Full House Resorts Inc (FLL) 2021 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Full House Resorts Fourth Quarter Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Lewis Fanger, Chief Financial Officer of Full House Resorts. You may begin.

Thank you, and good afternoon, everyone. Welcome to our fourth quarter earnings call. As 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 of federal security laws. I would also like to remind you that the company's actual results could differ materially from the anticipated results in these forward-looking statements. Please see today's press release under the caption forward-looking statements for the discussion of risks that may affect our results.

Also, we may make reference to non-GAAP measures, such as adjusted EBITDA. For a reconciliation of these measures, please see our website as well as the various press releases that we issue. And lastly, we're broadcasting this conference call at fullhouseresorts.com, where you can find today's earnings release as well as all of our SEC filings.

With all of that said, it was a strong fourth quarter. We did preannounce our results, so I don't think earnings will be a surprise to anyone. Our actual results were within the range that we gave about 1.5 months ago. I'll walk through those results in just a second, and then Dan will walk through our broader strategy with his thoughts on Chamonix and Waukegan, including, by the way, our plans for a temporary casino that will open in Waukegan this year, this upcoming summer.

Now let's start first with the fourth quarter. It was a great fourth quarter with revenues up 13.1% from the fourth quarter of 2020. Adjusted EBITDA isn't a clean comparison between quarters. The fourth quarter of 2021 had $1.7 million of additional expenses related to corporate initiatives that weren't present in 2020 and that we don't expect to recur in 2022, and so adjusted EBITDA could have been even higher for the 2021 period.

And then last year's -- sorry, the 2020 fourth quarter also had the benefit of a $2.1 million free play sale in Indiana. We sell that free play every year, but during the 2021 period, it didn't occur until the fourth quarter -- hold on. We sell that free play every year, but during 2021, it did not occur in the fourth quarter. It occurred in the third quarter of 2021. And so that led to some timing differences on the income statement. If you're looking only at the fourth quarter, you'll notice that, but if you're looking at the full year period, it's obviously not an issue.

For the full year, adjusted EBITDA is hovering right around $50 million. The actual EBITDA figure was $47.2 million. Keep in mind, it doesn't include that corporate initiative that I mentioned for the full year, that corporate initiative was about $2.1 million, and so if you add that back, it gets you above $49 million. And then keep in mind that our sports skins weren't up and running for the full 2021 period, and so that would take you over the top for the $50 million mark.

Looking specifically at the properties in Mississippi, the Silver Slipper continued with its recent strength. It had its best year in its 15-plus-year history. Revenues there rose 45% for the year to about $91 million. Adjusted segment EBITDA in 2021 more than doubled from what it did in 2020, increasing to nearly $30 million. That's a very strong performance out of the Silver Slipper, which has been led since its opening day by our new COO, John Ferrucci.

One other thing that happened during the quarter was the overwhelming defeat of a ballot initiative to allow a casino to move from Bossier City in the northwestern part of Louisiana to Slidell, a city near Lake Pontchartrain on the other side of the state and about 30 or 40 minutes from the Silver Slipper. For those of you that don't know, there is a cap on the number of licenses in Louisiana, and this license was the only idle license in the state as its owners closed their Bossier City Casino due to the COVID shutdown and they never reopened it.

Casino sites in Louisiana require local voter approval. And so this past December, it appeared on the ballot in St. Tammany Parish voter turnout for that off-cycle ballot initiative was strong. And just like they did some 20 years ago, voters overwhelmingly said no to a casino in St. Tammany Parish, defeating the proposal by nearly 26 percentage points. Because of that, we don't think we need to worry about that competitive threat again for a long, long time.

For the year, in Indiana, revenues were up more than 40%. Adjusted segment EBITDA in 2021 was more than 3.5x what was earned in 2020. That was a great performance out of the Rising Star, which has continued to improve in part due to the continued ramp-up of our Konami slot system and the efforts of our team there to manage costs.

In Colorado, construction is full swing on Chamonix. It really is an impressive site to behold. It's extremely large in footprint and is really starting to come up out of the ground now. If you get really board pull up the website there, chamonixco.com, and you can see 2 different cameras, but it's looking quite impressive. Unfortunately, that construction has left us with no on-site hotel rooms and no parking. And so we're at a disadvantage versus a year ago. We've also lost portions of the existing Bronco Billy's Casino to construction. Despite that, we still have managed to have one of our best years in recent memory there with revenues of $23.7 million and adjusted segment EBITDA of $5.5 million. There will continue to be some short-term disruptions until construction of Chamonix is completed in the second quarter of 2023. However, we're more confident than ever in our bright outlook for Colorado when Chamonix opens.

All the major metrics that we look at suggest Chamonix should be a home run, the casino that Monarch built and Black Hawk is doing quite well. Our estimates peg that new Monarch Casino are doing about $100 million per year in EBITDA. Gaming spend per capita out of Colorado is still extremely low. And a lot of you, I think, know, but the April 2021 removal of betting maximums really did help gaming revenue in the state, especially in Black Hawk, where there is actually quality gaming product unlike in Cripple Creek. But over in Black Hawk, gaming revenues have been up strongly up in the mid-40% range. And I think Dan is going to speak to more of all of that in a second.

