Full House Resorts Inc Q1 FY2022 Earnings Call

Good afternoon and welcome to Full House Resorts First Quarter Earnings Conference Call. All participants will be in listen-only mode. I would now like to turn the conference over to Lewis Fanger, CFO of Full House Resorts. Please go ahead.

Thank you. Good afternoon, everyone. Welcome to our first quarter 2022 earnings call. Before we begin, I want to remind you that today's conference call may include forward-looking statements made under the Safe Harbor provision of federal securities laws. Our actual results could differ significantly from the anticipated results in these forward-looking statements. Please refer to today's press release for a discussion of the risks that may impact our results. Additionally, we may refer to non-GAAP measures like adjusted EBITDA. You can find reconciliations of those measures on our website and in our press releases. Lastly, we are broadcasting this conference call at fullhouseresorts.com, where you can access today's earnings release and all of our SEC filings. Now, I want to share our latest update regarding Circa Sports, and then I'll let Dan discuss Operations and our gross projects. We have just announced our newest agreement with Circa Sports to develop and manage the on-site sportsbook at The Temporary and American Place. If you've visited the Circa Resort in Las Vegas, you know why we chose to work with them. They have an impressive sportsbook, the largest in the world, featuring three stories and a podcast studio. It’s a very exciting place to be. They also offer a mobile app in several states. As part of our agreement, they will use our anticipated sports skin in Illinois to launch their Circa Sports mobile app throughout the state. Typically, we don’t share many details about these agreements due to confidentiality, but due to the significance of this one, we believe it's important to provide some information. The agreement includes a $5 million market access fee, which was paid last week upon signing. As with other market access fees, we will amortize it over the eight-year duration of this contract once operations commence. Similar to other skin agreements, we will share in the revenue, subject to an annual minimum of $5 million, which will also begin only once operations start. After the initial eight-year term, there are two possible renewal periods at Circa Sports' option. For those keeping track, we now have a total of seven skins: one expected in Illinois, three in Colorado, and three in Indiana. We are set to regain one skin in Colorado and one in Indiana in mid-May as previously reported. When we total all the annual minimums from our various contracts, we are currently at $9 million per year, excluding any additional revenue from the two skins that will cease in mid-May. We certainly hope and expect to find replacement Operators in both Indiana and Colorado, which should increase the $9 million figure. With that said, you want to...

Yes, just to point out that the market access fee that we've charged on each of these agreements is not refundable. So we don't take it in income GAAP has this amortized that over the life of the contract, but it's not refundable. And so there is a similar market access fee. So I think it was a total of $3 million on the Churchill deals. Churchill opted to exit the business. So, it's surprising because they're really the first people in it, but they're exiting the business. They don't get that back, so we will take an income.

In their case is $1.6 million that was still un-amortized as of December 31st, yeah.

And we take that in income.

