Golden Entertainment Inc (GDEN) 2007 Q3 法說會逐字稿

Welcome to the Lakes Entertainment Q3 results conference call. I would now like to turn the meeting over to Mr. Tim Cope, President and CFO. Please go ahead, Mr. Cope.

Thank you for joining today's conference call as we discuss Lakes Entertainments third quarter 2007 financial results. Here with me is Lyle Berman, Lake's Chairman of the Board and Chief Executive Officer. As we begin our prepared remarks I would like to remind everyone 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. Lyle will begin our discussion today with an update on our casino projects. I'll then discuss the third quarter financial results and recent business events. Lyle.

Thank you, Tim, and good afternoon, everyone. Many investors have been asking about the September SEC filing which relates to my sale of stock. Therefore, I will address the issue prior to reviewing our projects. I sold stock for personal reasons as I needed to raise cash for personal reasons. Additionally, 18 months ago when Lakes stock was $9 I had an option to purchase 500,000 shares of stock at $5.33. When I exercised the option I had to pay taxes on the difference. Therefore the sale of the 300,000 shares of stock is a continuation of this transaction. Please note that I still own approximately 3 million shares and firmly believe in Lakes and its future.

Moving to our projects, as I review each casino project please remember they are not in any order of significance or state of completion. Dates of construction and anticipated opening dates are subject to change. I'll begin with the Four Winds casino resort in New Buffalo, Michigan, which opened on August 2. The casino includes approximately 3,000 slot machines and 110 table games, as well as restaurants, a hotel, retail shopping space, and several other amenities. The opening of the Four Winds casino resort in Michigan was a significant milestone for Lakes. We are now focused on the successful management of this property. Initial casino win was somewhat disappointing, however, Four Winds results and our related management piece have continued to improve as a result of modifications which were made in a number of areas to meet customer demand and to improve operating efficiencies.

We continue to be very pleased with the guest count numbers since Four Winds opening and as a result key performance metrics continued to improve. Additionally, customer feedback and local media coverage of Four Winds is drawing comparisons to amenities, game play, and service found in Las Vegas casinos. We are very pleased with these comparisons and feel this property is truly in a class by itself for the region. We look forward to this property's future performance.

The next project I will discuss is the Foothill Oaks casino near Sacramento, California, which is the development and management project with the Shingle Springs Band of Miwok Indians. The Shingle Springs Tribal Gaming Authority closed on a $450 million high-yield debt offering in June of 2007 and construction of the project began immediately. The authority will need to obtain up to 85 million of furniture, furnishings, and equipment financing. Once completed the facility will host a total of 2,000 slot machines and gaming devices. 100 gaming tables, several food and beverage outlets, and approximately 3200 covered parking spaces.

Rudolph and Sletten, one of the leading general contracting firms on the West Coast with experience in building several Native American gaming and hospitality resorts in California was select as the general contractor for the casino. C.C. Myers is the general contractor for construction on the highway interchange. Construction of this dedicated interchange which connects the Rancheria to highway 50 is also under progress allowing construction access to the casino site. Approximately 90% of the mass earthwork related to the interchange portion of the project is complete. Construction on the fly over bridge has commenced with columns being placed. Form work for the bridge is expected to commence by the end of this month. Approximately 90% of the mass earthwork related to the casino is also complete. The foundation of the parking garage is in and the first level of concrete slab for the casino has been poured. All of the casino and site retaining walls are complete. The erection of steel is expected to commence by the end of this month.

The construction of both the interchange and the casino is currently on schedule and within budget and is progressing as anticipated. We expect this property will open late in the fourth quarter of 2008. We do have a web cam camera on the site, and if you go to our website you can watch the daily progress of the construction, just as we had done with Pokagon.

Next I will discuss our project with 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 the reservation land that could be used for the casino support facilities if the land is taken into trust. Lakes and the Jamul tribe have decided to move forward with the operating a casino based solely on class 2 electronic gaming devices. The agreement between Lakes and the Jamul tribe is currently being modified to reflect the new economics of the revised smaller casino plan which will not require a compact and will not be subject to approval by the state or NIGC. Planning is underway to redesign the casino to provide for approximately 1,000 class 2 gaming devices along with 20 class 2 table games. The site has been cleared of all residents and all structures have been demolished and removed. Soil drilling in preparation for the road construction has started. We and the tribe are currently evaluating the plan to determine when the casino construction will start and when the casino operations could begin.

Next I will discuss the current status of our agreements with the Pawnee nation of Oklahoma. In January 2005 the Pawnee 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 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 facility the Travel Plaza casino and the Chillaco casino. Subsequent to that time certain of our agreements have been disputed by the Pawnee Business Council. Lakes and the Pawnee nation are currently in discussions to resolve outstanding issues.

