Yet Another Value 的2025年度之选：Full House Resorts $FLL

Let’s start the same way I start every podcast: a disclaimer to remind everyone that nothing on this podcast is investment advice. That’s always true, but it’s particularly true today. Today I’m presenting what I’m calling the YAVP idea of the year, and I am long the stock in significant size. It’s a smaller-cap stock, which carries extra risk, liquidity risk, and all of that sort of thing, so please remember that I have no idea what I’m doing. Consult a financial adviser, do your own work, do your own diligence, and all of that.

With the disclaimer out of the way, it’s time to get into it. This is the Yet Another Value Podcast idea of the year for 2025. Generally, I haven’t really been into doing ideas of the year since I was a young investor because I thought, “Look, good ideas can come in April, they can come in November, they can come in September. Who knows?” But I’m really enthused about this one. I think I have a great story, I’ve done a ton of research, and I wanted a place to share it all with everyone, so I decided to do it.

Most of the listening on this podcast is done through audio, and that’s great. I’m going to try to explain everything on audio, but for this particular podcast I’m doing a screen share. If you’re listening on audio and you’re able to watch the video, go to YouTube, because I think you’ll get a little bit more out of this presentation. I’ve prepared a substantial deck to go along with it. I’m trying something new, and I may never do this again, but I think if you watch on YouTube and see the presentation, you’ll get a lot more out of it.

One last note before I get into the presentation: I tried something a little interesting and unique. I did not put a single image together for this presentation. Every image, with one exception that I’ll discuss when we get to it, is an image I sourced in the public domain, generally from company investor presentations or public filings, but also from state regulatory websites and that sort of thing. If you’re watching and you’re thinking, “The fonts, transitions, or background are different,” it’s because I didn’t put any of this together. I just grabbed it from public presentations.

So, I’m going to do a screen share and get into the YAVP idea of the year. The YAVP idea of the year for 2025 is Full House Resorts. The ticker is FLL.

Let’s start with a case study. Pretend that I am the CEO of Monarch Casino & Resort, ticker MCRI. It’s 10 years ago, in 2014, and you and all of my listeners are the board of directors. If you’re watching on YouTube, you can see a screenshot of Monarch’s income statement for 2013.

Monarch is a $300 million enterprise-value company in the stock market. In 2013, its first full year of operations, it generated almost $50 million in EBITDA. I come to you as the CEO and say, “This is great. We’ve got our companies put together. We’ve got Atlantis Casino in Reno, doing $30 million to $35 million per year in EBITDA. We bought Monarch Black Hawk in April 2012, and we have one full year under our belt. It did $15 million to $16 million in EBITDA. We’re doing $50 million in EBITDA. Let’s go.”

Then I tell you that I want to take the $15 million of annual EBITDA from the casino we just bought in Black Hawk, Colorado, and invest $300 million to $400 million into expanding it. I realize we’re having this conversation in 2024, and it’s all funny money because people are spending hundreds of billions of dollars building AI data centers, but $300 million is a real investment. It’s particularly real for you as a board of directors when you’re thinking about Monarch Casino because our enterprise value is $300 million, and I’m proposing that we invest at least $300 million in capital expenditures into a huge expansion of this Black Hawk, Colorado, casino.

You, as a board, are going to say, “This is a bet-the-company bet we’re making here. We have a $300 million enterprise value, and we’re investing $300 million in capital expenditures. If this goes poorly, it’s not going to be great.” So you’re going to look at this pretty critically.

If we had a crystal ball and could see the total revenue generated by gambling in all of Black Hawk—not just our casino, but all of the casinos in Black Hawk, Colorado—you would see that the Black Hawk market is essentially sold out at around $550 million of gambling revenue per year. To choose a few numbers, in 2006 the market generated $550 million of gambling revenue, and in 2014 it generated $560 million. That’s flat over 10 years, and the market actually declined over that period.

2007 was the highest year on record. Revenue went from $550 million in 2006 to $580 million in 2007, and then dropped to $510 million in 2008. You might be thinking, “It dropped by 10% to 15% in 2008 because of the financial crisis,” but you would be wrong. What actually happened is really interesting.

A lot of people think regional casinos must have significant recession risk. I’m not going to say there’s no recession risk, but if you go back to 2008, regional casinos across the United States were down low single digits. Regional casinos are actually fairly protective. In a recession, instead of making the trip to Las Vegas to gamble for a weekend, people tend to trade down to regional casinos. Regional casinos attract more of a bread-and-butter weekend player: retirees, people living on Social Security checks, and that sort of thing. Vegas casinos get hit hard in a recession, but the regional casinos often see people who would have gone to Vegas trade down to them.

There are 2 big risks if you’re a regional casino. The first is that you’re a casino in Town A, and Town B, 20 miles down the road, looks at you and says, “They’re taking in a lot of income and generating a lot of jobs. Why don’t we build a casino?” The second big risk is smoking. If smoking is allowed inside your casino and your state bans smoking, your revenue can be down 10% to 15% year over year almost immediately. That’s what happened in Colorado in 2008. Colorado banned smoking inside casinos, and that drove the decline.

