Analysts: Full House has the upper hand for Illinois casino project

Analysts: Full House has the upper hand for Illinois casino project

  • Howard Stutz, CDC Gaming Reports
October 24, 2020 9:00 AM
  • Howard Stutz, CDC Gaming Reports

A casino project in Waukegan, Illinois – roughly 40 miles north of downtown Chicago and 15 miles south of the Wisconsin state line – could increase the value of Las Vegas-based Full House Resorts by more than four times its current market capitalization.

That’s the opinion of gaming analysts at Minneapolis-based investment firm Craig-Hallum Capital Group.

Full House’s $375 million American Place development was one of three potential casino projects recommended a week ago by the Waukegan City Council to state gaming regulators. It’s unclear when a decision will be reached.

Waukegan is one of six locations targeted 16 months ago when Illinois lawmakers approved the nation’s largest gaming industry expansion to an existing market in more than a decade.

Full House, which operates five small casinos in Nevada, Mississippi, Indiana, and Colorado, is up against a combined bid by Rush Street Gaming and Churchill Downs and a group headed by a former Illinois state senator that includes former Station Casinos gaming executive William Warner and his casino management company.

“We believe Full House has the best casino proposal (and) the most experienced casino development team, and the other two have various red flags,” Craig-Hallum gaming analysts Ryan Sigdahl and Matt Wenger wrote in an Oct. 15 investors note.

Full House’s plan for American Place calls for a 75,000-square-foot gaming space with 1,500 slot machines, 60 table games, and a sportsbook. A small hotel with 20 villas would be included and a 150-room hotel is part of the second phase. The property would include live entertainment, restaurants, and other non-gaming amenities. Full House told Waukegan leaders the company would operate a temporary casino while the permanent facility is constructed.

Craig-Hallum said the Illinois project, which alone would double the company’s size, would have more than a positive impact on Full House’s stock price, which closed Friday at $2.80 on the Nasdaq. The analysts said Full House was worth $5 a share right now and up to $12 with American Place.

A rendering of American Place, Full House Resorts project for Waukegan, Illinois/Courtesy photo

Illinois would allow Full House to expand its sports betting footprint, which is active through online skins it has licensed out to three operators in Indiana and Colorado, plus the potential for an online gaming opportunity.

An outside consulting firm brought in by the Waukegan City Council rated Full House with the highest score in three of the four evaluation criteria – location, development, and experience. The only area in which the company didn’t have the highest score was financial data.

“We believe this is due to the size of the company relative to project size,” the Craig-Hallum analysts wrote. “A reputable joint venture partner could significantly improve its proposal.”

Full House’s flagship casino is the Silver Slipper in Bay St. Louis, Mississippi, which reported a property record 28% increase in June following a more than two-month shutdown to halt the spread of the coronavirus pandemic.

The company, which like the rest of the gaming industry saw its casinos close much of the spring due to COVID-19, reduced payroll by up to 30%, and “significantly” lowered marketing costs. Full House’s quarterly revenues are nearing pre-COVID levels, leading Craig-Hallum to predict a “record profitability” when third quarter earnings are announced next month.

Full House, which is headed by CEO Dan Lee, has sought to expand its scope over time.

American Place was the name of Full House’s proposed $650 million casino and entertainment development on a site near the Indianapolis Airport that was rejected by Indiana gaming authorities in 2016.

Two years later, the company proposed building a $200 million horse racetrack, casino, luxury hotel, and golf course complex near Clovis, New Mexico when the state considered adding a sixth racetrack. But New Mexico leaders scrapped the idea a year later.

Full House’s last expansion came in 2016 when it acquired Bronco Billy’s Casino in Cripple Creek, Colorado, for $30 million.

In 2018, Lee and other Full House executives approached Z Capital Partners, the hedge fund that owns casino operator Affinity Gaming, to discuss acquiring one or several of the company’s casinos. A few weeks later, Z Capital made an offer to buy Affinity at a 35% discount to the company’s stock price. The bid was rejected.

Coincidently, Affinity is one of several companies suggested by Craig-Hallum as a partner in the Waukegan project.

(Disclosure: Ken Adams, CDC Gaming Reports’ senior analyst, is a member of the Full House board of directors)

Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at Follow @howardstutz on Twitter.