Full House lays groundwork for casino move; a positive reception to date
When we last left you, we were intrigued by a cryptic comment from Full House Resorts, Inc. President and CEO Dan Lee in his company’s second quarter earnings call with investment analysts. Referring to his company’s Rising Star Casino Resort, Lee observed, “Rising Sun is a pretty small earnings contributor to us, a pretty big footprint. We think it could be an interesting asset in other ways.”
Lee failed to elaborate on that remark, but we noted that in the past he’s parlayed the property into being a big broker of free play tax credits; earned significant amounts of cash by selling right to sports wagering skins; sought to move to Terre Haute or the old Indianapolis International Airport terminal site; and might also be eyeing selling rights to online casino operations should iGaming be legalized in Indiana.
Lee has long been cautiously candid with comments about his Indiana intent, as we have related here for decades, dating back to his time atop Pinnacle Entertainment, Inc., the former parent company of Belterra Casino Resort, and we’ve watched a substantial amount of his enigmatic hints and musings morph into policy proposals and action.
We felt that his remark merited some digging, particularly given that many of Lee’s major moves in Indiana were initially advanced in a budget session of the General Assembly (as 2025 will be), and that he – unlike many other casino company leaders – understands, respects, and follows the old legislative adage that nothing novel and substantial ever gets accomplished in just one session.
Turns out that back in 2017, your favorite gaming newsletter quoted Lee about his then-pursuit of a satellite casino in Terre Haute – shifting some “unused capacity” from Rising Star to the banks of the Wabash River. In an earnings conference call seven years back, he asked rhetorically, “Now, will we get it this year? I don’t know, the legislature meets every year, we know how to get there every year, and it take us five years. I think it took the race tracks something like seven or eight years before they slot machines.” Lee added that “public companies go on forever, I may be dead when this gets approved, but it will eventually be approved, and it will eventually happen, and I think it most likely happens at Terre Haute.”
Of course, he proved prescient with that prediction, though his company was unable to eventually win the license in the tarnished original process and re-run.
What Lee next said in mid-2017 caught our attention today: “But there are other places in the state like Fort Wayne, which is a city of 400,000 people and has no casino. I mean there are other places in the state this can happen, and I think it will eventually happen, but don’t know if it happens this year …. and frankly from our perspective, if it happens this year that’s great.”
Fort Wayne. Hmmm . . .
Well, as it turns out, we’ve learned that Lee is carefully laying the groundwork to move the Rising Star casino license from Ohio County to Allen County, and, more specifically to New Haven, a city of about 16,000 people that sits immediately east of Fort Wayne, the state’s second-largest city. New Haven is already home to the Winner’s Circle New Haven satellite wagering and sportsbook operated by Harrah’s Hoosier Park Racing & Casino.
We’ve confirmed with all parties that talks have begun for a potential move, but everyone cautions us that everything is only preliminary at this point, and specifics are scarce. Some may also be inferring more than others may be implying, but were believe we’ve gotten a handle on the potential parameters – if not the specific four corners – of the proposal.
The first public entreaties, as we understand it, came during the final week of July, so everything is still fresh.
Full House confirms for us that discussions are taking place about “relocation” of the Ohio County license to New Haven, and while local officials are not comfortable speaking about the “potential casino move,” New Haven Mayor Steve McMichael (R) tells us that he has been in contact with Full House and key lawmakers, and “the response is overwhelmingly positive.” “We’re excited about it,” Mayor McMichael, now in his second term after service on the city council, adds.
While Full House management explains that it is really too early to speak to any specifics, they have performed economic analyses, performed a feasibility study, and have also begun to look at sites.
All of this is similar to the preparation that the company undertook (and eventually shared publicly with lawmakers) in its 2017 Terre Haute quest, as well as the 2015 push by Full House for the $650 million American Place concept casino in the former Indianapolis International Airport terminal (that was eventually repurposed for use in Waukegan, Illinois, where the company was awarded a license).