In Nevada, that segment showed great strength during the year. It really was the segment that was most affected by COVID because capacity constraints at the ski areas and a lack of destination travel affected Grand Lodge and then a lack of visitation to the naval air station near Stockman's affected them as well all in the 2020 period. That all changed as restrictions eased in 2021. Revenues for the year were up 58%. Adjusted EBITDA was up more than 10x. Right now in Northern Nevada, we're in the process of installing the Konami slot system. That system is what has helped us tremendously improve our marketing analytics at Rising Star and at Bronco Billy's. We did just complete the installation of Konami a few weeks ago at Stockman's, and we've got Grand Lodge scheduled for their own install at the end of April. Once Grand Lodge is done, our whole company will be on that same slot marketing system.

And then our last segment is our Contracted Sports Wagering segment. On December 1, 2021, our sixth skin went live that compares to 3 skins that were in operation during the fourth quarter of 2020. We will get one skin back in Indiana and one skin back in Colorado beginning on May 15 of this year. That's because the operator of those 2 skins recently announced that they were exiting the online sports and iGaming business entirely. We've already begun negotiations with other companies regarding those skins. More importantly, we'll also have one more skin in Illinois due to us winning the Waukegan gaming license. There really hasn't been a shortage of interest for that skin. We've gotten a ton of phone calls about it that should be expected largely because there are a limited number of casinos in Illinois. Each casino only gets one skin and Illinois is the sixth most populous state in the country, and so that's created a decent amount of interest from others in that available sports skin.

Regarding the balance sheet about a month ago, we funded construction of our temporary Waukegan Casino named the Temporary. We did that by attacking on $100 million to our existing senior secured notes, and so that gives us a total of $410 million of those notes outstanding as of today. We issued those notes above par at 102%, and so the implied yield to worst for those was about 7.7% on issue date. We also used to have $5.6 million of CARES Act loans that we took out during the height of the pandemic when all of our properties were closed. Those loans were fully forgiven during the fourth quarter per their loan terms.

And so from a liquidity point of view, feel like I said this a year ago at this time, by the way, we have more cash than we've ever had in my history at this company. Here, in real time, we have roughly $340 million of cash, with $216 million of it reserved for the build-out of Chamonix. We also have a $40 million undrawn revolving credit facility, which has a floating rate below 4% currently, and so our total current liquidity is about $380 million. We'll spend some of that cash as we build Chamonix and the Temporary. Keep in mind, though, that our existing business already more than covers interest expense and that's before any financial contributions from the Temporary, which should be opened at about half a year and Chamonix, which will open up in the second quarter of 2023. I talked a lot.

With that said, Dan, do you want to chat about some strategy?

Yes. Let me address kind of a 5-year strategy for the company as we see it these days. As Lewis mentioned, EBDIT of our existing business is about $50 million. The $410 million of debt and all of our debt at this point is the one big bond issue. That's at 8%. So it's about $33 million a year of interest expense. Our maintenance CapEx at our existing properties are pretty small, about $5 million a year. We have NOLs that will still continue to shelter taxes for a while. And then we're going to have accelerated depreciation on the new stuff we're building. So in a 5-year time frame, we don't expect to be paying any income taxes.

Now as Lewis mentioned, $340 million in cash only takes about $10 million to run existing operations. So -- and then we have a $40 million undrawn revolver. It takes about $215 million from this point to complete Chamonix. We've spent a fair amount already and recognize like as we're talking, there is a foundry, somewhere pouring steel beams to our specifications. We don't have to pay for them until they arrive at the property. So more has been committed than would appear for a $250 million project, but there's $215 million to go to complete it. The Temporary -- let me stick to Chamonix for a moment. This is a 4 star hotel, 4 star casino, the first of its kind in Cripple Creek.

Colorado as a whole is an underserved market. I mean Denver is 4 million people. Colorado's brings us 1 million people. That's most of the population of Colorado. And the gambling per capita is significantly below that of other markets on the U.S. average and significantly below any place of these casinos. Part of the reason for that is for years, they had a $5 betting limit. So even though they've had casino gaming for 25 years, for over half that time, you really couldn't justify building a nice place because the betting limits were so low. Then they were increased to $100 and some places were built pretty successfully in Black Hawk. And then in last April, betting limits went away completely, which allows the investment to build a better product, which will result in higher gambling per capita, and that's part of why it's such a good market. Complicated to get into because it's only legal in a handful of places and assembling the land or a site either of them is a little complicated. But we did so, it took us a couple of years.

And Chamonix, when it opens, we'll have 300 guestrooms. Now let me compare this with the Monarch Casino, which opened in the fourth quarter of 2020. So it's been open a little more than a year now. They have 500 rooms. Both Chamonix and Monarch have parking garages, theirs is bigger than ours, but we also have pretty significant surface parking lots, which they don't have. We have far more conventional meeting space -- convention meeting room space than they have. We can actually see the 1,000 people for a show in our ballroom. They don't have anything close to that.

