Good day and welcome to the Full House Resorts Third Quarter Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Lewis Fanger, Chief Financial Officer of Full House Resorts. You may begin..

Thank you. And good afternoon, everyone. Welcome to our third quarter earnings call. As always, before we begin, we remind you that today's conference call may contain forward-looking statements that we're making under the safe harbor provision of federal security laws.

I would also like to remind you that the company's actual results could differ materially from the anticipated results in these forward-looking statements. Please see today's press release, under the caption 'forward-looking statements' for a discussion of risks that may affect our results.

Also, we may make reference to non-GAAP measures such as adjusted EBITDA. For a reconciliation of those measures, please see our website as well as the various press releases that we issue.

And lastly, we're broadcasting this conference call at fullhouseresorts.com, where you can find today's earnings release as well as our SEC filings as well as some slides that we posted in the presentation section that's labeled 3Q19 Earnings Call Slides.

So with all that said, ready to go, Dan?.

As you can see on this one table, our EBDIT on a latest 12-month basis is $17.4 million. If you add the sports stuff, it's a minimum of another $7 million, which is like a 50% increase in our EBDIT. And then there is a reduction; Indiana changed their tax scheme in the last legislature and it was approved by the governor.

It reduces the tax rate in the lowest tier, effective July 1, 2021. So it's still 1.5 years out, but it is the law that will drop. And we're on that lowest tier and it means about $2.5 million a year for us, which is -- comes close to doubling the results in that property. Now it's -- but it's actually a bigger impact than that.

If you go to the next table; our discretionary free cash flow is roughly $4 million a year. I mean $17 million of EBITDA less our interest expense is about $10 million. Maintenance CapEx is perhaps $3.5 million. We have at this point over $20 million of tax loss carryforwards.

So we don't pay taxes currently, although with the sports wagering we will probably at some future date, but at least at the moment we're not paying taxes. So our discretionary free cash flow is in the ballpark of $4 million, and it goes to $13 million. So these sports agreements triple our free cash flow, which is rather really very material.

And I think it's -- I know finance people don't really care, but CPAs would get all excited because we always take a valuation allowance against the tax credit produced by our negative pretax income.

And they're going to say, "Oh, you may be profitable someday now," so we have to reverse the valuation allowance taken against the provision for taxes for the fact that we have a negative pretax income and all of which would be a very long chapter in our financial statements, but it's a long-winded way of saying our auditors think we will be profitable someday.

Now in finance terms let me put it pretty simply. We have contracts with three entities, and I should mention who the entities are. One is Churchill Downs, $4 billion company very active in the traditional sports business. Second is Smarkets. Smarkets is a private company out of London but also with offices in Santa Monica.

They are one of the largest peer-to-peer betting exchanges in Europe, they -- billions of dollars of bets. A betting exchange is where one person bets against another person and they take a fee of 2% on the winning bet, but they've decided, to do that, you need a lot of volume. And it's got to be very concentrated.

They have developed the software to be a more traditional bookmaker in -- on sports betting, and they're rolling that out in Indiana and Colorado with our cooperation and encouragement. And they're backed by some of the top venture capital firms in Europe, and so they certainly have experience in the area. And then the third is Wynn.

Wynn has an interest -- they own 22% of BetBull. And they will be offering Wynn-branded sports betting in a mobile sense, kind of riding on our licenses. And recognize this -- none of this is going to be branded Full House Resorts or even Rising Star. We're like the landlord underneath the Hilton hotel.

I mean you stay at the Hilton hotel, you have no idea who owns the land underneath it. Just -- and that's what we are in this case, but it's quite important for us. Well, if you assume that these agreements are the minimum of $7 million a year -- it's probably more, but if you assume it's $7 million a year -- they are 10-year agreements.

Now the -- our partners each have the right to extend beyond that and quite likely will, but if we assume they don't, it -- then it's a 10-year agreement for a minimum of $7 million a year, that's $70 million. We can shelter the -- and it's virtually all profit. We can shelter most of that.

Our -- I think, at year-end, our tax loss carryforward is going to be in the ballpark of $24 million. And for at least the next year or 2, we'll still have some tax loss carryforwards.

