Benzinga  Mar 14  Comment 
Full House Resorts, Inc. (NASDAQ: FLL) has a number of growth projects in the final stages of construction, which should drive EBITDA higher on completion. The Analyst Telsey analyst Brian McGill initiated coverage of Full House Resorts...



Company Overview

Full House Resorts, Inc. is a corporation formed in 1987 which specializes in developing, managing, investing, and owning gaming, entertainment, and hotel-related ventures. Full House, which is incorporated in the state of Delaware, is currently involved in several large gaming projects including the FireKeepers Casino near Battle Creek, Michigan, with the Nottawaseppi Huron Band of Potawatomi (the Michigan Tribe) and Harrington Raceway and Casino, a racino (race track/casino) in Harrington, Delaware. The company also owns Stockman's Casino, located in Fallon, Nevada and has reached an agreement with the Northern Cheyenne Tribe of Montana for the development and management of a gaming facility in Montana.

As of April 2011, the Company completed the purchase of all of the operating assets of the Grand Victoria Casino & Resort, located on the Ohio River in Rising Sun, Indiana. The company's basic strategy is to succeed in the ownership of local casinos with a market leadership and strong management and operations which are accretive to earnings. Full House does this through the management of casinos on behalf of Native American tribes and commercial clients which can benefit from the knowledge and experience of their team. Their properties, though geographically diverse, have several factors in common: they all cater to a local customer base, they have good to great demographics and they have easy accessibility, together a recipe for success. [1] The company's stock currently trades on the AMEX, an exchange market for US emerging-growth businesses.[2]

Two-Prong Strategy

Full House operates based on a philosophy of a two-prong strategy. Their plethora of executives and skilled directors, which includes the famous Lee Iacocca, are responsible largely for the success of their strategy. The first prong of their strategy was first initiated with the acquisition of Stockman's Casino in Fallon, Nevada. The company's first task is to actively seek acquisitions of additional local casinos at various locations for which success can be achieved in the long-term with moderate multiples. The second prong of their strategy is the quality management of their properties and casinos. This prong can be demonstrated by the efficient, productive management of the Harrington Casino in Delaware. This two-pronged vision acts as the core for their basic premise of operation. [3]

Services Offered

Operating Locations

Stockman’s Casino (Fallon, Nevada)

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Front of Stockman's Casino in Fallon Nevada.

Acquired on January 31, 2007 Stockman's casino has 8400 square feet of gaming space an offers 280 gaming machines, 4 table games and a keno game. Included in the 280 gaming machines are 265 slot machines. Stockman's also offers a steak house, a coffee shop, and a full bar. Stockman's is the largest casino on the west side of Fallon in Churchill county, which has a population of about 25,000. Located nearby is Naval Air Sation Fallon, which has greatly boosted Stockman's Revenue. Accounting for about 20% of Fallon's population, the naval air station is the largest one of its kind, and many military personnel frequent Stockman's casino. Being the largest casino in the area has made Stockman's rather vulnerable to competition however. There is room in the market for another, larger casino which could potentially take revenue away from Full House Resorts.

FireKeepers Casino (Battle Creek, Michigan)

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Front of FireKeepers Casino and Resort.

Opened in August of 2009, Full House Resorts, has a 50% stake through a joint venture with RAM Entertainment. The casino is expected to attract 2.9 million visitors per year. The Property is 230,000 square feet housing over 3,000 gaming positions, including 2,680 slot machines, 78 table games and 12 poker tables, with 5 restaurants and lounges and a 2,000 car garage. Michigan's Secretary of the Interior has extended the compact to allow gambling to 2030.

The closest competitor's location is Gun Lake Casino in Wayland Michigan(approximately an hour drive away) which opened in February of 2011. It is still unclear what impact this new casino will have on the gaming revenue of FireKeepers Casino. Further away (approximately 100 miles) are the Detroit casinos to the east and Four Winds casino in New Buffalo to the South West. [4]

Harrington Raceway and Casino (Harrington, Delaware)

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Front of Harrington Raceway and Casino.

The Property opened in 1996 and is managed by Gaming Entertainment Delaware with Full House as a 50% stakeholder. In February of 2008 the Property completed a remodeling project at a cost of $40 mil. The management agreement runs through 2011 and provides Full House Resorts with a guaranteed increase in its management fee of 8% in 2008 and 5% each year after. The property includes approximately 1,800 gaming devices, 40 table games, 10 poker tables, a 450-seat buffet,a fine dining restaurant, a 50-seat diner, a sports book and an entertainment lounge.[5]

Grand Victoria Casino & Resort (Rising Sun, Indiana)

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Grand Victoria Casino and Resort Main Building.

