Schedule 14A


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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

 

 

 

 

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Preliminary Proxy Statement

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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))



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Soliciting Material Pursuant to §240.14a-12

 

 

 

FULL HOUSE RESORTS, INC.

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Dear Fellow Shareholders:
It has been just over a year since our new management team arrived at Full House Resorts. We wanted to reflect on our progress during the year, and share our thoughts on the prospects we see for our future.
It was a very productive year.
Our net revenues for the year rose 2.6%. Our Adjusted EBITDA* increased 30.5%. Our net loss was $1.3 million versus a loss of $20.8 million in 2014. Perhaps more importantly, we reversed the negative trends that existed at virtually all of our properties and have planned out a strategy for further growth, improved financial strength and enhancement of shareholder value.

Silver Slipper Casino & Hotel
Our flagship property is the Silver Slipper in Bay St. Louis, Mississippi, approximately an hour east of New Orleans. It accounts for a majority of our income. In 2014, its Adjusted Property EBITDA declined by 21.5% from the results of 2013.
I joined the company in December 2014 and was pleased to reconnect with the management team at the Silver Slipper, which is largely a group that had worked together some years ago at the Casino Magic property in Biloxi, Mississippi. Hurricane Katrina destroyed that property, and much of the Gulf Coast, in 2005. Meanwhile, just prior to the hurricane, the management team was recruited by a private developer to build and operate the Silver Slipper, which opened in 2006. Full House acquired it in 2012.
It’s been a pleasure to work with this group again, led by John Ferrucci, one of the best marketers on the Mississippi Gulf Coast. We developed a strategy to improve the operations and the marketing at the property. We reversed the consolidation of the Players’ Club desk with the casino cage, which alleviated long lines and frustrated customers. We reintroduced buffet discounts midweek and added expensive, but popular, Dungeness crab to the buffet. In fact, we served more than 225 tons of crab at our buffet during 2015. We also made a subtle adjustment in the property’s logo, making it look finer and more “French” in keeping with the regional history, rather than the rough, Western look that it had previously. We think the new logo fits much better with the property.
Results improved almost immediately. Net revenues in the first quarter of 2015, for example, rose 11.4% from the prior-year period.
Meanwhile, the property was in the process of constructing a new hotel - the first hotel rooms at the Silver Slipper. Construction of the hotel was months behind schedule. The design of that hotel also had a major flaw - it had no suites. If our hotel didn’t have competitive suites, our best customers might spend their birthdays, anniversaries and other important occasions being hosted overnight at competing properties.
Fortunately, the construction delays meant that the top floor of the hotel had not yet been sectioned into individual guest rooms. We quickly reconfigured that floor, converting 22 “standard” guest rooms into nine high-roller suites on par with the suites of our key competitors. We also brought in additional construction oversight and drove the project to completion. The hotel opened in stages beginning in May 2015, with the final suites opening in September 2015. Adding suites and additional construction oversight increased the overall project costs, but put the project schedule back on track and produced an attractive, competitive product. The total project cost was approximately $20.5 million, versus the earlier forecasts of approximately $19 million.
With the hotel, results really took off. Net revenues grew over the prior-year period by 15.3%, 23.0% and 24.5% in the second, third and fourth quarters. The Silver Slipper ended 2015 with net revenues up 18.4% and Adjusted Property EBITDA up 32.3% over the prior-year period, resulting in the property’s best year since 2011.

The Silver Slipper is in good shape. The hotel is brand new, and the casino and other amenities have also been well-maintained over the past nine years since it opened.
Looking ahead, our near-term capital expenditure plans at the Silver Slipper are relatively modest. The property sits at the head of a beautiful, eight-mile-long beach, the closest beach to the cities of New Orleans and Baton Rouge. We plan to add a nice swimming pool in the coming months; our competitors have pools and we think it will help fill the hotel during the midweek period, particularly during the region’s hot and steamy summer. We don’t need that help on weekends, as the hotel readily fills on Friday and Saturday nights. Even a modest improvement in midweek occupancy should result in a strong return on the cost of a new pool.
Our principal near-term investment at the Silver Slipper will be improvements in the slot product and technology.
Longer term, we have enough land around the Silver Slipper to perhaps build another hotel tower someday and make other capital improvements. The property, for example, has very little meeting space and no showroom. At some point, it might make financial sense to add these amenities. These ideas reflect long-term rather than short-term opportunities. For at least the next year or two, we will focus on maximizing the results from our new hotel tower.