And then at some point, a tax loss is produced and then we're going to start having to pay taxes, but after taxes, it's probably $60 million coming in over the next 10 years, no debt associated with it or anything. If you just divide that by our shares outstanding, that's $2 a share. The value of this company just jumped $2 a share.

And our stock was trading at $2 a share and is not far from it now. And so before all this stuff came to life, people valued our casinos, net of our debt and our prospects and everything we're working at and doing, as being worth $2 a share. In fact, a year ago, it was trading at $3 a share.

And so now we signed all these contracts that, frankly, double the value of the stock. And I hate to keep elaborating on it because I'm kind of surprised our stock hasn't reacted, and I think it's just because we're so small nobody is really paying attention, but this is really mega [indiscernible] important. So anyway, that's the sports book.

The other thing it does for us; because when you have this big an increase in the cash flow backed by contractual agreements with substantial companies, it dramatically improves our balance sheet and our financing ability, so at this point we can probably refinance our debt at significantly below the 10% interest rate we're paying.

And if we do that, we'd probably pick up another $4 million or $5 million of free cash flow. Or alternatively, it allows us to finance the construction of Phase 2 in Cripple Creek without having to issue equity. Because we certainly don't want to issue equity at these prices. It's way undervalued from what we think the company is worth.

And so I think that has been an overhang on the stock. People worried about how are you going to finance the hotel in Cripple Creek, and now we have an answer. We can go to the debt markets and finance it. We may be able to do a combination of the two.

We may be able to finance the hotel and reduce our interest rates a little bit on the backs of these sports wagering agreements. And so there's kind of that multiplier effect of having a stronger balance sheet and an ability to get to cheaper capital, which makes it worth even more than the $2 a share I said a minute ago.

So that's the sports betting, which is by far the most important thing in the quarter. The silver -- getting into operations. The Silver Slipper did fine. It's the first two quarters this year were stronger, if you go back and look at the first and second quarters. They were up double digits in profit. The third quarter was just flat.

And a big part of that was Hurricane Barry, which didn't do any damage at the property but it kind of drowned a weekend that was kind of important. So without Barry, we probably would have been up 5% or something in the quarter and not quite as strong as the first half of the year but still fine.

And the Silver Slipper is well on track to having the best year it's had since perhaps its opening year. And in its opening year, not only was it new, but not all of the casinos had reopened from Katrina. So that opening year is kind of distorted, and it looks like this will be the best in its history other than that.

The Rising Star is -- continues to be a little bit of an issue. We're dealing with a casino in Louisville, at Churchill Downs, that did not exist a year ago. It's had a big impact on Belterra, which is between us and Louisville; less of an impact on us but still some impact.

And we give you the operating expenses to show you that gaming taxes were down, as you'd expect, with revenues up. The payroll was also down. We've been pretty careful to try to match payroll with it. Other expenses were up just a little because we have the ferry operating this year which we didn't have last year.

And then we had a big increase in our marketing expenses in the quarter and particularly in September, as we did a lot of kind of mass marketing trying to reintroduce the property to the market and broaden it. We are in the process of putting in the Konami system.

It's literally 65% in and should be completed within a week, which gives us way more information to be able to market with a rifle instead of with a shotgun.

And so we think we can get those marketing costs more in line with where they've been historically, but you can see, because it operates close to breakeven, when you have that sort of a swing, you have a very big swing percentage-wise in the EBDIT.

So that's what's you see on the far right, but when you really look at it, it was really just the marketing costs. And hopefully, those marketing costs pay off in better revenues going forward. We're really trying to stem the decline that this property has had for a long time.

We did redo the deli restaurant into a restaurant called Ben's Bistro, there's a picture of it here, and fixed it up. And part of the reason for that was to have a waiter-served restaurant. The property has a buffet that it's operated for 20 years, 7 days a week, three meals a day.

It doesn't run the volumes necessary to make that buffet profitable, and in fact the buffet loses a couple million dollars a year. And so the intent is to have a replacement restaurant so people have a place to eat, and so we didn't spend a whole lot of money, but we built this out.

And it's quite attractive and nice and has a new menu, and now we'll look towards -- we've already started to reduce the operating hours of the buffet. And so we'll only use it on peak periods when it runs the volumes that's efficient to use the buffet. And the rest of the time, our customers can eat at Ben's Bistro.

