Golden Entertainment Inc (GDEN) 2006 Q4 法說會逐字稿

Good afternoon. My name is Jody, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lakes Entertainment Year-End 2006 Earnings Conference Call.

All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press star, then the number two on your telephone keypad.

Thank you. I would now like to turn the conference over to Mr. Tim Cope, President and Chief Financial Officer of Lakes Entertainment. Please go ahead, sir.

Hello, everyone. Thank you for joining today's conference call as I discuss Lakes Entertainment's 2006 Fiscal Year-End Financial Results. My name is Tim Cope, and I'm Lake's President and Chief Financial Officer.

Before I begin my formal remarks, I need to remind you that this call may contain forward-looking statements within the meaning of the federal securities law, including statements concerning business strategies and their intended results and similar statements concerning anticipated future events and expectations that are not historical facts.

These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements do not guarantee future performance and, therefore, undue reliance should not be placed upon them.

I'll begin our discussion today with an update on our casino projects, and we'll then discuss our fiscal year-end financial results. As I discuss each of our projects, I'd like to point out that each project is being developed in what we feel are a select few of the remaining best new gaming locations in the country. And as I review each casino project, please remember that they're not in any order of significance or state of completion. Dates of construction and anticipated openings are subject to change.

I'll begin with the Foothill Oaks Casino, which is the development and management project with the Shingle Springs Bank of Miwok Indians near Sacramento, California. Lakes has contracts that have been approved by the National Indian Gaming Commission to develop and manage this casino, which is to be built on the Rancheria of the Shingle Springs Tribe in El Dorado County, California, approximately 30 miles east of Sacramento.

There were three lawsuits filed against this project.

The first was a federal lawsuit brought on by El Dorado County, challenging issues pertaining to the validity of environmental assessment and the validity of the tribe or whether the Rancheria is Indian land, which allows gaming.

The second was a state court case, challenging the validity of the environmental documents prepared for the approval of Highway 50 Interchange by CalTrans under the California Environmental Act.

Both cases were decided in favor of the tribe, and both were appealed by the plantiffs. In September 2006, the Tribe reached a global settlement with the county, which included dismissal of the federal lawsuit. As a result, El Dorado County joined the Tribe and CalTrans in expressing to the trial court that the supplemental environmental assessment, which provided additional air quality evaluation and evaluations of alternative sizes of the casino project, was adequate and complete.

On November 3, the judge made a decision providing the Tribe and CalTrans with a complete victory in the state court case.

The third lawsuit involved a plaintiff in the state court cases, Voices for Rural Living, filing a state suit alleging CalTrans did not utilize proper procedures pertaining to the supplemental EA. This case was immediately dismissed by the trial court, as well.

On December 21, we reported that Voices for Rural Living appealed the two state court decisions concerning the interchange that will connect Highway 50 to the Rancheria.

On February 16 of this year, Voices for Rural Living filed a motion to stay any construction until the appeals were decided.

And as we announced on March 2, the Court of Appeal of the State of California denied the motion to stop the construction from proceeding.

We are now rapidly making preparations to begin construction. The building permit from CalTrans for the interchange is the last approval needed before project financing is obtained and construction begins.

Once completed, the facility will host 2000 slot machines and 100 gaming tables. We anticipate construction to begin within the next three to four months with an opening date in late fall of 2008.

The next project I will discuss is the Four Winds Casino Resort. Lakes has NIGC-approved development and management contracts with the Pokagon Band of Potawatomi Indians to build and manage a 125,000-square-foot casino in New Buffalo Township, Michigan, approximately 75 miles east of Chicago.

Construction began on June 1, 2006, with a completion date currently scheduled for August 2007 for the casino and for the 165-room hotel. We are very pleased with the construction process and encourage you to view the Web cam on our website to see the facility's progress.

Once completed, Four Winds Casino Resort will be the only land-based casino in the Northern Indiana/Western Michigan market. The casino will include 3,000 slot machines and 110 gaming tables, as well as restaurants, a hotel, retail shopping space, and several other amenities.

Now, to the Jamul Indian Village. Lakes has an agreement for the development and financing of a casino resort operation with the Jamul Indian Village. The Jamul Tribe has a six-acre reservation on which the casino is planned to be built. Lakes has also acquired approximately 100 acres of land, contiguous to the six acres of reservation land, that could be used [where] the casino supports facilities if the land is taken into trust.