Going back to 2014, the board is looking at the situation and saying, “The Black Hawk market is stalled at around $550 million of revenue per year. If we’re going to make a $300 million investment, what would it take to generate a return?” Our casino is doing about $50 million to $55 million in revenue per year and has approximately 10% market share. If we want to make a $300 million investment, we probably need to generate $200 million of incremental revenue. That means taking our market share from 10% to almost 50%.

That ignores every other casino. If $200 million of revenue gets sucked away by our casino, the other casinos will probably start a promotional war. It will be insanity, margins will decrease, and there’s really no way to underwrite a 50% market share in order to generate a return on that investment. So you’re going to say, “Andrew, thanks for proposing this bet-the-company idea, but this doesn’t seem like a good idea. The market isn’t big enough to support this big of an investment.”

I would say that I understand what you’re saying, but let me explain my logic. Black Hawk, Colorado, is a particularly advantaged town for regional casinos. I’m not a casino expert, but I’ve spent a lot of time looking at casinos, and I think Colorado is probably the best state in the country for domestic casino development.

Your biggest risk as a casino is that the town or state next door, within driving distance, builds a competitive casino and takes away your customers. Regional casinos generally draw from a 60-minute, or possibly 90-minute, driving range. If you’re 60 minutes away and somebody builds a casino 15 minutes away, a lot of people are going to go to that casino.

Colorado is unique because casino gambling is banned by the Colorado Constitution except in 3 towns. In the early 1990s, there were 3 former mining towns—very small mining towns—that were essentially going extinct, and Colorado legalized gambling in those 3 towns. They are Black Hawk, about 45 minutes to an hour outside Denver; Central City, also about an hour outside Denver; and Cripple Creek, about an hour outside Colorado Springs.

These are former mining towns, and when they legalized gambling in the early 1990s, this was before Las Vegas had become the city it is today. The gambling product built in these towns matched what the towns were. They were lower-income former mining towns, so they built casinos for somebody who would drive to a casino, chain-smoke, play penny slots, and drink 6 beers in a day. That was the customer they were catering to.

My argument was that people in Denver like to gamble as much as anyone else, but Black Hawk’s revenue had sold out at a low level because the casinos were delivering an inferior product. People were coming there to drink a bunch of beers and burn time. If you want to gamble and make a day of it, you want a spa trip, a luxury experience, and the ability to make a weekend of it. None of that existed. You could go there and almost still taste the smell of cigarettes lingering in the casinos, even though smoking had been banned for 6 years. It was essentially a dive bar. That was the product.

My argument was that Denver was starved for gambling. It was only 45 minutes away, and if we built a really nice luxury product, people would come. If you build it, they will come. We could see a huge expansion of the market.

There was another case study supporting the idea. Monarch Black Hawk decided in 2014 to spend approximately $400 million expanding the property. They took what was essentially a new-build casino and grew it to about $60 million in EBITDA by 2022. I don’t think that was a screaming home run by any means. It was a $400 million to $430 million investment that produced $60 million of EBITDA, although it was probably a casino worth around $600 million, and they had generated cash flow along the way.

I’m not saying that casino was a screaming home run, but it was an example of what could happen if you built a really nice product in Black Hawk. The market would expand around it because Denver was so starved for a quality option.

The final thing I wanted to show the board was why this was so unique. Earlier I mentioned that the biggest risk for a casino is a competitive casino opening across the way. Colorado is attractive because the 3 towns I mentioned—Cripple Creek, Black Hawk, and Central City—are essentially in the middle of Colorado. It’s a 5-hour drive in any direction if you want to reach another state.

Look at Oklahoma. Its southern border touches Dallas and Texas, and right along the southern border of Oklahoma there are 16 casinos. Why are there 16 casinos there? Texas bans gaming, so Oklahoma opens casinos right along the border, and people drive 60 to 90 minutes from Dallas to gamble there. That’s not going to happen in Colorado. Black Hawk is 5 hours from another state, so if we open a casino and it’s an incredible success, there isn’t going to be a competitive response from neighboring cities, towns, or states. Colorado doesn’t allow it, and the other states are too far away to affect our pool of customers.

If we succeed in Black Hawk, which is land-limited, we will have built a really unique and durable casino. This was 2014, and Monarch made that bet. They won it substantially. Their share of the Black Hawk market went from approximately 10% in 2012 and 2013 to about 30% in 2023. They increased their share enormously, but more than that, the Black Hawk market expanded like crazy.

The data comes directly from the state government’s data on gambling revenues throughout Colorado. If you look at adjusted gross proceeds, or AGP, in fiscal 2014, the Black Hawk market generated approximately $550 million in gaming revenue. In fiscal 2024, it generated approximately $850 million. The Black Hawk market expanded dramatically.

The other markets did not see that kind of growth. Central City had approximately $70 million in gaming revenue in 2013 and $80 million in 2024. Cripple Creek had approximately $130 million in 2013 and $170 million in 2024. Those markets grew 10% to 20%, essentially around the rate of inflation. Black Hawk exploded, and almost all of that explosion was driven by Monarch Black Hawk’s growth. Every other casino grew roughly in line with inflation, while Monarch grew substantially and inflated the market overall.