Our customers are all comped, anyway. It's cheaper for us to serve them in the bistro at slow periods than it is to operate the whole buffet. It's also better. At the buffet, your eggs are sitting there, drying. And your hamburgers are drying, whereas at Ben's Bistro the stuff is made to order.

The -- we have a slide here, Lewis, that I think is in the wrong order, but it goes through the sports wagering update. I think I've pretty much addressed all of it. I….

We should -- big enough. We should talk about it again, Dan....

Yes. Well, I should mention what's on the slide that I failed to mention is the revenue from these will come on as the mobile gaming starts and as the sports book starts..

Yes..

And the sports book in Rising Sun, and there's a couple pictures of it, is about ready to start. You can see it's ready for the slot machines and kiosks to go into place. We can't do that until we have gaming commission approval, which we expect imminently. The kiosk -- and I think Churchill Downs has the best kiosks out there at the moment.

I think everybody is working on them, but they have a very good kiosk that -- they buy them from somebody, but they're quite popular, yes. I've gone -- I go through casinos every day. And every time you see the Churchill Downs BetAmerica sports book, they have lines at it that the other places don't have. So we're happy to be partnering with them.

And their kiosks are on site, ready to go as soon as the gaming commission approves us. And we'll have a real sports book at Rising Star, I think, within a couple weeks. We're ready to go. It's really Churchill Downs who has to get regulatory approval at this point, and we think they're close. And Bronco Billy's.

We've made quite a few marketing changes there. We have a new GM. And the old GM was fine too. He's retired, and the new guy has a lot of new ideas and they seem to be working. It was also the summer which is seasonally important. And so the Christmas Casino was added capacity, and in the peak period, that helps.

And so this property had had several lackluster quarters, and we're happy to see a good quarter here. And I -- and it portends some of the trends strengthened during the quarter and have continued in the fourth quarter, so we're hopeful that this property will trend upward going forward.

Not -- maybe not every single quarter because you do get volatility, but we do feel like things are going the right way. And the Konami system is also going in there during November. And so both, Rising Star and Bronco Billy's have very outdated slot systems, which hurts us in marketing.

It hurts us in what we can tell the customers they can do, and it also hurts us in knowing who's betting and how much and where and how. And so we will have far better information that'll allow us to market more effectively. We have that system at the Silver Slipper. It's had it since inception. We were actually at the beta test site for it.

We spent $1 million upgrading to the newest version of Konami 1.5 years ago, and it's a great system. And so we know it well. We know how important it is, and so now we're installing it in the other properties. And someday, maybe we'll get to do it up in Northern Nevada.

Northern Nevada ironically has the Aristocrat system, and sometimes it's hard to get parts for that. So all of the stuff being taken out of the Bronco Billy's which had Aristocrat is going to go up to Northern Nevada. So we'll be in good shape with our slot systems. At Bronco Billy's, the Phase 1 is underway.

The -- there is a chart here that shows the parking garage structure and the connector building. That's essentially Phase 1. The very first thing that has to be done, though, is -- where the connector building is, is an alley that has all sorts of utilities on it. Well, we've moved the power lines, and they'll be buried.

And we've moved them out of the way temporarily, and then we'll have to dig a trench and put them in the trench. And then the -- but there are storm sewers and sewer lines that run down that alley that all have to be relocated. And that's a fair amount of work and that's underway right now.

And then the garage will start coming out of the ground shortly and should be done. Middle of next year is what we're hoping for. And that $27 million we have on our balance sheet, roughly half of that will go towards building that garage.

That's all important because the blue stuff, which is the Phase 2, that's the hotel and a new restaurant and some new casino -- well, part of the casino comes down and gets replaced with new casino. And that's the surface parking our customers are using today.

So we had to create a parking garage so our customers continue to have a place to park while we go and build the hotel. So the first thing had to be the parking garage, and it's underway. And then subject to us arranging the financing, which we believe we can do now on attractive terms, we can roll into Phase 2. And there is a picture of the Phase 2.

And we continue to believe this as a great opportunity. Gaming per capita in Colorado Springs area is about $130. In California, it's $300-and-something now with the tribal casinos and gambling by California and city of Nevada. And I don't know any inherent reason why residents of Colorado would gamble only 1/3 as much as residents of California.

