegas, where people think that's all over to place we've chosen to do it in partnerships with others well.
Turns out in Indiana for example, a your loved to have three skin switches the industry term for web site.
For each brick and mortar casino, we happen to have the smallest casino in the state in terms of revenues, we got three scans.
Heresy, Chicago, probably does 10 times the revenues, we do they got three skins, and then Caesars.
Has a companywide deal with one.
Operator, and they have about half the casinos in Indiana.
And so this and El Dorado as a company wide deal. So when you start sorting through it there were.
Quite a few companies both the U.S. and European looking to get into the Indiana market in into the Colorado market.
We were sitting there with three licenses and no agreements.
In places like some of the competition and so we were able to negotiate pretty good deal. So we have.
The three agreements in Indiana with three different companies and then three agreements in Colorado with three different companies don't Colorado very similar mobile sports betting is permitted it has to be tied to brick and mortar and there's one website for each license will we happen to have three licenses. So again, we had three.
Bronco Billy's a different pieces of it or different licenses and.
No one in Colorado.
It needs as voter approval and it's on the ballot next week and we think it probably passes.
But every every all the deals we've signed for Colorado are contingent on that passing the pulling shows it probably passes and why not raise is tax revenues without hurting anybody this kind of no real position for the.
Well for us it ends up being very material if he.
Each of these agreements.
As a as confidentiality clauses on its way be careful what I say, but I can talk about it in in lump sum and.
There are six different agreements.
Three related to Indiana, three related to Colorado, and the first thing we get is a market access fee.
Which the some of the six agreement provides a $6 million a market access fees, which we have received three and assuming Colorado, if and when voters approved in Colorado, we receive another $3 million. So so that's $3 million to $6 million, that's added to our cash and I think were 27.
On a cash at the moment.
And and so that was nice but that's just.
We're signing contracts then a each contract gives us a percentage.
Revenues of the operators revenues and it's slightly different percentages in different contracts and done different ways like if somebody if somebody happens to sign up to make bets and they do so through the wife fly that said our property we get a higher percentage then we would if they signed up.
At home and Indianapolis, It started making bets in Indianapolis and so but each agreement also has a guaranteed minimum in it and the some of the guaranteed minimums is $7 million a year.
There there each independent so if any one.
Does better than.
Expected or for let's say that the percentage of revenue ends up being more than what the minimum is then we will get more than $7 million. If anyone does so likelihood is that we will make more than 7 million a year out in this.
Because you figure out in the other side of this these operators are looking at.
At the business they have a very good idea of what revenues. They can do in the market based on their operations elsewhere and they've been operating in Europe for many years and.
And so they're looking at it and willing to give us the minimum.
I've got to believe they expect us to do better than the minimum and so.
But the minimum is a 7 million and if Colorado Didnt legalized in the minimum is three and half million.
We have really.
No expenses related that very few.
We're even putting physical race in sports books into.
Both the rising Sun casino and the Bronco Billy's in Colorado and.
And our our partners are paying for for the installation of that so we have a very few class no in Indiana, we've chosen to do it in a bar that was kind of an underutilized and its right inside the front door and that bar will also have a traditional slot machines in it. So you can watch a gaming.
Player slot machine or use the kiosk to make that.
And so we had a little bit of expense related to that but not much of the big numbers that were likely to be on the mobile side not at the property.
And but let's put it in perspective as you can see on this one table our E. B D tea in the latest 12 month basis is 17.4 million.
If you add.
Sports stuff, it's a minimum of another seven.
Which is like a 50% increase in our E B D I T.
And then there is a.
Reduction or Indiana change their tax scheme.
In the last legislature and it was approved by the governor it reduces the tax rate in the lowest here.
The effective July Onest 2021, so it's still year to F. out, but it is the law that will drop.
And we're in that lowest here and that means about two and a half million a year for us, which which is comes close to doubling the results of that property now, it's but it's actually a bigger impact from that if you go to the next table.
You know our discretionary free cash flow is roughly 4 million year.
17 million of of EBITDA.
Yes, our interest expense is about 10 million.
Maintenance Capex is perhaps three and a half.
We have.
At this point over $20 million of tax loss carry forwards so.
We don't pay taxes currently although with the sports wagering, we will probably at some future date, but at least at the moment, we're not paying taxes. So our discretionary free cash flow is in the ballpark of $4 million and it goes to $13 million. So these sports agreements Triple R.R.
Free cash flow.
Which is why they're very very material.
And I think it's that I.
I know finance people don't really care, but cpms or get all excited because we always take a valuation allowance against the tax credit produced by our negative pre tax income and they're going to say Oh, you may be profitable someday now so we have to reversed the valuation allowance taken against the provision for taxes, but the fact that we have a negative pre tax income and.
All of which would be a very long chapter in our.
Financial statements, but it's a long winded way of saying or auditors think we will be profitable someday.