Rising Star Casino Resort
Some of our biggest challenges and our greatest opportunities are at the Rising Star Casino Resort in Rising Sun, Indiana.
Rising Star opened in 1996 and was one of the first casinos in the tri-state area. It is located approximately one hour from Cincinnati, Ohio, and within two hours of Louisville, Kentucky and Indianapolis, Indiana. It was built by the Hyatt organization at a cost of approximately $150 million and was initially a huge financial success. Casino revenues were more than $150 million per year. Over time, however, competing casinos opened in Indiana and Ohio, including some that cut off the traffic to Rising Star from the major metropolitan areas.
Rising Star’s income declined steadily for the last decade as competing casinos opened. Full House acquired the property in 2011, at a time when casinos had been legalized in Ohio, but none had yet opened. Six casinos opened in southern Ohio between 2012 and 2014. Rising Star’s net revenues fell to only $51 million in 2014 and Adjusted Property EBITDA was only $2.2 million. At one point, the casino resort employed some 1,500 individuals; today, it employs just under 600.
Despite that long downward trend, we believe that Rising Star has potential.
All of the casinos legalized under Ohio and Indiana law are now open and have been operating for at least 18 months. The Kentucky legislature has consistently rejected proposals to legalize casinos in that state. A court decision in 2014 allows racetracks in Kentucky to operate “historical racing machines,” which attempt to mimic a slot machine. A racetrack in northern Kentucky has applied for permission to install some of these machines. We think the competitive impact of a limited number of such machines will be relatively minor.
Rising Star has a large footprint. We own or control approximately 314 acres of land around our casino. We have two hotels, with a total of 294 guest rooms. We have surface parking for some 2,000 cars. We have an 18-hole golf course and extensive meeting capabilities, including a large ballroom that can function as a showroom. The casino itself is on a riverboat, a large vessel originally built for use in the New Orleans market. Truthfully, that casino is larger than is needed for today’s revenues and is a bit worn. That’s an opportunity. The boat itself has decent “bones,” with escalators in a central core and an eclectic, Victorian charm. Most of our competition appears to have hired the same design firm and churned out what has become a rather standard contemporary casino look. Rising Star, on the other hand, is quirky, atmospheric, and different.
Rising Sun itself is a pleasant place. It is an old riverboat town, rich in history, with a historic district only a short walk from our casino. The drive to Rising Sun is a scenic one through pastoral hills or along the river. It is far enough to be a getaway, but not so far that it feels like a long drive.
Because of the large footprint, and because it was recently operating at only slightly above breakeven, any increase in revenues at Rising Star has a large percentage impact on income. It also falls in the lower tiers of Indiana’s progressive gaming tax structure, which allows much of any incremental gaming revenues to fall quickly to the bottom line. We can easily accommodate more business with minimal incremental costs if we can simply attract more customers.

So, we tried something a bit different in late 2015. We leased the property to Santa Claus.
Not the real Santa Claus, of course. We trademarked the “Christmas Casino” name. We rented seven live reindeer.

And it worked. We spent approximately $600,000 on Christmas decorations, uniforms and whatnot, most of which is now carefully stored for next year. Our visitor counts at the property rose 18% over November and December of the previous year. While gaming revenues for the region were down, our gaming revenues over the two-month period rose 14%. And our Adjusted Property EBITDA rose by $1.1 million when compared to the prior-year’s fourth quarter. Yes, the Christmas Casino will be back, bigger and better, in 2016.
More importantly, the Christmas Casino demonstrated that the property has a pulse. It demonstrated that with proper promotion and some creativity, we can induce customers to drive past the other casinos and come to our unique property. That opens up all sorts of possibilities.
For example, we have extensive parking lots from the early heydays, some of which haven’t been used in many years. For about $1 million, we plan to convert one of the parking lots into a state-of-the-art RV park, accommodating about 50 recreational vehicles. RV parks are common at casinos in other regions - we have one at the Silver Slipper, for example - but currently do not exist at any casino in this area. Yet people in Indiana, Kentucky and Ohio enjoy traveling in RVs. Because we already own the land, we can introduce a new amenity to Rising Star for a relatively modest budget - an amenity that will bring more people to our property. We believe that it will pay for itself in two to three years.
We plan to build a restaurant in the casino, where we have more space than we need for our gaming revenues. Today, most of our food service is in the mainland pavilion, so our customers have to leave the casino for a meal. In addition to being inconvenient, that departure for a meal also results in a second admission tax to us, as we pay for each entry (and re-entry) of a customer onto the casino floor. By putting a restaurant on the boat, we improve the customer experience, increase the time that customers might stay at our casino, and modestly decrease the admission tax paid per customer. Ultimately, we think we’ll have more customers, so the overall admission taxes paid might be unchanged. The restaurant concept that we have in mind is unique, but we are not yet ready to disclose it.
We want to create a VIP area in the casino and a better “sense of arrival.” That will make us more competitive in the market, without costing a large amount of money. And we have some little things we want to fix, including our Tivoli lights and the speed of the two elevators on the boat. All told, we might invest $2 million to $3 million in the casino. These improvements will make a major difference in the experience and should generate a rapid payback on the investment.
We intend to “spruce up” the large pavilion that our customers pass through to get to the casino. The pavilion was built to accommodate crowds waiting for the next boarding time, when the boat was required to “cruise.” Today, we don’t have to cruise and it is just a large, cavernous space. For a modest price, we will convert the short walk into a more welcoming and interesting experience.
We also have a plan to improve our geography.
Rising Sun is across the Ohio River from Boone County, Kentucky - home of the major Cincinnati airport and the extensive and growing development around it. However, there is no bridge at Rising Sun. There is a similarly eclectic town in Kentucky called Rabbit Hash that is only 2,100 feet away from Rising Sun, but it is 40 miles and a one-hour drive to transit from Rising Sun to Rabbit Hash.