You do have to drive up into the mountains to get to Cripple Creek, but if you live in L.A. or San Francisco, you've got to drive a long ways to get to the nearest casino. And those two cities are half the population of California, so we think there's a big opportunity. We think the gaming per capita has not been higher because of the product.

The casinos in Cripple Creek are fine, but they don't have hotel rooms. They're not particularly luxurious. It's a little bit of a hangover from the days when the maximum bet was $5. And now the maximum bet is $100, and that 20-fold change makes a big difference. So then Northern Nevada.

We had a consistent quarter between the Grand Lodge at the Hyatt Tahoe and the property in Fallon. We did renovate the steakhouse in Fallon. It just opened and has done well in the first week it's been open, but it hadn't been renovated, we think, since the 1960s, when it was built. And it was pretty beat up.

And so we have new carpet, new ceiling, new wallpaper, new artwork. And we acquired three statues that are kind of a Western woman somewhat-sexy statues.

We had to find that fine line because the 25,000 people who live in that county tend to be kind of conservative to agricultural community, but then we're also near the naval air station where the Top Gun school is.

And at any given time, you could have a couple hundred navy pilots show up, and so we wanted something that was a little bit sexy but not too sexy. And I think we found it with these three statues, which are about 4 feet tall each. And they're now mounted in the steakhouse.

And we renamed it Three Sisters Steakhouse, implying that the three statues are sisters. So it wasn't a lot of money. I think it was about $300,000, and it's a great new amenity in that market. And it'll be a good tool for us going forward.

At this point, both of our properties in Northern Nevada are in really good shape, so well, we're pretty pleased there. We continue to look for other opportunities. I just know in my career, when places legalize, you run through the math and say, well, this is a place we can make money. They're going to give out a permit to make money.

We should raise our hands and see if we can get it. And so when Illinois, almost in a snap decision, legalized 6 new licenses, we studied each 1 and concluded that the best place to be was in Waukegan and determined the type of casino that we thought would work best in Waukegan.

And one of the things they did as they legalized those new licenses was actually drop the tax rate on table games to 15%. And we looked at all the existing casinos in Chicago. And they're all basically airplane hangers with slot machines in them, with a little bit of decor.

And we said we could build something that is really a high-quality place and not huge. It's not the size of MGM or something but big enough.

And have it have an entertainment venue similar to The Joint at the Hard Rock here in Las Vegas and a -- there are hotels in the area like Hiltons and Holiday Inns and so on, so we didn't really see a need to build a traditional hotel, at least in the first phase.

We could always add it later, but we thought, if we're going to go after the high end in the Chicago land area and a table game player, we will do kind of a light version of The Mansion at MGM.

And a lot of people don't even know The Mansion exists, but when Bellagio was built and it was a separate company, MGM went out and built this thing called The Mansion to compete with Bellagio. And there's 20 very, very high-end villas. Now they were targeting the Chinese high roller.

So they are really off-the-chart beautiful, and it's kind of a little secret behind MGM. Most people don't even know it's there. And so we thought we could do the same thing for the domestic market, with guest rooms that are 1,500 feet, like 3x the size of a normal hotel room, 4x the size of a normal hotel room, and -- but only 20 of them.

So this would be the finest hotel in the region and with a butler service and all these, really targeting that high roller and bringing in revenue that's beyond the immediate area.

And we would also open a temporary casino as quickly as possible that's going to create jobs and tax revenues for the city more quickly but also help us produce income to help with the financing for the permit. And so there were 5 proposals presented to Waukegan City Council. 1 backed out. And then of the 4, the city passed three on to the state.

And that was one of the criteria, to be endorsed by the city. And we submitted the application to the state last week, actually on Monday. And it's a long process now for the state to look at it.

Now I think, and so did the outside consultant report for the city, that our proposal was most creative and did the best in terms of bringing additional revenue to the state and jobs and revenue to Waukegan. Now the Rivers Casino is part owned by Neil Bluhm, who's a major developer in Chicago.

He has been writing political checks in Chicago since before I was born, and so he would be the political favorite, but they have the casino 20 miles down the road. So that actually will do probably less for Waukegan because they're going to be concerned about stealing business from their highly profitable Rivers Casino.

And so they will try to do something that just kind of protects their flank from the other casino. Michael Bond was a state senator representing Waukegan, stepped down from the senate to start a slot route operation or slots at pubs and so on.