No and finance terms, let me put it pretty simply.
We have contracts with three entities and I should mention who the entities are one is Churchill about 4 billion dollar company, a very active in the traditional sports business.
Second is markets.
Markets as a private company out of London, but also with offices in Santa Monica. They are one of the largest peer to peer bedding exchanges in Europe , they billions of dollars a bets.
Bedding exchanges, where one person bets against another person in the take up a fee of 2% on the winning bet.
But they've decided.
To do that you'd need a lot of volume and it's got to be very concentrated.
They have developed the software to be more traditional bookmaker and sports betting.
And they're rolling that out in Indiana, and Colorado, with our cooperation and encouragement and.
They are backed by some of the top of venture capital firms and in Europe .
And so as they certainly have.
Experience in the area and then the third is.
Well.
When has a.
Interest.
22% a bet bolt.
And they will be offering when branded sports betting.
In a mobile sense.
Correct.
Writing on our licenses and recognize this what none of this is going to be branded full house resorts are even rising star.
Like the landlord to underneath the Hilton Hotel I mean, you stay at the Hilton Hotel you have no idea who owns the land underneath it.
And Thats, what we are in this case, but it's quite important for it. So if you. If you assume that these agreements are the minimum of 7 million year, it's probably more but if you assume at 7 million near their tenure agreements now that our partners each have the right to extend beyond that.
And.
Quite likely well, but but if we assume they don't it then it's a 10 year agreement for a mental and 7 million here that's $70 million.
We can shelter the and it's virtually all profit we can shelter most of that.
Our I think at year end, our tax loss carryforwards going to be in the ballpark $24 million if at least the next year or two we'll still have some tax loss carryforwards men at some point at tax losses produced and then we're going to start having to pay taxes, but after taxes, it's probably $60 million coming in over.
The next 10 years.
No debt associated with it or anything if you just divide that by our shares outstanding that's $2 a share the value of this company just jumped $2 a share and our stock was trading at $2 a share and is not far from it now and so before all this stuff came to light people valued our casinos net of our debt and our pro.
Prospects and everything we're working at doing as being worth.
$2, a sure frankly, a year ago. It was trading at $3. This year and so now we signed all these contracts that frankly double.
The value of stock and.
And I hate to keep elaborating on that because of kind of surprised or stock isn't reacted and I think it's just because we are so small nobody is really paying attention, but this is really mega fucking important so anyway. That's the sportsbook. The other thing it does for us because when you have this big an increase in the cash flow.
Backed by contractual agreements with substantial companies it dramatically improves.
Our balance sheet refinancing ability. So at this point, we can probably refinance our debt at significantly below the 10% interest rate we're paying.
And if we do that we'd probably pick up another four or $5 billion.
Free cash flow or alternatively.
It allows us.
To finance the construction of phase two and Cripple Creek without having to issue equity because we certainly don't want to issue equity at these prices its way undervalued from what we think the company's worth and.
And so I think I think that has been an overhang on the stock people worried about how you're going to finance.
The hotel in Cripple Creek and now we haven't answered week, we can go to the debt markets and finance that we maybe able to do a combination of the two we maybe able to finance the hotel and reduce our interest rates a little bit.
On the back to the sports wagering agreements and so theres kind of that multiplier effect of having a stronger balance sheet and ability to get to cheaper capital.
Which makes it worth even more than the $2 a shares at a minute ago. So.
So that's the sports betting which is by far the most important thing in the quarter.
Silversun getting in operations, the silver slipper did fine.
It's the first two quarters. This year were stronger if if you go back and looked the first and second quarters, they were up double digits and profit.
Third quarter was just flat.
And in a big part of that was a hurricane Barry which didn't do any damage at the property, but kind of drowned a weekend that.
That was kind of important so without Barry we probably would have been up 5% or something in the quarter not quite as strong as the first half of the year, but still fine.
And this over such as well on track to having.
The best year to Adsense, perhaps its opening here and its opening year not only was it new but not all of the casinos had reopen from Katrina, so that opening years kind of distorted.
And it looks like this will be the the best in its history other than that.
The.
Rising star.
As continues to be a little bit of an issue we're dealing with a casino in Louisville at Churchill Downs that did not exist a year ago.
It had a big impact on Belterra, which is between us and Louisville less of an impact on us, but still some impact.
And we gave you the operating expenses to show you that.
You know gaming taxes were down as you'd expect with revenues up the payroll was also down we've been pretty careful to try to match payroll with it.
Other expenses were up just a little because we have the theory operating this year, which we didnt have last year.
And then we had a big increase in our marketing expenses in the quarter and particularly in September as we.
Did a lot of kind of mass marketing.
Trying to reintroduce the property to the market and broaden it.
We are in the process of putting in the cannot be system, it's literally 65% and.
It should be completed within a week.
Gives us we more information.
To be able to market, where the rifle instead of with a shotgun.