Now I will discuss our projects with the Iowa tribe of Oklahoma. Lakes has signed a consulting and management agreement with the Iowa tribe to assist in the development, construction, and management of two gaming facilities. The first one is the existing Cimarron facility which is located in Perkins, Oklahoma, approximately eight miles from Stillwater, which we are currently managing. This casino has been renovated to increase gaming machines from 240 to 350 and includes six electronic table games and food and beverage venues. We are very pleased to be working with the Iowa tribe on this project. Business continues to be very good. We are 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 which will be named the Ioway casino on tribal land located on Route 66 midway between Warwick and Chandler, Oklahoma. The Iowa tribe has members that own a 74-acre allotment on the U.S. Route 66 from whom the Iowa tribe has acquired the rights to purchase and/or lease the land for the casino development. An additional 100 acres of fee land has been acquired to provide the necessary site area for the project. The long-term plan is to acquire an additional 300 acres of nontrust land for the development of the majority of the nongaming facility. The Bureau of Indians Affairs, or the BIA, must approve the transfer of land to the tribe. To date approximately 80% of the allottees have transferred their land interest to the tribe with the BIA approval. The BIA must also approve the leasing of additional acreages of allottee land to complete the site. This requires preparation of an environmental assessment for the proposed project and the issuance of a finding of no significant impact by the BIA.

The EA was completed and submitted to the BIA in March of 2007 for issuance of a [FONZ] which will allow approval of the leases. We continue to work with the tribe and the BIA to receive final approval of the land leases. The master plan and draft environmental assessment have been submitted to the BIA and NIGC. Once approved the EA will pave the way for NIGC to approve the management contract. The NIGC has provided their final comments to the tribe on the contract and subject to these revisions and the issuance of the FONZ, the NIGC can approve the management contract. The proposed development is a plan -- is planned to have approximately 1200 slot machines, 30 table games, 4 restaurants, 150-room hotel, small conference room, a child care facility, parking in back of the house support facilities. Future development may include additional gaming, hotel rooms, meeting space, special events center, golf course, and other market-driven amenities. We anticipate construction to begin mid 2008 with an anticipated opening in the third quarter of 2009.

The final project to discuss today is our own casino development plan in Vicksburg, Mississippi. Lakes has purchased land in Vicksburg just south of the downtown and adjacent to the Mississippi River. Our current site has been approved for gaming by the Mississippi Gaming Commission. Once complete the casinos plan to house 1200 slot machines, 46 table games, 12 poker tables, 4 restaurants, a 250-room hotel with meeting rooms, parking, and a possible childcare facility. We currently anticipate construction to begin late 2008 or early 2009 with a 14-month construction time frame. With that, I'll turn the call back over to Tim to provide an overview of recent business issues and financial results.

Thank you, Lyle. Revenue for the quarter totaled $7 million, compared to $5.9 million for the third quarter ended October 1, 2006. Losses from operations were 6.3 million for the current year quarter compared to earnings from operations of $1 million for the prior year comparable period. Net losses for the third quarter of 2007 were $5.2 million. Basic and diluted losses were $0.21 per share. This compares with net earnings of $3 million, and basic and diluted earnings of $0.13 per share and $0.12 per share respectively in the third quarter of 2006.

Revenues for the third quarter of 2007 include management fees from existing Cimarron casino in Oklahoma which is owned by the Iowa tribe of Oklahoma and management fees for approximately eight weeks of operation from the Four Winds casino resort in New Buffalo, Michigan, which is owned by the Pokagon Band of Potawatomi Indians and open to the public on August 2, 2007. In accordance with the management contract with the Pokagon Band, pre opening expenses totaling approximately $15 million incurred during the construction phase of the project are shared proportionally by Lakes during the first 12 months of Four Winds operations. To clarify, Lakes' proportionate share is 24%, the same as our management fee, which amounts to approximately $4 million over the first 12 months of operations and only the first 12 months. There's no impact on Lakes' fees in subsequent years. The combined management fees, which are net of Lakes' share of these pre opening expenses were $2.6 million, for the third quarter of 2007. No management fees were recognized during the third quarter of 2006.

I would like to emphasize that management fees for the third quarter of 2007 represent fees for eight weeks of management of the Four Winds casino resort and fees for three months of management of the Cimarron casino. I would like to reiterate that we have received tremendous reviews for the newly opened Four Winds project and based on guest counts we believe it has generated strong customer loyalty in a short time. The property is unique in the market and has been well accepted by the customer. For these reasons, as well as the improvements since opening that Lyle mentioned we anticipate an upward trend in management fees for the fourth quarter of 2007. Revenues for the third quarter of 2006 were derived primarily from television license fees related to the world poker tour television series and Lakes majority owned subsidiary WPT Enterprises, Inc.

Revenue from this license fee income decreased during third quarter of 2007 compared to the third quarter of 2006 as a result of the delivery of no episodes of the professional poker tour television series in the 2007 period, versus the delivery of nine episodes of the PPT in the third quarter of 2006 and the delivery of three episodes of season five of the world poker tour television series in the third quarter of 2007 versus the delivery of one episode of season five of the WPT television series in the 2006 period. Net unrealized losses on notes receivable were $600,000 for the third quarter of 2007, compared to net unrealized gains of $5.8 million for the third quarter of 2006. The net unrealized losses in the third quarter of 2007 related to unrealized gains on Lakes' notes receivable from the Shingle Springs Band and Miwok Indians in the amount of $1.2 million and unrealized losses of $1.8 million on the Lakes notes receivable from the Jamul Indian Village.