He and a pack associated with him were 85% of all the contributions made to aldermen running for reelection last November, so he was like the local political favorite. And that came out in the newspaper. So he was voted, so we simply made what we think is the best proposal. We don't have those political connections.

And the gaming commission, we understand, is quite intent that this will be kind of a clean process, in part because the history of Illinois has been a little sketchy. And I think the last governor just got out of prison. And so if it's a clean process, I think we have a reasonable shot at this but recognize we are 1 of only three proposals.

And this will take place out over the next year. And then a couple of pictures what we designed up. We used the name that we had used for a casino we proposed previously in Indianapolis. We own the name and which is American Place, which is a great name.

And then finally, in New Mexico there was a very similar process a year ago for the last racetrack license in the state. And if you get the racetrack, you're allowed to have a casino. And they got -- went through a whole process.

Their outside consultant looked at the 5 different proposals they received there, ruled that we were the best and virtually every measure. There were like 10 different measures, and I think we were first in every case. But there is a new governor.

She has replaced the racing board completely; and the new members of the racing board are scratching the heads, trying to figure out what to do. And so I was just in Santa Fe two days ago to kind of pass the message to the governor's staff that our proposal was 3x the magnitude of any of the other proposals and we'd love to have some clarity.

If they're going to go ahead, we're very interested in investing in New Mexico and would love to do this. If they're not, we'd like them to tell us so we can focus on Waukegan and other things. And so -- and we said not -- you don't have to tell us tomorrow, but recognize we can't stand on the sidelines forever.

And it's been like 8 months since the racing commission kind of pushed pause on the process. So that's where it stands on New Mexico.

And Lewis, did I miss anything?.

No, Dan. I have some notes, but you covered them all. And I think the only thing I would postscript is we started with sports betting, so I'll end with sports betting as well. I do want to highlight that it really was transformational for this company.

And if you think about that $7 million of annual guarantees as a lender, assuming we can lend -- or leverage 4x to 5x that $7 million, it's effectively like we issued anywhere from $28 million to $35 million of equity from a lender point of view.

And so I don't want to underscore the transformation that, that sports betting did for us, but that all said, I'll point you all back to the slides again, in case you missed my point about the beginning. If you go to the fullhouseresorts.com website, click on Investors and find the presentation section. That's where these slides are.

With all that, let's open up for Q&A..

[Operator Instructions] We will now take our first question from Chad Beynon of Macquarie..

It's Jordan Bender on for Chad today. You've mentioned a few projects over the last year up until now, whether it's the second phase of Bronco Billy or Waukegan or possibly in New Mexico down the line.

I guess, looking out a year from now, once the parking garage opens and free cash flow begins to start ramping up again, can you give us an update on your capital allocation plans and maybe the highest-priority projects for you guys?.

Well, we're sitting on $27 million of cash. About $10 million of that is used in operations, maybe $12 million even. The parking garage is in -- is about $15 million, Phase 1. And that's the big capital over the next 12 months.

Things like the steakhouse that was like $300,000, that's all in that maintenance CapEx which is like $3 million to $3.5 million a year. Once in a while, you've got to spruce up a restaurant. The deal we did with Konami is we are leasing the system from them for two years and then we have the right to buy it at the end of two years....

3.5, Dan..

If you do it right, new construction often has a higher return but not always, all right? If you buy something that's existing, first off, it's kind of a proven entity, so you know what it's earning. And you get cash flow from the day you buy it, and so sometimes that works.

But I think -- no, I will tell you the Phase 2 hotel in Colorado -- in Cripple Creek, the -- we started out with that. At first, it was could we acquire the land around us to make this work.

And we spent probably a year kind of quietly buying different pieces of land, to where we owned -- well, today, we own the better part of three blocks of land, city blocks in a historical little town where everything was carved up into little pieces.

And so we kind of quietly assembled either through purchases or options or leases enough land to do it. Well, then it was all, when we started designing it, we had these streets and alleys running through it, and that made it really hard to try to figure out how do we do this. We're going to have all sorts of escalators and everything.

And finally, we had an epiphany one day that the only way it was really going to work is if we could close some streets and principally a second street. And there was great debate whether the city would do that. And then when they did agree to do it, there was a lawsuit whether they could do it or not. And we won in city council.