And and so we think we can get those marketing costs more in line with where they've been historically, but you can see because.
It operates close to breakeven when you have that sort of a swing.
Have a very big swing percentage wise and the BDC.
What you see on the far right.
But when you really look at it. It was it was really just the marketing costs and hopefully those marketing cost pay off in better revenues going forward.
We're really trying to stem the.
The decline that this properties had for for a long time.
We did redo the deli restaurant into a restaurant called bins piece true.
As picture, but here and fixed it up and part of the reason for that was to have a waiter served restaurant.
On the property has a buffet that its operated for 20 years seven days a week three meals a day it doesnt run the volumes necessary.
To make that buffet profitable in effect of a failures as a couple of million dollars a year.
And and so as the intent is to have a replacement restaurants. So people have a place to eat and so we didn't spend a whole lot of money, but we built this out and it's quite attractive a nice and as a new menu and now we'll look towards we've already started to reduce the operating hours of the buffet and so we'll only use it on.
Periods when it runs the volumes that that's sufficient to use the buffet and the rest of the time our customers can either been speaks to our customers are all comped anyway, it's cheaper for us to serve them.
In the Beast, Joe at at slow periods than it is to operate the whole difei, it's us with better if the failure you eggs are sitting there drying are here.
Hamburgers are trying.
Whereas at bends Bisciotti stuff is made to order.
The.
Slide here at Louis that I think as in the wrong quarter, but it goes through the sports wagering update I think at pretty much addressed all of it.
I should big enough, we should talk about it again Dan.
Well I should match, what's what's out in the slide that failed to mention is.
The revenue from these will come on as the mobile gaming starts and as the Sportsbook starts and the sports book in rising Sun and Theres couple pictures of it is about ready to start you can see it's ready for the slot machines and kiosk go into place.
We can't do that until we have gaming Commission approval, which we expect imminently the.
Kiosk and I think Churchill Downs has the best kiosks out there at the moment like everybody is working on them, but they have a very good kiosk that the they buy in from somebody but.
But there are quite popular I've gone I go through casinos everyday and every time you see the Churchill Downs that America Sportsbook. They have lines at the other places don't have so we're happy to be partnering with them and their kiosks or onsite ready to go as soon as the gaming Commission approved us and.
Well have a real sportsbook at rising star.
I think within a couple of weeks, we're ready to go.
It's really Churchill Downs, who has to get regulatory approval at this point and we think they're close.
Bronco Billy's.
We've made quite a few marketing changes there.
We have a new G.M. the old GM is fine to ease retired and the new Guy has a lot of.
New ideas and.
And they seem to be working it was also the summer which is seasonally important and so the Christmas casino was added capacity and and the peak period that that helps and.
And so this property it had.
Several lackluster quarters, and we're happy to see a good quarter here and I and it portends some of the trends strengthened during the quarter and have continued into the fourth quarter. So we're hopeful that this.
Equity will will trend upward going forward not maybe not every single quarter, because you do get volatility, but but.
But we do feel like things are going the right way and the economic system is also going in there during November and so.
Both.
Rising star and Bronco Billy's have very outdated.
Slot systems, which hurts us and marketing it hurts us and what we can tell the customers. They can do and it also hurts us and knowing whose bedding and how much and where and how.
So we will have far better information that will allow us to market more effectively.
We have that system at the silver slipper, it's had it since inception.
We're actually the beta test site for it we spent $8 million upgrading to the newest version economy, a year and a half ago and it's a great system and.
And so we know it well.
Portland is and so now we're installing the properties and someday, maybe we'll get to get to do it up and northern Nevada.
Northern Nevada, Ironically has the aristocrats system.
And.
Sometimes it's hard to get parts for that so all the stuff being taken out of the.
Profitability is which had aristocrat is going to go up to northern Nevada. So.
There will be in good shape Theres lot systems.
At Bronco Billy's.
The phase one is underway the Theres a chart here that shows the parking garage structure and the connector building that's essentially phase one.
The very first thing that has to be done now is where the connector building is is an alley that has all sorts of utilities on it what we've moved the power lines.
And now they will be buried and we've moved them out of the way temporarily and then we'll have to dig a tranche and put them in the trench and then.
The but theres storm sewers and sewer lines that run down that alley that all have relocated and.
Thats, a fair amount of work and that's underway right now and.
And then the garage will start coming out of the ground shortly and should be done.
Middle of next year as what we're hoping for.
And.
That $27 million, we have on your balance sheet.
Roughly half of that will go towards building that garage.
Thats all important because the.
The blue stuff, which is the phase two that's the hotel.
New restaurant and some new casino.
Well part of the casino comes down and gets replaced with new casino and.
That's.
The.
That's the surface parking our customers using today, so we had to create a parking garage. So our customers continued at the placed park, while we go and build the hotels. So the first thing had to be the congressional it's underway and and then.