The bottom line, of course, is that Rising Star, the state’s smallest casino, is struggling each month to hit $3.5 million in win, and will continue to take a hit from expanded gaming in Greater Northern Kentucky despite Lee’s novel marketing techniques (the Christmas Casino and ferry from Rabbit Hash, Kentucky) and significant targeted cost-cutting measures.
The casino in the state’s smallest county has the state’s smallest workforce, and operates on its original riverboat, floated up to Indiana from New Orleans in 1996, where it had already served for several years as a casino vessel. The diesel-electric sternwheeler launched in 1993 and was eventually used as the gaming platform for the former Hilton Flamingo in New Orleans, so it is effectively one of the few remaining first-generation casino vessels continuing to welcome gaming patrons.
While the original Hyatt Gaming Grand Victoria Casino & Resort in Rising Sun enjoyed early revenues of some $12 million to $15 million per month on a regular basis on an initial investment of more than $125 million, the property saw revenues decline when Belterra Casino Resort opened in Switzerland County four years later, meaning Cincinnati-area patrons would no have to pass two Indiana casinos to land in Rising Sun, and it could no longer benefit from weekend capacity constraints at the then-Argosy Casino Lawrenceburg.
The handwriting was also on the wall for Hyatt Gaming by 2006, as it saw Argosy readying a new gaming platform and Belterra looking to expand its hotel towers. Hyatt put the property on the market, and the imperative to sell grew as the Indiana racinos opened in 2008 and Ohio edged closer to approving land-based casinos and racino properties. In 2010, Full House purchased the property for about $51 million, and invested about $17 million more in capital expenditures in the next eight years, according to the company’s testimony to the legislature at the time . . . all the while operating cash-flow negative and paying a greater share of their profits in Indiana back to the state than any other casino in Indiana, Full House officials testified in 2019.
Now, 14 years after it purchased the property at a reasonable price for the time, the competitive environment has totally changed, and Full House is looking to maximize the profitability of the license . . . but within the context of ensuring that not only is the Ohio County community writ large not harmed, but that it would benefit – as would the state, a de facto condition precedent for moving the license. And there is now precedent for moving a license – and doing so with major benefits not only to the community which surrendered it (Gary), but to the new site (Terre Haute) and much more tax revenue to the state.
But this remains a delicate process, and that’s probably why Ohio County and Rising Sun officials are mum.
Current talks, as we understand them, center upon the current hosts being made more than whole, effectively a buyout that would provide even more than annual expected local revenues for a protracted period, with a minimum of three years and as many as five years what we’ve heard rumored. Thus, if Ohio County and Rising Sun were each receiving X number of dollars annually, they could receive as much as 5X+ as a lump sum, or X+ across as many as five years.
Since this would be a lengthy process – receiving legislative, regulatory, and local approvals And then a New Haven build-out – for a move, there is little expectation that the buyout would need to occur fewer than two and probably at least three years from now, so there is lots of time to shape an agreement, and by then Full House would also be legally entitled to purchase the “new” hotel built in partnership with the community for $1 (vs. a $2 million buyout today).
The move would also come with Rising Star employees being offered transfers to the new casino or other Full House properties.
We’re hearing that the host community is rightly concerned about being made more than whole should its largest local employer and property tax payor uproot its facility, and negotiations would have to include details about transfer and repurposing of the pavilion, and the disposition of the ferry and links golf course ownership. This will be complicated, but both sides have something to gain (note that there is no chance that the casino could ever truly grow in patronage, revenue, or size), meaning that getting to “yes” is possible, and there is a Gary model to reference (even though Gary was able to move one of its licenses to a more lucrative inland site, an option not available to Ohio County). You should also know that Dan Lee and his team have a reputation for creativity.
The timing also works for Full House being able to finance a new casino and buyout. The company’s permanent Waukegan, Illinois casino should be open and thriving two years from now (construction is waiting on a judicial appeal over the licensing process which Full House is expected to win), and other projects should also be spinning off cash, offering strong cash flow as well as a balance sheet that could allow any necessary borrowing for a lump-sum payout. since the company would be eyeing a seamless transition from one casino to another, as we saw with the Gary switchover, Indiana downtime should be measured in days or weeks, and not months (or years, as Terre Haute ended up being).