Between the first quarter and the time that

They informed us they ceased operations on May 15th. We are in discussions with other companies to find replacements, which should ultimately lead to a larger net business. We're also pleased to be collaborating with Circa. If you haven't visited their facility downtown, you should check it out. To provide some perspective, we’ve been in Las Vegas for a long time, and Circa is the most successful new casino that has opened here since Wynn in 2004. Many others have struggled, but Circa has prioritized sports betting, integrating it throughout their property, including by the pool and in the casino, and they've managed to do this exceptionally well. Now, regarding this quarter, we had a decent performance overall, but we're comparing against a strong quarter last year. We saw a decline, heavily influenced by The Silver Slipper, where our overall EBITDA was 10.4 compared to 12.6 or 12.7. The Silver Slipper alone was down 1.6 in EBITDA. Colorado faced a drop of several million due to construction, while Nevada experienced a decrease of about 400,000 because of a swing in win percentage share. Indiana remained flat. Looking at Mississippi, there are several noteworthy points. Last year, government stimulus checks were distributed in mid-March, significantly boosting our business at that time and continuing strong into April before tapering off gradually. It's difficult to determine how much of our $30 million EBITDA at The Silver Slipper—just under $50 million across the board—was tied to those stimulus checks; maybe around two or three million, but that’s just an estimate. In the first quarter, our spot win and table game win at The Silver Slipper remained flat, suggesting that even with last year's stimulus, revenue from slots and tables didn't increase, raising questions about the fundamental business. Nonetheless, we performed adequately this year without the stimulus interference. Most of the revenue fluctuations stemmed from our on-site sportsbook, which is the closest one to New Orleans and Baton Rouge and has grown to be a significant segment. While Louisiana recently legalized online sports betting, a similar bill didn't pass in Mississippi, and that has negatively impacted us. We experienced a 65% drop in tickets written at our on-site sportsbook. Although we share that with William Hill, who operates it, the decline affects our portion of the income. Until Mississippi allows online, and due to its smaller population compared to Louisiana, we anticipate continuous challenges. Of note, out of last year’s $30 million in EBITDA at The Silver Slipper, $1.4 million came from the sportsbook. If that reduces by 65%, it could result in about one million from that source. This quarter's revenue swings of 400,000 partially relate to the sportsbook, and with a win percentage lower than usual and seasonal factors like the Super Bowl considered, we don’t expect to see such significant swings every quarter. Another ongoing issue is that our property insurance costs have risen substantially; at The Silver Slipper alone, this quarter they increased by 280,000. This isn't isolated; many companies are facing similar hikes due to recent hurricanes and flooding. With low-interest rates negatively impacting insurance companies, they have substantially raised their premium costs in the last couple of years. Historically, there is a cyclic nature to these insurance costs; after a few years without storms, competition could push prices down. As we expand in Illinois and Colorado, we can diversify and reduce reliance on Mississippi, which may improve our insurance rate situation in the long run. Lastly, another significant cost increase has been related to crab prices, which surged from $8 to $17 a pound, contributing roughly $800,000 to our food costs at The Silver Slipper this quarter. Crab accounted for nearly all of the food cost increase, as we spent $4.6 million on it over the past year compared to $2.4 million in the prior year. The rising crab costs are tied to supply chain issues stemming from reduced fishing during the pandemic, leading to diminished frozen inventories when restaurants reopened and demand surged. While we could offer alternatives, our customers favor crab, and we have positioned ourselves in that market with high-quality options. Although we've made adjustments, like pausing midweek buffet offers, the majority of our buffet patrons are casino customers who receive complimentary access. Therefore, we’re navigating the situation as effectively as we can until we hopefully see prices stabilize. In conclusion, our challenges at The Silver Slipper this quarter were mainly driven by crab prices, along with the sportsbook performance and property insurance costs. While the crab price spike seems to be a short-term issue, the others are more longstanding. In Indiana, we had stable results despite the increase in insurance costs and last year’s stimulus checks, which reflects positively on our operational performance.

The significant change came from the table games, which saw a 16 percentage point difference in hold share compared to last year. When considering both slot and table games, we experienced around $850,000 in lost revenue when we compare this year to last year.

Property offset that and they ended up the quarter with flat income. So that's why I view flat as being actually pretty good.

Yeah.