Monarch made that bet and absolutely won it. Its stock followed that bet much higher. The stock is a 5-bagger-plus over 10 years. This is not a great time for gaming stocks, and it’s not a great time for small-cap stocks, but it has been a great time for Monarch. The stock was up approximately 5.5 times over 10 years, far more than the S&P 500. The Russell 2000 was up approximately 120%, and when I put this presentation together in late November or early December, Monarch was up approximately 550%. That’s 3 or 4 times the return of the Russell. It’s a crazy home run.

Why do I mention all of that? The way to win at regional gaming is described in a quote from Full House’s CEO on the company’s third-quarter 2023 earnings call:

“If you know the history of gaming, then you know that the business model that has worked time and again is to find an underpenetrated gaming market without a differentiated product, and then build a differentiated product in that underpenetrated market.”

Monarch is a case study that illustrates this perfectly, and I think Full House Resorts will be Monarch 2.0.

Full House Resorts is a micro-cap company with a market capitalization of approximately $150 million. It used to be higher, but it has been a brutal month for value stocks. Full House was at $200 million to $250 million a few years ago and had a $400 million market cap at one point. It’s now at approximately $150 million.

I think it’s substantially undervalued, obviously, but it’s a $150 million market-cap company with a $600 million enterprise value. It has 6 casinos. One of them is the Silver Slipper in Mississippi, which holds a place near and dear to me because it’s my mother’s and grandmother’s favorite place to go. My grandmother actually broke her hip at the Silver Slipper about 6 months ago. It was a terrible story, with no fault on the part of Silver Slipper. She’s 86, still very sharp, and she fell and broke her hip. Silver Slipper holds a place in my heart, but my mother and grandmother still love it there.

Full House has 6 casinos, but there are 2 that you really need to pay attention to. They’re the 2 casinos that are going to drive all of the equity returns. Those are in Cripple Creek, Colorado, and Waukegan, Illinois.

In Cripple Creek, Full House has the Chamonix Casino Hotel. This is a new build that came online at the very end of December 2023. It’s a French luxury resort, and Full House invested approximately $250 million in it.

The other property is American Place in Waukegan, Illinois, about an hour north of Chicago in the northern Chicago suburbs. These are the 2 properties I’m going to focus on because time is limited and they’re really the 2 return stories here. There is value in the other casinos, particularly the Silver Slipper, which is probably worth $150 million on its own. Maybe it’s worth $120 million, maybe $180 million, but there is value there. What’s going to drive the returns are Chamonix and American Place.

Let’s start with Chamonix. This is the casino that originally attracted me to the Full House story, and it’s the casino I’m starting with because the parallels to Monarch Black Hawk are so obvious. Monarch Black Hawk was built in Black Hawk, about an hour outside Denver. Chamonix is built in Cripple Creek, about an hour outside Colorado Springs. Full House is trying to copy the Black Hawk model almost exactly.

Chamonix is a French luxury casino. Around 2015, Full House bought Bronco Billy’s, which was probably the biggest casino in Cripple Creek. Through a long and arduous process, it took a large piece of the Bronco Billy’s land, acquired some neighboring land, and built Chamonix. Bronco Billy’s is still operating, and the 2 properties are connected.

Chamonix came online on December 27, 2023, with a $250 million investment. The company is trying to do exactly what Black Hawk did. To give you an idea of the town, across the street from Bronco Billy’s and Chamonix is a row of casinos. Chamonix and Bronco Billy’s are on the main street of Cripple Creek, and there are probably 8 casinos there.

Across the street from Chamonix is a casino called the Brass Ass. The restaurant at the Brass Ass is called Dynamite Dick’s. That should give you a good idea of the type of place this was and the type of gamblers it attracted. I was talking to an insider at one of the companies, and they were discussing the Brass Ass and Dynamite Dick’s. The names stick so well that it’s probably the most memorable name in all of the Colorado casinos, and they’re probably right.

Full House is trying to say, “If you want to have a luxury experience, go away for a weekend, visit a spa, and gamble in style, you can come here.” Previously, people were taking buses or making day trips, and the experience was mainly about drinking. Chamonix opened on December 27, 2023, but that was a very soft opening. They got the gambling operation open, but when I visited over the summer, the spa still wasn’t open. There were a lot of amenities that were still coming online.

They had what they called their grand opening either on the last weekend of October 2024 or the first weekend of November. Jay Leno was there, so they had their grand opening. Everything is up and running now, but it took a while.

Why did Full House invest in Chamonix? The simple answer is that they think it’s going to mirror Black Hawk. But if you want to dive into the story, consider this chart. Average gaming revenue in the United States is approximately $65 billion, and there are 323 million people in the United States, so gaming revenue per capita is approximately $200.

That data is from 2019. In Colorado Springs, gaming revenue in 2019 was approximately $133 million, with a population of about 1 million people. Gaming revenue per capita was therefore under $150. Colorado Springs was substantially below the national average, despite the fact that it had a drivable gaming product an hour away.

The national average includes many places where gambling isn’t allowed. I mentioned Texas earlier. There’s no gambling in Texas, and people in Houston and Dallas have to drive to Oklahoma. Houston, Dallas, and Austin are huge population centers with zero gambling revenue. Utah’s state constitution prohibits gambling, so there is zero gambling revenue there as well. People might fly to Las Vegas, but you would have to imagine that a state where gambling is outlawed would bring down the national average substantially.