The casinos are very similar in size. They both have about 900 slot machines, 20 table games. We have less competition. We'll be the only 4 star hotel, frankly, the only casino hotel of this size in Cripple Creek. They have competition from Ameristar and Jacobs Place and the Isle of Capri and a few others. Of course, they're close to Denver, which is the bigger city, we're close to Colorado Springs. Those 2 cities are 1 hour apart. So somebody from Denver is 1 hour from Black Hawk and 2 hours from us. And any from Colorado Springs is 2 hours from Black Hawk and 1 hour from us. So our most important market will always be Colorado Springs, but our strong secondary market will be Denver because people will sometimes travel further to check out a different place.

Anyway, if you look at Monarch, they're a public company. They only have 2 casinos, 1 in Reno and the 1 in Black Hawk. And they played hide the whinny a little bit. They don't break it out. But you can go back and look historically at what they earned in Reno, and it's been pretty consistently $30 million to $40 million a year for many, many years. And then they acquired the Riviera in Black Hawk, which made about $15 million. Those numbers were broken out by Riviera, which is a public company. And then -- but if you take Monarch's results for 2021, their operating income plus their depreciation is about $135 million, $137 million, I think it was.

And so their EBDIT is about $137 million. And probably $37 million of that is from Reno and $100 million, roughly, is from Black Hawk. And so we're 3/5 their size in number of guestrooms, similar in size in terms of casino capacity, much greater convention space and everything else, not unreasonable to expect us to make $50 million a year once we're open and mature. So -- and that will be opened in the second quarter of 2023. And like Lewis mentioned, you can see the details on the website.

Now let's talk about Waukegan for a moment. We were chosen through a competitive process to develop this in December. And our whole proposal is a $500 million project. About $100 million of that is for the Temporary. And the Temporary is going to go on the same 40 acres that the permanent goes on, but at the opposite end of it. So it will use the same parking lots, and people be accustomed to going to that location to go to a casino. And to get open quickly, we have purchased a sprung structure, which is a company makes these, you'll see them around the country. Tesla, for example, has an assembly line inside one at the moment. And it's an aluminum structure and then you stretch Kevlar over it puts insulation on the inside.

And so ours, which is like a little more than $4 million, then it costs $1 million to put it up. Ours covers and encloses 1.5 football fields. So it's a very large sprung structure. And in that 1.5 football fields, there'll be a casino with 1,000 slot machines, 50 table games, 2 large restaurants. We've also bought a diner which will be attached to it. So we have a third restaurant. It's hard to have a high-end restaurant in a tent with a 47-foot ceiling like our sprung structure has. So we decided to buy a diner. They come like a double-wide trailer and you hook them up. And it'll be a diner like the Fog City diner in San Francisco, which is actually a very high-end restaurant that happens to be an old diner. And so it doesn't mean you can't have a good menu and a diner.

So we will have a full-on casino, 3 restaurants, big surface parking lots. And we'll be in at about $100 million. Now a lot of that $100 million is really money that's being spent towards the permanent. So for example, about 1/3 of it is a gaming tax that we have to pay upfront when we open. $25 million is slot machines that will end up in the permanent as well. The preopening costs, well, a good chunk of that or the bulk of it is hiring and training employees. Well, when we open the permanent, the employees from the temporary will shift over. And so even the preopening cost is a good chunk of that, is actually applied to the permanent.

So we're spending $100 million now, and we'll have to spend $400 million to get the permanent open. But there's 3 years in between. We will operate this temporary for the better part of 3 years. And let's assume, just hold this number for a second, let's assume it makes $50 million a year. So it will generate $150 million during the construction period of the permanent. Bear in mind, we already have our interest expense covered by existing casinos. So if you take $400 million as the additional expenditure that we have to put out to get to the permanent but we're going to generate $50 million a year for 3 years, then we need two $50 million incremental cash to get to the permanent. Now what do we expect the permanent and temporary to make?

Well, the closest casino to us is the Rivers Casino, which is about 32 or 33 miles away. And they're doing about $500 million in gaming revenues in a place that was limited to 1,200 slot machines. They're expanding it now. That's again with typical margins you have in regional gaming, that's probably $200 million a year in EBDIT. We don't expect to make that much. They're in a more densely populated area, and it'd be great if we could do $200 million, but we don't expect that.

Now we're in the town of Waukegan, which is about 80,000, it's kind of an old rust-belt town, pleasant town, but typical of a lot of towns in the Midwest. But it is the county seat of Lake County. Lake County, Illinois, is 700,000 people, and it's the 27th wealthiest county in America, and we will have the only casino there. Now if I just take the population of Lake County and assume they gamble $300 per person, that would be $200 million in revenue. And on that, we would have EBDIT of close to $100 million in the regional gaming type margin. That's ignoring the other 11 million people who live within 90 minutes of our site.