Colorado is currently undergoing significant construction work. We don't have any on-site parking available and are relying on valet parking instead. There is a parking lot three blocks away that we shuttle guests from. Overall, the market has been performing well since April of last year when betting limits were lifted, but our revenue has declined, which directly reflects the ongoing construction. About 25% of the Bronco Billy's building has been demolished as it will be integrated into Chamonix. This quarter is typically slow seasonally, leading to a loss. However, we don't anticipate this loss to carry through the year, although we don't expect substantial income either. We're investing in a $250 million development, and while we care about profitability, our focus is on managing this construction phase effectively. We have 200 loyal employees we intend to keep engaged throughout this process, as well as our dedicated customers. We anticipate Chamonix will open about a year from now, leading to a much brighter future. In Nevada, the Grand Lodge performed relatively well during the recent winter ski season compared to last year when the pandemic affected skiing capacity. However, a significant change in win percentage resulted in a $600,000 decrease in revenue, largely accounting for the income fluctuations. The overall performance in Northern Nevada was stable aside from this win percentage impact. Regarding our contracted sports wagering, we have made some changes since last year when not all our venues were operational. This year, we have all six venues running, although two are discontinuing their operations, and we signed a new agreement with Circa, which has added to our complexity. Corporate performance remained flat. However, two major projects we are developing are crucial. The start of construction in Waukegan took longer than expected due to the city's requirements for outside reviews of our plans. Ironically, while our temporary structure is ready, we are still waiting to begin the foundation work. We have just received the building permit, and site preparation is now in progress, allowing us to start laying foundations. We initially aimed to open by summer, but it looks like it will now be in the fall, likely by October. The good news is that we are finally making progress. We are ahead of potential supply chain issues and have prepared a large area for construction. We will feature 1,000 slot machines, 50 table games, three restaurants, and ample parking, so this is a significant venture. We are actively hiring staff and have filled several department head positions as we approach the opening. In Cripple Creek, construction continues on track for a second-quarter opening next year, and we are starting renovations at Bronco Billy's. While this will cause some disruptions, the improvements will be significant. We have been collaborating with contractors and managing timelines effectively despite some challenges with material deliveries, and we expect to stay close to our budget of $250 million with enough contingency funds. There are exciting developments as we start acquiring special items for the project, like a prominent piece of art. Overall, despite the challenging market conditions today and fluctuations in our stock, we are in good shape and focused on building value for our shareholders, which will eventually be reflected in our stock performance.

The only other thing is that we're a lighthouse. Do what you want. And it's like, okay, the market is all over the place. Well, you know what, we have our money, it's fixed rate, our business is doing fine, our business does fine during recessions, and we're building this stuff. There's a side; yeah, bring on a little recession, maybe we can build this stuff cheaper. And so I think we're just fine. And the stock is volatile, but at the end of the day, we're building value for shareholders and the stock will reflect that.

Yes. Let me talk a bit about the complexities of GAAP. You will notice the charges related to debt restructuring, which seem illogical to me. We issued another $100 million of bonds that share the same CUSIP as our current outstanding bonds. Consequently, some of the fees associated with the issuance of those bonds are expensed under GAAP, which is why you see the charge. If we had issued them with a different CUSIP, those fees would have been capitalized, which doesn’t make sense to me. However, we have complied with GAAP. The net effect is that the charge we take this quarter is essentially offset by slightly lower interest expenses over the bond's lifespan, making it a big fuss over nothing. Furthermore, bond buyers prefer to have the same CUSIP for increased liquidity.

Yes. The only other thing I was going to mention, Dan, it's from a liquidity point-of-view, we still have a lot of cash. And so here in real time, we're sitting on about $318 million of cash with $205 million of that reserved for the build-out of Chobani. But on top of all that cash, we still have our $40 million undrawn revolver. The only thing being utilized on that revolver is a $1 million standby letter of credit for the build-out of The Temporary in Waukegan. So we've got quite a bit of additional liquidity there, but that's all I had. If you are ready for questions.

Before bringing questions, the only real supply chain issues we've been dealing with this crab.

Yeah.

Before we move to questions, I received two emails from David Bain, who is experiencing connectivity issues. So, I will pose his questions for you, Dan. First, David is interested in your insights related to minor recessions, major recessions, or macro events that have influenced operations at Mirage, Pinnacle, and Full House, along with your general observations from the past three years in the industry. It appears that the impact on the regional level has been relatively mild based on historical gaming revenue. We operate with a fixed cost structure, and it seems that each new recession presents its own challenges. While current trends are not alarming, we are encountering inquiries about the macroeconomic landscape in the latter half of the year. We would appreciate your perspective on how you view the situation in relation to the portfolio. You’ve touched on this already, but please elaborate further.