Colorado Springs was below the national average despite having a drivable gaming product nearby. On the chart, directly above Colorado Springs, is Denver. In 2019, Denver generated approximately $174 per capita, also well below the national average, despite having Black Hawk an hour away.

I think that’s a sign these markets are underpenetrated—not because people don’t want to gamble, because I think people are broadly the same across the board, but because they were underserved by a quality product. That’s what Monarch Black Hawk saw in Denver. They built a new product, and the market exploded. That’s what I think Full House is seeing in Colorado Springs. They built a new product, and I think this market will explode.

That’s Chamonix. Let’s turn to the other piece of the story, American Place. I think Chamonix is the most interesting property, and it could become one of the most unique and highest-multiple casinos in the entire country once it fully ramps and people appreciate it. But American Place is going to be the most valuable property in Full House’s portfolio.

American Place is about an hour north of Chicago. You might say that Chicago is already well served by casinos. Full House won the license in 2021. Bally’s Chicago is opening a casino in downtown Chicago, and that facility is being built. There’s Rivers Casino in Des Plaines, a 30- to 45-minute drive south of American Place. There are casinos throughout the Chicago area, and an hour north of American Place, just across the state border in Milwaukee, the Forest County Potawatomi tribe has a casino.

You might therefore say this is a well-penetrated market. I think you’d be wrong. This slide from Full House’s presentations shows essentially the same thing I was discussing with Cripple Creek: the Chicago metropolitan market is substantially underpenetrated on a per-capita gaming basis.

This was before American Place was fully open. The temporary casino opened in February 2023, so the figures predate that. Chicago’s average gaming revenue per capita was approximately $200, roughly in line with the national average, but that’s well below what a city with easily accessible gaming products should generate.

The slide shows Detroit at $383 of gaming revenue per capita, St. Louis at $364, Baltimore at $326, and Kansas City at $349. Chicago is at the higher end of per-capita income compared with all of those cities. So Chicago is significantly larger and wealthier than these markets, but it generates substantially less gaming revenue. If that doesn’t scream “underpenetrated gaming market,” I don’t know what does.

Those are the 2 major projects. I think both are going to be screaming successes, and I think we already have indications that both are successes. Let’s turn to the upside and ask what we’re playing for.

This was the hardest slide for me to put together, to be honest. I didn’t want to put a single thing I had produced into the deck because I’m lazy. I used to be a consultant at a big consulting firm, and I don’t like modeling anymore. I do models for myself, but I don’t like public modeling. I have my own formats, and I didn’t want to spend time formatting everything. I wanted to stick to the idea that everything in the presentation came from the public domain.

I spent a lot of time asking myself how to frame the upside. What I finally decided to use is a quote from Full House’s fourth-quarter 2021 earnings call. The CEO essentially said that the company thought Chamonix could generate $50 million of EBITDA. Once American Place was fully operational, they thought it could generate $100 million of EBITDA. They had approximately $50 million of EBITDA from the other casinos, plus some online gambling licenses, and they thought the company could become a $200 million EBITDA business.

At a $200 million EBITDA run rate, they looked at precedent transactions and thought they could be worth 10 times EBITDA. They would own all of their real estate, which is important and which I’ll come back to. At 10 times $200 million, the enterprise value would be $2 billion. Subtract approximately $650 million of debt—they were at $450 million at the time and expected to be around $650 million once American Place was fully operational—and that leaves $1.35 billion. With 37 million shares outstanding, that’s north of $30 per share.

The CEO went on to say that this represented a quadrupling of the stock price. He said this in early 2022, when the stock was at $7 or $8. The stock is now around $4. I agreed with all of his math and his upside. Everything he said still stands, except that the stock has been cut in half for a bunch of different reasons. If he thought it was a quadruple then, you can do the math and figure out what the upside is now.

I wanted to pause there. Now that you know about Chamonix and American Place, and now that you have the case study, this is what I think you’re playing for over the next 3 to 5 years as the casinos come fully online and ramp. This is why I’m so excited about the stock, why I think it’s so timely, and why it’s my idea for 2025.

The first question I ask every guest is: the market is a competitive place, so why does this opportunity exist? I’m going to ask that of myself now. I think the answer is simple, and there are a number of reasons.

This is a small-cap company. People got really excited about it, then Chamonix was built in December 2023 and January 2024 came around. People asked, “Why isn’t this already a $50 million EBITDA property?” There’s some boredom, and there are some risks, but I think a big reason the opportunity exists is the company’s current income statement.

This is the company’s income statement for the third quarter of 2024. In the first 9 months, the company lost $30 million. This is a company that, as we speak, is running at approximately $50 million of total EBITDA. Interest expense alone is running at approximately $50 million annually. It’s closer to $45 million, but let’s round it up.

If you’re using screeners and looking at value metrics, this company screens absolutely terribly—horrifically. There’s a very good reason for that. Chamonix is a $250 million casino, so there’s $250 million of capital expenditure in the ground. The company had to raise debt for it, and it opened in December 2023. On a trailing basis, the property isn’t yet in the numbers. It may actually be negative in the numbers because of pre-opening expenses, although those are added back to EBITDA.

A casino isn’t super profitable in its first month. Chamonix is roughly at break-even right now, and American Place, as I’ve discussed, is operating in a tent rather than at its full run rate. If you look at the historical numbers, they look terrible.