Subject to us arranged financing, which we believe we can do now on on attractive terms.
We can roll into phase two and there's picture of the phase two.
And we continue believe this is a great opportunity gaming per capita Colorado Springs area is about $130.
In California, It's 300, something dollars now with the tribal casinos and and gambling by Californians in Nevada, and I don't know any inherent reason why residents of Colorado would gamble.
On the third as much as residents of California, you do have to drive up into the mountains to get to Cripple Creek, but if you live in L.A. or San Francisco, you've got to drive a long ways to get to the nearest casino and those two cities are half the population in California. So.
So we think this big opportunity we think the gaming per capita has not been higher.
Because of the product.
The casinos.
In Cripple Creek, there are fine, but they don't have hotel rooms that are not particularly luxurious so little bit of a hangover from the days when the maximum that was $5.
And now the maximum bets $100 and that 20 fold change makes a big difference.
So then northern Nevada, we had a consistent.
Quarter between the Grand Lodge at the highest staff and the property imbalance, we just renovate the steak house and Fallon It just opened and as done well in the first week, it's been opened but it hasn't been renovated we think since the 19 sixties when it was built.
And it was pretty beat up and so we have new carpet new ceiling wallpaper new.
Artwork, and we acquired three statues that are kind of western woman somewhat sexy statues, we had to find that fine line because.
The 25000 people live in that county.
Tend to be kind of conservative.
Bicultural community, but then we're also near the Naval Air station, where the top gun school is at any given time you could have a couple of hundred Navy pilots show up and thus we want something that was a little bit sexy, but not to sexy and I think we found it with these three statues, which are about four feet tall leach and they're now mounted in the steakhouse and we.
Renamed to three sisters Steakhouse, implying that the three stature sisters. So it wasn't a lot of money I think it was about $300000 and.
And it's a great new amenity in that market and.
And it will be a good tool for us for export.
At this point both of our properties in Northern Nevada are really good shape. So.
The please.
We continue to look for other opportunities.
I just know in my career when when places legalize you run through the math and say well. This is a place we can make money.
We're going to give out a permit to make money, we should raise our hands and see if we can get it and.
And so when Illinois, almost in a snap decision legalize six new licenses, we studied each one and.
Concluded the best place to be was and what Keegan.
And determine the type of casino that we thought would work best in what Keegan and one of the things they did as they legal as new license is actually dropped the tax rate on table games to 15%.
And we looked at all the existing casinos in Chicago, and they're up basically airplane hangers with slot machines, but a little bit of decor, and we said we could build something that is.
Really a high quality place and not huge it's not the size of MGM or something but but big enough and.
And habit have.
You know an entertainment venue similar to the joined at the hard rock here in Las Vegas, and and the US there our hotels in the area like Hilton's and how it ends and so on so we didnt really see a need to build a traditional hotel at least in the first phase. So we could always at it later.
But we thought if we're going to go after the high end in the Chicago land area.
Table game player, we would do kind of a light version of the mansion at MGM and and a lot of people don't even know the mansion exists, but when when blogs you was built and that was a separate company MGM went out built this thing called the mansion to compete with blows you and its 20 very very high end villus now they were targeting the Chinese high role.
So they are really off the chart beautiful and it's kind of a little secret behind MGM.
Most people don't even though it's there.
And so we thought we could do the same thing for the domestic market with guest rooms that are 1500 feet like three times, the sizable normal hotel room four times assessment.
And but only 20 up so this would be the finest hotel in the region.
And with Butler service now this really targeting that high roller and bringing in revenue that's beyond the immediate area.
And.
We would also open a temporary casino as quickly as possible, it's going to create jobs and tax revenues.
For the city.
More quickly.
But also help us produce income to help with the financing so the permanent.
And.
So there were five proposals.
Presented to Waukegan City Council, one backed out.
And then of the for the city.
Past three onto the state and that was one of the criteria to be endorsed by the city and we submitted the application to the state last week.
Actually on Monday.
And.
And.
So long process now for the state to look at it now I.
Hi, Thank and so did the outside consultant report for the city that our proposal was most creative and did the best at terms of bringing additional revenues to the state and jobs in revenue to.
Waukegan.
No.
The reverse casino is part owned by Neil blown who is a major developer in Chicago has been writing political checks in Chicago since before it was born.
And so he would be the political favorite, but they have the casino 20 miles down the road. So that actually will do probably less for what keegan, because they're going to be concerned about stealing business from their highly profitable reverse casino and so they will they will try to do something that just kind of.
Protect their flank.
On the the other casino.
Michael Bond was the state Senator representing Waukegan step down from the Senate to start a.
Slot route operation there slots at pubs and so on.
He and APAC associated with him.
85% of all the contributions made to alderman running for reelection last November so he was like the local political favorite.
And.
And that and that came out in the newspaper.
So he was forwarded.
So.