Yes, we notice that when people visit our casinos, it's an affordable and convenient trip. You can easily drive there with a couple of friends, so gas costs are minimal. In contrast, rising fuel prices significantly affect air travel, as you need to buy individual tickets, which adds up. This has a bigger impact on Las Vegas compared to regional casinos. Additionally, Las Vegas's convention business also suffers during recessions, with companies limiting attendance at events. During the 2008-09 recession, regional casinos performed well, so I don't expect significant effects this time either. While gas availability hasn't been a major topic of discussion lately, I believe it will become important in the future, especially as more manufacturers shift to electric vehicles. For instance, we have charging stations available at Chamonix because we foresee this as a growing need. Hotels built today need to consider accommodating electric vehicle charging for the future. Gas prices can be a concern, but they may ultimately benefit us. Regarding the recession, while there are challenges in finding employees due to low unemployment at 3.5%, we aim to be a good employer to retain our staff. I'm not overly concerned about a recession or interest rates. While we will eventually need to refinance our debt, that's a couple of years away, and we have plans in place that would allow us to finance our projects if necessary. Our current financial position is strong; we have the funds to build and our debt is at fixed rates, so our focus is on completing those projects.

At all our opening in six months, Dan. Here is the second question that will open it up to normal Q&A. Are there any changes that you would make now, either in design and development or operations to hedge for a softer consumer, or is it pure execution mode based on real-time trends?

No, nothing really. I wish we could have figured out how to build Chamonix with less disruption to Bronco Billy's, but there really isn't a way. It is what it is. And The Silver Slipper is solid. We have been slowly working on getting entitlements to expand The Silver Slipper someday, but we're so busy building the other two things that it's on the back burner for now. And we do keep inching our way forward with different entitlements, but I think even if everything cleared up tomorrow, I don't think we'd start construction right away because we're busy trying to build what we have. And that's what I do. I think we're in pretty good shape. Maybe some of that is brains and some of that is luck, but I can't figure what else I would do.

These are all assets go for the long term and that's what we're doing.

We're actively exploring various properties in Las Vegas, and since we live here, we certainly take a look at them. I have previously managed casinos in Las Vegas, but this market is no longer easy to enter. California used to contribute half of Las Vegas's visitors, and now it's down to 30%. With over 60 tribal casinos in California that are newer and just as appealing as those in Las Vegas, this market is challenging. We've considered many options and decided against them, which I believe places us in a favorable position right now. While we won't rule anything out, we haven't encountered an opportunity that makes sense for us, like if someone offered us a particular asset for $50 million.

Let's go into a proper Q&A now.

We will now begin the question-and-answer session. . At this time, we will pause momentarily to assemble our roster. First question comes from Ryan Sigdahl with Craig-Hallum Capital Group. Please go ahead.

Good afternoon, everyone. Lewis, you did such a great job that I considered just emailing my questions and letting you handle it. However, I will continue. Congratulations on the circus sportsbook. I agree with you; I have been there, and it is truly fantastic, the best sportsbook in Vegas, and it attracts a lot of people. I'm curious if you can share any information about the scale or plans for the one that will be in your casino. Is it similar to that, or is there anything else you can comment on?

We are rapidly developing the temporary sportsbook, which will be a standard setup. We've purchased two Airstream trailers to serve as food trucks nearby, offering easy access to beverages like beer and cappuccinos. We're mainly focused on speed with this tent. For the permanent casino, I'm excited to collaborate with Derek Stevens to create the top sportsbook in the Midwest. Our design is still in the early stages, allowing us to incorporate some innovative features for an outstanding sportsbook experience. Working with him is enjoyable because he pays great attention to detail. For instance, he took the time to demonstrate how to adjust a light bulb in a light display to improve visibility for brake lights in the Las Vegas sunlight. It's evident that he is deeply passionate about this work. I believe we have a real chance to establish a remarkable sportsbook in the permanent location, which would be the best in the Midwest in recent times. As I’ve mentioned frequently in these calls, we have been cautious about venturing into this business ourselves due to its specialized nature and our small size.

