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Best of Howard Stutz

Gaming Guru

Howard Stutz

Inside Gaming: Optimistic CEO Dan Lee sees opportunities for Full House that are invisible to others

30 March 2015

LAS VEGAS -- On his first quarterly earnings conference call as CEO of Full House Resorts, Inc., Dan Lee compared himself to the little boy who came downstairs one Christmas morning hoping to find a pony.

Instead, he discovers a giant pile of horse manure next to the tree.

But the little boy, Lee said, was still optimistic. “With all that crap, there’s got to be a pony in here somewhere.”

Lee told this story when asked by Macquarie Securities gaming analyst Chad Beynon why he accepted the job in December with Full House. The regional gaming operator owned casinos in three challenged markets, carried a large debt and had a stock price that declined almost 70 percent in the previous year.

Lee said he saw value in Las Vegas-based Full House. He and his new management team will try to unlock that value.

“There is nothing critically wrong here,” Lee said after the company reported net losses in both the fourth quarter and and all of 2014. “There are challenges, but there is nothing fatal. We can fix this.”

Lee took over as CEO after a two-month proxy fight. He was brought in by several Full House investors who controlled 6 percent of the company’s stock and wanted new management and new direction.

Lee, 57, has been successful everywhere he’s gone.

He spent almost eight years as CEO of Pinnacle Entertainment, Inc. Before that position, he was chief financial officer of Steve Wynn’s Mirage Resorts. After leaving Pinnacle, he formed a casino company that was developing a property in Lake Charles, La. He sold the site to Ameristar Casinos for $32.5 million in 2012. The project opened in December as the Golden Nugget Lake Charles.

“Frankly, I sold it at a nice profit,” Lee said. “I have mixed feelings. If I had kept it, I would probably be even happier.”

A few of Lee’s financial backers in the Louisiana development owned shares in Full House. They weren’t happy.

Lee launched the proxy fight after spending a few months investigating the business. He saw a similar opportunity to what he faced in 2002 when he took over the predecessor company to Pinnacle. The company was about to lose its gaming license in Indiana when he stepped in. When Lee departed, Pinnacle was four times its original size.

Lee isn’t making bold projections for Full House. But on his first earnings call, he spelled out some of the changes he would like to see happen in each casino market that could increase cash flow.

Full House owns three casinos: Rising Star Casino Resort in Indiana, Silver Slipper Casino in Tunica, Miss., and Stockman’s Casino in the Northern Nevada community of Fallon. The company also manages the Grand Lodge Casino at the Hyatt Regency Lake Tahoe.

“Recognized, even on a poor year, we had $10 million of (cash flow), which is about twice our interest expense (and) twice what it should be given the current interest rate,” Lee said.

His primary focus is refinancing the company’s $60.6 million in debt. That effort will take up much of 2015.

Meanwhile, Chief Financial Officer Lewis Fanger, who has been with Lee since the Pinnacle days, is fixing Full House’s balance sheet. He described the process as “pulling up the cushions on the various sofas” and finding ways to save $100,000 here and $10,000 over there.

Fanger said the company has cut back on expenses, such as unnecessary outside advisers, and is looking for other savings. A tax refund of $3 million could have been larger, he and Lee surmised, if they had been on the job longer.

“These are little things that don’t affect the customer, they don’t affect the employees at all,” Fanger said. “It’s just from the sheer fact we were overpaying for some of our services. I’m much more optimistic now than I was on day one.”

Much of the cost savings could be used for the fixes.

The company is looking at adding better restaurant options to its Indiana property, along with contracting with a ferry operator to shuttle customers from points across the Ohio River in neighboring Kentucky. That could make the Rising Star accessible to 60,000 potential gaming patrons, 10 times the current customer base.

Full House is also bringing back the little things that work in certain markets. Previous management canceled the Tunica casino’s weekly Dungeness crab feast, which Lee’s team brought back along with other marketing programs that target local customers.

“I’m happy to say the Silver Slipper, which is our key property, is actually having a very nice first quarter,” Lee said.

Fixing Full House could also be profitable for Lee and his team.

The company’s stock price has hovered around $1.50 a share on Nasdaq over the past month. In the past year, Full House has traded from a low of 89 cents to a high of $2.49. It’s certainly not one of the gaming industry’s premier shares.

Even at its recent uptick, the share price is half what it was a year ago.

The previous management put Full House up for sale. There weren’t any offers. Lee said on the conference call that public companies are always for sale But for now, his job is to right the listing ship.

According to a Securities and Exchange Commission filing, Lee is being paid a base salary of $350,000, plus stock options covering 943,834 shares, which vest in full if the company is sold. Lee can also earn a bonus based on performance.

“You can see we are actually incentivized if the company were sold, but we are also incentivized to fix and operate the company,” Lee said. “So we will take it one day at a time; fix it, refinance the debt, get the stock back up, and look from there.”