Lakes Entertainment reports Q1 results

10 May 2007

MINNEAPOLIS, Minnesota -- (PRESS RELEASE) -- Lakes Entertainment, Inc. (NASDAQ:LACO) today announced results for the first quarter ended April 1, 2007. Revenue for the quarter totaled $5.0 million compared to $6.6 million for the first quarter ended April 2, 2006. Losses from operations were $7.3 million for the current year quarter compared to earnings from operations of $10.4 million for the prior year period. Net losses for the first quarter of 2007 were $12.1 million, and basic and diluted losses were $0.53 per share. This compares with net earnings of $11.7 million, and basic and diluted earnings of $0.52 per share and $0.48 per share, respectively, in the first quarter of 2006.

Revenues for both years were derived primarily from television license fees related to the World Poker Tour ("WPT") television series of Lakes' majority-owned subsidiary, WPT Enterprises, Inc. ("WPTE"). The decrease in revenues during the first quarter of 2007 compared to the first quarter of 2006 was primarily a result of the delivery of five episodes of Season Five of the WPT television series in the first quarter of 2007 versus six episodes of Season Four of the WPT and one episode of the Professional Poker Tour ("PPT") delivered in the first quarter of 2006. WPTE's online gaming, sponsorship and international television license revenues also decreased in the first quarter of 2007 compared to the 2006 first quarter period. The decrease in online gaming revenue during the 2007 first quarter period was due to lower levels of player activity versus the prior year period. Sponsorship and event revenues decreased primarily due to the timing of not airing any episodes of the WPT television series in the first quarter of 2007 versus the airing of five episodes of Season Four in the prior year period. International television licensing revenues decreased as a result of decreased distribution agreements for Season Four of the WPT and Season One of the PPT.

During the first quarter of 2007, casino management fees were approximately $0.4 million. There were no casino management fees recognized during the first quarter of 2006.

Net realized and unrealized gains on notes receivable were $0.2 million and $15.5 million for the first quarter of 2007 and the first quarter of 2006, respectively. The net realized and unrealized gains in the first quarter of 2007 related to the Company's notes receivable from the Pokagon Band of Potawatomi Indians ("Pokagon Band"), the Shingle Springs Band of Miwok Indians ("Shingle Springs Tribe") and the Jamul Indian Village which are adjusted to estimated fair value based upon the current status of the related tribal casino projects.

Regarding the Pokagon Band, as previously announced, during March of 2007, Lakes contracted with a group of investors for their participation in the loans made by Lakes to the Pokagon Band (and assumed by the Pokagon Gaming Authority) at an agreed upon price of 98% of the face value of the loans as of the settlement date of March 2, 2007. Accordingly, as of March 2, 2007, the Pokagon notes receivable were adjusted to the negotiated participation price of 98% of principal and stated interest, which resulted in a gain of approximately $1.6 million during the first quarter of 2007, which was partially offset by transaction costs of approximately $1.1 million. This participation arrangement was accounted for as a sale during 2007; however, the transaction did not have any effect on Lakes' management agreement for the Pokagon casino resort project.

Regarding the Shingle Springs Tribe, the repayment terms of the notes receivable were revised and the notes will now be repaid over the life of the seven year management agreement rather than over approximately 24 months. This change resulted in unrealized losses on notes receivable of approximately $0.9 million for the first quarter of 2007. In conjunction with the change in the repayment terms of the notes receivable, the Shingle Springs Tribe has agreed to repay Lakes for non-gaming land at the time the casino project financing is completed. Lakes had previously purchased this land on behalf of the Shingle Springs Tribe, and will be repaid at its cost of approximately $8.0 million plus accrued interest for this non-gaming land.

During the first quarter of 2006, the net unrealized gains of $15.5 million related primarily to the increased probability of opening for the casino development projects with the Pokagon Band and the Jamul Indian Village due to favorable events occurring during the first quarter of 2006.

Selling, general and administrative expenses were $9.7 million during the first quarter of 2007 compared to $9.2 million in the first quarter of 2006. The increase primarily related to additional headcount and professional fees associated with project development.

Other expense for the first quarter of 2007 was $5.4 million compared to other income of $5.4 million for the first quarter of 2006. In March 2007, Lakes' then existing $105 million credit agreement was repaid in conjunction with the Pokagon notes receivable participation transaction discussed above. This repayment resulted in a loss on extinguishment of debt of approximately $3.8 million during the first quarter of 2007.

Other income in the 2006 first quarter period included a gain on sale of securities of $5.7 million related to a sale of 630,000 shares of common stock of PokerTek, Inc. ("PokerTek") held by WPTE.

Lyle Berman, Chief Executive Officer of Lakes, stated, "We are very pleased with the progress made on all of our projects during the first quarter of 2007. Construction on the Four Winds Casino in Michigan continues to move forward on schedule and on budget, and we are looking forward to seeing this property up and running as planned in August of 2007." Mr. Berman continued, "We are very excited about the recent groundbreaking on the interchange in Shingle Springs, California which will connect U.S. Highway 50 to the Shingle Springs Tribe's Rancheria. We look forward to starting construction on the Foothill Oaks Casino early this summer once the financing for the project is in place."

Tim Cope, President and Chief Financial Officer of Lakes, stated, "We continue to be very proud of our relationship with the Iowa Tribe of Oklahoma and our management of the Cimarron Casino in Oklahoma. In addition, we are working with the Jamul Indian Village to develop as quickly as possible their class-II gaming project." Mr. Cope continued, "As a result of the recent Pokagon notes receivable participation transaction, we repaid our $105 million credit agreement. Lakes is now in a debt-free position, which will give our Company more flexibility in the future to meet additional capital needs."