If our team makes it to the Super Bowl and we are not represented, while the opposing team isn't from one of our markets, it would create an imbalance. However, the individual we are partnering with has a solid basis in Las Vegas and attracts people from all around, so he doesn't face that issue. Being a private company means that if he has a challenging quarter due to the outcome of the Super Bowl, he can manage it. We are excited to collaborate with him, as he has strong online offerings, and everyone knows DraftKings. His private company operates effectively, and I was impressed by his setup Downtown. I had seen his impressive design before but didn’t realize the extent of it. They charge around twenty dollars for access to the pool and rooftop area, which features six heated swimming pools that he keeps warm during the winter. In January, it was remarkable to see people enjoying the warm water even in fifty-degree weather while watching football games. He also installed extra thick glass in his hotel tower to manage the sound from the pool, ensuring it doesn't disturb guests. Although some guests at his steakhouse could still hear the activities outside, he has considered all aspects of his business. This attention to detail is something I appreciate in our work as well, which I believe sets the stage for a strong partnership. Regarding your earlier question, we anticipate that when you visit our America play sportsbook, you'll be impressed; that is our aim.

Yeah. That's our goal.

To follow-up on that, I guess the $5 million annual skin fees, does that include only sportsbook online sports betting, or is that also iGaming if legalized? And then secondly, does Circa have online sports betting in Indiana, or Colorado, or is that an opportunity with the Churchill skin?

They are currently operating in Indiana and Colorado, and I believe they are up and running. However, they are not interested in partnering with us in those states. If they aren't operational, it’s likely due to an existing agreement with another party. We are in discussions with other companies for Indiana and Colorado. As far as I know, they are not involved in Internet gaming, but our agreement only covers sports betting. If Internet gaming becomes legal in Illinois, we could pursue that separately.

Good. One more for me, switching over to the core business. Anything you've seen in March into April, and even early May, given all the macro challenges? Anything impacting the consumer that you've noticed?

April of last year was one of the best months in this company's history, largely due to the stimulus checks that were distributed in mid-March. Although we haven't finalized our figures for this month yet, I anticipate that April will fall short of last year's numbers. This is still early in the quarter, and I hope we can recover some of that shortfall. However, our budget already indicated a slight decline in the second quarter. It's tough to determine the exact impact of those stimulus checks, but I previously estimated they could have generated around $3 million in revenue, significantly affecting our second quarter comparisons. Aside from that, April performed reasonably well, although last year's revenues were unusually high compared to any previous April. This April holds up well against past Aprils, aside from last year. It's worth noting that last year some areas still had mask mandates, which is no longer the case now as people have returned to their normal routines. Senior citizens, who were cautious during the pandemic, are now vaccinated and have returned to patronizing us, resuming pre-pandemic activity levels, which is positive. We've also retained some younger customers. Reflecting on the April results, it's clear that we had a boost from stimulus checks last year. The extensive infrastructure bill also provided a significant economic boost, but it's more gradual. It won't be an immediate influx like the stimulus checks were. Not every recipient of a stimulus check spent it at a casino; some opted to purchase items from stores like Best Buy, which likely saw a bigger immediate benefit from this economic support compared to us, although we certainly saw a positive impact as well.

Thanks. Helpful detail as always, Dan Lee. Good luck, guys.

The next question is from Chad Beynon with Macquarie. Please go ahead.

Hi. Afternoon, guys. Thanks for taking the question. Lewis, you mentioned the current status of the balance sheet. You're at $318 million of cash. So that indicates that you haven't spent much on. Can you just help us think about how the CapEx should look through the remainder of 2022 and what will slip more into’23? Thanks.

We spent approximately $15 million, and this is where the investment starts to increase. In the second quarter, I estimate we'll see around $25 million in capital expenditures. That amount will likely rise to about $45 million in the third quarter, with a possible increase again in the fourth quarter. The pace is beginning to pick up. From a site perspective, as more personnel arrive, not just for the steel but also for electrical and plumbing work, you will notice a significant rise in activity, indicated by more vehicles in the parking lot and more people on-site. So, these rough estimates show how we expect the spending to escalate moving forward.

