When Full House Resorts President Dan Lee got off the phone with a tree broker in Houston last summer, he ordered Chief Financial Officer Lewis Fanger to join him in a single-engine turbo plane for a short flight to Palm Desert, California.
Lee, the former chairman of Pinnacle Entertainment and chief financial officer of Mirage Resorts, wanted to create a sense of “arrival’’ at his 129-room Silver Slipper casino on the Mississippi Coast and hoped palms trees would be the answer.
The casino, which lies right off a coveted strip of white, sandy beach, had seen its cash flow nosedive 20 percent in 2014 — before Lee took the helm — amid growing competition in the region.
The executive knew the casino needed to enhance its nongaming amenities and ambiance much as Las Vegas resorts had done. So he built a pool in front of the hotel overlooking the coast to be visible to guests upon arrival.
Icing on the cake would be 20 Zahidi palm trees worth about $130,000 surrounding the pool.
But the tree broker warned that the farmer would grab the first trees he saw on the palm plantation. If he wanted the best trees, Lee should send someone to Palm Desert to pick them, the broker said
So Lee, a licensed pilot, boarded the small plane with Fanger to chose the straightest, healthiest palms.
“The guy who owns the farm showed up because he didn’t believe a company CEO was there picking out trees,’’ Lee said from his office in Summerlin. “It is one of the things that happens in a small company.’’
The 61-year-old, who has run some of the nation’s largest properties during his 30-year career in the casino industry, has had quite of few of those “things” since agreeing to run Full House Resorts at the end of 2014.
Stressing customer service
Lee has changed policy at the Fallon casino to permit residents — mainly Air Force personnel — to cash checks exceeding $1,000 at the cage with the hope they would stay a bit and play. He brought reindeer to a struggling Indiana resort during Christmas season to boost visitations.
Lee is in his third year of trying to turn around the long-struggling casino operator, which operates five properties and produces yearly revenue of $161 million, a sum The Mirage generates in three months.
The jump in Full House Resorts share price since his takeover suggests Lee is succeeding. The stock is up three-fold since he joined in December 2014 compared with a 32 percent rise for the S&P 500 index and 46 percent for the Dow Jones Gambling Index as of March 6.
Full House’s cash flow margin is just 11 percent, less than half that of larger peers, according to Macquarie Research, meaning a 1 percent improvement can boost cash by nearly 10 percent.
That is driving Lee to to find efficiencies and new means to boost business. Macquarie Research analyst Chad Beynon called Full House “the most creative gaming company nobody ever heard of” in its November report on the company.
Full House, however, recently reported 2017 earnings that missed Wall Street expectations because of bad weather in the South and Midwest and lack of snow in Northern Nevada.
Net revenue for the year rose 11 percent to $161 million, driven by an acquisition in mid-2016. But the company still posted a net loss of $5 million for the year.
Casino ferry owner
Improving performance of small casinos in competitive markets that lack the constant tourist flows of Las Vegas requires a lot of hands-on work and out of the box thinking, Lee said.
Rising Star Casino in Indiana is an example.
Located on the Ohio River across from Boone County, Kentucky, and Cincinnati, Rising Star was a gem in its heyday, generating $50 million of cash flow on $160 million of revenue, equivalent to the entire revenue of Full House today.
But two competitors later opened to the north and south of the property, located near bridges delivering people from Kentucky and Ohio. That drove Rising Star’s cash flow down to just $2.7 million.
Full House data show that Indiana residents living near Rising Star are dropping about $150 a year on gaming at the casino. Kentucky residents though were losing just $4 a year, indicating they were doing the majority of their gambling at the other two casinos closer to home.
Boone County, with a population of 120,000, is just 2,000 feet from the casino across the Ohio River but an hour’s drive. Building a bridge was out of the question. It would require years of approvals and possibly tens of millions of dollars in construction costs.
But with the potential upside from Kentucky residents so promising, Lee chose the only alternative. He decided to revive ferry service across this part of the river that died out decades ago when the bridges were built.
After two years of lobbying for the $1.5 million project, Lee aims to open the ferry service for the July Fourth weekend. The time is dependent on U.S. Army Corps of Engineers giving permission by mid-March as promised.
The ferry, possibly the first owned by a U.S. casino, would hold 10 cars and make one round trip every 10 minutes. Lee’s response to analysts’ questions during a March 1 conference call shows how important the project is to the struggling property.
‘’If they don’t (come through on time), I am going to be in a tent in front of the Corps of Engineers office in Louisville on (Friday), and I will sit there until they give us the permit,’’ said Lee, who stepped down from Pinnacle in 2009 after an outburst with a government official.
The company now expects to receive the permit next week, Fanger said.
And much like with Silver Slipper, Lee wants to create a sense of arrival for those traveling by ferry. He is upgrading an old pavilion on the property with trees, new flooring and street lights.
Replicate Pinnacle success
Lee is trying to replicate at his new Colorado property the winning strategy he used at Pinnacle.
When he ran that regional gaming company, Lee decided to invest $370 million to build the largest casino resort in Lake Charles with 700 rooms.
The executive knew that Houston residents were making the two-hour trip to Lake Charles to play slots and table games. Lee figured they would prefer to stay the night if there were more to do than gamble.
The calculation proved correct. A decade on, the property generates about $150 million in cash flow, he said.
“It was the right call to realize that people traveling that far want something more than just gambling. That’s the same evolution of Las Vegas in the last 30 years,” he said.
“And yet, when you look to Cripple Creek, it doesn’t have that today. It really is just a town with slot machines. So we’re making basically the same bet we made in Lake Charles.”
Denver and Colorado are just as close or closer to Cripple Creek as Houston is to Lake Charles. The combined population surrounding Cripple Creek is about 5 million compared with 6 million for Lake Charles.
If Lee can deliver on Cripple Creek it will “put the company on the map” of gaming operators, he says.
That will give Lee more than just bragging rights. It could lift the valuation of his company closer to that of bigger names, generating wealth for his investors as well as himself.