These notes receivable are adjusted to estimated fair value based upon the current status of the related tribal casino projects. The increase in fair value of the notes receivable from the Shingle Springs tribe relates primarily to continued progress on the construction of this project which is currently within budget and on schedule. The decrease in fair value of the notes receivable from the Jamul tribe relates primarily to an increase in the discount rate which resulted from a decrease in current estimated win per unit for this project.

Net unrealized gains of $5.8 million during the third quarter of 2006 included $2.6 million related to the adjustment to fair value notes receivable from the Shingle Springs tribe due to favorable events occuring during the third quarter of 2006. The remainder of the net unrealized gains during the three months end October 1, 2006, related primarily to increases in fair value of notes receivable from the Jamul tribe and the Pokagon Band. Selling, general, and administrative expenses were $10.1 million during the third quarter of 2007 compared to $8.8 million in the third quarter of 2006. The increase primarily related to additional costs associated with WPTE's online gaming efforts, as well as increased costs associated with WPTEs launch of the WPT China National Tractor Poker Tour. Included in costs and expenses for the third quarter of 2007 is amortization of intangible assets of approximately $1.1 million associated with a casino project with the Pokagon Band.

This amortization began when the Four Winds casino resort opened on October -- on August 2, 2007, as previously discussed. Other income for the third quarter of 2007 was $700,000 compared to other income of $5.3 million for the same period of 2006. Other income in the third quarter of 2006 included a $4.5 million realized gain on the sale of WPTE's remaining 450,000 shares of Poker Tech Inc. common stock. The decrease in the income tax provision of $1.7 million for the three months ended September 30, 2007, compared to the three months ended October 1, 2006, was due primarily to the realized gain and WPTE's sale of Poker Tech common stock which increased the provision during the third quarter of 2006.

In closing, across our Company our to focus is on successfully managing our open Indian casino projects and successfully developing and building our remaining projects. We are committed to Indian gaming and we are very excited about the progress these next few years will bring both for Lakes Entertainment and our Tribal partners. We continue to explore various alternatives to utilize the capital we plan to accumulate over the next few years in a way that will allow us to achieve long-term sustainable growth for our shareholders. Our focus remains to increase shareholder value. With that I will turn the call over to the operator for questions.

Thank you. (OPERATOR INSTRUCTIONS) The first question is from James Kayler of the Banc of America.

Hey, guys. Just on the -- obviously about the opening of Pokagon, the commentary was pretty specific. It said in the release that initial casino win was somewhat disappointing. Is there any way you could put some color around that, maybe talk about volumes versus the win? Were there any whole discrepancies, anything like that?

I think there was a little bit of everything. Whenever you open a casino you have a number of things, the hold discrepancy usually is, especially on table games because of dealer inefficiencies, below expectation. You also have over -- you budget obviously a number of people dropping off the radar chart, so you have expenses that are higher than plan as well.

Okay. Is there any way you can -- was sort of win more disappointing than volume? I guess I'm trying to get a sense for how the volumes in the property work, because, obviously there were a lot of reports about how strong just people.

I think in general the volume was, if you use coin in as a number for machines as well as drop in the table games. The volume was very very good. The hold percentages were below expectation.

Very good. That is very helpful. And just on the -- Tim, are you willing to go through the management fee calculation or at least just theoretically?

I can -- I can't talk about it real specific but I think you're familiar with the formula. We get 24% of net revenue, and, of course, the net revenue is defined in such a way that our fees come down by that -- our proportion share of that preopening expense. So that comes out to be about $1 million a quarter our share of preopening expenses over the first 12 months.

Just to clarify, if we walk through the sort of net revenue calculation as defined, take your 24%, and then we would subtract, for the first effectively four quarters, subtract $1 million from that?

For each quarter.

For this really, whatever, two months in this past quarter.

It was eight weeks, so roughly that.

Okay. And that'ssort of not dependant on when the preopening occurred, it's capitalized and then amortized straight line over one year?

That's not even an accounting thing. It was just strictly our arrangement that we made with the Pokagon band when we entered into the contract. Preopening expenses are expensed as incurred.

On Pokagon's income statement.

So they're already expensed, so it's not capitalized, it's just we're sharing in that preopening of cost as part of our management agreement.

Very good. Then just finally, also, on the commentary about the opening of Pokagon, you mentioned that you've started to make some changes to the property and improve operating efficiencies et cetera, is there -- could you just talk about what things went well, what things needed to be changed, some of the changes you've made since opening, that would be helpful.

Well, certainly what went well was the -- I mean, what we just said before, the biggest single thing, I think, that we were extraordinarily pleased with is that we opened on time and on budget a fabulous facility. We had incredible customer guest counts and those guest counts have continued. And by the way this is -- we do this every month. It isn't just the first two months. We look at our operating results virtually every single month of the year and say to ourselves as a group, okay, what can we do better, what can we do, we listen to our marketing department, our marketing department talks to our high roller customers in particular. They will tell us that we -- whatever the complaint is, or the accolades that we get, the marketing department will give us back that feedback.