Meanwhile, in Northeast Indiana, Mayor McMichael tells your favorite gaming newsletter that there is already “lots of movement and action” from his perspective, and he’s fired up about being able to fit a casino and entertainment complex into local plans to position New Haven as a tourist destination. Already coming to New Haven: Fields of Grace (the NEI equivalent of Grand Park in Westfield) and the proposed International Harvester Museum. “We’re doing transformative things,” Mayor McMichael boasts, and he believes a casino complex would fit right in.
Indeed, locals tell us that if they were betting on where a casino complex could be sited, they would be purchasing real estate at Minnich Road and S.R. 930/U.S. 30 adjacent to I-469 (Ronald Reagan Highway). Such a site would be accessible from Ohio by a pair of four-lane U.S. highways and convenient to either north or south I-69 travelers.
The site would also be less than one mile from the Hoosier Park Winner’s Circle site. Ironically, when Winner’s Circle was controlled by the former Centaur Gaming, Centaur made several abortive efforts – some clumsy, other more surreptitious – toward obtaining a casino license for the Summit City. The numbers that they had in hand for such a project (now admittedly out of date due to more Ohio and Michigan and South Bend competition) were strong.
The mayor assures us that it’s “way too early in the process” to zoom in on a location, and that there “is not a definitive site picked out.”
New Haven, in case you are wondering, is not an area restricted from state-sanctioned commercial gaming under the State of Indiana’s formal gaming compact with the Pokagon Band of Potawatomi Indians that allows the state payment from certain proceeds from – and limited regulatory oversight for – the Four Winds Casino South Bend.
The assorted parties to the potential transaction have also been running their traps with lawmakers and regulators, and all reports we have been privy to suggest that even if there can’t be open support given the lack of details, there are certainly there open minds at this point. Lawmakers seem to be relieved that they would be presented with a package acceptable to all parties, but they would still expect to do some tinkering (we would expect a focus on the free play tax credits and their conveyability; no company has taken better advantage of the ability to sell their tax credits than Full House . . . as well as the impact of the timing of the marginal wagering tax rates on an opening; there are some concerns that the timing of the Terre Haute opening late in the fiscal year cost the state too much in foregone tax revenue).
The fulcrum upon which the deal would rest, however, would be the difference in tax revenue that would flow to state coffers. Given the structure of the state’s riverboat wagering tax rates,
The Rising Star casino, stuck at the bottom of the marginal rates, pays only a minimal amount of tax annually to the state, but a new Fort Wayne-area casino could bring in tax dollars similar to those generated by Hoosier Park or Caesars Southern Indiana given the size of the market and minimal cannibalization expected (recall that 2019 Legislative Services Agency estimates had anticipated as much as one-half of the AGR from a Terre Haute casino to come at the expense of other Indiana casinos).
Getting to “Yes” will not be an easy or comfortable process for the communities involved, or for lawmakers. Everything truly is much more preliminary than we’ve outlined for you above, but we tried to put some meat on the amorphous bones so you could see how this endeavor might take shape. We’ve not heard any early pushback on this, and Full House – having explored license transfers and as an applicant for the Terre Haute license which it arguably should have won – has an experienced team well-known in Indiana that knows how to push the right buttons in the correct order.
Assuming that the so-called “gaming moratorium” is lifted by legislative leadership next session – and that’s still an iffy proposition at this point – we would expect to see a gaming omnibus bill originate in the House that would include e-tabs for the veteran service organizations; online gaming for the Hoosier Lottery and casinos; clean-up items related to taxes and hold-harmless payments; and expanded credit card use for charity gaming.
We believe that any license transfer issue would be drafted as part of a different bill . . . and start its journey in the Senate.
We’ll be sure to keep you informed as the process pushes forward.