 

 

 

 

 

1 Why seven? It was a mix-up rooted in literary history. There are actually eight reindeer in the original poem, written in 1823. In 1939, the Montgomery Ward chain added Rudolph in a story written to be handed out to children at the store. We plan to have all eight of the original reindeer with us during the next holiday season, but not Rudolph and his neon nose.



At one time, an easy path between the two towns existed. A ferry boat shuttled between Rising Sun and Rabbit Hash from the mid-1800s until 1945. The farmers in Kentucky used it to bring their crops across the river, where the larger steamboats could tie up. The larger boats would then transport those items to the major cities north and south along the river. Children in Rabbit Hash went to school in Rising Sun and the two communities were closely related in many ways.
In 1945, the Rabbit Hash/Rising Sun ferry hit ice in the river and sank. By then, farmers relied on trucks rather than horse-drawn wagons, and roads and railroads competed with the transportation provided by the river. There was a larger, more powerful ferry just 10 miles north of Rabbit Hash, crossing to Aurora, Indiana. There was also a ferry approximately 10 miles south of Rabbit Hash, at Warsaw, Kentucky. So the Rabbit Hash ferry was not replaced.
Twenty years later, a bridge opened 10 miles further south of Warsaw, putting the Warsaw ferry out of business. Then, in 1977, the big bridge on I-275 at Lawrenceburg, Indiana opened 10 miles north of Aurora, putting the Aurora ferry out of business. The bridges are approximately 15 miles north and south of Rising Sun and both now have competing casinos at their landings in Indiana. Essentially, there is now a nearly 40-mile stretch of the Ohio River without any ferry boats or bridges…and Rising Sun/Rabbit Hash sits midway in that stretch.
There are about 650 ferry boats operating in the U.S. About half carry cars. Most of those are small, carrying between one and 20 cars per trip. Several still operate along the Ohio River, including the privately owned Anderson Ferry near Cincinnati, which has operated continuously since 1817. It charges $5 per car and carries a respectable number of cars.
We are exploring the resurrection of the historic ferry service that existed between Rising Sun and Rabbit Hash. We recently purchased land in Kentucky, directly across from Rising Star. It is believed to be the location of Boone County’s first ferry boat service, which began in 1842. It would involve a small ferry boat, much like the Anderson Ferry. We will need to build a short road on the Kentucky side and extend the road at our golf course on the Indiana side, plus build ramps into the river on both sides. All of this will take several governmental approvals, and we have begun that process. If all goes well, we intend to acquire or lease an appropriate boat and operate the service ourselves. The fares will likely be similar to those of the Anderson Ferry, and we might choose to reimburse the fares for those customers who visit our casino. We think the ferry itself might be profitable, while providing an important service to the communities on both sides of the river and augmenting the number of customers at our casino. We estimate our total investment, including the acquired land, planned roads and ferry boat, will probably be in the neighborhood of $1.0 million to $1.5 million.
Ferry boats aren’t very fast, but the river isn’t very wide. We estimate that it will take less than three minutes to cross the river. It probably takes a bit longer than that to load and unload the boat. The boat could probably make four or five round trips per hour, similar to what we believe is achieved by the Anderson Ferry. Over time, the numbers add up. Clearly, a portion of the ferry users will opt to visit our casino. When we consider the benefits to our casino business, the returns on the investment in the ferry service are probably quite high. If it doesn’t work, we’ll have a boat we can sell. But, we believe the ferry will work.
Finally, I note that we enjoy the strong support of the Rising Sun community. Rising Star is the largest employer and taxpayer in Rising Sun and Ohio County, Indiana.
A few years ago, an entity related to the local governments helped our subsidiary finance The Lodge at Rising Star, which provides 104 of our 294 guest rooms. We lease that hotel from that entity at favorable interest rates. At the end of the lease, we have the option to purchase the hotel for $1. If we don’t exercise that option, our landlord has the option to “put” the hotel to us for $1. We think it is likely that we will own that hotel over the long term and it is best to think of the lease (which is a capitalized lease and is not guaranteed by our parent company) as favorable financing for our subsidiary.
We have a symbiotic relationship with the community. We were able to negotiate a decrease in our real estate taxes over the past year, resulting in a decrease in our taxes of approximately $500,000 per year and a one-time refund for past taxes of $1.4 million. The local government entity from which we lease The Lodge recently agreed to help us fund capital improvements by delaying the repayment of $1 million of principal under that capitalized lease. In return, we agreed to reinvest that $1 million into property improvements.
The bottom line is that we see opportunity at Rising Star. It may never again earn what it did in its heyday, when it was one of the only casinos in the region. However, with careful management and modest capital investment, Rising Star can earn considerably more than it has in recent years.

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