We are aware that the commitments we made significantly exceed the actual money spent. For example, when we commit to someone making a light fixture, furniture, or steel, a foundry is producing the steel according to our specifications. We need to purchase that steel, but payment only occurs once it is delivered to the site and accepted by us. Therefore, the commitments reflect our construction progress, which we will assess at the end of March, as indicated.

We know the commitments we've made are quite a bit ahead of the money that's actually been spent. And so you commit for somebody to make a light fixture, or furniture, or steel, right? And so some foundry somewhere is making steel to our specifications. We have to buy that, but we don't actually pay for it until it's delivered to the property and accepted by us. And so the commitments are what, if we look at the construction progress, we have that at the end of March, as shown.

We've spent out-the-door $45.

Yeah. But I'll bet our actual commitments that we would be obligated to pay for if we stopped construction, for example, is probably at least $45 million.

Yeah. But I think we're well into it at this point. In fact, we're pretty close to the point where we will be able to have the total GMP from our contracted principals. And so most of the risk is behind us at this point.

If it helps, Chad, we've spent around $7 million so far out of the $100 million budget. That significant fee due to the Gaming Commission will be paid after we open our doors. But what was that number, Alex? $32 million?

Shortly after it opens I think $32 million.

The slot machines are $20.

We don't pay for those until they're delivered.

Yeah. And so here in the second quarter, you could have a sizable number. So far it's just a lot of deposits, but you could have a number that's in the ballpark of $30 million here this quarter and then the balance in 3Q should prep for an October opening.

And, Lewis, sorry if I missed this, what was the reason why the opening day got pushed back? Was that just more certainty in giving the licensing and the permits and everything? Just going to be a hair later than I think what you said.

Yes, I may have been a bit too optimistic. I thought we could quickly set up the tent, so we even paid a bit extra to expedite the process while the tent needed a foundation. We approached the town to build a quick ring foundation for the tent, intending to design the parking lots and other details afterward. However, they insisted on a comprehensive review and needed to hire outside consultants first, following their own RFP process. Once those consultants were engaged, we had to get them up to speed. In the meantime, we designed the parking lots, but their consultant suggested moving the handicap parking to a different location to avoid traffic issues for wheelchair users. We clarified that this wasn't a requirement according to the ADA Code and referenced the successful design of the Red Rock Casino. After some back and forth, we finally reached an agreement and obtained the building permit on Friday. The town and the Gaming Commission have been cooperative throughout. In hindsight, we might have been too optimistic about our timeline. The Gaming Commission even pointed out that it was more crucial to do things correctly rather than quickly. That message was quite clear to us, prompting us to take a more thoughtful approach to the design process to meet their approval. Ultimately, we took seven weeks longer than initially planned to secure the permit. This delay was likely due to our initial overestimation of the timeline, but it led us to a more careful approach, which turned out to be wise. Consequently, we will open in the fall instead of the summer. In the broader context of a 30-year business plan, it’s more important to get it right than to rush the opening.

Yeah, agree. And then separately and I think we've heard from all of the operators a lot of your competitors and other companies and other markets. It sounds like the reinvestment rates for players hasn't really changed and everyone continues to be rational. I guess the big market for you guys, Mississippi, you called out some of the things that caused a little bit of a decline, but within that region is Biloxi and Bay St. Louis being rational at this point, and then the properties across the Louisiana line as well. Thanks.

Recognize, we compete more probably with Harrah's in downtown New Orleans and the Fair Grounds than we do with Biloxi. Biloxi is pretty way east of us. And even the casinos in Baton Rouge are probably more important competitors than Biloxi. Bay St. Louis and Gulfport are important. And yes, they are being rational. We deal with this little bit like, should we stop offering crab? Should we put quantity limits on the crab? But two-thirds of the buffet is cooked, and so we've just bitten the bullet buying crab and hopefully it's only for these prices for a limited period of time because it's important to our customers. So maybe that's being a little irrational, but putting it into perspective, our buffet is now $50 on a weekend in the evening. The average person per buffet eats two pounds of crab. At $17 a pound, that's $34 with the crab, before you get to steaks or any other cost of food, let alone the payroll. So if somebody really does eat two pounds of crab, and on average they do, we are upside down on the buffet. And I could raise the price even more, but two-thirds are comped anyway, so it doesn't matter. So I could take crab off the buffet, and our current earnings be better, but that's what we're known for. And so it's like we'll sustain the pain for a little while longer, and hopefully guys are going catch a lot of crab. It's crab season right now, so hopefully this will come back to normal.