So it's not unreasonable to think that the permanent could do $100 million of EBDIT. And the question is how many of those people will come to a facility that is not as splashy as permanent and the Temporary will not be. It's after all in a sprung structure. Now we are spending some money to do some interesting things to it so that it will give you a good experience, and it will be an interesting place and so on. So that's where I get back to my $50 million and maybe we do half of what the permanent can do. So maybe the Temporary does $50 million and the permanent does $100 million. And those are all just guesses.

But it leads to kind of the following analysis. Let's look at the time line. We open the Temporary casino in the third quarter of 2022, and we're scrambling. But that big tent arrives in a couple of weeks. We're trying to get the permit pulled so we can put in a ring foundation so we can throw up the tent when it arrives. It arrives at I think, 28 trucks, like big trucks, I mean it's a big deal. We've already got the slot chairs and roof. We're picking out the slot machines. All the things, we have a job fair in about a week. So we're starting to identify people to hire and department heads and so on. So a lot of work to do, but we do expect to open in the third quarter of 2022.

Then in the second quarter of 2023, we expect to open Chamonix. We will start construction on the permanent place in Waukegan in late 2022. Now the construction through 2023 will be funded from internal cash flow. I mean the early stages of construction aren't big dollar months. The amount you spend per month goes up kind of exponentially. So for the first 1.5 years, really, the construction on the permanent can be pretty easily funded from the profits of the temporary. Then in February of 2024, our bonds become callable. And at that time, our EBDIT should be in the ballpark of $150 million, $50 million on today's casinos, $50 million from Chamonix and $50 million from the Temporary. It won't be exactly that, but portfolio theory suggests some will do better than we expect. Some will do worse, and maybe we end up in that ballpark. $150 million versus our existing debt of $410 million is kind of under-levered compared to most casino companies. But we should be able to replace that $410 million debt with, call it, $650 million of debt.

You issue new bonds or maybe it's bonds in a bank agreement. We'll see what the market conditions are at the time. But $650 on $150 million of EBDIT is acceptable leverage, especially since the incremental $250 million is used to build the permanent. And so that's how we get the remaining money to build the permanent and then the permanent would open in 2025, about 3.5 years from now is where we think it will shake out.

So at that point, actually, yes, 3 years, 3.5 years now, so you start adding it together, at that point, you've got $50 million, from today, $50 million from Chamonix and now $100 million from the permanent. So the company has got about maybe $200 million of EBDIT, I don't know whether we we'd want to sell it at that point or continue to run it, other things come along that might be good. But let's assume it was worth 10x EBDIT at that point. And if you look at what the Mirage is getting sold for or Peninsula is getting sold for or even the price at which a Bellagio is either going to go private or get sold for, 10x is pretty reasonable these days, especially since we haven't done the opco/propco thing. We own all of our real estate or we lease it with an option to buy it. And so we'd get a pretty good multiple if we did try to sell the company.

Well, at $200 million at 10x, that's $2 billion, subtract the debt that we would anticipate to have when the permanent opens of $650 million that's $1.350 billion. We have 37 million shares outstanding. And that's something north of $30 a share, which is a quadruple of our stock price from where it is today, even though we had the best-performing stock in the industry last year. And we think we still have a very bright future ahead of us. So we've got to work every day thinking don't screw this up. And whether we do anything else or not is irrelevant, we don't want to screw this up. We just want to execute on what we have.

And I guess that's it. Lewis, did I miss anything?

No, you are good, Dan. Do you want to take some questions?

Yes, that would be great.

(Operator Instructions) We'll take our first question from Ryan Sigdahl with Craig-Hallum Capital Group.

Dan, Lewis, congrats on all of the recent success in awards and licenses and everything else. I appreciate the comments as well. Maybe switching back to the base business, since you answered most of my questions on the Temporary and Chamonix and everything else. But can you comment on the core business, the casinos you have today, performance in December versus January versus February and the impact Omicron potentially had there?

Well, our business has stayed strong. I mean with Omicron we had issues like a lot of businesses with a lot of employees getting Omicron and we had descrambled to fill in, but I think that's mostly past us. Our business has stayed pretty steady. The biggest operating struggle we have is really in Colorado, where we've got no surface parking. And we've managed to kind of continue to make some money despite that, but it's pretty torn up. And of course, it's kind of weird to be sitting here talking about putting slot machines in Waukegan and stuff when there's a war going on in Europe. Obviously, the war has no direct impact on us. Price of gasoline going up and there's a distraction and so on. But at least historically, when the price of gas went up, it was good for regional gaming.

When you get on an airplane and fly to Las Vegas, you're actually burning more oil sitting in that airplane than you are getting in your car and driving to a regional casino. So the price of gas goes up, the relative cost of coming to us versus other vacations is cheaper. We don't want to go up as much. So not that I want the price of gas to go up, but when it does, I don't think it affects us very much. And in fact, it might even be a ironic positive. I guess I'd rather the price of gas not go up because I pack gas too and all the things in the economy and the reasons it's going up. But business-wise, I don't think it's a negative for us. And Omicron, I think, is kind of behind us. And hopefully, the pandemic is somewhat behind us. I mean people aren't wearing masks anymore.