We simply made what we think is the best proposal, we don't have those political connections.
And the gaming Commission, we understand is quite intent that this be kind of a clean process in part because the history of Illinois has been a little sketchy.
The last Governor just got a prison and so if it's a clean process I think we have a reasonable shot at this but recognize we are one of only three proposals.
And this will take place out over the next year.
And then.
Then a couple of pictures design depth, we used to name that we have used for casino. We proposed previously in Indianapolis, we own the name and which is American place, which scrutiny.
And then finally in new Mexico, there was very similar process a year ago.
The last.
Race track license in the state if you get the race track your loved to have a casino.
And they got went through a whole process there outside consultant look to the five different proposals they receive there.
Ruled that we were the best on virtually every measure they'd like 10 different measures and I think we were first in every case.
But theres a new governor she has replaced the racing board.
Completely and the new members of the racing Board.
Our scratching their heads trying to figure out what to do and so I was just in Santa Fe two days ago.
To kind of pass the message to the Governor staff that.
Our proposal was three times the magnitude of any of the other proposals.
And we'd love to have some clarity there if theyre going to go ahead, we're very interested in investing in new Mexico and would love to do this.
If they're not we'd like them to tell us that we can focus on what keegan and other things and.
And so that we said that you have tells tomorrow, but recognize we can't stand on the sidelines forever.
And it's been like eight months since the racing commission kind of pushed pause on on the process. So.
So that's where it stands on in Mexico.
And Louis did I Miss anything.
You know Dan had some notes being covered a mall and I think the only thing I'd postscript as we started what sports betting saw I'll end with sports betting as well.
I do want to highlight that it really was transformational for this company and it if you think about that $7 million of annual guarantees as a lender, assuming we can land or leverage four to five times.
At $7 million, it's effectively like we issued anywhere from $28 million to $35 million of equity from a lender point of view.
So.
I don't want to underscore the transformation that that sports betting I did for us but.
That all said I'll.
Point, you all back to the five beginning kms might worry about the beginning if you go to the.
Full house resorts Dot com website click on investors and find the presentation section, that's where the slides are.
All that lets open up for acuity.
Ladies and gentlemen, if you wish to ask a question.
Please.
Pressing star one on your telephone keypad.
Using a speakerphone please.
It's turned off.
Equipment.
Again press Star one to ask a question.
For just a moment.
<unk>.
Question.
We'll take our first question from Chad.
Please go ahead.
Good afternoon, guys it starting vendor on for chat today.
You've mentioned a few projects over the last year.
Up until now whether it's the second phase at Bronco, Billy or what key and or possibly in new Mexico down. The line I guess looking out a year from now while the parking garage opens and free cash flow begins to start ramping up again.
Can you give us an update on your capital allocation plans and maybe the highest priority projects for you guys. Thanks.
Well, we're sitting and 27 million a cash about 10 of that is used in operations, maybe maybe 12 even.
The parking garage is about 15 million phase one and that's that's the big capital over the next 12 months.
Things like the Steakhouse that was like $300000. That's all in that maintenance Capex, which is like three to three and half million year once and while you got to spruce up a restaurant.
The.
The deal we did with.
[noise] cannot me.
As.
We are leasing the system from them for two years than we have the right to buy it at the end of two years.
We're going to have down after three and half years, and if you present value that it's it's like $4 million.
But we basically had konami finance and.
And we think we get a pretty good return on that in terms of the effectiveness of our marketing and what it does for our customers. There's little things that you consider the slot machine and participate in the tournament without having to go to the special group assumptions.
You can also come in if we've sent you free play you can load the free play on that slot machine play part of it then if you unchanged machines you can change machines and goes with you. The systems. We have today, that's not the case whatever machine you downloaded on you're going to play at all there.
So thats just couple of simple examples a lot of different makes it does.
Now the.
No we get.
Caught in this a lot of the stuff like new Mexico, or we had a proposal and Indianapolis once we look to Terre Haute.
Yeah, we go out and Waukegan, I mean, waukegan had a public process, but at a request for proposals we responded to it.
You end up getting publicity of that and we'll keep going to of course, and then the Chicago Tribune and that gets picked up online and also nobody sees it and and recognize it's a lunch I'd even today, we're one of three.
And I think we have the best proposal, but I'm sure new Bloom thinks he as the best proposal. So.
And in New Mexico, we were one of five.
We were deemed to be the best and when they hit pause on the whole project right and.
So I mean, you got a stair step up to bat.
And once in awhile and find out if you can do it and so I.
Now if we're actually chosen that you've got to go figure at how to finance, it, but but I would characterize it as early in my career.
I want us to Tokyo thinking we might be able to buy the Dow Jones at a reasonable price and remember Steve when telling me you're wasting your time, the guys Nutcase and I told them flat out is that you Didnt tell me know if you tell me no I won't go and says you're wasting your time I suppose I'm going to Tokyo and months later, we bought the downs and and at the time.