The process of getting the land into trust has been slow, and therefore, the Jamul Tribe and Lakes announced that the current plans are for the casino to be built on the existing six-acre reservation. Under the current compact with the State of California and based upon requirements and other compacts approved by the State in 2004, the Tribe completed a Tribal Environmental Impact Statement Report that was approved by the Tribe's General Counsel, with a Record of Decision issued by the Tribe on December 16, 2006.

Since that time, the Jamul Tribe has received comments from various state agencies, including a representative from the California Governor's Office. The Tribe and the State have met on several occasions in an attempt to address the State's comments related to compact requirements.

Resolving the State's comments and other issues concerning the existing compact or negotiate a new compact may take longer than is currently acceptable to the Jamul Tribe. Therefore, based on the most recent meeting with the State, Lakes and the Jamul Tribe are evaluating the Tribe's alternatives of pursuing a new compact, complying with certain requirements in an existing compact, or building and operating the casino based solely on Class-2 electronic gaming devices.

Depending on which direction Lakes and the Jamul Tribe decide to take, the size and scope of the gaming facility will change. The agreement between Lakes and the Jamul Tribe will also be modified to reflect the new economics of the revised casino plan, which will not require a compact and will not be subject to approval by the State or the NIGC.

We are currently working on alternative casino designs with architects and engineers to determine what is the best design and construction plan, including when we think construction could begin.

Next, I will discuss the current status of our agreements with the Pawnee Nation in Oklahoma. In January 2005, the Business Council, which is the Tribal Government Leadership of the Pawnee Nation, approved a Tribal agreement ratifying consulting and management contracts between a Lakes subsidiary, the Pawnee Tribal Development Corporation, and the Pawnee TDC's gaming subsidiaries, comprised of the tribal [entities] that own and operate the Tribal Casino, relating to the existing Trading Post Casino and two other proposed facilities, the Travel Plaza Casino and [Shalako] Casino. Since that time, several new members had been appointed to the Pawnee Business Council, which has resulted in a substantial change in its membership.

On December 1, we reported the Pawnee Business Council declined to approve a proposed updated travel agreement with the Lakes subsidiary relating to the Pawnee Trading Post Casino. Lakes, the Pawnee TDC, and its gaming subsidiaries which support approving the updated Tribal Agreement and Lakes' involvement in the projects, are evaluating how they wish to proceed with the current project agreements given this action, including perhaps terminating the project agreements.

For our consulting services, Lakes is receiving $5,000 per month related to the Trading Post Casino Project and would receive monthly fees of 25,000 and $250,000 from the Travel Plaza Casino and Shalako Casino projects, respectively, upon their completion. Lakes would also plan to manage each of these facilities under management contracts subject to regulatory approval.

Lakes has advanced approximately $5.1 million to the Pawnee TDC related to these projects under the existing agreements. We intend to work with the Pawnee TDC to resolve all the financial terms of the contracts, including repayment of the advances if the project agreements are, in fact, terminated as a result of the Business Council's decision. However, if the agreements are terminated, there can be no assurance that we will receive any future payments related to these projects or that we will be repaid in full for our advances. We will continue to work with the Pawnee TDC and Business Council to reach a resolution on this issue.

Now, I will discuss our projects with the Iowa Tribe of Oklahoma. Lakes has signed consulting and management agreements with the Iowa Tribe to assist in the development, construction, and management of two gaming facilities. One, the existing Cimarron facility, is located in Perkins, Oklahoma, approximately eight miles from Stillwater.

This casino has been renovated to increase gaming machines from 240 to 350. It also includes six electronic table games, new back-of-house spaces, and a new snack bar. Renovations were completed early last summer about the same time our seven-year management contract was approved by the NIGC.

Additional land was purchased, and 200 new parking places were added. The project came in substantially under budget, and additional improvements are being completed with these additional funds. We are very pleased to be working with the Iowa Tribe on this project, and we're very proud of this locals-themed casino.

The second project with the Iowa Tribe of Oklahoma is the development of a full-service casino and resort, the Ioway Casino, on Tribal land located on Route 66, midway between Warwick and Chandler, Oklahoma. The Tribe has obtained the rights to purchase and/or lease a 74-acre parcel from the allottees. An additional 100 acres of fee land has been optioned to provide the necessary site area for the beginning of this project. The long-term plan is to acquire an additional 300 acres of non-trust land for the development of a majority of non-gaming facilities.

The Bureau of Indian Affairs is required to approve the transfer of the land to Tribe. To date, approximately 80% of the allottees have transferred their main interest to the Tribe with BIA approval. The BIA will also have to approve the leasing of additional acres of allottee land to complete the site. This requires preparation of an environmental assessment for the proposed project.