So every month we're making changes. I would say in the first two, three, four months of a casino operation, or maybe even in the first six months, you'll see the change is much more dramatic. When you get past six months you're more into a fine tuning. Just as an example you look at slot machine performance, and you find two quarter machines and one quarter machine had $10,000 a day go through the machine, the other had $2,000 a day. It doesn't take a rocket scientist to say let's get more of the 10,000's and let's get less of the 2,000. So your slot mix in particular is incredibly important. And again, when you open a casino a great deal of it is guesswork. You certainly listen to the salesman telling you, if you're a casino like Boyd or Stations, they have a great deal of history, maybe even in the marketplace to put their assortment up. Obviously this is the first casino that Lakes has opened of this size and magnitude, certainly in a market that we spent a lot of time in and we certainly saw what other people were operating. So I think that if you even looked at the slot -- if you understood our slot mix today, three months later, three-and-a-half months, and compared it to opening day it's, quite frankly, dramatically different. And those differences make a great deal of hold and win coin in, as well as the hold of the machines.

So I think we're looking at everything. We're looking at prices. When we opened, our buffet prices we felt were a little under market, we've raised some food prices along the way. So we're continually fine tuning and quite frankly, we're very pleased that our traffic has stayed equal to what it was before and we've got an increased gaming win as well as revenue.

Great. Thanks, guys.

Thank you. The next question is from [Justin Jibrodreau] of T. Rowe Price. Please go ahead.

Hi, guys. How are you?

Good.

Good. I was wondering if you could give me a little bit of an update on Shingle Springs in terms of where you might stand with getting a new compact with the state and also just in terms of your hiring, if you guys have signed up a new GM in that market yet.

Speaking of the GM, we're actively interviewing candidates at this point in time for a GM. No decision has yet been made there. With regards to the Compact negotiations, that's obviously between the state and the Tribe. We certainly are supportive of their efforts to get a new compact and think this tribal leadership is actively working with the governor to get that done.

Is there still an expectation that you or the tribe will be able to get full class 3 Compact done sometime before opening, or is that--?

That's still our expectations. I can't guarantee it, but that's certainly what we're shooting to do.

Thank you very much.

Thank you. The next question is from Todd Eilers of Roth Capital Partners.

Hi, Tim, hi, Lyle. How are you?

Good.

Couple questions. First, for the third quarter, can you give an exact management fee number for the Pokagon? I think in the press release you gave 2.6 million for the combined management fees. Can you give the exact number for the quarter?

We're not giving the exact number at this point. I'll preface that by saying results from Native American casinos as I think you are aware of are a very safely guarded secret.

Sure.

As you know, it's pretty hard to get any results from any Indian casino around the country. Because of that, at this -- we're certainly not giving out our specific information relating to Four Winds, just out of respect for the Tribe's privacy.

Okay. How about just, going forward, would you guys ever look to give any sort of metrics with regards to the casino in terms of slot win, table win, revenue, EBITDA margins, hotel occupancy, anything like that?

It's kind of almost the same answer. Again, I've talked with tribal leaders regarding this. If they choose do that through their quarterly call with their bond investors that might happen, but at this point in time, we're just not under guidelines where we can probably release that individual specific information.

How about with respect to your Oklahoma management fees? Was there anything in the quarter that was materially different from the prior quarters? It was running at about 400,000 a quarter. Is anything changed there?

I think that's a good way to interpolate the results because nothing, the Cimarron casino does well and pretty much continues to do well as is. So we're happy about those results as well.

That would imply you guys did about, a little over $2 million in net management fees after free opening expenses, roughly?

That was the eight weeks, -- with, as Lyle mentioned, with the start-up issues as well.

Then I guess with regards to Shingle Springs do you guys have a similar agreement with them with regards to sharing preopening expenses? And if so, what's the estimate for pre opening expenses?

We do not have that same arrangement at Shingle Springs.

Okay. And then, let's see, I guess with respect to the balance sheet, Tim, can you break down the notes receivables by project, or at least what Shingle Springs and Jamul were for the quarter, the market value?

The long-term notes?

Yes.

Jamul is approximately 24 million. Shingle Springs is approximately 52 million. And Iowa's is approximately 3 million.

Okay. And then, given that the balance sheet continues to improve here for you guys, can you maybe highlight what your priorities are in terms of capital allocation? Is it still Vicksburg investment, equity investment to get that project moving forward -- or how about, what are you thinking in terms of share buybacks given where the stocks at, can you just refresh us on your priorities there?

Sure. This is Lyle. If you look at the cash on our balance sheet, remember, our balance sheet cash is comprised of both our cash and our share of World Poker Tour's cash. Obviously it's nice cash at World Poker Tour, but we have no access to it. The cash that we have on our balance sheet is all committed to being used for our various Indian projects up until we start substantially cash flowing as a Company once Shingle Springs opens in late 2008. So we have no additional discretionary funds to do much of anything with. I'll give you the exceptions. Until we start cash flowing.

That being said, we have no debt on our Company whatsoever. We have the Shingle Springs note of approximately 52 million. And we certainly have the possible ability to monetize that, like we did the Pokagon $100 million note, by syndicating that note or possibility of borrowing against the cash flow of this Company and that asset. If we do that, we have a variety of possible sources. One would be our Vicksburg project which needs approximately 50 million of equity, certainly there is the alternative of is the better use of those funds buying back our stock assuming it stayed at these lower levels, and/or other projects that possibly we're looking at. So at this point it is kind of an open book as to can we monetize, and if we do, how we'll use it.