We were stretched because we were finishing treasure island, we had no idea, how we were going to pay for Blusher, but it was a good project, we've actually figured it out of course has been a home run.
What I was at Pinnacle, we proposed casinos in Saint Louis and got it we propose casinos elsewhere, where we didnt get right. So.
So when we talk about what Keegan, New Mexico Indianapolis.
Just recognize we're out there trying to find good opportunities and we don't Chase every opportunity a lot of times, we run the math and say that one really doesn't work.
And we also look at a lot of acquisitions Bronco Billy's was an acquisition.
The.
Usually if you build something it ultimately ends if you do it right. It ends up in a lower multiple you're getting something at a lower multiple.
And you're getting in at the beginning of its economic life, because it's brand new you're getting a bigger accelerated depreciation charge because you're not.
You know inheriting somebody else is already depreciated base, so and so when you really put a sharp pencil to it if you do it right new construction often has a higher return, but not always say if you buy something that's existing.
First of its kind of a proven entities you know what its earning and you get cash flow from the day by it and so sometimes that works but.
I think no I will tell you the phase two hotel in Colorado in Cripple Creek.
Yes, we started out with that.
At first it was.
Could we acquire the land around us to make this work.
And we spent probably a year kind of quietly buying different pieces of land to where we owned while today, we own the better part of three blocks of land.
City blocks in a historical little town, where everything was covered up into little pieces and.
And so we kind of quietly assembled.
Through purchases or options or leases enough land to do it well then it was all.
When you started designing it we had the streets analogy is running through it and that made it really hard to try to figure out how do we do this we're going to have all sorts of escalators and everything and finally, we had an epiphany one day that the only way it was really going to work as if we could close substrates and principally second street and there is great debate whether.
The city would do that.
And then when they did agreed to do it there was a lawsuit whether they could do it or not and.
We we wanted city council, we prevailed in the lawsuit.
We now have the right to do it we havent designed and everything is now ready to go. So that's a project that is completely in our per view at this point.
We just have to figure it out to finance it and we have to get spark and crashed and and frankly the last few months, we knew the sports betting was coming along and we knew that our ability to finance it would get way better when we had those contracts done. So we've been focused on getting six contracts done.
Just the next step is for Colorado to approve it next week, which about half the economics of that.
Which we think can hope will happen.
And.
And and so I would characterize.
Phase two in Cripple Creek is something Thats completely in our control.
And I would characterize waukegan, and new Mexico as stuff, where we've put some effort we've spent a little bit of money.
Trying to get that bigger opportunity that we could go do just like when we were at Pedicle, We went and got the opportunity to build in Lake Charles Louisiana helped transform that company and.
But any of those that sort of deal is something where you have a 20 or 30% likelihood of getting there, but if you stepped up step up Tibet often enough you'll get one so I think I think that thing to remember on Bronco Billy's Jordan as it's there it's designed right.
And quite frankly of all the projects that Dan and I have done in our careers and you know a lot of them Lebaran Lake Charles write Downs worked on Borgata velocity I go through the west, but we feel better about this project in any other project. We've worked on and it is ready to go when you look at everything else when its waukegan, our new Mexico those are as simple as dry.
It is on paper those and that's not the stack of of of blueprints that we have on our table for for that profitability expansion. So.
Broncos is Broncos is there and as certainly a priority.
And I should I should mention timing wise now.
Well Keegan, we would do a temporary casino because I think it works in that market I used to not like temporary casinos and then.
The Cordish companies, who we were the original operators of the casino and Shelbyville outside of Indiana. They too are up a temporary casino and they did a really good job and I remember walking in thinking you can do a casino and attempt that looks pretty nice and that works right and an ever since I thought.
If I were in the right spot rate market with strong demographics, I could do something like they did and that help them.
Roll into the permanent one they spent too much money to get the license upfront and eventually went bankrupt, but but the temporary casino they did.
What's a good job and it can be done right and so and waukegan with the number of people living around there and the city's interest and getting the jobs and tax revenues quickly. We agreed to do a temporary casino, but the permanent want to be couple of years up we would be open with phase two in.
Colorado before you'd probably even put a shovel in the ground for the permanent casino Keegan and in a temporary casinos have sprung structure. It gets thrown up very very easily I applaud you Jordan for thinking we have those projects, we don't have them yet stay tuned.
[laughter].
Question for you guys.
Thank you.
Thank you.
Your question.
Q2.
<unk>.
Well take our next question.
Please go ahead.
Hey, Dan Heyler with great job on everything.
Hi, Gary Thank you.
Yeah, I haven't question nets.
If I recall.
You guys bought a second casino in Colorado right across the street from Bronco, Billy is that right.
Not not completely it there is a at the corner of the block.
