Here are 3 microcap gambling related companies I think are interesting. I'll try to add more detail to these when I have more time. I figure some people here might be familiar with some of these and might be able to contribute some helpful insights.

FLL: http://www.fullhouseresorts.com/
owner and operator of casinos - Turnaround story
-Silver Slipper in Bay St Louis, MS
-Rising Star Casino in Indiana
-Stockman Casino, Northern Nevada
-Grand Lodge Casino, Northern Nevada

Company underwent an entire management change last fall when 3 activist investors took over the board. This is a turnaround story where you are betting on Dan Lee, former CEO of Pinnacle Entertainment, The Palms, and a protege of Steve Wynn at MGM/Mirage. Lee appears to be a very capable operator as well as a very savvy deal maker. The company currently trades for under tangible book value and I think there are several ways to win here.

1. Operational turnaround improvements at all properties
2. Refinancing of the expensive debt as a result of operational turnaround
2. Successful opening of the new hotel at the Silver Slipper (I think this will be big)
3. Sale of Silver Slipper real estate to a REIT and using the proceeds to either pay off the expensive debt or fund a new casino deal that Lee creates
4. Dan Lee dealmaking optionality

The company is currently highly levered so the upside will be big if the turnaround is successful.


TBTC: http://www.tabletrac.com/

Provides casino player monitoring systems to over 60 casinos world wide, sales have been growing, business model is very attractive and margins are very high and recurring, I think there is also a decent chance this one is sold in the near future and private market value is over 100% higher than current price (see letter from largest shareholder: http://www.otcmarkets.com/edgar/GetF...ingID=10452348)

"the cash and recurring revenue stream alone
could fetch investors about $2.50 or more per share in a sale of the
Company without any value given to the other parts of the operating
business, patents, customer contacts and goodwill"


WGA: http://www.americangaminginc.com/

supplier of replacement parts for gaming machines, company selling for less than NCAV which is mostly cash, company is currently evaluating strategic alternatives and I think is very likely to be sold in the near future. Downside seems very low here.

FLL is one of my bigger positions. Can see this at $2 just by refinancing the debt, and the upside optionality with Lee is tremendous.

I dug into TBTC a little bit. What do you like about it? Sales and income are down massively in 2014 vs 2013. Net income $33,290 and $580,363, respectively.

They pushed out their CEO in 2014 and bought back all his shares.

Other than one of their shareholders thinking operating cash flow of $200,000 per year could be sold for $10M, where's the value?

I mean, this could be a turnaround story if the new CEO manages to get revenues back to 2013 levels. What do you see happening?

Big news out of FLL today, Dan Lee dealmaking in the works:

http://seekingalpha.com/pr/14374666-...american-place

Very crafty little deal he is working on here arguing that a new casino license would not need to be issued and they would just be shifting square footage/gaming machines from their Rising Sun location to this new location. Not sure the legistalors will buy it but can't fault him for trying.

Sorry i haven't been able to respond to this. Basically, because this company is so small an acquirer would be able to realize significant cost savings in a buyout. If you take out the BoD/CEO/CFO compensation, and Audit fees, this thing does 20% EBITDA margins with little CapEx and would probably sell for 10x in a buyout scenario so i also think the $2.50 number is realistic. I liked this more when it was under $1/share but they've won some new contracts which has driven up the price.

WGA released earnings recently, cash balance sits at $9.4m with no debt and current market cap is $10.4m. They expect cash to raise to $10m in the coming months as they liquidate the rest of their legacy inventory. So right now we are paying $400k for a casino machine parts business that does $8m/yr in revenue and sales were up 18% YOY in the most recent quarter. On the most recent earnings call they said the business is not profitable as a public company but would be profitable as a private company. They said the cost of being public is between $500-600k. They apparently have multiple interested parties in buying the company.

So how much is this thing going to sell for? My guess is between $4-8m which would be .5-1x Rev. Company has lots of NOLs so no taxes upon sale. They are pretty far along in the sales process which started back in December, an activist nominated a board member to help with the process and I expect this thing to be wrapped up in a year at the latest. I would encourage you to read their recent earnings call transcripts.

$4m sale + 10m cash = $14m = $1.20/share (35% upside)

$8m sale + 10m cash = $18m = $1.54/share (73% upside)

Not crazy upside but the downside should be very low as this thing is basically a cash shell right now. CEO discussed paying a large cash dividend that would be announced in the next two weeks.

I don't trade small caps or know any of these companies. However I know a bit about Dan Lee and all I'd say is when he ran Pinnacle, he was a big dreamer. He wanted splashy headlines and to get really big and buy lots of things. When it came down to operating casinos, Pinnacle was a very sloppy operation. You can see the amazing progress current management made. A lot of it was just basic operations improvements that Dan Lee neglected while trying to build his empire.

