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Lakes Entertainment reports results

Lyle Berman, Chief Executive Officer of Lakes, stated, "We are pleased with results from the Four Winds Casino Resort in the face of a very difficult macroeconomic environment. In another positive for the Company, we are excited that California Governor Schwarzenegger and the Shingle Springs Band of Miwok Indians were able to amend their gaming compact, which will allow for expanded Class III gaming at the Red Hawk Casino once the amendment is ratified by the State of California's legislature and approved by the Bureau of Indian Affairs. Approval is expected prior to the planned opening of the Red Hawk Casino which is still on schedule for late fourth quarter of this year. Further, yesterday we delivered petitions containing over 750,000 signatures to the Ohio Secretary of State and we anticipate enough signatures will be verified in the requisite number of counties in order to place the MyOhioNow casino resort initiative on the Ohio ballot in November."

Further commenting on second quarter results, Tim Cope, President and Chief Financial Officer of Lakes, stated, "Following the improved performance in March of this year, the Four Winds Casino Resort continued to perform well and exceeded our expectations in the second quarter. In Oklahoma, the Cimarron Casino reported strong results with an improvement in year-over-year performance and in California, the construction of the Red Hawk Casino for the Shingle Springs Tribe in California remains on schedule and within budget for its expected grand opening."

Second Quarter Results

Lakes Entertainment reported consolidated second quarter 2008 revenues of $11.0 million, a 34.8% increase from the prior-year period. Lakes' revenue increased $5.5 million, primarily due to a full quarter contribution of management fees from the Four Winds Casino Resort, which is owned by the Pokagon Band of Potawatomi Indians ("Pokagon Band"), compared to no contribution from that property in the second quarter of 2007. Revenue related to WPTE decreased to $5.1 million for the second quarter of 2008, compared to $7.7 million in the prior-year period. The decrease was due to a decline in domestic television license fee income from the World Poker Tour® television program, which was due to lower per episode license fees under the Game Show Network agreement in effect during the 2008 period, as compared to the Travel Channel agreement which was in effect during the 2007 period.

Consolidated selling, general and administrative expenses were up $4.0 million from the prior-year period to $13.9 million due to development costs associated with the proposed Ohio casino resort project. For the second quarter of 2008, Lakes' selling, general and administrative expenses were $7.7 million and consisted primarily of payroll and related expenses of $2.1 million (including share-based compensation), the development costs associated with the Ohio casino resort initiative of $4.0 million, travel expenses of $0.7 million and professional fees of $0.5 million.

Other costs and expenses incurred in the second quarter of 2008 included amortization of intangible assets of approximately $1.7 million associated with the casino project with the Pokagon Band which commenced upon the opening of the Four Winds Casino Resort in August 2007.

Net unrealized gains on notes receivable relate to the Company's notes receivable from Indian tribes, which are adjusted to estimated fair value, based upon the current status of the related tribal casino projects and evolving market conditions. In the second quarter of 2008, net unrealized gains on notes receivable were $1.1 million, compared to net unrealized gains of $8.9 million in the prior-year period. The difference in unrealized gains on a quarter-over-quarter basis was primarily due to the recognition of a $7.7 million unrealized gain in the second quarter of 2007 due to closing on a $450 million senior note financing to fund the Red Hawk Casino project in Shingle Springs, California, which increased the probability of the opening of the casino.

The loss from operations for the second quarter of 2008 was $6.5 million, compared to earnings from operations of $1.6 million in the second quarter of 2007, while net loss applicable to common shareholders for the second quarter of 2008 was $5.2 million, compared to net earnings applicable to common shareholders of $6.6 million in the second quarter of 2007. The difference resulted primarily from the items discussed above, in addition to the net effect of items occurring in the prior-year period, including $4.9 million of interest income resulting from the repayment for land Lakes had previously purchased on the Shingle Springs Tribe's behalf, partially offset by a loss on abandonment of online gaming assets by WPTE of $2.3 million and a stock warrant inducement discount of $1.4 million. Loss applicable to common shareholders per fully diluted share was $0.21 in the second quarter of 2008, compared to earnings applicable to common shareholders per fully diluted share of $0.25 for the second quarter of 2007.

Six Month 2008 Results

Lakes Entertainment reported consolidated revenues for the six-month period ended June 29, 2008 of $20.5 million, up 56.7% from the prior-year period. Lakes' revenue increased $9.6 million over the six-month period ended June 29, 2008, primarily due to a full six months contribution of management fees from the Four Winds Casino Resort, compared to no contribution from that property for the six months ended July 1, 2007. Revenue related to WPTE declined to $10.0 million for the six months ended June 29, 2008, compared to $12.2 million in the prior-year period. The decrease was due to a decline in domestic television license fee income from the World Poker Tour® television program, which was due to lower per episode license fees under the Game Show Network agreement in effect during the 2008 period, as compared to the Travel Channel agreement which was in effect during the 2007 period.