On April 1, 2011, Full House Resorts acquired the Grand Victoria Casino & Resort. This business is located in Rising Sun, Indiana. The casino has 40,000 square feet of gaming space with almost 1,300 slot and video poker machines and 37 table games. Included in the resort aspect of the Grand Victoria is a 201-room hotel with a spa, pool, meeting space and a pavilion with five food and beverage outlets. These beverage facilities include a fine dining restaurant, buffet, sports bar, quick service restaurant and coffee shop and a large, multi-purpose Grand Theater for concerts and performance events as well as meetings and conventions. Also located on the property is a 18-hole golf course complete with its own full-service clubhouse. The location of the Grand Victoria appears to be quite strategic, as it is located within driving distance of several major cities including Indianapolis, Cincinnati, Lexington, and Louisville. [6]

Development Regulatory Approvals

Experienced in securing all required state and federal approvals. Financing - FHRI maintains access to financing sources. Architecture and Design - FHRI has strategic partnerships with recognized architectural and design firms to provide the design and layout of the project. Provide services on front and back office operations. Management of the Development Process - including facility design, engineering and infrastructure development - roads, water, sewer and power, compliance with environmental regulations. Construction Management - Selection of Contractor, supervision of obtaining gross maximum price, oversight of construction activities. Financial Planning and Budgeting - Preparation of detailed development and operating budgets and supervision of budget control.

Operations Marketing Development

  • Branding and Property Positioning in the marketplace.
  • Game Selection and Organization - Optimization of Gaming Floor Layout
  • Food & Beverage - Selection of Food & Beverage offerings.
  • Technology - Selection and Acquisition of all Systems including computer hardware and software and player tracking software.
  • Equipment - Selection and Acquisition of all Equipment, including gaming, kitchen, money handling, surveillance, security, office, music and public address systems, vehicles, uniforms, signage and other furniture and fixtures.
  • Financial Management - Identification and Selection of Financial Systems for cage & table accounting.
  • Marketing - Development of marketing and advertising plan.
  • Internal Controls - Provide a complete system of internal controls.
  • Policies & Procedures - Provide Policies and Procedures for Human Resources and all operating departments
  • Recruitment - Recruiting, hiring and training of all employees

Casino Industry Overview

Gaming Industry Fundamentals

The gaming industry is estimated to be a $60-billion-dollar a year business. It includes casino operations, state lotteries, pari-mutuel wagering, charitable gaming and gaming-equipment manufacturing. Half of all gaming revenues come from casino winnings. The other half comes from entertainment, hotel rooms and restaurants. About 65% of gaming revenues come from slot machines, which are preprogrammed to pay out certain amounts. According to industry experts, gaming generates more revenue than spectator sports, recorded music, theme parks, and cruises combined.

Gaming companies continue to aggressively expand in both new and existing markets. Whereas only Nevada and New Jersey allowed gambling 14 years ago, casino gambling is now legal in more than 20 states. The geographic expansion of casinos and lotteries has been fueled by a desire on the part of state governments to create jobs, boost tourism and generate more tax dollars. Also assisting the expansion is the federal government's passage of legislation that allows Native Americans to own or operate casinos in various states.

According to a recent study, there are an estimated 51 million-plus casino gamblers in the U.S. As a group, these gamblers make about 300 million trips to casinos each year. About a quarter of the adult population has gambled at a casino at least once in the past 12 months. State lotteries have also helped boost interest in gambling. Lotteries are now conducted in more than 30 states.

The aging and growing Baby Boomer generation continues to spend money on leisure activities such as gambling. This demographic alone could provide a solid long-term foundation for revenue growth, as the number of people over the age of 55 is projected to double over the next 25 years. This older generation tends to have more free time and more disposable income to gamble with.

Another trend that seems to be picking up in the gaming industry is the development of "racinos." Racinos involve a combination of racetracks with slot machines. Many states -- including Massachusetts, Maryland, and Maine -- are now considering allowing racetracks to develop gaming rooms with slot machines on the premises. Gambling equipment makers could see a surge in business in the coming years thanks to new demand for slot machines from racinos.