We prevailed in the lawsuit. We now have the right to do it. We have it designed and everything is now ready to go. So that's a project that is completely in our purview at this point. We just have to figure out how to finance it, and we have to get the parking garage done.

And frankly, the last few months, we knew the sports betting was coming along, and we knew that our ability to finance it would get way better when we have those contracts done. So we've been focused on getting six contracts done.

I guess the next step is for Colorado to approve it next week, which is about half the economics of that, which we think and hope will happen. And so I would characterize Phase 2 in Cripple Creek as something that's completely in our control. And I would characterize Waukegan and New Mexico as stuff where we've put some effort.

We've spent a little bit of money trying to get that bigger opportunity that we could go do, just like when we were at Pinnacle. We went and got the opportunity to build in Lake Charles, Louisiana, and that helped transform that company.

And -- but any of those -- that sort of deal is something where you have a 20% or 30% likelihood of getting there, but if you step up to bat often enough, you'll get one....

Yes. I think the thing to remember on Bronco Billy's, Jordan, is it's there. It's designed, right. And quite frankly, of all the projects that Dan and I have done in our careers -- and you know a lot of them were [indiscernible] Bellagio. Go through the list, but we feel better about this project than any other project that we've worked on.

And it is ready to go. When you look at everything else, whether it's Waukegan or New Mexico, those are as simple as drawing these on paper. Those -- that's not a stack of blueprints that we have on our table for that profitabilities expansion. So Bronco's is there and is certainly a priority..

Another thing. I should mention, timing-wise, no. Waukegan, we will do a temporary casino because, I think, it works in that market. I used to not like temporary casinos. And then The Cordish Companies, who were the original operators of the casino in Shelbyville outside of Indiana, they drew up a temporary casino and they did a really good job.

And I remember walking in and thinking you can do a casino on a tent that looks pretty nice and that works, all right? And ever since, I thought, if I were in the right spot, the right market with strong demographics, I could do something like they did. And that helped them roll into the permanent one.

Now they spent too much money to get the license upfront and they eventually went bankrupt, but the temporary casino they did was a good job, and it can be done right.

And so in Waukegan, with the number of people living around there and the city's interest in getting the jobs and tax revenues quickly, we agreed to do a temporary casino, but the permanent one will be -- a couple years up, we would be open with Phase 2 in Colorado before you probably can put a shovel in the ground for the permanent casino in Waukegan.

And a temporary casino is a strong structure that gets done up very easily..

I applaud you, Jordan, for thinking we have those projects, though. We don't have them yet. Stay tuned..

[Operator Instructions] We will now take our next question from Gary Ribe of Accretive Wealth..

Dan, Lewis, great job on everything..

Gary, thank you..

Yes, I have a question. And this -- if I recall, you guys bought a second casino in Colorado, right across the street from Bronco Billy.

Is that right?.

Not completely. There's a -- at the corner of the block where Bronco Billy's sits -- we had acquired most of the block, and there was a piece of land behind Bronco Billy's that we really kind of needed for the parking garage. And the owner of that piece of land also had the corner uphill from Bronco Billy's.

And he wanted us to take a lot of everything, so we struck a deal with him where we leased that building with the right to buy it. And so we are leasing that building now. And it is a casino that had failed before. And then we thought, well, as long as we're leasing this, why don't we try to reopen it.

Now it was also kind of an important building for us because that's the corner at which you need to turn right to get to our parking garage. And so it allows us to have a way to have a sign that says turn right here and go to the parking garage. It's not actually a very large building in a grand sense.

And we did reopen it with a Christmas theme and called it Christmas Casino. And year-to-date, I don't think it's made enough money to cover its lease, but we're probably better off operating it than not operating it. And controlling it was important for the kind of the bigger scheme of the whole block of what we're doing.

And so a good chunk of the reason why we were off in the first half of this year was operating that additional casino capacity in a leased building largely with leased slot machines. And we did it knowing that we probably weren't going to make a lot of money out of it. We thought we'd make some money.

And we, I think, did in the third quarter but not in the first half. And -- but it's kind of important for the overall strategy..

Got it. So you guys don't have a second gaming license in Colorado then..