Okay. Great. Thanks, guys.

Thank you. The next question is from Justin Sebastiano of Nollenberger Capital.

As far as the slots at Four Winds I know the video slot didn't do so well at the opening, and you replaced a lot of them actually, with some of the reel spinners. How have the reel spinners performed since you put those in in the video slots place?

And again, this is Lyle again, when you say they didn't do so well, it's interesting. In the retail business I used to be in, if something is either good or bad usually, but in a slot machine it has a lot to do with how many you have. You can have 20 of a certain model on the floor and they do horrible. You can reduce that 20 to four, and they're four of your best machines. So it's a balancing act. I believe when we opened it was fairly clear to us as we looked at the first months' results that on a proportional basis our reel, meaning the three-reel or five-reel machines, were outperforming the video machines, and we have been in the process of adjusting those. We made one adjustment where I think we actually found a company -- a new casino just like ours that actually had the opposite problem in a different marketplace. We traded machines, several hundred machines, we gave them several hundred of video machines and they gave us back several hundred or so of the reel machines. Yes, the balancing is more proportionate and on a relative basis, we're doing better now as with all machines, because we made that change.

Okay. And as far as the poker room, do you plan on maybe downsizing that and adding more slots with the freed up space that would occur?

That's also something under consideration. As we always said, a poker table, be it an automatic table that we have, or a dealer table typically can never compete with a very good slot operation. So it's a balancing act. And if you look at our poker room today, it's actually, we have 15 poker machines there but I believe we have capacity to put in like 20, 22. So certainly we're looking at as our machines' performance is becoming more what we expected it, we certainly are looking to the possibility of adding some machines in that area and maybe fine tuning that area a little bit.

Okay. But that's nothing that would be within the next quarter or so?

I don't believe it would be within the next quarter.

Okay. And, Tim, you had mentioned that you lowered the discount rate. What are you using now for the notes receivable from the Jamul Tribe? It was 15.75% I think previously?

Yes, actually increased it.

Increased it, I'm sorry, right.

I think it's more in the 17% range now. You understand we get this from a third-party valuation firm.

And how confident are you guys in your estimate to break ground on Vicksburg in late '08 or early '09?

Well, we're reasonably confident that we can acquire the $50 million to break ground. It's, the question is A, can we get the money, of course, and then, of course, B, at the time we can get the money we certainly have to look at the alternatives to using that money, but right now, at this point we're still planning to go forward with the Vicksburg project.

That is still $225 million?

Yes.

Tim, I'm sorry if you said this before. There was a question posed about the Oklahoma consulting and development fees. I mean, it's been around $400,000, but the first quarter it was 450, the second quarter it was 386, is 400 a good number as a run rate for 450?

I think that's certainly in the ballpark.

Thanks a lot, guys.

Thanks.

Thank you. The next question is from [Rushi Barrack] of KBC Financial. Please go ahead.

Gentlemen, on Pokagon you said that it's finished on budget, do you guys have a final cost for the facility at this point?

We're working on completing the construction contracts now. I think as you're probably familiar under the bond indenture we have six months after opening to finalize the contracts, close out the process. So we're in the middle of doing that now.

With respect to the outstanding issue of a potential bond recall, can you characterize the magnitude of how much we'd be looking at having called in 5 million, 20 million?

Again, that's what we're going through right now, just to determine that number.

There's no way we could put some sort of outlying cuff on that or?

Not at this point.

If I'm listening to you carefully, and I'm not always good with math, it it sounds like based on the -- on the management fees you guys disclosed that extrapolating, it looks like the property was operating at about $100 million EBITDA level. I'm just wondering if that's more or less in the ballpark as to what it was doing?

Dave, we really can't comment on that, as we mentioned earlier.

There might be another way to hit on that. In the 10-K you guys did provide an expectation, and I'm wondering if performance today is more consistent with your expectations?

I think on our second quarter Q we had put in a win per unit estimate. I'd say we're more in line today with that estimate.

That's reasonable. Okay. And could you talk about, with the initial -- with the initial performance, there's different elements, one of them is market growth, one of them is the tenacity of your competitors and how aggressively they're marking, and then, of course, there's your initial marketing effort in reaching out to the market, and could you talk about where those -- how those materialized and how they are now? Is the market growing to your expectations, I think we're looking at probably a 13 to 15% rate. Could you comment on that?

Well, overall, let me just talk about the marketing. First off, we've been extraordinarily pleased with our sign-ups of what we call the Players Club, because that's the most important part of our marketing. We do a lot of general marketing to bring people in for the first time, but once they sign up on their card we know a lot more about them, we know their habits, their play, and we've been very very aggressive in marketing back to those people with all different kinds of promotions and they've been extraordinarily successful. We've been very successful at sending people incentives to come back. As many people, one of them, the promotion, of course is free play. We had one promotion where people felt, based on their theoretical loss, or their actual loss on a daily basis, on a per trip basis we would send them a coupon for maybe up to 20, 25% of their theoretical daily loss. A free gift, come in on Tuesday, use this coupon. It your money. We've had incredible returns, the high returns on those promotions, as well win per day increases. We've also done some car give-aways, we've done some coffee making give-aways. We've done a lot of what we call direct marketing and we're continuing to do more of that.