The master plan and draft environmental assessment were submitted to the BIA and the NIGC last quarter. If approved, EA will pave the way for NIGC approval of the management contract.

Comments have been received, and we are working to incorporate them into the project plan. The proposed development is planned to have approximately 1,500 slot machines, four restaurants, a childcare center, hotel, parking, and back-of-house support facilities. Future development may include additional gaming, hotel rooms, meeting space, special events center, golf course, and other market-driven amenities. This project is located approximately 30 miles from Oklahoma City. We anticipate construction to begin in the summer of 2007, with an anticipated opening in the third quarter of 2008.

The final project to discuss today is our own casino project in Vicksburg, Mississippi. Lakes has acquired the rights to purchase approximately 600 acres in Vicksburg, just south of downtown and adjacent to the Mississippi River. Our current site has been approved for gaming by the Mississippi Gaming Commission, and we recently received a two-year extension on this approval.

Once complete, the casino is planned to house 1,200 slot machines, 46 table games, 12 poker tables, four restaurants, a 250-room hotel with meeting rooms, enclosed parking, and a possible childcare center. We currently anticipate construction to begin in 2008 with a 2010 opening.

That concludes my overview of our casino projects.

I'd like to take a moment to welcome our newest Board member, Mr. Rick White. Rick joined our Board in December 2006. Since 2004, he has been Managing Director and head of the Private Equity Investment Department at Oppenheimer & Company. He's also served as President of Aeolus Capital Group and Managing Director of CIBC Capital Partners. We are pleased Rick has joined the Lakes Board of Directors, and he brings a wealth of financial expertise and corporate governance knowledge to our team.

Financial results for the fiscal year ended December 31, 2006 include revenue of $29.9 million, compared to $18.2 million for fiscal year 2005.

Earnings from operations were $34.2 million for 2006, compared to a loss from operations of $16.5 million for 2005.

Net earnings for the year were $20.9 million, and basic and diluted earnings were $0.92 per share and $0.85 per share, respectively. This compares with a net loss of $11.9 million in basic and diluted losses of $0.53 per share in 2005.

Revenues for both years were derived primarily from the operations of Lakes' majority-owned subsidiary, WPT Enterprises, Inc., primarily from television license fees related to the World Poker Tour television series. The increase in revenues during 2006 was primarily due to the delivery of 24 episodes of the Professional Poker Tour television series in 2006 versus no episodes of the PPT delivered in 2005, compared with the delivery of 21 episodes of the World Poker Tour television series in 2006, compared to 18 episodes in 2005.

Other increases in WPTE online gaming and the event hosting and sponsorship were partially offset by a decline in product licensing revenue.

Net unrealized gains on notes receivable were $51.7 million and $5.2 million for 2006 and 2005, respectively. These net unrealized gains related primarily to the Company's notes receivable from the Pokagon Band and the Shingle Springs Tribe, which are adjusted to estimated fair value based upon the current status of their related tribal casino projects.

Of the $51.7 million in net unrealized gains on notes receivable during 2006, approximately $36 million was related to the casino development project with the Pokagon Band. The unrealized gains on the Pokagon notes receivable resulted from a combination of favorable events occurring during 2006, including the National Indian Gaming Commission's approval of the management contract between Lakes and the Pokagon Band.

Additionally, an affiliate of the Pokagon Band closed on a $305 million senior note financing in addition to a $75 million financing commitment for furniture, furnishings, and equipment to fund the Four Winds Casino Resort project. Construction on this project began during June of 2006.

All of these events increased the probability of opening another project to contribute to an increase in fair value of the Pokagon notes receivable, which resulted in unrealized gains and notes receivable related to this project of approximately $20 million through the end of the third quarter of 2006.

In addition, as previously announced, during March of 2007, Lakes contracted with a group of investors for their participation in the loans made by Lakes to the Pokagon Band at an agreed-upon price of 98% of the face value of the loans as of the settlement date. Accordingly, as of December 31, 2006, the Pokagon notes receivable were adjusted to the negotiated participation price, which resulted in unrealized gains of approximately $16.3 million during the fourth quarter of 2006. This participation agreement will be accounted for as a sale during 2007. However, the sale will not have any effect on Lakes' management agreement for the Pokagon Casino Resort project.