We actually have three. In Colorado, it's a highly graduated tax rate. The first $2 million of revenue is only taxed at 0.25%, then it ratchets up to -- I think at $15 million it becomes 20%, if I remember correctly. And initially, Bronco Billy's was a smallish casino in the middle of the block.

And Marc Murphy, who was running it, did a better job than his neighbors. And at one point, one of his neighbors came up for sale. And when he was looking at it, the issue was, "If I buy it and combine it, our revenues jump and we'll be in a higher tax tier," and so that made it complicated.

And so they talked with the gaming commission and said, "If we buy the casino next door, knock a hole in the wall so the customers can walk from one to the other, can we keep it as two licenses?" And they said, "Yes, you can, as long as you operate a separate cage in each one." And the TITO tickets from one can't be accepted in the other, which is a little confusing for the customers, but our customers are pretty regular customers so they're used to it.

And so then at another point, Marc did the same thing on the other side. So within Bronco Billy's, there were three different licenses. When we reopened the Christmas Casino, we kind of reduced some of those lines and took 1 license down to the Christmas Casino, so now within Bronco Billy's there's two licenses. And then we have the Christmas Casino.

So in terms of sports betting, we have three licenses, we get three skins. Now Indiana has better barriers to entry because there's only 11 casinos permitted in Indiana. Each casino got three licenses. In Colorado, casinos are limited to three little towns, but there's not a limit on the number of casinos.

So theoretically, somebody could open a tiny little casino somewhere in Cripple Creek or Black Hawk in order to get the sports book license that would be affiliated with it..

Okay, I understand. I see, that's very helpful. And I guess you understand this question, sort of being in the gaming industry.

The refinancing of your debt, are lenders going to do that sort of on the come?.

Well, we're -- yes. There's a few things. We're pretty sure we could refinance our debt at significantly lower interest rates, or we can refinance it to get a larger sum and roll right into Phase 2. And we're trying to figure out whether the strategy should be go to low interest rates and then come back and do Phase 2.

The interest rates would be enough lower that the cost of refinancing would probably pay for itself in a couple of months. And so we're trying to evaluate all that. We -- obviously, getting the referendum passed in Colorado is pretty important. And we'll see that next week.

And then we can in earnest look towards doing the financing in the first part of next year..

Gary, it's probably coming sooner than you think. The mobile gaming in Indiana is literally on the verge. So knock on wood. I think and hope that we'll have at least 1 of our partners operating with their mobile sometime before the end of this current quarter.

And then I think -- as you go into the first quarter of next year, knock on wood, I think we'll have all three of our Indiana partners up and running. So you're going to see that -- those revenues and that EBITDA hit pretty darn soon for Indiana.

Colorado is going to take a little bit longer because they have to get it approved then set up the -- all the rules and everything.

So Colorado is more likely the middle of next year, but the nice thing about having the guarantees with companies that no gaming -- or have done sports betting for a while is it lets us get credit for that when we go out and talk to the debt markets..

Smarkets issued a press release when they signed the deal with us.

And in their press release, they indicated that they hope to be up and operating before the national football league playoffs, okay? And when you think about how much betting happens on the Super Bowl, I think it'd be a fair guess that all of these companies are trying to get opened in time to take bets on the Super Bowl..

Yes..

And you would think -- or at least March Madness or something, right? I guess....

You do, yes. And it's fairly easy for them; they're not building a casino. And they have the software already operating somewhere else, so they have to get gaming commission approval and then they flip a digital switch and they're up and operating. It's almost like the eBay model [indiscernible] the easy thing..

Yes, that makes sense. Okay. And maybe I missed this. I was listening -- I listened to the prepared remarks to the extent they're prepared and -- but do you have a sense of -- you said there's significant interest savings. Is that 2%, 3%? Or is it better? Or what do you guys have a sense of in terms of magnitude....

So we have some term sheets that are confidential but substantially below the 10% where we are. I mean, if you look at other companies like us of -- if you committed to not build Phase 2 and just use the cash to be swept to pay down, you could probably be as low as 5%. So you could reduce the interest rate in half, but then you couldn't build Phase 2.

So we're trying to balance this to figure out what's the best way to go. I mean, at the end of the day, it's all about what's best for our shareholders. So we're playing with all those permutations..

Got it, got it. Well, the shareholder and I trust you'll do the right things..

Yes..