We are also building our database and one of the keys to this property is the high end play. We believe we have the best facility in the area, and the higher end play typically, not always, but have a tendency see gravitate to the better property where there's better food and better amenities. As we grow, just based on time, virtually every day we get high rollers coming in. We introduce ourselves to them, we get them to recruit their friends to come in. So it's a building process but a very very important one, and we see our high-end growth, our play in our high-end customers growing on a regular basis. We have hired a number of casino hosts from other casinos. They technically can't just take their black book and call everybody. That customer has to come in on their own the first time, and then we can call back once they've been introduced to them. So it it's a little bit slower process but it's definitely a building process.

Can you characterize the size of your database now?

Not at liberty to give that out, but it exceeds our expectations by almost double.

On our last trip out to visit the property we saw Harrah's giving away a Bentley, Resorts giving away free gas for a year, and Majestic offering five times cash back, almost suicidal. What are these guys doing today.

I can't tell you. I'm not familiar with what the other people are doing, per se. We look at our database, of course, and a high percentage of our customers come from the Western Michigan and Northern Indiana market which, in fact, we're closer to than some of those people. Our Chicago market is not as big as we would like, where we're competing at. A lot of their promotion is to keep what they have. As you said, it gets very expensive, especially when they're in the higher tax rate as opposed to us. Any kind of a marketing war that we're going to get into with any of our competitors I think we're going to win by just the economics of our tax rate versus theirs.

Can you talk a little bit about -- obviously the room rates, your room metrics have been extraordinary. Do you have plans to address building a hotel addition any time soon?

Yes. We are in discussions with the Tribe now with some land planners to see what's the most effective use of what we want to put up, but clearly the growth of this -- of a -- a big part of the growth of this casino will come with an addition of 600 to 800 rooms and the associated amenities that you expect to find. It's our vision, as well as the Tribes, that this truly will become a full-service destination resort in the upper Midwest, and obviously you can't do that without a large room base.

Sounds like you would wait six months to a year, though, before moving forward on that, no, to see what the level of business is?

It takes six to eight months to do the planning and the architectural drawings so I think it would be fair to say that you wouldn't see construction start probably much before a year, but there's an awful lot of planning that goes into that before that time.

What can you say about your staffing levels now versus where you want to be?

I'd say we're real close to on plan right now and on budget. We had a large turnover of workforce. It's scary when you think about just the first day how many people don't show up even the second day for their job. But that's good news. Because at the end of the quarter or at the end of the second quarter, every month that goes by we have a higher trained workforce that's used to our way of doing business, and, of course, we have a very high energetic, high demanding jobs because of the number of people that come in. And therefore some people can't handle that and don't make it it. Many people thrive on it. Certainly our hostess and hostesses that serve drinks, they love the fact that people are coming in. The more drinks they can serve the more tips they're going to get. Some people thrive on that high energy, high consumer demand, and some people don't, and they go by the wayside.

Turning to Shingle, I know that the Tribes negotiations are the Tribes negotiations, but there's definitely a tone of the environment out there and some opposition to changes and new compacts. Can you talk a little bit about the environment that they're dealing with right now in terms of--?

Well, environment, the good news was the Governor signed and the legislature ratified the -- I think it's called the Golden Give compacts. What's interesting is that provided a rather substantial increase in gaming, where as when our Tribe is looking, the Shingle Springs Tribe they're trying to legitimately just get a compact for what they're entitled to. That being said, the legislature did approve it. However, the -- the antis are trying to put on the ballot the denial of the Tribes to have expansion. What I'm told is they're collecting signatures. They'll probably get the right number of signatures. That's not so difficult to do. We'll see what happens in the election. Right now I know the polls that I've read, or the rag magazines that I read indicate the population is in favor of the new compacts.

To the extent that people voted against it it's not clear to me what happens at that point. Does it get remanded back to the legislature?

I don't know the answer to that myself, but I think -- I don't know. I guess I don't know the answer.

What can we expect out of this Sharper image lawsuit? I believe there's a date coming up November 29. Is that correct, where we're going to get more information?

Right, but the Sharper lawsuit is not against Lakes, it's against the Tribe. We're held harmless by the Tribe in that lawsuit, so it really doesn't affect us and won't affect the casino operations. Tim, can you add something?

I think that's a fair statement. There's no new news on that. Again, it's proprietary to the tribe and we don't anticipate that affecting the opening of the casino.

Now, the recent announcement of the termination of Rob Wyre, really, there wasn't any color around that. Could you tell us anything more about what happened there?

We don't comment on personnel decisions in the public domain. I think it's fair to say that there was no specific event, there wasn't like all of a sudden there was a major issue that caused his termination or some kind of a smoking gun, as we say, but that being said, we're not going to comment on it.

And anything happening with your partners Kean and Argovitz guys, in terms of their getting licensed?

They're still both in the queue. As far as we know with NIGC. They have applied for licensing. They're both anxious to get licensed and we have no idea if they will or they won't.

As you guys go forward in choosing the direction of the Company, I was a little shocked to see something like that come up in a periodical.