There’s another reason this opportunity exists. This is a picture of what Full House calls the temporary facility at American Place. The permanent casino is going to cost approximately $500 million in total. The company has shown drawings, and it looks absolutely beautiful, but that casino hasn’t been built. We’ll talk about some of the risks to getting it built.

The temporary facility is a giant tent with a bunch of slot machines. It opened in February 2023. It is currently running at approximately $30 million of EBITDA on a last-12-month basis, and I think it’s running in the mid-$30 millions now. I expect it will be above a $40 million run rate within the next 12 months as it continues to season.

The temporary facility affects the company in 2 ways. First, when you look historically, you’re looking at what the tent is generating. I’m excited about American Place because I think it can generate $100 million of EBITDA. The company still has capital expenditures left to spend, but people might look at it and say, “I thought this was going to be a $100 million property. It’s only doing $30 million.” The answer is that it’s in a tent.

The second issue is capital expenditures. Full House will have to spend approximately $325 million to turn the tent into a permanent casino. I’m hoping they start converting it into a permanent casino in late 2025. People are terrified about how they’re going to finance that $325 million of spending.

This is a company with $450 million to $500 million of debt and approximately $50 million of EBITDA. People look at it and say, “This is a small-cap company, the stock has been decimated, and it has to finance this huge construction project. How is it going to do that?”

The CEO, who owns a lot of stock, and the CFO, who also owns a lot of stock, have been very clear. They said this when the stock was at $5, and it’s now at $4, so I think the statement still holds. They’ve been very clear that they think this is financeable, that they have plenty of options, and that they aren’t going to use equity to finance it this year. I’ll discuss all of the options in a moment.

When I talk to people, there are 3 concerns. The number-one concern with Full House is how it will finance the conversion from the temporary facility to the permanent casino. I think it’s doable. The company thinks it’s doable. I actually think it’s a lot easier than the market does, but that’s the number-one concern.

The second risk relates to a lawsuit. The Forest County Potawatomi tribe, which has a casino just across the state border from American Place, sued when Full House won the casino license. The tribe sued the state and the city, saying the license had been improperly awarded to Full House.

That lawsuit has delayed the project. Full House was supposed to start building the permanent casino in 2023, with an opening date in 2025. It hasn’t started construction because the permanent facility can’t begin until the lawsuit plays out.

The third risk is ramp-up risk. What if the temporary facility and Chamonix don’t ramp up? Let’s start with that risk. I’m much less concerned than the market and the people I talk to about ramp-up risk. In the case of American Place, I think the ramp-up risk has essentially been settled.

This is a clip from Full House’s third-quarter 2024 earnings call showing American Place’s adjusted EBITDA by quarter. It opened in February 2023, initially generating approximately $3 million to $4 million of annualized EBITDA. Last year and this year, it ramped up to approximately $7.5 million per quarter.

It’s currently generating approximately $7.5 million per quarter. Annualized, that’s $30 million, and it’s starting to move above that. As we speak, I think the property is in the mid-$30 millions, and I think it will be above $40 million as we get toward the end of 2025.

I think the ramp at American Place is settled. That’s important because it’s in a tent. If the tent is running at $40 million of EBITDA, there’s no way that American Place won’t generate at least $80 million when it moves into the permanent facility. That would be a conservative estimate.

The company itself said that when it built American Place, it thought the property could reach $100 million of EBITDA. If the tent is generating $40 million, there’s no way the permanent facility won’t generate $80 million, and it could be much more than $100 million.

There are several reasons. First, just think about a tent. I’m sure the tent is nice. It has a restaurant and a steakhouse, but it doesn’t have all the things a permanent facility will have. It doesn’t have many of the entertainment venues or restaurants that the permanent casino will have. I haven’t even eaten at the steakhouse in the tent, but a tent restaurant isn’t going to be as good as the permanent restaurant.

There will be more restaurants at the permanent facility. The tent has fewer than 1,000 slot machines, while the permanent casino will have 1,500 or 1,600. The tent doesn’t have the entertainment venues or the spa that the permanent facility will have. The permanent casino will simply have more features to drive foot traffic, attract people, and increase EBITDA.

You don’t have to take my word for it. There are examples. Hard Rock Casino Rockford in Illinois opened its permanent casino in August or September 2024. The temporary facility was generating approximately $6 million per month of revenue. When the permanent casino opened, it immediately generated approximately $14 million per month.

The chart in Full House’s presentation only goes through September, but the data is available from the Illinois Gaming Board. October and November are also out, and revenue has doubled at the Rockford property. I expect it will continue to grow as it seasons. Whether it’s a restaurant, a retail concept, or anything else, you generally don’t hit your full run rate on day 1. It usually takes approximately 3 years to season.

I would also point out that I mentioned the lawsuit involving American Place. I’ve read all of it. In the case of Rockford, the projections were that permanent casino operations would be 3 times higher than what the temporary facility generated. Revenue has already doubled, and the gaming board projected that it would be 3 times higher.

So if American Place is running at $40 million of EBITDA and ultimately reaches 3 times the temporary facility’s revenue, it could generate much more than $100 million of EBITDA. I’m using $100 million because that’s the company’s own estimate.