Also contributing to unrealized gains on notes receivable during 2006 were unrealized gains related to the casino development project with the Shingle Springs Tribe. These gains of approximately $11.6 million were primarily related to favorable events occurring during 2006, which increased the estimated probability of opening of the project, most notably, the agreement between the Shingle Springs Tribe and El Dorado County, which I discussed earlier.

As a result of the current situation regarding the Jamul compact and the probable change in the size and scope of that project, during the fourth quarter of 2006, Lakes recorded unrealized losses on notes receivable related to the Jamul project of approximately $6.3 million, which reduced the overall 2006 net unrealized gain on notes receivable related to this project to approximately $2 million.

The remainder of the net unrealized gains and notes receivable consisted of unrealized gains related to the 2006 settlement with the Kickapoo Traditional Tribe of Texas in the amount of approximately $6.2 million, and net unrealized losses of approximately $4.2 million as a result of the decrease in fair value of notes receivable due to the decreased probability of opening of two other casino development projects with the Pawnee Nation, as I previously mentioned.

During fiscal 2005, the net unrealized gains of $5.2 million included unrealized gains of approximately $11.4 million, related primarily to increased probability of opening related to the casino development projects with the Pokagon Band and the Jamul Tribe. These unrealized gains were partially offset by unrealized losses of approximately $6.2 million, primarily related to the termination of the agreement with the Kickapoo Tribe.

Selling, general, and administrative expenses were $35.2 million in 2006, compared to $28.6 million in 2005. The increase was primarily due to the adoption of Statement of Financial Accounting Standards Number 123, Share-Based Payment, which requires a measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including stock options based on estimated fair values.

In 2006, the share-based compensation expense recognized under SFAS 123-R related to employee and director stock options was approximately $6.2 million, of which approximately $3.5 million related to WPTE and $2.7 million related to Lakes.

Pursuant to accounting guidance in effect during 2005, there was no share-based compensation expense related to employee and director options in stock purchases recognized during that time period.

Additional headcount and related costs also contributed to the increase in general administrative expenses. These increased costs were partially offset by decreased sales and marketing expenses as a result of reduced online gaming marketing efforts and lower commissions paid to WPTE's third-party licensing agent for consumer product licensing.

During 2006, WPTE sold its ownership interest in PokerTek, Inc., resulting in a realized gain on sale of investment of approximately $10.2 million.

In June of 2006, Lakes closed on a previously announced $105 million credit agreement. Approximately $25 million of the proceeds from the credit agreement were used to repay in full Lakes' February 16, 2006 financing facility with an affiliate of Prentice Capital Management, L.P.

As a result of the Prentice debt repayment, the remaining unamortized portion of closing costs and warrants were included as part of the $6.8 million loss on extinguishment of debt.

In March 2007, the $105 million credit agreement was repaid in conjunction with the Pokagon notes receivable participation transaction. As a result, Lakes is now in a debt-free position, which will give our Company more flexibility in the future to meet additional capital needs.

The income tax provision was $8.2 million in 2006, compared to an income tax benefit of $1.2 million in 2005. The 2006 provision relates primarily to WPTE positive taxable income for 2006, as well as amounts related to the ongoing Internal Revenue Service examination of Lakes' income tax returns.

It has been a very productive year for Lakes, both in terms of financial performance and casino development. We are fortunate to have a very dedicated group of employees and tribal partners who make these projects a reality for Lakes.

With that, I'll turn the call over to the Operator for questions.

[OPERATOR INSTRUCTIONS]

Your first question comes from Todd Eilers with Roth Capital Partners.

Hi, guys.

Hi, Todd.

Let's see. Tim, can you start off by maybe giving what the -- or breaking down the notes receivables by project?

Sure. I think -- I don't know if you see our balance sheet -- it's about $164 million at the end of the year. The big number there is the Pokagon notes of 100 million. That's followed up with Shingle Springs of about 40, Jamul is about 20, and then rest of it is pretty much the Iowa notes.

Okay. And then, let's see, since given what you guys have done with the Pokagon loan sale there, should we assume that you will be looking to do something similar with Shingle Springs given that that project's moving forward now?

No, I don't think so at this point. We're always looking for new forms of capital, but right now, our focus at Shingle Springs is just to get it open, get it up and running, and then get construction started.

Okay. And then, let's see, with related -- related to the Jamul project, can you give a little bit more color regarding, I guess, what you're looking at, the range of [inaudible - technical difficulty]? You know, I thought that you guys and the Tribe were somewhat good to go with regards to the existing compact, and I'm just [inaudible - technical difficulty] a feel for, you mentioned, possible Class-2 facility. Can you maybe just kind of elaborate a little bit more on what's going on there, I guess why the change, and kind of also what the range of possibilities is?