We are Bronco Billy's sits we had acquired most of the block and there was a piece of land behind Bronco Billy's that we really kind of needed for the parking garage and the owner of that piece of land also had the corner uphill from Bronco Billy's and he wanted us to take a lot of everything so we struck a deal with him or release that build.
Being with the right to buy it and so we are leasing that building now and it is a casino that had field before and then we thought well as long as releasing this.
Why don't we try to reopen it was also kind of an important building for us because that's the corner, which you need to turn right to get to our parking garage and so it allows us to have a way to have assignments as turn right here and go to the parking gresh, it's not actually a very large building and the grand sense and we did reopened.
It with a Christmas theme and called the Christmas Casino.
And and.
Year to date I don't think it's made enough money to cover its lease, but we're probably better off operating at the not operating it and controlling it was important.
For the kind of the bigger scheme of the whole block of what we're doing and so got a good chunk of the reason why were off in the first half of this year was operating that additional casino capacity in a leased building largely with lease slot machines and and we did it.
Knowing that we probably weren't going to make a lot of money at it we thought we'd make some money.
And we I think did in the third quarter, but not in the first half and.
But it's kind of important for the overall strategy.
Got it. So you guys don't have a second gaming license in Colorado then.
We actually have threeq.
In Colorado, It's a highly graduated tax rate the first $2 million revenues only taxed at 0.25% then it ratchets up to I think $15 million it becomes 20% if I remember correctly and.
Initially Bronco Billy's was a smallish casino in the middle of the block.
And Mark Murphy was running it did a better job than as neighbors and at 1.1 of his neighbors came up for sale.
And when he was looking at it the issue was.
If I buy it and combine it our revenues jump that will be in a higher tax tier and so.
That made a complicated and so they talk to the gaming Commission and said we buy the casino next door Naco hole in the also the customers can walk from one to the other can we keep it as two licenses and this is you can't as long as you operate a separate cage in each one of the Tito tickets one can't be accepted in the other which is little confusing.
For the customers, but our customers pretty regular customers. So they used to it and so then it another point Mark did the same thing on the other side so.
Within Bronco Billy's there were three different licenses.
When we reopened the Christmas casino, we kind of reduce some of those lines and took one license down to the Christmas Casino. So now within Bronco Billy's, there's two licenses and than we have the Christmas casino. So in terms of.
Sports betting.
We have three licenses, we get three skins no.
Indiana has better barriers to entry because theres only 11 casinos permitted in Indiana. Each casino three licenses in Colorado casinos are limited to three little towns, but theres not a limit on the number of casino. So theoretically somebody could open a tiny little casino.
No somewhere in Cripple Creek are black Hawk in order to get the Sportsbook license that would be affiliated with it.
Okay I understand.
Actually I, that's very helpful. Thank you.
I guess.
I understand its question sort of being in gaming industry.
[laughter].
The refinancing of your of your debt, our lenders willing to do that sort of on the comp.
Well were yes, theres Theres a few things we were pretty sure we could refinance our debt at significantly lower interest rates or we can refinance it to get a larger some enrolled read into phase two and we're trying to figure out whether the strategy should be go to lower interest rates and then come back.
And do phase two.
Interest rates would be enough lower that the cost of refinancing would probably pay for itself in a couple of months and.
So we're trying to evaluate all that we.
Obviously getting.
The referendum passed in Colorado is pretty important we'll see that next week and and then we can in earnest look towards.
Doing a financing the first part of next year, Okay got it and it's probably coming sooner than you think the mobile gaming in Indiana is literally on the verge so.
Knock on wood, I, I think and hope that we'll have at least one of our partners operating with their mobile sometime before the end of this current quarter and then I think as you go into the first quarter of next year not going what I think we'll have all three of our Indiana partners up and running so you're going to see that those revenues and that EBITDA hit pretty pretty darn soon for Indiana.
Colorado is going to take a little bit longer because they have to get it approved and set up the all the rules and everything so no Colorado is more likely the middle of next year, but but the nice thing about the happy having the guarantees with.
Companies that that no gaming or or Don sports betting for awhile is is it lets us I get credit for that when we go out and talk to debt markets. So Scott its annually.
Smart Smart cards issued a press release when they sign the deal with us and in their press release, they indicated that they hope to be up and operating before the National Football League playoffs, Okay, and when you think about how much bedding happens on the Super Bowl I think it'd be of fear guess that all of these companies are trying to get open in.
I have to take Thats on the Super Bowl.
You would think or at least March March madness or something right.
You do which I guess, yes, it by the way.
It's fairly easy for them, they're not building, a casino and and they they have the software already operating somewhere else. So they have to get gaming Commission approval and then they flip a digital switching their up and operating it's almost like ebay model.
Thanks, Yeah that makes sense so.
Maybe I missed this I was listening I listen to.
Thanks to the extent.
Prepared.
But do you have a sense of significant interest savings that you know two or 3% or is it is it better.
What do you guys have a sense of in terms of magnetite.