I view it as anybody who hasn't gotten vaccinated, it's now at this point, almost like somebody who's a heavy smoker, they are taking a personal health risk. And similar to, I don't want to be on an airplane with people smoking. Well, it's not allowed to smoke because of secondhand smoke and so on. But so it's kind of similar. It's going to become part of just our normal lives, and we'll just deal with it. And I think things are pretty normal and pretty normal is pretty much same results as last year.

Good. Dan, you mentioned the surface parking issue in Colorado, construction all around. Have you noticed an improvement since you added the valete park and the shuttle services there? Or is it just kind of this is the run rate given all the construction around?

We put that in just as we were closing off our surface parking for the construction. So it's kind of an offset. And I think if we hadn't done it, we'd be really struggling, and it does cost us some money to do that. We've held their own, but I'll tell you what the difference is when you look at Colorado as a whole, since loss limits went away, market's up like 40% and Black Hawk is the biggest piece of that. But even Cripple Creek is up pretty strongly. We're not.

And so we had one competitor at a 100-room hotel, and we understand they're doing very well with that. It's kind of a Fairfield in-type of hotel. It's pretty simple hotel. But the market was starting for rooms. So they added 100 acceptable rooms, and I think they're doing well with that. And even those when we back out what we think they're doing and look at us, it's like we think everybody in Cripple Creek is up except us. And the only reason we're not up is, we don't have parking, otherwise, we'd be up nicely. So -- but that's just -- that's something we'll deal with for another year.

And when Chamonix is open -- now recognize Bronco Billy's, we're talking about Bronco Billy's, but even Bronco Billy's has no parking. It's got construction all over it. Part of its casino was closed because it's related to the construction and it's hanging in there. So I joke with the general manager, it's almost like the guy at Money Patheon when they cut his arm off and he's bleeding and he says, "Hey, I'm still here, cut his other arm off. Are you still there?" That's Bronco Billy's today. They're making money despite all the stuff around them so.

Good stuff, Dan. One last one for me, and then I'll turn it over to the others. Just I think you mentioned it a bit, but can you talk through the time line on Waukegan, Temporary up this summer, but it sounds like you're going to run that for 3 years with the permanent out to 2025. I guess when are you planning to really break ground on the permanent and then accelerate? Does the bond being callable in February 2024 have to do with that? Or is it just kind of nature of time line?

No, it doesn't. The call date of the bonds are kind of irrelevant except that, that was when we were trying to figure out how to finance that made a logical way to finance the cost of the Temporary was to do an add-on to the bond deal, which is really kind of 2-year money because it's callable in 2 years. We're moving as quickly as we can. We don't control everything. So for example, we have to get certain permits from the city and there are certain meetings set up in the next few weeks to allow that to happen. Certain things have to be approved by the Gaming Commission. And they've been working very well with us so far. And we need their permission in just about everything we do and assuming that everything continues to go smoothly, we could be open in the summer.

We actually have a time line that has us open for 4th of July, but everything has to happen just perfectly for that. And that never happens. So don't expect the 4th of July. I think if we're open by Labor Day, it's a hell of a -- successfully quick. Remember, we were just chosen in December. But that's what we're doing. We're moving as quickly as possible. In fact, it's kind of exciting. I remember I think somebody asked me what color did I want the slot chairs? And I said, whatever is in stock. I just said whatever is in stock. And we've rented offices now. We've got -- we bought an extra piece of land that was pretty important and that hasn't closed yet, but we have it under contract, so it will close.

We're moving so fast, and it's actually kind of fun. You don't have the time. Like, in the more permanent casinos, you really stop and think about things. This is going to run for 3 years. Now the state law allows you to operate a temporary casino for 2 years. And then if you're under construction on the permanent, the Gaming Commission can give you a third year. And our permanent casino is pretty intricate. It's pretty complicated building. I don't think it's possible to get it done in 2 years.

So I think we will probably seek some of that permission. Otherwise, we'd have to figure out some way to partially open the permanent because it's not a simple building to build. So I think it will take the better part of 3 years. But recognize there is an outside time line because to go longer than 3 years than the temporary, you'd have to change the state law, which isn't going to happen. So you have to have the permanent open within 3 years of opening the temporary. You really don't want a gap, that would be cataclysmic, right? And because you're going to move the employees over, you're going to move the customers over and so on.

So if we open in July or August of this year, we will make sure that we have the permanent open in July or August 3 years out. And that happens to dovetail pretty well with the call date on the bonds. That's coincidence.

Thanks, Dan.

Even though it's going to be a temporary, we are working on some things to give it a little more splash. I won't ruin the surprise yet, but it will still be a very, very special temporary, too.

We'll take our next question from Chad Beynon with Macquarie.

Dan, Lewis, you laid out the vision for the next 5 years. And I think a lot of the questions that we're going to get from investors going forward will be around Waukegan and Chamonix. Wondering kind of how you're thinking about the current portfolio? There's certainly bids out there for assets. You have a few that have put up some good results. Is there a scenario where you would look to potentially divest at the right price to help maybe some of these future funding needs, given that a lot of the future and your stock price is going to be determined by the returns at Waukegan and Chamonix?