Let me just say that certainly we didn't seek the article. The writer for the business journal at the Star and Tribune contacted us and said he was writing an article about us and, therefore, would we like to -- would we be willing to talk to him, and certainly I always believe that regardless of the writer's point of view, the article will come out better if we talk to them than we don't. So we certainly have an open policy that we're always going to talk to anybody in the media who wants to write about us or speak about us. That being said, I guess the article was considered fairly neutral, to a little negative, about our company, although I can tell you I couldn't find anything that he didn't speak the truth on.

I have publicly stated for the last several years, and I'll say it on this phone call, that Lakes Gaming, when we become a cash flow machine in the 2009 period and out, certainly do not expect to reinvest our funds in Indian gaming. Indian gaming is certainly our major core business. We're very good at it, and we will be in it for a long time. After all, Shingle Springs doesn't open for a year and then we have a seven-year contract, so that's eight years. Jamul will keep us in there for another year after that, so even without renewals we will be a major force in Indian gaming working with our Tribes and managing those casinos for the next 10 years. That being said, as we accumulate the cash from these operations, as you know, the majority of these operations took us seven or eight years from the time we signed with the Tribe, and we invested well over $150 million. Most of the Indian opportunities out there today are of a similar or worse nature.

They're operations that basically every Tribe that has a decent site and legal rights to open a casino is either in the process of or already has, and, therefore, the opportunities in Indian gaming going forward are very limited. And one thing -- a couple things they have in common is they're going to take a long period of time, and I'll quantify that as maybe in the 7 to 10-year range, with maybe a few exceptions, and also a fair amount of money. And, therefore, although we continue to look at Indian gaming opportunities, we have not found a single one that was worthwhile for our Company since we signed with the two Oklahoma properties. I think it's now three or four. And I've probably looked at two dozen operations since that time. So I've clearly said that when we get these funds we're going to be looking to invest funds primarily outside of Indian gaming. Whether it would be in gaming or not, I don't know. Right now we're very focused in building, opening, and operating casinos, but as we enter the cash flow years of 2009 and out, we will be looking to diversify this Company just like we did with World Poker Tour on our opportunities that we think have more of a long-term PE value than a seven-year management contract.

We're very committed to Indian gaming, we believe in it, we're very good at it, but it's not something that our growth will be in the out years with the funds that we reap from our current endeavors.

Thanks so much for those detailed answers. We're all for getting the Company's story out, too.

Thank you. Your next question is from Clint Morrison with Feltl and Co. Please go ahead.

Hey, Tim. I believe you've got sort of a third-party that got their fingers in your Pokagon management fee pie. Was any of that in that $2.6 million or how was it accounted for? Could you kind of review through how that works?

That comes out, that 2.6 isn't affected by that. That comes out below the -- it's called amortization of intangible assets.

So that was in this quarter?

Part of it, the eight weeks portion was in this quarter.

And kind of what was the net of that when you add it up what percentage of your management fee ends up going into that?

It's not based on a percentage. It's an agreed-on amount. What we have is there's two pieces of. One was a prior manager that Pokagon had, and that basically is about a $3 million fee or expense. It will come out as an expense to us, over the next two years. Well, I'm not even -- it's about $3 million, but just the way the accounting works that will actually get amortized over the life of our contract. So that will get spread over five years that 3 million. And then on the other side, with the BPTC or CRC companies agreement, again, that's a flat fixed amount. That's about $11 million which will also be expensed over the five years of our contract, just ratably over the five years.

And obviously these numbers -- and you can't quite get to it, but they imply some sort of run rate for the first eight weeks of your management fee and clearly you're ramping up and doing better now and I think are continuing to make progress. Can you give us some sort of sense as to kind of how far up the curb you go? In other words, if this implies X, potentially, do you think you'll level out at 5 or 10% better than sort of what your initial run rate was, or do we have 20 or 30% upside? Give us some sort of sense of that.

I don't know if I can really give that you guidance because we probably don't know ourselves at this point. It's very -- eight weeks of an operation, new operation -- towards the new market there, frankly, until we first do the first 12 months we're probably not going to know a normalized run rate ourselves.

Okay. And then finally, with regard to Shingle Springs, I assume that your current sort of discount rate and probabilities and all that are based on a noncompact kind of a situation?

That's correct.

Okay. Any sense of if the compact goes through, kind of how that changes the equation?

Well, the metrics, basically remember our probability of opening.

But it's also based on sort of win rates and that kind of stuff, too, right?

That just supports the fact that the valuation is there to cover our notes receivable which clearly is not an issue so we're very comfortable with being on time on budget. And that's really what drives that valuation.

So the compact wouldn't really change it too much. And then the final question is has anything changed in the world, or any reason to think that if you did go out to try to monetize that Shingle Springs note at some point in the future that sort of the result would be dramatically different from Pokagon?

Well, as you know, the high-yield market has changed a great deal since then.

That's sort of what my question is is how might things have changed. Do you got any sense of that?

What was interesting is that with the Pokagon note, we received, I believe it was very close to 9%, and we monetized it at 9%. So it was a neutral transaction for us, actually very positive because on our $100 million loan we were in the 11% range. Today, it's -- it might be that we probably couldn't monetize Shingle Springs note at the same rate that we're collecting. And, of course, the high-yield market is upside down or has been for awhile but that all corrects itself, too, so we'll be looking at that possibility after the first of the year.