Sure. With regards to the range of possibilities, I mentioned there's the -- they have an existing compact, the original '99 compact, which allows for the 349 Class-3 and unlimited Class-2. In addition to that, they completed the Tribal Environmental Report in an attempt to satisfy requirements under new compact conditions, and they've been in discussions with the State for that, as well.

Actually, the discussions with the State, I would characterize as probably positive in terms of coming up with a roadmap on what needs to be done to satisfy concerns related to any new compact issues.

But the other side of that is it also is a substantial amount and more time, it would appear, before some of those conditions can be accomplished, and I think right now, as I mentioned, the Jamul Tribe and ourselves are looking at the option of possibly just proceeding with a Class-2 facility.

So would you potentially maybe proceed forward with a Class-2 facility, then continue to negotiate with the State for a new compact, potentially adding Class-3 slot down the road? Is that kind of your thinking?

I think that's certainly a very good possibility. And then I mentioned that the Governor's office has been very accommodating in terms of keeping the door open towards that progress. So I think that's probably a logical step to take.

Okay. Let's see. And then I guess my next question was regarding the Shingle Springs settlement with the County, and I know we had talked in the past, but can you maybe give me a feel for is there going to be any impact to your management fees given the settlement with the County in terms of what the Tribe is going to be paying to the County? Are any of those fees or costs going to be coming out of the casino operations; therefore, would it impact your management fees? Or can you help us understand kind of how that impacts your existing agreement?

It doesn't technically impact our existing agreement between Lakes and the Tribe in any way. What costs will be determined to be operating costs of the casino are probably yet to be decided, but there will be some costs. I think part of the agreement with the County, for instance, calls for paying of like sales taxes on food, that type of thing, which is clearly related to the operation of the casino. So there will be some costs that we will share in, our proportionate share based on our management fee percentage, and some will be the Tribe.

Okay. All right. And then, last question, obviously, you're debt-free now with the recent transaction. Can you maybe give us a feel for what the approximate cash balance is right now ex the -- ex World Poker Tour?

Well, at the end of the year, we had about -- looking here -- probably about $30 million of just Lakes' cash.

Okay. Any approximate balance at this point given that you're almost done with first quarter?

Well, obviously, that's not a public number yet, so we'll rapidly prepare our Q and then [inaudible] for that.

All right. Fair enough. Fair enough. All right. Thanks, Tim.

Okay.

Your next question comes from Clint Morrison with Feltl and Company.

Hey, Tim.

Hi.

I'll just go through -- maybe it's the same order that Todd went through. On the notes, you gave the numbers for Shingle Springs and Jamul of 40 and 20? Can you tell us what the face value -- I think those -- that's the number you're carrying on your books, right?

That's right.

Can you tell us kind of what the face value is and sort of what the -- sort of the percentage probabilities you've got in your -- or that you'll have in your 10-K?

The K actually should be filed today, too, so that information will be out there, but at -- going back to Pokagon, the carrying value, as I think I mentioned, was pretty much the face value with that 98 -- at 98% because we took the discount on the participation agreement.

Yes, that's pretty much a done deal.

That's a done deal. That's behind us.

You know, Jamul, as of the end of the year, the notes itself were about 25 million plus accrued interest of about 8.

Okay, so 28, you're carrying it at [twenty] --

There, and then we had the separate line item, which you'll see on this statement. It's in the land held for development. We had about $7 million of land held for development at Jamul plus accrued interest.

Okay.

And I think we've continued to say the probability at Jamul is 85%.

Okay.

Given the new direction that we just talked about, possibly a Class-2 facility, I think that, if anything, [it] gives us as much or more confidence of getting the casino open there.

Well, maybe let's just dig there for a second. Even if you ended up doing a Class-2 as opposed to a Class-3 or something like that, should we still assume that it's the same kind of concept of you'd raise the money and get a 5% override, and so that sort of the financing to you or the financial benefit to you is probably the same for an $X casino regardless of what was in it?

The concept's certainly the same. That's the current contract we have as a tribe. I think what you'll see happening is because of the smaller scope, that will probably built now under the Class-2 environment --

Yes?

-- the amount of the dollars to us will change, but certainly, the concept of the 5% is still in place with the contract we have.