We will now take our next question from Brian Gustavson of 1060 Capital..

Just on Waukegan, can you kind of talk about why you would or wouldn't partner with one of the other two parties just to kind of make the odds better for you guys?.

Well, I think in the process we're actually forbidden to talk to the other bidders, but I -- but obviously the thought has come to us that, if we get this project and it's $300 million, it would be a whole lot easier to finance it if we had a partner. So we have given some thought as to who might be a good partner for it.

We don't necessarily have to have a partner. And we're actually prohibited from talking to the other bidders during the bidding process, but I've done both. I mean, the Borgata in Atlantic City, we had invested quite a bit of money and actually time and effort, not a lot of money, in getting that tunnel built in Atlantic City.

People don't realize this. I negotiated that tunnel with the Atlantic City Expressway authority. And then ultimately we decided to partner with Boyd. It was kind of a complicated history, but Borgata ended up being a joint venture between Mirage Resorts and Boyd Gaming and is very successful for both companies.

Monte Carlo in Las Vegas was a very successful joint venture between what became Mandalay Bay group and Mirage Resorts. And so sometimes that makes sense, especially if the partners bring different expertise to the table, but this was a very expedited process in Illinois. The law was just passed a few months ago and they're moving very quickly.

And so we didn't have time to go find a partner in advance and apply. We just applied upfront. We're -- if we end up getting the license, we'll look at doing it on our own and we'll look at having appropriate partners. Once if we were chosen, well, then we would be free to talk to Bluhm or anybody else.

I don't know that he'd be the best partner, though. There is a lot of people who might partner in. And we'd probably talk to a lot of people, plus consider doing it ourselves, but we're actually prohibited from talking to other bidders because -- which makes sense in a bidding process..

Got you.

Can you take a partner now who's not involved at all?.

Well, the license is on us. I mean we posted that -- we put up the $300,000 nonrefundable deposit that Illinois required, which I will tell you I did with some angst because that deposit was much larger than is the norm in processes like this.

And we swallowed hard and did it because we think the economics of project are so strong that, even if we only have a 25% or 30% probability of getting it, we should still do it. And so we could talk to other partners, but we're not -- they would not be added to the gaming license. It's a complicated process to license somebody.

You -- but they're -- we think they're going to address markets where there is only one proposal. And there were a few of those. They'll address those first because that will be easier. And so it's probably 4, 6, 8 months before they get around to looking at Waukegan, and so we have some time and to think about the possibilities. So....

Looks like you've got a lot on your plate..

Well, I can tell you, when Lewis and I had our own little company, Creative Casinos, we had the last license in Louisiana. And we were getting ready to build the property in Lake Charles that is today the Golden Nugget. I actually designed that. And we had all the entitlements and everything. We had brought in MGM as a partner.

MGM was a significant investor and partner in that. And then as we were about to put two bricks together, Ameristar offered us a really nice profit and we sold it. So we know how to bring in partners when it's appropriate. I had that license completely to itself. And we brought in MGM both for their expertise and their assistance in financing it.

So it's the thing we promise Waukegan and the State of Illinois is, if they choose us, we will get it done one way or another. And it might be us on our own or it might be us with a partner, but it will get done. And it was the same thing in Louisiana.

When Ameristar offered to buy us out, I told Ameristar's CEO the only way I would sell, the only way I could sell was they would have to step into all the promises I had made to Louisiana, including the time schedule that it would be built and what it would -- what would be built and everything else.

And we went and met with the gaming commission, and provided they stepped into all those promises, we were approved to sell it and we did. So, I -- not that we're going to try to get Waukegan and sell it. Our intent is to develop it, but at some point, you have to sit, look and say this is a $300 million project.

Do we want to lever it and do it through leverage, or are we better off having a partner and not have that stiff leverage? And so like Neil Bluhm is partnered with Churchill Downs. So that makes a very strong balance sheet between the two of them. And so it's possible we'd figure out something like that as well..

That concludes today's question-and-answer session. Mr. Lee, at this time, I will turn the conference back to you for any additional or closing remarks..

Well, I wish I could find 6 new sports agreements to sign in the fourth quarter, but we're out of sports agreements opportunities. But we'll keep looking and keep running the company as best we can, and hopefully, our stock price will reflect that overtime. So, thank you..

Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect..