Full House Resorts is one of the few casino operators in the U.S. with a clear and understandable growth story.
Yet, the stock price is in the dumps, in part because of depressed investor malaise for brick-and-mortar gaming and for small caps in general.
The company tried to address those concerns with recent investor meetings and tours of its two potentially transformational new properties – Chamonix in Cripple Creek, Colo., and The Temporary American Place in Waukegan, west of Chicago.
To avoid getting too bogged down in numbers, let’s keep this simple. If the $250 million Chamonix and $450 million American Place (upon build out of its permanent property by 2027) achieve 20 percent EBITDA returns, that is $140 million, or a near quadrupling of the company’s profitability when added to the historically under $50 million of legacy properties. Factor in expected future debt deleveraging, and a stock that has been dancing around $5 a share could be $20, $25, $30 or more.
The problem so far is that both properties opened with glitches and, in the case of Waukegan, a slower ramp-up than expected, throwing doubt on rosy scenarios. Thus, the investor tours.
Management arguments for long-term success remain based on the original premises: Waukegan has population and affluence that, based on simply matching surrounding Chicagoland properties in performance, would lead to the promised results. Chamonix, likewise, achieves those goals if Coloradans in the market grow their gambling per capita even close to national averages.
There is another element in looking at the prospect for Full House to achieve its goals – CEO Dan Lee.
Lee is definitely a colorful personality. On one hand, he is often acerbic and risks alienating those upon whom he must rely, like regulators. On the other hand, he is a thinking machine, always seeing possibilities and opportunities and solutions to problems that others do not see. His style is hands-on, walking the properties and seemingly daily seeing improvement opportunities.
Readers of this space know we have long been partial to Full House, and we are owners of the stock. And we have been Dan Lee fans for a long time, dating back to when he took over Pinnacle Entertainment and we bought that stock around $4 a share and rode it up to around $40.
We expect that same to happen with Full House. And while it won’t always be a smooth ride, it will be exciting.
CRIPPLE CREEK, A MARKET IN THE MAKING?
This was our first visit to Cripple Creek and it was an eye-opener.
Colorado gaming has long been dominated by Black Hawk-Central City because of its proximity to the four million residents of the Denver metro area.
Casino companies have done their part in developing the market, as evidenced by major projects such as best-in-class Monarch, Ameristar and significant upgrades by Caesars.
Cripple Creek, on the other hand, draws from the million-resident Colorado Springs market which, like Denver, is enjoying a population boom.
But what is impressive about Cripple Creek is its physical layout that lends itself to a tourism development, unlike narrow Black Hawk squeezed next to mountains and neighboring mountainside Central City with its narrow, twisting streets.
Cripple Creek has straight, broad streets upon which to develop and flat enough land to allow for future development, including residential, which can help house a growing labor force. Further, Cripple Creek already has tourist attractions such as gold mining tours, working mines, old-time locomotives, and turquoise mining open to the public.
The potential has drawn billionaire restaurant and casino entrepreneur Tilman Fertitta who bought the largest casino in town, renamed it Golden Nugget, and plans to make it, by Cripple Creek standards, a major property. Likewise, legendary Las Vegas casino operator Michael Gaughan and partners have purchased two small casinos up the street from Chamonix.
In other words, experienced gaming guys with financial resources have begun investing in Cripple Creek.
And, though the market is further removed from Colorado’s biggest population centers, it is within reach of them, especially the fast-growing cities south of Denver. As an example, Full House says 21 percent of new player club members are from the Denver area.
Which gets us back to Chamonix. It is a stunning luxury property that no doubt will win future Michelin stars. In short, the potential appears there to achieve its goals.
PERSONAL NOTE
Finally, it was sad to hear of the death of gaming analyst Larry Klatzkin.
Larry was one of the pioneers among Wall Streeters who covered gaming stocks. He started more than 40 years ago when few analysts covered the industry and those who did were often rookies with a lot to learn about business and about the industry. It was a far cry from today when gaming investors now benefit from a corps of experienced and knowledgeable analysts.
Given his early entry, Larry was one of few guys investors could turn to in order to understand the space.
Larry also was one of the first subscribers to Fantini’s Gaming Report, signing on the year I started the service in 2000.
Forty years is a long time, and it’s a tribute to Larry’s dedication that he never lost enthusiasm for the industry.