Okay. Perfect. Thanks guys, and congrats on the circuit partnership.

Thanks.

Thanks, Chad.

The next question is from Edward Engel with ROTH Capital. Please go ahead.

Hi. Thank you for taking my question. I'm just wondering, Golden Nugget acquired Wildwood in Cripple Creek; I was wondering if you've heard any plans that they have for that property?

I haven't. I actually viewed that positively. Wildwood was a screwed up property. They buried the parking garage underneath it, which is an odd decision because land in Cripple Creek is not that expensive. And there are three ways to park a car: you can do the surface parking, which is really most of our parking, even at Chamonix will be surface parking, but we do have a garage coming in. And surface parking is like $2,000 or $3,000 a space. You can build a garage and that's about $30,000 a space. You can bury the garage. Cosmo was built in Las Vegas with a buried garage; a lot it's a buried garage. And you're digging a big hole in the ground and putting a garage in that hole, and then putting the hotel on top of it. That's really expensive, not only digging the hole, but then you have to all sorts of special ventilation. And even with the special ventilation and sprinklers, and all that stuff, it's still not a very pleasant garage. Every time I might go down to Cosmo, I hate that garage. And why they would do that in Cripple Creek? I have no idea. So they've got a five-story deep parking garage, and the lowest floor floods all the time because it's underneath the water table. And then they built a pretty simple casino on top of it, I think there's been $80 million. It went bust really fast. And then one of the key guys became a debtor in positions that are running it, and they got maneuver it, and it got sold to a group out of Scottsdale who owned it. So it's run by this guy owned by a partnership. And I think he saw what we were saying about how the town needs more hotel rooms. So he persuaded the surrounding area to build this little hotel with 100 rooms. It's a stick-built motel; it's like a Fairfield Inn. It passed. And it's actually across the street from his casino. But we've heard that it doubled their income from like $5 million to $10 million a year.

That's what we heard, yeah.

That's great. It proves our point, and we’re looking forward to our high-end 300-room hotel. Their small motel opened a year ago, and their income increased significantly after Tillman purchased it. Tillman is a capable casino operator, and I know this from my experience working for Steve and Mike Milton at Drexel Burnham. The biggest personality I've encountered is Tillman Fertitta, but he excels at managing this type of business. We will pass this along to him, and he's likely to take pride in it. However, he's situated on the outskirts of town, which is not where most people want to be. It's similar to the M Resort; technically in Las Vegas but not in a prime location. I believe investing a little in that property will improve it and enhance the local experience. We might not have made that move ourselves, but I bet Tillman will. When I heard that, I thought it was a positive development. I’ve met Tillman a few times; he’s a nice person with a big ego, but he's earned it. Overall, it's all good.

Thanks, Dan. And Dan, technically we're out of time, but if you can keep it short, we've got one last question.

The next question is from David Levine with MidOcean. Please go ahead.

Hey guys, how's it going? I appreciate the time. A couple if I could squeeze them in. First one just on The Temporary. Anything left that we should know about? That's major in terms of approvals. I noticed in the press release, it just said subject to customary regulatory approvals. Wasn't entirely sure what that related to. I know that a lot of these are not a big deal, but just wanted to confirm. And then it has your outlook change at all in terms of what you've called out in terms of what that The Temporary can do from an EBITDA perspective or you still feel pretty good about that? Thanks.