In addition to adding new jobs to the local economy, casino gambling is recognized as a means of stimulating state economies through the addition of new tax revenues. It's that recognition that has spurred the expansion of gambling throughout the country. Meanwhile, international markets could also provide a huge catalyst for future industry growth. For example, the U.K. is considering deregulating the use of slot machines. Only a few thousand slots are in use there now, but with less regulation, the long-term potential in that market could be enormous. And finally, gaming equipment makers are constantly working to create new slot machines and other games. The introduction of popular new slot machines, as well as cashless machines (more on these below), should also fuel industry growth in the coming years.

Industry Risks Two negatives stand in the way of gaming industry growth. First, gaming requires legislative approval, which is often slow in coming. Secondly, governments often look to gaming as a source of tax increases -- the old sin tax -- which cuts into casino profits. For example, when Illinois recently raised its top tax rate to 50% on gaming profits, the whole industry took it on the chin.

Another vulnerability of the industry was brought to light after the September 11th terrorist attacks. Prior to the attacks, the industry had posted solid revenue growth for more than 30 consecutive years amidst all types of economies. However, the terrorist attacks back in 2001 limited consumer travel and put a damper on casino revenues the following year. On the positive side of things though, the attacks also demonstrated the resiliency and strength of the industry, as most companies managed to bounce back fairly quickly.

Casino and Lodging Future Outlook

The Hotel/Gaming Industry is highly dependent upon business cycle and discretionary income of consumers. Analysts believe that the worst is behind us in the economic recession. A bullish market would boost revenue for the Hotel/Gaming Industry. As business and leisure travel begin to increase in 2011, this industry should bounce back with strong earnings.

The industry as a whole is very capital intensive. In down times companies tighten their belt and postpone capital improvements. Poor economic conditions hamper cash flow, and debt interest and maturity obligations become more significant, taking funds away from strategic development programs. When under such pressure, managements often implement a number of steps to free up some cash, such as staff layoffs, efficiency improvements, reduced capital spending, and the sale of non-core assets and minority interests. The strongest members of the industry can take advantage of stressful periods by acquiring lucrative operations, fully funding development projects, and pursuing market share.

Smith Travel Research (STR) projects occupancy to rise 1.4% to 57.9% ADR to increase 3.9% to $101.55 and RevPAR to rise 5.3% to $58.75. Furthermore, STR expects supply to increase 1.1% and demand to rise 2.5%. Stagnant new supply will cause ADR and RevPAR to increase in the coming months. Additionally, PKF Hospitality Research anticipates lodging demand to increase 3.2% in 2011. All in all, the industry will make a bullish recover in 2011. Below is a chart highlighting the key metrics discussed above. Description

Casino Metrics for Full House Resorts

  • Pit Revenue Per Day – $80.90
  • Slot Revenue Per Day- $98.06
  • Average Rooms Payroll Cost- $30.86
  • Slot Utilization (Number people playing slots / Number of Slot Machines)
  • Dealing Pace – 350 Hands per hour[7]

Analyst Opinion


Porters 5 Forces

Buyer Power

Medium to Low: Full House Resorts casinos do not face stiff competition within there location from other casinos. Many of their casinos are strategically located in areas which provide no other alternative to theirs. For instance, the nearest rival casino to Firekeepers is roughly 100 miles away. This gives Firekeepers a near monopoly on the gambling market in southwest Michigan. Without any easy alternative casino properties to those owned by Full House, customers have little power in leaving the company to take their business to a competitor. Some consumers have even lower buyer power. These include people who are enthralled with the feeling of risk and the potential of winning big. This brings into account another aspect of the industry: gambling addiction. Gambling addicts have the least power out of any consumer because they, in addition to not having a choice of where to go, sometimes don't even appear to have a choice to not go at all.

Supplier Power

Low: Full House Resorts has no significant threat from suppliers. Their supplies can be acquired from any number of suppliers. Therefore no single supplier has much power of over Full House resorts. Their most expensive supplies are things like machines, tables, etc. These particular supplies do not have to be replenished often and therefore, once bought, Full House does not have to worry about gaining access to supplier markets for a long time. Smaller items, such as chips, glasses for drinks, etc. are much easier to obtain. The company can pick and choose from an almost infinite number of suppliers who hold little power over Full House. These items are largely commodity goods. However because Full House Resorts manages but does not own their casinos, thus Full House Resorts is at risk of having the management contract revoked.