That’s American Place. I think the ramp-up question is settled based on the numbers we’ve seen, and that’s one of the reasons the stock is so interesting today. If I had pitched the stock as my 2024 idea in 2023, Chamonix would have opened 2 days later, and American Place wouldn’t have started to ramp meaningfully. I would have thought these were great projects and interesting bets, but I couldn’t have told you how they were performing.

I’m pitching it now because we have the data. American Place is settled, and Chamonix is ramping very nicely. I think this is a market that is likely to season more strongly over time.

Bronco Billy’s was operating before Chamonix opened, and Full House built Chamonix next to it. Bronco Billy’s was generating approximately $1.5 million per month in revenue. Chamonix opened in December, and you can see the ramp. In January it generated in the high-$2 millions per month. By April it was above $3 million, and over the summer months it reached the mid-$4 millions.

I think Chamonix is ramping quite nicely. Would I like it to be faster and stronger? Sure, but I think it’s ramping, and we have evidence of that. I think the Black Hawk example applies completely here.

Let’s turn to the major risks. There are risks at both casinos. Let’s start with Chamonix. I think it’s ramping very nicely, but there are risks.

If you’re watching on YouTube, this is the one image in the presentation that I didn’t source from the public domain. It’s a picture of a donkey walking across the street. This isn’t the start of a joke or a punchline. I took the picture when I visited Chamonix in early August. The weather was beautiful, and I was driving around thinking, “We have to move to Colorado Springs.”

As I was leaving, I pulled out of the garage and a donkey was walking across the street. I had to follow it for 2 blocks. It was just walking down the street. I was going 2 miles per hour, and I had to make a flight.

How does that relate to the risk at Chamonix? Cripple Creek is small. It’s really small. People worry about the ramp-up. They have to drive out from Colorado Springs, and staffing is probably going to be more difficult. It’s hard to get people to come work at these jobs because the property is far out of the way. Employees may have to drive an hour from Colorado Springs or wherever they live to work there.

Those are real risks, but every risk I described essentially applies to Black Hawk as well, and Black Hawk was a screaming success. There are some differences. Black Hawk is a little more on the way if you’re driving from Denver to go skiing or hiking. I think Cripple Creek is more out of the way if you’re driving from Colorado Springs. So, on the margin, it may be a little more difficult.

But we already have data showing that Chamonix is ramping nicely, and I think the Black Hawk example applies completely. That’s the risk at Chamonix.

Let’s talk about the risks at American Place. There are several. I think the ramp-up has started, and I think that question is settled. The 2 major risks are that the permanent casino hasn’t been built, so there could be construction overruns, and the Potawatomi tribe could win its lawsuit.

The tribe lost the casino license, sued, and said the process was flawed. The risk is that the tribe somehow wins. It is a huge tail risk.

The Potawatomi tribe is approximately a 50-minute drive from American Place. I think the company believes, and I think most people believe, that the lawsuit isn’t really about the tribe thinking the process was flawed. It’s about throwing as much sand into the system as possible because when American Place fully opens, it will take market share from the Potawatomi casino.

If the tribe can delay American Place, every month of delay is another month in which its casino avoids losing customers. That could mean another $1 million, $2 million, or $5 million of earnings for the Potawatomi tribe because American Place hasn’t started taking its customers away. I think this is a delay tactic rather than a lawsuit with a meaningful chance of winning on the merits, but I could be wrong. If there’s one thing I’ve learned in court, it’s that you can be wrong at any time.

The Potawatomi tribe sued in federal and state court. The federal case has already been resolved. The judge tossed it out and said, “No reasonable jury could find that the plaintiff, the Forest County Potawatomi Community, was similarly situated to the other casino license applicants.” The judge also said there were sufficient rational bases for the city’s decision not to certify the plaintiff. The federal lawsuit has already been dismissed.

The remaining risk is the state lawsuit. It was originally decided on summary judgment and tossed out, but the Potawatomi tribe appealed, and the appeals court reinstated it. It’s now at the state Supreme Court. The Supreme Court heard from the state and the city, I believe, in September. It was December 20 when I recorded this, so I doubt it will rule during the holidays. We’ll probably hear a ruling sometime in January.

The issue at the Supreme Court is not whether the casino can go forward. It’s simply whether the Potawatomi tribe has standing to sue to block the project. Personally, I hope I’m wrong, but there’s a chance the tribe doesn’t have standing, the suit gets tossed out, and everything proceeds. If that happens, the license is not in question and Full House can build.

I think it’s probably in the 70/30 range that the tribe will have standing, but let’s say it does have standing and the case proceeds. Why am I so confident about the ultimate outcome? This is a big tail risk. If American Place were taken off the table, I think it could have been a $100 million EBITDA casino. Multiply that by a 10-times multiple, and you’re talking about $1 billion of value. This is a $600 million enterprise-value company. There’s still capital expenditure to get the property fully built, but in my opinion American Place alone would cover the entire enterprise value of the company if and when it gets built.

Why am I so dismissive of the lawsuit? I’ve read all the cases, and there are a lot of arguments, but the basic argument is about process. The Potawatomi tribe says that when the city issued the request for qualifications, it failed to check a couple of boxes. Because of that, its recommendation to the gaming board was improper, and when the gaming board negotiated and awarded the license to Full House, that recommendation was improper and should never have happened.