I feel very positive about this deal. It turned out to be better than I initially expected. I've been to Waukegan a few times, and while it's a smaller town, I realized that Lake County, where Waukegan is located, has a population of around 700,000, compared to Waukegan's 80,000. Lake County is one of the wealthier counties in the country, and there are affluent neighborhoods nearby. I even visited a restaurant this weekend that combines Chinese and Mexican cuisine, which works well given the diverse local population. We've trademarked the name Senora Wong for our upcoming restaurant that will feature both Asian and Mexican dishes. Additionally, our business requires approval from the Gaming Commission at every stage, which is suitable for maintaining oversight. Although it took some time for Illinois to award us the license, they have been cooperative since then, and the agent assigned to us has been reasonable and helpful in obtaining approvals. We are also navigating the challenges of a union construction environment, and we have had to ensure that contracts are awarded to union shops. The major hurdle for us was starting the project, but we have now signed a Memorandum of Understanding (MOU) with the city regarding the lease, which is still being finalized. The lease negotiations are proceeding smoothly, and it's a positive sign that we have begun construction on city-owned land in accordance with the MOU before finalizing the lease. Regarding the construction timeline, there is a possibility it might extend into November, but it could also be completed by September, although that seems unlikely. We anticipate that the worst-case scenario would be a completion by December.

Regarding the usual approval process, it's really not a major concern.

No.

Yes. To clarify, David, Illinois is one of the states where you receive your gaming license right before opening. You will see that language until we open, so there’s no need to be concerned. This situation will persist for another quarter or two.

You'll see that same language when we refer to Colorado. I think you'll see that same language. Any casino company building any casino anywhere is subject to gaming approvals.

And if I could just squeeze one in on Colorado. Obviously, you're still a year out, so there's a lot to do. But anything major that we should be looking for in terms of major milestones that could cause issues, or you'll feel a lot more comfortable once it's complete? I know I've probably asked this question over the course of the last couple of months, but I'm just curious your thoughts on that, like anything major? The timeline where you feel like the major hurdles are coming.

We're about to open new table games in a different area of Bronco Billy's, which allows us to refurbish the old table games pit. We have many plans like this for the coming year. Moving things around within Bronco Billy's may cause some confusion, but it's necessary. There is a significant milestone we're approaching, and as I mentioned at GMP, we have a contract from HP. At this stage, our progress has been remarkable. Recently, Helenka, our head designer, and I realized that one of the cages in Bronco Billy's was incorrectly placed, along with the bathrooms, which we have swapped. This oversight needed correction, but we are trying to avoid making changes at this point to allow our construction team to complete their work efficiently. I am intentionally staying out of decisions to minimize costly change orders, especially since we’re further along in the process compared to Chamonix, where we are trying to avoid any changes entirely.

One last time.

Just let the construction guys build it. They are building it now. And literally, I said to our head of construction, I said the other day, I said, 'If you need me to jump on anybody because they're not being timely, let me know. But otherwise, just build what we told you to build.' Let them do it.

What's your last question there, David?

Yes, thank you. I want to clarify the details regarding the sports wagering. With the new Circa deal, it is set to begin once The Temporary opens. The projected revenue is $9 million from sports wagering, with the potential for more if we secure additional partners in Indiana and Colorado for those two skins, as well as potential growth from Circa. Essentially, you can consider it a minimum of $9 million with opportunities for additional earnings. Is this the correct understanding of the sports wagering aspect?

There's a gap. We lose Churchill May 15th.

Well, if the $9 million doesn't have Churchill in it, yes.

Run rate. I'm just saying run rate. Yeah.

Yeah, we're currently seven. We're going to lose three, and we pick up five.

Yes.

Well, the $9 million is the way to think about it, like the base case kind of run rate with potential. You are getting those other ones back.

And we will get something for the other skins. We just don't have it under contract yet.

And just a modest correction to what you said there, David. Technically we share in the revenue with all the skins. So it's not just potential for additional upside with Circa, it's potential upside with all of them. But you are right, it's $9 million with more to come, hopefully.

Yeah.

Alright, guys. Thanks a lot.

You got it. Thanks, David.

This concludes our question-and-answer session, and I'll turn the conference back over to Dan Lee for any closing remarks.

I wish the market conditions were better because I believe we have a strong situation here, but we experienced a downturn like everyone else. Hopefully, we'll recover from it eventually. Thank you all for listening on a challenging day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.