Threat of Substitutes

High: Full House's casinos compete against other gambling activities. In this area, competition is not high because strategic locating of their businesses and the small amount overall of casino companies. There is little substitute for the thrill of gambling money. However, because casinos are a leisure activity, they must compete a wide range of other activities. Substitutes include everything from theaters, concerts, or even riding a bike in the park. Therefore, the threat of substitutes for going to one of Full House's casinos include any leisure activities which can be engaged in in the general area of the casinos' operations. Also, online gambling has been a prominent substitute to gambling in brick-and-mortar facilities. Until recently, the online gambling industry had been growing rapidly. However, many of these online gambling sites are on the decline, as is discussed below. [8]

Threat of New entrants

Low: The threat of potential entrants into the casino management industry is extremely low. Opening a casino is a largely capital-intensive process. This requires large funding acquisitions and a large amount of cash-on-hand in order to begin business. With this barrier to entry, small corporations will find it very difficult to gain market share. Government regulations are probably the biggest barrier to entry, however. The casino industry is one of the most regulated industries in the country. To begin operations, a prospective business must obtain special licensing from the state. This can be a difficult process to endure, and the states usually have harsh restrictions on who they offer these licensing. Many states only allow casinos to operate on Native American Indian reservations. Intense background checks are also usually obtained when requesting to start a casino, including criminal and civil checks. [9]

Rivalry within the Industry

The gaming industry is highly competitive. Gaming activities include traditional land-based casinos; riverboat and dockside gaming, casino gaming on Indian land, state-sponsored lotteries, video poker in restaurants, bars and hotels, pari-mutuel betting on horse racing, dog racing and jai alai, sports bookmaking, card rooms, and casinos at racetracks. The FireKeepers Casino, Stockman’s Casino, the Grand Victoria acquisition and the Indian-owned and other casinos that Full House Resorts developed and plan to manage or own compete with all these forms of gaming, and will compete with any new forms of gaming that may be legalized in additional jurisdictions, as well as with other types of entertainment. Some of our competitors have more personnel and greater financial or other resources.[10]

SWOT Analysis


Established relationships with the Native American population and has a niche business of partnering with tribes to build and operate casinos. Full House Resorts casinos are often sheltered from direct competition because of government regulations preventing the opening of new casinos. The nearest competing casino to Firekeeps is nearly 100 miles aways, giving FireKeepers a monopoly in southwest Michigan.


Full House Resorts, Inc. fully owns very few of its business ventures the majority are either joint ventures with other gambling companies or management agreements with native American tribes. Because they have been unable to open new ventures entirely on there own, they have been forced to share profits, often it has been a fifty fifty split with the other gambling company. Also its management contracts with native American tribes must be renewed every few years, the threat that these contracts could not be renewed is a constant financial worry for Full House Resorts.


The company entered a contract to acquire the assets Grand Victoria Casino and Resort in Rising Sun, Indiana. Full House Resorts recently reached an agreement for the development and management of a gaming casino in Montana. Expansion to various sites throughout the company lead to an unlimited possibility of growth. In March 2011, the company announced that it plans to construct a 240 room resort style hotel on the FireKeepers Casino site. The project is in its final design stage, is expected to break ground in spring 2011 and is anticipated to open in late summer of 2012. [11] This expansion into the hotel sector greatly increases the potential of FireKeepers, which is already Full House's most prized venture.


Management agreement at Harrington Raceway and Casino expires in 2011. The company faces intense contract negociations. Delaware has strict laws on sports betting and the gaming industry is highly competitive. Gaming was recently legalized in Pennsylvania and Maryland. Also, high unemployment in the current markets could lead to lower future revenues, as people stop spending as much money on leisure activities. As income lowers, the focus on the necessities rises, causing consumers to be more likely to avoid areas which they feel may be a drain to their wallets. One such area which is famous for this is the casino industry. Rational people will not gamble on their money if they are scraping by to afford everyday needs.