There are several reasons I think that argument will fail. The Potawatomi tribe put up a $25,000 application fee and was rejected. You can read the federal and state cases. The tribe was rejected because it didn’t meet the requirements, and many people apparently thought its proposal was not competitive.

Full House has spent $175 million getting the temporary casino up and running. That’s the tent and the slot machines, and it includes a $50 million gaming license. The project is expected to create hundreds of jobs and millions of dollars in tax revenue, which are desperately needed by the state and city.

When you think about equitable remedies, the Potawatomi tribe is saying that a few boxes weren’t checked, so the process should be put on hold indefinitely because of its $25,000 application fee. On the other side, there’s $175 million already invested, millions of dollars in tax revenue, and hundreds of jobs. The legal system should aim for an equitable remedy. An equitable remedy for failing to check a box or 2 isn’t delaying hundreds of millions of dollars of investment that is already in the ground, much less canceling that investment.

There are other issues. The Potawatomi tribe is essentially trying to argue that certain laws and regulations apply here. In my opinion, those are largely anti-graft statutes. If a city issues a request for proposals asking who wants to supply meals to its schools, and I bid $100 million while you bid $150 million, the city shouldn’t award the contract to you because you’re best friends with the mayor. It wants to award the contract to the low-cost bidder.

This was a proposal to build a casino. It wasn’t a proposal where I could say I’d build a casino for $20 million and you could say you’d build one for $25 million, so the city should choose me because I’m $5 million cheaper. There were many other considerations. The city had to decide whether it wanted a hotel, entertainment venues, restaurants, and other amenities. There were many factors involved in awarding the casino license.

I think that argument is addressed well in the briefs. The Potawatomi tribe is saying that because certain boxes weren’t checked, anti-graft statutes can be used to throw out the project. Everyone else is saying that the boxes were checked, and that many of the provisions cited by the tribe don’t apply here because this wasn’t a commodity contract that had to go to the lowest bidder. The city had to consider many different factors and awarded the license to the party it thought was best.

At this point, I’ve laid out why I think American Place and Chamonix are unique, the value involved, why I think both properties are ramping, and why I don’t think some of the risks are as large as the market believes. Let’s talk about ways to unlock value and some hidden value. I think this will help explain why I don’t think the financing risk is as large as the market believes.

Many casino companies engage in sale-leaseback transactions. They own the casino, the land underneath it, and the operating business. A very easy form of financing is a sale-leaseback. Gaming and Leisure Properties, or GLPI, and VICI Properties are the 2 big ones. They’re real estate investment trusts that will say, “We’ll buy your land and property, write you a big check, and you’ll continue operating the casino while we own the real estate.”

That’s similar to a triple-net lease. Full House owns all of its properties, and I like that. I think there can be risks with sale-leasebacks on the back end, but there is a very active market for them. These transactions are being done at low-8% cap rates with approximately 2 to 2.2 times rent coverage.

Over the summer, Bally’s did a sale-leaseback involving several properties, including the Chicago property it’s building downtown, for just shy of $2 billion. Bally’s is building that Chicago property for just shy of $2 billion, and GLPI essentially financed the project. It was approximately $1.8 billion of the $1.8 billion needed to build it. I think GLPI funded approximately $1.2 billion through the sale-leaseback.

I highlight that for several reasons. Full House already has $175 million invested in American Place. It needs to spend another $325 million to reach the $500 million total cost. Looking at the sale-leaseback precedent, I think it could easily complete a sale-leaseback to finance the entire remaining construction.

I would also remind you that Bally’s is a very interesting company. I still have a small position in it. I bought it earlier this year because of an interesting take-private story. Bally’s is much more leveraged, and in my opinion most of its properties are lower quality than American Place and Chamonix.

The other reason I highlight sale-leasebacks is that Full House owns all of its properties. Looking at the valuations at which sale-leasebacks are being done, you can make a case that the value of Full House’s real estate alone, once the properties are fully ramped, could cover more than the company’s entire enterprise value. That would leave you with the actual operating properties for free.

This is what’s called an opco-propco split. If you sold all the properties and kept the remaining operating company, the properties alone could be worth substantially more than Full House’s current enterprise value.

There are ways I could be wrong. American Place and Chamonix are only as valuable as the earnings of the operating companies. If I think Chamonix will generate $50 million of EBITDA and it actually generates $15 million, that’s obviously an issue. If I think American Place can generate $100 million and it generates $50 million, that’s also an issue. But if I’m in the ballpark on the ramp rates, and the other properties are mature enough that we can estimate their earnings, I think the real estate value at Full House could cover more than the entire enterprise value.

This is a clip from Golden Entertainment’s third-quarter 2024 investor presentation. Golden Entertainment, like Full House, owns the real estate under all of its properties. The company said it didn’t think the stock market was properly valuing those properties, and it is currently engaging in strategic alternatives.

On the low end, Golden said its property company could be worth a 12.5-times multiple. That’s approximately an 8% capitalization rate. If it were worth a 12.5-times multiple and the company had to pay $90 million of rent, the property value would cover almost all of the company’s enterprise value.