Consolidated selling, general and administrative expenses for the six months ended June 29, 2008 were up $5.1 million from the prior-year period to $24.8 million due primarily to $5.7 million in development costs associated with the proposed Ohio casino resort project. For the six months ended June 29, 2008, Lakes' selling, general and administrative expenses were $13.2 million and consisted primarily of payroll and related expenses of $4.3 million (including share-based compensation), the development costs associated with the Ohio casino resort initiative of $5.7 million, travel expenses of $1.3 million and professional fees of $1.1 million. Other costs and expenses for the six months ended June 29, 2008 included amortization of intangible assets of approximately $3.4 million associated with the casino project with the Pokagon Band which commenced upon the opening of the Four Winds Casino Resort in August 2007.

For the six months ended June 29, 2008, net unrealized losses on notes receivable were $0.9 million, compared to net realized and unrealized gains of $9.1 million in the prior-year period. Net unrealized losses in the six-month period ended June 29, 2008 were due primarily to a decrease in projected interest rates, due to current market conditions, for the notes receivable related to the Red Hawk Casino project with the Shingle Springs Tribe and the notes receivable related to the casino project with the Jamul Indian Village. The difference in the year-over-year basis was primarily due to the recognition of a $7.7 million unrealized gain in the six months ended July 1, 2007 due to closing on a $450 million senior note financing to fund the Red Hawk Casino project in Shingle Springs, California, which increased the probability of the opening of the casino.

The operating loss for the six months ended June 29, 2008 was $14.4 million, compared to an operating loss of $5.7 million in the prior-year period, while net loss applicable to common shareholders for the six months ended June 29, 2008 was $12.1 million, compared to a loss of $3.2 million in the comparable prior-year period. Loss applicable to common shareholders per fully diluted share was $0.49 in the six months ended June 29, 2008, compared to a loss per fully diluted share of $0.14 for the prior-year period.

Liquidity and Balance Sheet

As of June 29, 2008, the Company had $9.9 million in cash and cash equivalents, $6.4 million in short-term investments in marketable securities, and $37.5 million in long-term investments in marketable securities. Of these amounts, $4.5 million in cash and cash equivalents related to Lakes and $25.0 million in long-term investments related to Lakes. All other amounts related to WPTE. All of Lakes' long-term investments in marketable securities and $11.4 million of WPTE's long-term investments in marketable securities are comprised of auction rate securities ("ARS"). As a result of liquidity issues surrounding the ARS discussed below, the ARS are classified as long-term investments in marketable securities as of June 29, 2008. The types of ARS that both Lakes and WPTE own are backed by student loans, the majority of which are guaranteed under the Federal Family Education Loan Program ("FFELP"). Neither Lakes nor WPTE own any other type of ARS. None of our ARS qualify, or have ever been classified in our consolidated financial statements, as cash or cash equivalents.

Historically, these types of ARS have been highly liquid using an auction process that resets the applicable interest rate at predetermined intervals, typically every 7 to 35 days, to provide liquidity at par. However, as a result of the liquidity issues experienced in the global credit and capital markets, the auctions for all of the Company's ARS began failing in February 2008. The failures of these auctions do not affect the value of the collateral underlying the ARS, and both Lakes and WPTE continue to earn and receive interest on the ARS at contractually set rates. However, it will not be possible to liquidate the ARS until the issuer calls the security, a successful auction occurs, a buyer is found outside of the auction process or the security matures. During July 2008, Lakes and WPTE received account statements for June 2008 from the firms managing the ARS which estimated the fair value of the ARS. Lakes and WPTE analyzed these statements and have concluded that a temporary decline in estimated fair value of $2.8 million related to the ARS has occurred as a result of the current lack of liquidity. This consolidated decline in estimated fair value includes $1.8 million related to Lakes and $1.0 million related to WPTE. Since we consider the decline in the estimated fair value of ARS to be temporary, the related unrealized loss is included in accumulated other comprehensive loss in the shareholders' equity section of the Company's balance sheet as of June 29, 2008. If the Company were required to liquidate the ARS over the coming months as a source of financing, it is likely that the proceeds would be substantially less than the carrying value of the ARS.

Lakes entered into a client agreement with UBS Financial Services, Inc effective April 11, 2008 for the purpose of borrowing and/or obtaining credit in a principal amount not to exceed $11.0 million (the "Margin Account Agreement"). During June 2008, the Margin Account Agreement limit was increased to $12.5 million. Lakes made an initial draw under the Margin Account Agreement in the principal amount of $3.0 million for working capital purposes. Lakes is currently seeking additional sources of financing to fund additional costs that are planned to be incurred between September and December of this year associated with the previously announced Ohio casino resort initiative. These additional costs, which are currently expected to approximate between $10 million and $20 million, will only be incurred if this initiative is successfully placed on the Ohio ballot and are dependent on various factors including polling numbers, market studies and media efforts. Lakes expects to be able to obtain funding as necessary. WPTE does not believe that any lack of liquidity during the next 12 months relating to its ARS will have an impact on its ability to fund its operations.

Lakes also had notes receivable from Indian tribes which are recorded at their estimated fair value of $79.6 million as of June 29, 2008. The corresponding face value of these notes, including accrued interest, was $122.7 million. As of June 29, 2008, the Company's obligation related to its Margin Account Agreement was $2.8 million, and long-term contract acquisition costs payable were $6.1 million.

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