Well, as we're a public company, I guess anything is always for sale, but we don't have a need for the money. I kind of outlined how we expect to do it. Our existing bonds are 8.25% and we issued them at 102%, serves about 8% money and our -- we can borrow money under our credit facility at 4%. So to sell a property in order to get cash, you're comparing that against borrowing costs of 4% floating and 8% fixed. So it would have to be a pretty good multiple to make that attractive. And frankly, I like the gathering diversity. I mean, today, half of our income comes from the one property at the Silver Slipper in Mississippi, which is a great property, but we're going to be far more diverse in a couple of years. So I guess Waukegan will still be the giant, but it's kind of nice to have some diversity.

In Northern Nevada, we have the 2 small properties but the same management team runs both up, which allows us to afford a better management team than either one could probably afford on its own. And so even there, it's like -- and we get offers all the time for Stockman's because I think a lot of individuals are like, "Hey, that's something I can afford to buy myself." But it makes $1 million a year and by sharing the administrative costs with the casino at the Hyatt, Tahoe, it works. If you sold 1 of those 2, you'd have a management team that's kind of expensive to be carried by the other. So in Bronco Billy's is part of Chamonix. So, I guess, Rising Sun, if you were offered a big price, but frankly, property is doing very well now and a pretty big property, and we're pretty happy with it.

Great.

So I guess the answer is, look, I'm never going to say no. If somebody offers us $100 million for Rising Sun, I will beat them to the bank, that would be great. But I think that the prices we're likely to get for any of our assets, we're better off holding them so.

Okay. And then I wanted to ask, I believe you talked about this during the process of seeking the license in Waukegan. Is it still your view that one of the casino -- the Chicago casino licenses, I believe there's 3 who are bidding for that now that if and when that's finally constructed and operating that, that will have very little impact. I think you've noted that you primarily compete against Rivers and then maybe some of the properties over the state line in -- closer to Milwaukee. But is that still your view that there are new competitions, so to speak, in the state won't really affect you in downtown Chicago?

We've always assumed that there would be a casino in downtown Chicago because that was talked about for years that's been talked about. So if you're building a $500 million place with a long-term view, you naturally assume that's going to happen. We'd also assume that there'd be slots at Arlington Park that was in our original projections. Now that the Chicago Bears are moving there, and there's not going to be slots in Arlington Park and sometimes you get a pleasant surprise. If you look at the geography, anybody going to those downtown casinos would have to drive past Rivers to get to us. And so I think because of that, that you were quite a bit further from downtown Chicago than Rivers is. So I don't think it has much impact on us.

And it will be a little different experience, too. It may be -- if you look at the quality of the competition, that's the other thing that kind of drew us to the market was other than Rivers, all the other casinos in Illinois near Chicago are old riverboats. They're 25 years old. They got low ceilings. The smoke kind of hangs on them, they're multiple deck boats. They don't have to sail anymore, but they had to be on a river. Well, rivers aren't near freeways. And so you have to get off a freeway and drive an often kind of secured as 2 lane roads to get to almost all of the casinos in the state. The only exception is Rivers.

Now you can go -- that's part of why you go over to Indiana. Now Indiana has the Hard Rock Casino, which is right off a freeway, and the Giant Caesars Place in Hammond is pretty close to the freeway. But those are on the far side of Chicago from us. But if you look at Elgin, Joliet at Aurora, they're all old riverboats. And so downtown Chicago, I'm sure, will be a nice place because they're all talking about big expenditures. Ours is going to be a nice place. And between the 2 of us, we'll have the nicest casinos in the Midwest. There are a lot of people there.

Yes, that drive from downtown to us is a little bit of a hike with traffic and everything else. So the nice thing about our location is we're kind of tucked up in that northern suburb really all by ourselves. I won't go over everything that Dan just said, but when you get bored look at that map and look at the nearby casinos, you'll realize pretty quickly, we're the closest casino to 1.2 million people. That is -- that in itself is a tremendous benefit.

Yes. And we will be the closest casino to 1.2 million people both before and after the Chicago casino opens, doesn't affect that math at all.

Okay. And then just one last housekeeping. What's the -- I guess, what percentage of the Chamonix construction bill has been finalized at this point?

It's better than 70%, I believe. It has been subcontracted to the subcontractors. It might be higher than that, but I haven't checked with the construction guy lately. But it's -- and that means it's either work we've already done or it's already been subcontracted to so.

We will take our next question from Edward Engel with ROTH Capital.

Congrats again on Waukegan, and appreciate all the color on this call. Just kind of getting back to that CapEx budget, it looks like you lifted it a couple dozen million on Chamonix versus the last time you kind of checked in. Was that all just things like cost inflation and supply chain issues? Or is there anything incremental that you're kind of doing there?

No, it was -- sadly, it was what you said, supply chain issues, and frankly, unemployment being so low in Colorado, getting people to work on the backside of Pikes Peak at 10,000 feet, we had to pay up or our subcontractors had to pay up. I mean our original budget of $180 million was based on the design we had and the experience of our contractor who is the largest contractor in the state. They're the people who have built the Ameristar and Black Hawk. And we were all kind of shocked when we put things out to bid, how much higher it was. And that I think it's a lot of things that feed into that.