I want to highlight that for 2 reasons. First, the low-end or worst rate Golden used was a 12.5-times multiple, which is approximately an 8% cap rate. That’s the same 8% cap rate I used when discussing the opco-propco split for Full House. Second, that was Golden’s worst case. I think they put some more tired assets in there, and they think they can do better. Its base case was a 13.5-times multiple, which is below a 7.5% cap rate. If Golden is right and its real estate is worth a 13.5-times or 14.5-times multiple, the value is substantial.

I’m saying that at an 8% cap rate, all of Full House’s enterprise value could be covered by its property. What happens if the cap rate is better? Golden Entertainment thinks the same thing. It’s not an unheard-of conclusion. Maybe Golden is wrong, and maybe I’m wrong, but I wanted to highlight that because it supports the multiple and the idea that the property value could be greater than the enterprise value.

The second way to unlock value is through a sale of the company. I’ve mentioned that Full House could be worth 10 times EBITDA, and there is an active market for mergers and acquisitions in regional casinos. We haven’t seen one in a while, but historically regional casino M&A has been quite active.

This slide is from Churchill Downs, and I think it shows the most recent regional casino M&A transaction. In 2022, Churchill Downs bought Peninsula Pacific Entertainment for 10.2 times EBITDA. That 10.2-times EBITDA multiple gave credit for some new locations that Peninsula Pacific had brought online. The buyer assumed that year 3 represented the full ramp, which is consistent with what I’ve said about Full House and Bally’s.

The transaction also gave credit for corporate synergies. When I’m talking about a 10-times EBITDA multiple for Full House, I actually think a buyer could pay well in excess of that because the corporate synergies would be so significant.

Golden Entertainment provides another example. The company sold Rocky Gap Casino Resort in Maryland. It announced the sale in late 2022, and the transaction closed in 2023. It received approximately a 10-times EBITDA multiple. It did exactly what I’m describing: it sold the operating company to Century Casinos, which operates one of the casinos across the street from Chamonix, and sold the property to VICI Properties.

Rocky Gap opened in the early 2010s, and its last major update was probably in 2016 or 2017. It appears to be a great property, but Chamonix and American Place will be brand-new properties that I think are quite unique. If Rocky Gap sold for 10 times EBITDA, I think that’s the low end of what Chamonix or American Place could command.

Full House is a small company, so I think the synergies to a buyer would be enormous. If you go through the history of regional gaming, buyers often claim substantial synergies when they acquire properties. I think Full House would offer more synergies than most.

The biggest merger in gaming over the past 7 years was Eldorado Resorts merging with Caesars Entertainment. This happened in 2018 or 2019. Separately, the companies generated approximately $3.1 billion of EBITDA. Together, they projected $3.6 billion of EBITDA, implying $500 million of synergies—a 20% increase from combining the 2 companies.

Those were billion-dollar companies, so that was a much larger integration than adding a company like Full House as a bolt-on. I actually think the synergies would be higher as a percentage of earnings if a strategic buyer acquired Full House because there would be much more to remove and plug into the corporate buyer’s existing infrastructure.

Public-company costs are an obvious example. The CEO and CFO are excellent at Full House, but if Caesars, hypothetically, bought the company, it wouldn’t need to keep a separate CEO and CFO for Full House. There would also be savings in player-management systems, technology spending, marketing, and other areas. I think the synergies would be enormous.

I’ve been talking about a 10-times EBITDA valuation based on fully ramped Chamonix and American Place earnings. But if you think about what the company’s earnings would look like to a buyer, and if the buyer received some credit for the synergies it could realize, the valuation could be much higher.

The company sold a small casino called Stockman’s over the summer, and I believe it received a low-teens multiple for that casino. Full House owned both the land and the operating company, and I think almost all of the value was in the land. But it still supports the opco-propco valuation and the overall thesis.

There’s one more thing I want to highlight about synergies. When I say Eldorado and Caesars merged and had $500 million of synergies, it’s easy to say, “I’ve looked at 100 mergers, and every company claims big synergies at the time. Does anyone ever deliver them?”

This is a quote from Caesars’ fourth-quarter 2021 earnings call. Management said, in effect, “You always doubt synergies, so let us go through some examples.”

They said that when they bought Tropicana, they thought they could generate $40 million of EBITDA. The property was generating $33 million, and they said they could realize $40 million through synergies. It had generated $72 million in the past year, so that one property alone covered all of the projected synergies.

They also discussed Caesars. They said they thought they could find $500 million of synergies when they combined the companies. One year after buying Caesars, they said they had realized more than $1 billion of synergies.

They discussed a property in Shreveport that was generating $37 million of EBITDA when they bought it and was generating $72 million under their ownership. They bought a property in Tunica, Mississippi, that was generating $65 million of EBITDA and had it generating more than $100 million.

There are cycles and other factors involved, but I highlight those examples to show that if a strategic buyer acquired Full House, I think the synergies would be enormous. A buyer could credibly underwrite a significant increase in EBITDA, and I have factored none of that into the math.

The math I’ve discussed—the math the CEO laid out and that I broadly underwrite—is that American Place ramps, Chamonix ramps, the company reaches approximately $200 million of EBITDA, and it receives a 10-times multiple. That gets us to approximately $30 per share.

I’ve rambled for an hour. Full House Resorts is my best idea for 2025. I hope that after an hour of me talking through this screen share, you understand why I’m excited about it and why it’s my top idea for the year.