Comparable Analysis


Competitor Comparison


Wynn Resorts- Wynn Resorts, Limited is a developer, owner and operator of destination casino resorts. The Company owns and operates two destination casino resorts. In Las Vegas, Nevada, it owns and operates Wynn Las Vegas, on the Strip and Encore at Wynn Las Vegas. The Wynn Las Vegas resort offers accommodations, amenities and service with 2,716 rooms and suites, including 36 fairway villas and six private-entry villas for guests. The approximately 110,000 square foot casino features 147 table games, a baccarat salon, private VIP gaming rooms, a poker room, 1,842 slot machines, and a race and sports book. The resort has 22 food and beverage outlets feature five fine dining restaurants.[12]

Monarch Casino & Resort, Inc. (Monarch)-- incorporated in 1993, through its wholly owned subsidiary, Golden Road Motor Inn, Inc. (Golden Road), owns and operates the Atlantis Casino Resort Spa(the Atlantis), a hotel/casino facility in Reno, Nevada. The Atlantis Casino offers approximately 1,500 slot and video poker machines; approximately 38 table games, including blackjack, craps, roulette and others; a sports book; Keno, and a poker room. The Atlantis includes three contiguous high-rise hotel towers with 824 rooms and suites, and a low-rise motor lodge with an additional 149 rooms, for a total of 973 guest rooms. The first of the three hotel towers contains 160 rooms and suites in 13 stories. The 19-story second hotel tower contains 278 rooms and suites. The third tower contains 386 rooms and suites in 28 stories.[13]

Because Full House Resorts manages and but does not own the majority of its casinos, the majority of its revenues come from management fees as opposed to casino revenues. This present certain benefits and challenges.Full House resorts typically works on a performance based fees which allows them to capitalize on revenue increases but have limited liability if a casinos under their management fails. Its two main competitors have a significant revenue stream coming from the hotels attached to their casinos. Although FireKeepers does not currently have a hotel, they are opening a hotel in 2012, which should bring in a significant new revenue stream.

DuPont Model

This DuPont Model is used to determine how much equity Full House Resorts was able to return as well as how they preformed compared to the industry. The first chart shows the ROE on Full House Resorts over the last three years. As you can see in 2008 they posted a positive ROE of4.68%. In 2009 Full House more than doubled their ROE from the previous year. This shows investors that their business is on the rise, and that Full House knows how to manage and develop companies. Once again, Full House Resorts increase its ROE in 2010 to 16.24%. Full House was able to beat the industry average in ROE by over 10% in the last fiscal period. To compare my results of Full House Resort’s ROE I took its main competitor within the same industry as Full House Resorts and compared their ROE. The average ROE for the industry was a positive 6.09% which is much lower than Full House Resorts. Using the DuPont Model can help a company find its problem faster and see what changes they need to make.

Image:Full_House_DuPont1.jpg[14] [15]

Current Events

Federal Government seizes online poker sites' assets

The Federal Bureau of investigation has recently made a move against online poker sites Fulltiltpoker.com, absolutepokwer.com, and Pokerstars.com. The Federal government has frozen bank accounts which belonged to users of the three major gambling sites. Since online gambling is illegal in the United States, the three sites were using aliases to transfer illegal poker winnings to users. The banks have had their accounts frozen, stopping the transfers. The online poker industry has been instrumental in creating a poker playing culture. The three major players in the industry have contributed around $200 million in advertisement revenue to televised poker tournaments.

Full House Resorts will greatly benefit from the shutdown of these illegal sites. With less money being pumped into televised poker, less exposure will be available. Gamblers will no longer be able to watch one of their favorite games on television. The only location to watch or play any of these games will be at the casinos, strengthening Full House's competitive advantage and increasing gambling revenue. [16]

Michigan Begins Programs to Address Problem Gambling

Organizations in the state of Michigan have begun forming to battle problem gambling. These groups have made television advertisements and other forms of public announcements to try and eliminate problem gambling. While problem gamblers do not help the casino industry by painting gambling in a negative light, these groups could potentially do the same thing to the industry. A major operation of Full House Resorts is located in Michigan (FireKeepers Casino). With these organizations making problem gambling more of a public issue, gambling could become less popular with consumers. This could possibly hurt the casino industry and lower revenue for Full House Resorts. [17]


  1. Reuters: Full House Resorts
  2. Google Finance: AMEX
  3. Full House Resorts Investor Information
  4. Full House Resorts 10-K
  5. Harrington Raceway Website
  6. Grand Victoria Casino Official Website
  7. Casino Industry Analysis
  8. Online Gambling
  9. How to Start a Casino Business
  10. Full House Resorts 10-K
  11. FireKeepers Casino expansion, hotel addition pushed by demand from customers, tribe says
  12. Wynn Reuters
  13. Monarch Casino & Resort Investor Information
  14. [created by pacsun119]
  15. Full House Resorts Yahoo: Finance
  16. Feds Target Online Gaming with Shutdown of Three Poker Sites
  17. Michigan casinos grapple with "problem" gamblers
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