Yeah, we have some term sheets that are confidential, but substantially below the 10%, where we are I mean, if you look at other companies like us.
Yeah.
If if if you committed to not build phase two and just use the cash to be swept to pay down you could probably be as low as five.
So you could reduce the interest rate in half, but then you couldn't build phase two so we're trying to balance this to figure out what's the best way to go.
Got it I mean at the end of the day, it's all about what's what's best for our shareholders. So we're playing with all those permutations.
Got it got it wrong.
The shareholder I Trust will do the right thing thanks, guys.
Thank you.
Probably time for one last question there.
We will now take our next question from Brian to soften Tensixty capital. Please go ahead.
Hey, guys. Thanks for the call I'm, just kind of Waukegan. He can talk about why you water one and partner with one of the other two parties just to kind of make beyond just better for or you guys.
Well I think in the process, we're actually for bid and to talk to the other bidders.
But.
Obviously, the thought has come to us that if we get this project has $300 million. It's it would be a whole lot easier to finance. It. If we had a partner. So we have given some thought as to who might be a good partner for it we don't necessarily have to have a partner.
And we're actually prohibited from talking to the other bidders during the bidding process, but I've I've done both them and that we got in Atlantic City, we had invested quite a bit of money and actually time and effort not a lot of money and getting that tunnel built in Atlantic City people realized I I'd negotiated that tunnel with the Lennox City Expressway 30.
And then ultimately we decided to partner with Boyd.
Kind of a complicated history, but borgata ended up being a joint venture between Mirage resorts and Boyd gaming It was very successful for both companies.
Money Carlo in Las Vegas was very successful joint venture.
Between what became a Mandalay Bay group and as resorts and so sometimes that make sense, especially if.
The partners bring different expertise to the table, but this was a very expedited process in Illinois. The lowest just passed a few months ago and they're moving very quickly and so we didnt have time to go find a partner in advance and apply we just applied upfront you know were.
If we end up getting to license will look at doing it on her own and we'll look at having appropriate partners.
Once if we were chosen.
Well, then then we would be free to talk to bloom or anybody else I don't know that he'd be the best partner, though theres a lot of people who might partner and we'd probably talk to a lot of people.
Plus consider doing it ourselves, but we're actually prohibited from talking to other bidders at which makes sense in the bidding process.
Gotcha can you take a partner now we've got involved at all.
Well the licenses on us I mean, we posted that we put up the 300000 dollar nonrefundable deposit that Illinois required, which I will tell you I did with some extra because that deposit was much larger than as the norm in processes like this and we swallowed hard and did it because we think the economics.
Project are so strong that even if we only have a 25 or 30% probability of getting it we should still do it.
And.
And.
So we could talk to their partners, but we're not they would not be added to the gaming license complicated process to license somebody.
But but there are good we think they're going to address markets, where there was only one proposal and there were a few of those.
I will address those first because it'll be easier and so it's probably you know for six eight months before they get around to looking at what Keegan and so we have some time and Anna.
To think about the possibilities so.
Yeah.
Right.
Well I will tell you when when Lewis and I had our own little company created casinos, we had the last license in Louisiana.
We were getting ready to build the property in Lake Charles that is today, the Golden Nugget <unk> design that we had all the entitlements and everything.
We have brought in MGM as a partner and Jim was a significant investor and partner in that.
And then as we're about to put two bricks together ameristar offered us a really nice process profit and we sold so we know how to bring in part is when it's appropriate I had that license complete myself and we brought in MGM, both for their expertise and their assistance and financing it. So it's.
The thing we promise what Keegan and the state of Illinois is if they choose US we will get it done one way or another and it might be us on around or it might be us with the partner, but it will get done and it was the same thing in.
Of Louisiana win.
Ameristar offered to buy us out.
I told Ameristar CEO , the only way I would sell the only way I could sell was they would have to step into all the promises I'd made to Louisiana, including the time schedule that it would be built and what would what would be built and everything else and we went met with the gaming Commission and provided they stepped in all those promises.
We were approved to sell it and we did so not not that we're going to try to get will keegan and sell it our intent is to develop that but at some point you have to sit look and say this is a 300 million dollar project do we want to.
Lever and do it through leverage or are we better off having a partner and not have that Stifel leverage and so like Neal Bloom has partnered with Churchill Downs. So that makes a very strong balance sheet to into two of them and so it's possible we figure out something like that as well.
Okay, Alright, well good luck guys.
Okay. Thank you.
That concludes today's question answer session mystery at this time I'll turn the conference back to you for any additional closing remarks.
Well I wish we could find six new sports agreements signed in the fourth quarter, but we're out of sports agreements opportunities, but well keep looking and.
And keep running the company as best we can and the.
And.
Hopefully a our stock price will reflect that overtime. So.
Thank you.
Okay.
This concludes today's call. Thank you for your participation you may now disconnect.