Like some of these tariffs that were put on by the former President on steel from China and places like that, they haven't gone away. And as for whatever reason, the following administration kept the tariffs in place, which allows the U.S. steel companies to charge more than they ever had, and on and on and on. So we were -- we've been fighting for that for quite a while. And in fact, when we made that change in the budget for Cripple Creek, I had Alex, our development guy, go back to our contractor and say, let's rethink what is this thing really going to cost us in Waukegan because we had presented the whole building and everything. And the state came back and said, are you willing to pay us more in taxes upfront.

And our answer was, you know what, we have figured out that this building, this beautiful sexy building, we showed you with all these restaurants and everything isn't going to cost $400 million, it's going to cost $500 million. And that's our increased bid. We will build what we promised you, but it's $500 million, not $400 million. And that increase in that budget was dictated by what we learned in Cripple Creek. So hopefully, we have that sort of issue taken care of in this expanded budget in Waukegan. Time will tell. But we went to the fab side of what we thought we could build it for.

Perfect. Thanks for the color. And then just kind of on the quarter and I guess, the last couple of weeks, have you seen any change in behavior since the mask mandates were lifted in Colorado or Nevada? And would it be fair to say, hopefully, things have kind of picked up above where they were probably for the first quarter and then some of that in the fourth quarter as well?

It's been stable. I haven't seen an increase because of it. I see people smiling, but maybe they were smiling behind their masks, I don't know. But I think everybody is kind of happy to have the mask gone. But I don't -- I haven't seen a lift in our business because of it. I think, frankly, some of our markets we were required -- where they were required to wear masks, they were barely wearing the masks. And so it was -- they were wearing masks, but half the time they were down around their chin.

Terrific. Thanks for the color.

Yes.

No worries at -- no complaints for what it's worth, no complaints about where our business sits today, if that helps you.

Actually, for whatever reason that maybe it was a pleasant surprise, but historically, I found Olympics were bad for our business. People stayed at home and watch television. And so I kind of expected we'd have a soft period during the Winter Olympics, and we didn't. I don't know whether that meant that not as many people were watching or maybe it was kind of like, hey, I don't have to wear a mask. I'm going to go out. I don't want to watch the Olympics. I don't know. Our business has been fine. Nothing unusually up or unusually down.

We'll take our next question from David Levine with MidOcean.

First question, just around the current operating environment with respect to gas and food prices, I thought your color was interesting. Can you kind of talk about some of the moving pieces around kind of keeping the guidance or the base business the same. Do you think perhaps like older customers who haven't gambled because of COVID maybe have more income will come and that will offset some of the potentially weakness from the higher gas and food? Or do you just not expect there to be really much of a drop-off? And then can you kind of speak also to the -- on the margin side, do you think you'll be able to keep up the kind of the robust margins. So kind of like a jumbled question in there, but just a little bit more color around just the inflationary environment would be helpful.

In there, you had a lot of questions. But on the older segment, back when -- before there were vaccines and stuff, we saw a definite falloff of gambling by older people that fortunately was offset by younger people. We've been able to maintain the younger people and the old people came back. That happened really a couple of quarters ago. And at this point, we're kind of back to a normal day spread. We're doing the same revenues with a lot less marketing dollars, which is part of why our margins have improved, and that's a function of putting the Konami system in at the right time. And frankly, paying -- being smarter about our business.

When we went to the pandemic closures, we kind of went to zero-based budgeting and examined everything. And as we reopened, we and frankly, I think a number of the other casino companies looked at it and said, what, $5 blackjack tables don't make money. Let's stop offering it. We don't have to have a 2-for-1 buffet special midweek, et cetera, et cetera and that's helped our margins.

On -- the cost of food is obviously going to affect our cost of food as well, and we will seek to pass that through. So it will again, cost more. Now a lot of our customers are comped anyway, but they will end up burning through their points faster when they get comped. They probably don't perceive that as much. So -- but -- and then on the cost of gas, I mean I just stop and think about our customers come almost predominantly by car, very few. We get a few people fly in for tau, but it's almost everybody is driving. And when you have 2 or 3 people in a car, typically, and you're driving 50 miles, that 50 miles is 2 gallons of gas, and you're dividing it amongst 3 people. And so whether the gas is $3 a gallon or $5 a gallon or $8 a gallon, doesn't really change the cost of that trip very much because you're really not using that much gas.

And now if you're living in Cleveland or Cincinnati and you're thinking of going to Las Vegas, yes, it takes a lot of gas even in a 737 for you to physically move from Cincinnati to Las Vegas. And that's why I think in the past when the price of gas went up or down, it doesn't seem to affect us very much because we're kind of the easy alternative.

Interesting. Okay. That's helpful. And then on the skin point, my sense was that before kind of this announcement, the way to think about the skin revenue, which is almost 100% pass-through was kind of in the $7 million to $9 million range. And correct me if I'm wrong, around that, maybe $8 million to $10 million. Do these additional skins, how do you kind of frame how much more revenue that, that might add to the business?