Okay. Thank you.

Thank you. The next question is from Chris Krueger of Northland Securities.

Good afternoon, guys.

Hello.

Hi. I missed a little bit of the call but on the time frame for a couple of your future projects, I heard you mention on the Jamul that the site is cleared, there's some prep work beginning and that you're evaluating the plan right now. Does that mean -- I know last quarter I think you indicated you felt the construction would begin in the first quarter of '08 and open 12 months later. Is that more maybe like the first half of '08 now or how would we look at that?

Actually, the last quarter I think we said the same thing we're saying this quarter. We're continuing to work with the tribe to evaluate when we can start construction on the casino. Casino construction there will be about a 16-month, 18-month build because of the nature of the site itself. So I think the issue right now is when can we actually start the construction. And as you mentioned, we have started drilling on the road work there, which is the first piece of the project to get the road completed, so we can start breaking in the construction equipment to do the building. So we're progressing on the road work right now, and then I think it's going to be again subject to discussions with the tribe and after the first of the year when we feel we can start the casino construction.

The fires that happened out there is there any impact from that?

We and the Tribe I would say were quite fortunate in that regard. All the buildings had already been removed from the reservation, so although there was some fire that came very close and on the site there's actually a -- it backs up to a church, and that church was protected from the fire so there really was no physical damage occurred.

Same kind of question. On the Ioway casino. Is your stance on the time frame the same as it was last quarter, I guess, is what I'm asking?

I think we did give some guidelines here about the Iowa project, and as we kind of repeatedly say, each quarter we say, yes, it's going to be this time frame, then we move it out three more months, unfortunately in this project. Because right now we're dealing with getting back with the Federal Government in terms of BIA review and approval of their land lease situation, which is essentially out of our control.

Okay. That's all I got. Thanks.

Thank you. The next question is from [Roy Berry], who is a private investor. Please go ahead.

Got a question for Tim, and it's different a little bit. I noticed your decades-long fight with the Louisiana Tax Authority is up to about $0.60 to $0.65 a share. Have you got a tax court date on that yet where you can get it settled down?

We do not have a court date. We've just gone through a number of depositions. We are now taking depositions from them, and more to come, but there's no court date arranged at this point.

Do you expect the settlement at a lesser amount? Of course you do.

We always like to settle for a lesser amount. But yet to be determined.

Okay. That answered my question.

Okay.

Thank you. The next question is from [Walter Davis] of Walter Davis. Please go ahead.

What is causing the elongated delay on your casino in Vicksburg? I thought it was supposed to be breaking ground in the first quarter of '08.

What's delayed Vicksburg is financials. The project has been budgeted about $225 million to $230 million. We've been told that -- and this was before the bond market was where it's at today -- that we would need about $50 million of equity or something that looks like equity. As I said, we have three ways to get that equity. One way is to monetize the Shingle Springs notes which we didn't think would be appropriate at this stage until after the first of the year due to the high yield market. Two would be to borrow against that. Three would be to wait until we had cash flow. So what's holding that project up is the financing -- the viable financing of it.

One further question. What's the chances of your making a stock swap and picking up the additional 39% on World Poker Tour?

Well, certainly World Poker Tour's stock is as disappointing as ours is and we continually talk about different possibilities with World Poker Tour, but at the present time, I guess you could anticipate the status quo being about what it is.

Thank you.

We do continue to look at that as a possibility.

Thank you.

Thank you. (OPERATOR INSTRUCTIONS) The next question is from Justin Sebastiano of Nollenberger Capital.

Just a quick follow-up. Tim, could you just run through how you're getting paid out on Jamul? From what I have, I see you have a $15 million up-front flat fee from development services, 15 million payable evenly over five years for construction services, and then 50 million payable evenly over 10 years for financing services, is this correct?

Currently the agreement is all fees that we earn are earned prior to the project opening based on, as you mentioned, either oversight of construction, oversight of the development, or for providing the financing. All those fees are then spread out over the life of a 10-year contract.

Okay. So -- oh, so the development service is not a $15 million up-front flat fee?

No, and there's nothing paid up-front. Everything is earned up-front.

Understood. So they're all paid out evenly over 10 years?

That's the current plan.

So under the current plan then, you're going to get paid out on the amounts -- the $80 million, I guess, regardless of what the casino does. Is that correct then?

Well, no, only if it's successful. Again, it's paid out -- they can't pay us if they don't have the money, right.

Well, what's considered successful? Then they just have to cover -- do they have to hit a certain threshold, and then pay you out when they hit?

There's no thresholds this particular arrangement. Just cash flow.

Okay. So let's say you are due $8 million in year one. If they net $8 million then you get it all, and the Tribe gets 0?

In theory that would be correct. In practicality, probably not.

I just wanted to make sure that there is no threshold and that you guys will get paid out.

No threshold whatsoever.

Okay. Thanks a lot, guys.

Thank you. There are no further questions registered at this time. I would now like to turn the meeting back to Mr. Tim Cope.

This is Mr. Berman. I just want to thank you all for listening, and we'll look forward to talking to you in three months from now. Thank you very much. Bye.

Thank you. The conference has now ended. Please disconnect your lines at this time. Thank you for your participation, and have a great day.