On Q4 earnings call, Full House CEO apologetic about Waukegan debut

March 7, 2023 9:09 PM

On Q4 earnings call, Full House CEO apologetic about Waukegan debut

Photo: Full House Resorts (courtesy)/Rendering of American Place Resort and Casino in Waukegan, IL.
  • David McKee, CDC Gaming Reports
March 7, 2023 9:09 PM
  • David McKee, CDC Gaming Reports
  • Colorado
  • Illinois
  • Nevada
  • Commercial Casinos

“Every opening has its problems,” Full House Resorts CEO Dan Lee said, referring to his company’s debut of The Temporary at American Place in Waukegan, Illinois. “We’re understaffed and having to deal with that.”

Lee’s remarks were made during the company’s fourth-quarter earnings call with Wall Street analysts.

The American Place temporary opened on February 17 and has recorded a win of $1.4 million through last Saturday. All of Full House’s casinos generated gaming revenue of $114 million last year, so Lee views Waukegan’s performance as consistent with that run rate.

“The Grand Vic,” he said about a Caesars Entertainment casino in nearby Elgin, “is a tired 25-year-old riverboat and it does $120 million” annually.

Win per person in Waukegan was $80 during the first week of play, $97 in the second. “The place is only partly open,” Lee emphasized, dwelling at some length on particularities of the Illinois Gaming Board that made it difficult for Full House to staff up entirely prior to opening. Prospective hires have to fill out 25 pages of a 30-page IGB form, in English (although, according to Lee, the immediate employee base is 50 percent Latino) and regulators “want to know the names of every girl you’ve kissed since the third grade.”

The Temporary has 400 employees to date. “About 200 are in the pipeline,” Lee elaborated, adding that those would result in perhaps 100 hires, bringing the company closer to its 800-worker target. Table-game dealers are proving particularly hard to find, due to the number and proximity of other casinos. Full House is offering $60,000 salaries (inclusive of tips) and $5,000 relocation incentives.

Due to the paucity of dealers, The Temporary is operating with a limited number of table games. “The fact that we have only 28 table games doesn’t matter on a Tuesday,” Lee said. “On swing shift on Saturday, it’s a problem.”

“In the slot area, we’re pretty well staffed,” Lee related. However, 100 machines are kaput: “One of the slot manufacturers fell flat on us.”

Lee and CFO Lewis Fanger admitted that food service was very limited, primarily to the casino’s L’Americain restaurant, which is currently dinner only. The steakhouse and Asia-Azteca restaurants have yet to open, although Full House executives think they ‘ll attract return business when they do. Again, staffing was blamed.

Also, “We opened our doors with no mailing list,” Lee offered. “Today, we have about 15,000,” including “some who signed up to get a free-buffet chit.”

Added Fanger, “The way I view the opening of The Temporary was as a massive deleveraging event.”

While the per-person revenues were “pretty low” for Illinois, Lee expects them to improve. “I don’t think it’s going to be $200 million [a year], maybe not even $150 million,” but perhaps $120 million, especially with an emphasis on high-margin slots.

“You’re looking at a lake that’s never been fished in before,” Lee analogized, saying that much more marketing and research needed to be done to find players. Even so, Fanger interjected, “This will be very EBITDA-positive right out of the gate.”

Both Lee and Fanger believe that Full House was hampered by last-minute lack of clarity as to exactly when the IGB would permit The Temporary to open, receiving only 24 hours’ notice. “It wasn’t the way you would normally open,” Lee said, with Fanger putting additional emphasis on the uncertainty of the opening date right up to the last minute.

On the subject of uncertainty, Full House is at odds with the IGB over the amount of “tax on gaming capacity.” Although nominally obligated to pay $38 million upfront and $12 million more when the permanent American Place opens (within three years), regulators have informed Full House that not only is it on the hook for the whole $50 million, but it’s due in a week’s time. This may have an unanticipated impact on Full House’s first-quarter numbers for this year.

“It’s not the amount, but the timing of the money,” Lee said, explaining that the dispute between himself and the IGB was on interpretation of the relevant law. The CEO was at pains to blame Illinois law rather than regulators themselves for problems the company was having in the Land of Lincoln.

The customer sample to date was described as being mainly from surrounding Lake County, “very little from downtown Chicago,” Lee said, “We’re not even drawing very far from Rivers [in Des Plaines] or Potawatomi,” in Milwaukee. Other than Lake County locals, “I don’t think we’re going to have much impact on them. People in Chicago don’t want to drive up to Lake County. It’s gonna ramp slowly, but it’s not going to be completely consistent. I wouldn’t worry about it, because the trend is going to be up.”

During the fourth quarter, Full House revenues drifted down from $43.3 million in 2021 to $36.1 million, leading to a loss of $7 million. For all of 2022, the company posted revenues of $163.3 million, with a net loss of $14.8 million.

“There was bad weather portfolio-wide in December,” Fanger reported, with the heaviest blows falling on the Silver Slipper in Mississippi and Bronco Billy’s in Colorado. The Silver Slipper was particularly hurt by some “pretty crazy promos” from a competing property.

On the Colorado front, Chamonix is “progressing well,” according to Lee, with drywall going up and the construction crane coming down. The remaining work will take five to 10 months to finish, but Chamonix will open in autumn regardless. The casino floor and a high-end restaurant are top priorities. Asked Lee, “What can we open that’s essential to customers? We’ve learned from The Temporary that it’s important to build the employee base at the same time that you build the casino.”

Fortunately for Lee, Chamonix already has a core of legacy employees to draw on, as well as a mailing list, two prerequisites not available in Illinois. Colorado revenues were hampered by the closure of much of Bronco Billy’s due to adjacent Chamonix construction, which forced the temporary shutdown of the Bronco Billy’s casino floor. Still, “Chamonix is going to make 10 times what Bronco Billy’s ever made,” Lee predicted.

In Nevada, Full House’s Lake Tahoe casino may be forced to close for as much as 18 months, due to what Fanger described as “an extensive renovation” of the Hyatt Regency Lake Tahoe by new owner Larry Ellison. Full House has managed to have its Tahoe lease extended through the end of 2024. “They’ve never let it be a long-term lease,” Lee added. “I wish they would.”

Pressed to sell assets, Lee explained that it didn’t make sense for the company, as its two Nevada casinos are run with one combined staff and only one of the casinos (Stockman’s in Fallon) is wholly owned, Also, outlying properties serve as a training ground for management. Said Lee, “Frankly, we don’t need the money. We wouldn’t move the needle much if we sold one of these properties.”

While Lee didn’t rule out a deal with a REIT or a sale-leaseback of assets, much as competitor Penn Entertainment has done, he said going to the bond market was a less expensive way of affording expansion. “If somebody offers 25 times cash flow for an asset we have, we’ll take it,” he laughed.