Well, we had a couple of things. One is, they paid a market access fee upfront. And so Churchill, which was one of our partners in both Indiana and Colorado, announced they're exiting the business, which is disappointing. And when we did the deal with Churchill, they had the opportunity to be the draft kings of this. The online betting had been legal for pari-mutuels for years, and they had a website for years. And they even had an office in Mountain View, California. And then they kind of dropped the ball. They didn't step up the way some of these other guys did. They ended up with a minuscule market share, and they were losing money out. So they're exiting the business, which is -- and so there are other people who are still embracing the business who will step in. Now the market access fee they paid, which was from Churchill, what $3 million, Alex?

No, no. $2 million total down, $1 million each.

$2 million total, right? We've only amortized because you had to amortize that over the life of the contract. So we've only taken a small piece of that into income. And so we will -- it's not refundable. We'll get it back in income. And we'll find replacement players. And there are other players who want to be into it. And there will be another market access fee, and there will be a commitment with somebody else. But then the Illinois license for sports betting, which is new, is significantly more valuable than any of the others. And so we were at guaranteed minimum, Lewis, was $7 million a year?

Yes, $7 million without the market access fee and $7.6 million if you included the annual portion. Yes, that's right.

Yes. The amortization of -- with Churchill leaving, that shrinks some. We've -- there's confidentiality clauses in each of those contracts, so we can't tell you exactly which one each is. But if you said, well, you just lost 2 out of 6 because Churchill is pulling out, that's true, but we hope to replace them. And so there could be a gap because the replacement entity will have to get licensed and so on. So the $7 million a year could shrink a little bit as we find a replacement and get them licensed. But then when you add on Illinois, I'd be surprised if we're not north of $10 million in that segment.

Illinois. Okay. So Illinois plus the replacement, which gets you north of $10 million?

Yes. There's no guarantee that the replacement will be on the same terms as Churchill, might be better, it might be worse. But there are companies out there. And you say you go from $7 million, as of March 15, our guaranteed minimum will be something less than $7 million. If you have set a 1/3 less than $7 million, you'd probably be in the right ballpark. I'd be happy to tell you the number, but I can't because confidentiality clause that Churchill has insisted at. But if it was 1/3, you'd go from $7 million to, what, $4.7 million then you find replacements. You're back to something close to $7 million and then you add Chicago, and you're probably north of $10 million.

And then my last question, just when I think about the Temporary this year, if you talk about August opening something around there, for EBITDA, there for the year. Obviously, you're kind of exiting the high season, so you wouldn't exactly do like 1/3 of $50 million, but would it be something like -- I'm just thinking for EBITDA for the Temporary for this -- for just this year. Would it be like a 1/4x 50? Is that a fair estimate? Or am I think about that the right way?

Even with our Board, we said, assume that our existing business does x and it's so uncertain when we can open. And we said, assume that the first month we're open, we earned 0 because -- the first full month, so let's say you opened July 15, when you first open any casino, whether it's temporary or the permanent, you have much higher costs. You end up hiring additional employees because employees don't really know their jobs yet. And you know some are going to quit and they find out that serving cocktails in the casino isn't what they really want to do in life. And so you have a lot of turnover, a lot of training costs.

So you really don't make a lot of money. Even Bellagio did not make a lot of money in its first month or 2 and then you start getting it under control. So if you open July 15, I assume you wouldn't make any money in July, probably not much in August, maybe nothing, and then September, you start making money. And by the time you get to October, maybe you're making $4 million a month, something like that. So how much ends up in this year will depend very much on exactly when we can get open, it's not completely in our control.

You're not wrong, David, in that you can get some harsher winter weather over there in Chicago. But knock on wood, hopefully, the sheer volume of people that we have right around us will help offset much of that seasonality.

And also, you got to look at loose, you get people who want to see the new place. We're the first new casino to open in Chicago land in 10 years, probably. How long -- I forget how long Rivers have been open, but it's pretty close to 10 years now.

Yes. And they're making $0.5 billion a year in revenue, by the way.

Yes. So I mean, in terms of having an earnings mile, trying to put a number on this year and job I used to do as well, I guess, pick an opening date, your guess is within that third quarter is but as good as mine. So if you say assuming it opens August 1, then they wouldn't make much money in August, they make some money in September and then $4 million a month thereafter and use that number. But we're moving as quickly as we can to get this open and exactly when is -- a lot of things are not in our control.

With that, Dan, we've run out of time. So feel free to close it out.

No, that's it. I mean we're working hard. It's pretty exciting. I think we got a great future and have a great team of people, and everybody's best in shops on this. And everything -- Waukegan is a game changer for us. And it came at the right time. It's the right size. It fits in perfectly. And you can see once you put that together with Chamonix, the 5-year strategy is as good as it gets and now we just need to execute on. So thank you, everybody. Take care.

Thank you, everyone.

Ladies and gentlemen, this concludes today's conference. We appreciate your participation. You may now disconnect.