Okay. So it sounds like you guys are leaning pretty heavily towards a Class-2 kind of --

Again, we're putting together plans to see what we can come up with, and we have to meet with -- certainly get the approval of the whole Jamul Tribe to do this, and we're working toward that end.

Okay. And then Shingle Springs, 40 million. What's it on the books at?

Shingle Springs at the end of the year, principal amount was about 42, with about 13 million of accrued interest.

Okay.

And then, again, we had land there -- also had land there of about 9 million, again, with an accrued interest of about 4.

Okay. Let's see. In the quarter, you had -- I think you basically -- the notes receivable went up by 12.8 million. You didn't really break it down, but obviously, you had a positive 16.3 at Pokagon and a negative 6.3 at Jamul. Can you account for the other 2.8?

Shingle Springs would be the other piece of the puzzle there.

Okay. So it went up by 2.8 because of the favorable rulings, obviously?

Favorable rulings and -- yes, that's primarily it. Of course, we continue to loan money, too.

Yes. If I look at your income statement and kind of break out the World Poker Tour expenses, it looks like your operating expenses actually came down a couple hundred grand from the previous quarter. Can you talk a little bit about sort of what's going to happen to your operating expenses here over the next couple of quarters as the Four Winds opens and Shingle Springs starts construction?

I think that you'll find them pretty similar to what we've been running this last quarter. I'd say the last quarter maybe it was off just a little bit due to some reduced travel --

Okay.

-- but that run rate is approximately the same.

So it's [4.1, 4.2] kind of a deal?

Yes, on a -- that's about right, yes.

Yes, something like that. Okay, so you don't really think that changes in the third and fourth quarters when you've got a couple casino situations change pretty dramatically?

No, I don't think so. It's pretty consistent. Right now, our travel is related to getting them open. After they're open, it will be related to managing them.

Okay.

It'd be similar.

And Pokagon note, you said, is a sale in '07. Is there going to be an actual transaction associated with that, and how does that flow through your income statement?

There will be a transaction booked in '07. We will have actually -- probably about -- we'll probably have a -- we'll have that debt carrying cost we've had, so we'll probably have a loss on extinguishment of that debt because there is some cost associated with the sale of -- or paying off our debt.

Okay.

And that's -- it will flow through as an extinguishment of debt line item.

So nothing that's really going to make any difference?

It's certainly not an operating piece, yes.

Yes. And then final question. On your FAS-123 expense, any kind of expectations as to what that's going to look like over the year?

That's pretty consistent from quarter to quarter now.

Okay. Very good. Takes care of me. Thanks.

All right. Thanks.

[OPERATOR INSTRUCTIONS]

Your next question comes from [Roy Barry], a private investor.

Good day, Tim. I got a different-type question for you.

Okay.

I enjoy playing casino or practicing my casino skills on WPT online. Since I'm doing it for points, I think that's 100% legal. My question is, since you've got all those casino games available to people who are online and on the Internet, why don't you set up a gaming corporation or division or something and sell gaming skills?

You know, they do that through the WPTE. They actually have a school that they provide to accomplish just that. You can go to a --

Yes, but what about the guy that wants to sit home and play?

I think that you'll see part of that being rolled out onto their new online product.

That answers my question.

Good.

Your next question comes from Greg Weaver from Kern Capital.

Hi, Tim. Just a clarification. On the Jamul, you said the probability of building the casino was unchanged, correct?

Correct.

85%. So what caused the write-down then? Because if it's a note due to you, regardless of what type of machines are in the casino, you should get all the money back, no?

Well, I think what we need to -- what we're doing is based on where we think we're heading with a Class-2 facility, which would also be a smaller facility than had currently been designed.

The -- you know, as you do that fair value of our notes, the face amount and the interest is certainly 100% there we get paid back. But when you do the fair value, it's based on discounted cash flow back to present value of our contractual arrangement, and if the amount we're going to earn in the future becomes smaller because it's a smaller project, then that results in a lower fair value of the notes.

I got you. Even though it's not lent money, you're still classifying it as a note, right?

Right. That's right.

Right. That was the new scheme under the --

Yes, our new enjoyable accounting model we have here.

Okay. Sorry about that. Thanks.

[OPERATOR INSTRUCTIONS]

At this time, sir, there are no further questions. Are there any closing remarks?

I'd just like to say thanks again for everybody for participating in today's conference call. 2006, we feel, has been a very productive year for the Company and for the shareholders. We appreciate your continued support. This will conclude our call.

Thank you. This concludes today's Lakes Entertainment Year-End 2006 Earnings Conference Call. You may now disconnect.