Just something to think about.

FLL is in a terrible market (US casino market, very competitive) and also in a terrible location. ANd valuation does not look that compelling anyway.

Appreciate the insight. It's funny because if you read the last two earnings call transcripts for FLL all Dan Lee talks about is basic operational improvements and cost savings they have been finding since taking over Full House. When I listen to him talk about how he is thinking about the business, it's all very logical to me. He seems to understand how value is created.

My biggest concern about him is actually his behavior. He had a massive blow up in front of Missouri legislators a few years ago and he left the Palms after running it for only a year where he said he left because of a "bike accident". Part of me thinks he could potentially have an alcohol problem or something.

I definitely see the "dreamer" part of him. He has been apart of some big time deals in the past and I think he wants to continue making big deals.

His compensation plan is extremely options heavy. The best strategy for his incentive plan is to go big or bust.

If you pull up Yahoo Finance and see EV/EBITDA = 8.5x then yes the valuation does not look compelling here. The argument is that current EBITDA numbers are depressed. It does trade at 50% of book value, 75% of tangible book value, and .7x EV/Rev.

They have debt at 14.25% right now that was used to build their hotel at Silver Slipper (old mgmt took on the debt). If they are able to improve operations and refinance this debt tranche to say 8%, they will save $.065/share/year in interest expense alone. That is not immaterial when the stock price is only $1.46/share.

I'm not a big fan of the locations either but the price is right, i think mgmt is focused on creating value, there is a clear turnaround plan that doesn't require magic, and the levered balance sheet will result in big upside for the stock if they are successful.

Do you read anything with the timing of this release. They're reporting earnings today why not wait a day and discuss it on the call. It'll be interesting to hear Lee talk about this and hopefuly they put in a solid quarter and aren't using this as a distraction.

Dan made millions at his past jobs so I don't think those options have a big effect on his net worth unless he hits a home run. While this by itself aligns him with shareholders, I also got the "go big or bust" feeling from his past at Pinnacle and that's a negative in my eyes, not a positive. Having two questionable exits from former companies is also a pretty big red flag. As a minority investor, I have to trust management and I'm on the fence with Dan.

I haven't completely shut the door on FLL yet. I was spending a lot of time on it and then got distracted by other ideas that were more enticing. May come back around to it in the future.

completely feel ya. When it really comes down to it, FLL would not be interesting to me at all if the balance sheet wasn't so levered.

Pretty solid quarter operation wise but the American Place idea seems like a real long shot. Was also hoping they'd be more aggressive with refi plans but they may need a couple more solid operating quarters before they can get a good rate.

yeah i thought it was good too. They sounded really confident that the debt refinancing is on track. I love Lee's creativity and entrepreneurial spirit. The ideas he's thinking up are really unique and cool.

So WGA paid a $.45/share dividend, nothing else has really changed but because there is less cash now, the upside in the stock should be more now on a percentage basis. With a 4m sale there should be 50% upside and a $8m sale there should be 120% upside from current prices. Sale process has already taken forever considering how small the company is but there should be significant cost savings to a strategic acquirer between CEO/CFO/BoD salary and public company costs.

On the Trump thread I made a list of some of the casinos that did chapter 11s. These I researched myself in 15 minutes on google, there are tons more.

Greektown Casino Detroit (2008)
Imperial Gaming, Colorado (2008)
Stations Casino (2010)
SanCruz casinos (chapter 7)
Ceasers Entertainment (2015)
Presidents Casino (2002)
Las Vegas Riviera Hotel and Casino (2009)
Centaur (2008)
Horizon (South Lake Tahoe) 2009
Montbleu (south Lake Tahoe) 2009
Majestic Star (2009)

Reason I would be wary of casinos. I get the feeling they do too many promotions and take on debt.

Lots of good developments out of FLL last few months.

1. Gulf Coast gaming reports point to mid single digit YOY growth, this bodes well for their top property Sliver Slipper. The hotel has also been sold out every weekend since opening, i think this will hit the upper end of their projected EBITDA targets.

2. Rising Star renovated into a "Christmas Casino" over the holidays and gaming reports from indiana show the Rising Star saw 13% growth in gaming revenue in November and 21% growth in December. This one of a kind Christmas Casino I think will prove to be a nice surprise when earnings are reported in Mid March.

http://www.in.gov/igc/2803.htm

http://eaglecountryonline.com/local-...istmas-casino/

3. American Place, the new casino and lifestyle center proposal Dan Lee submitted to
over the summer received support from a feasibility study recently. This is just an option right now but could be a great win for FLL.

http://www.insideindianabusiness.com...rport-terminal

4. FLL along with the Hyatt are renovating the casino at Grand Lodge. Specifics haven't been released yet but with Dan Lee you can be sure he has some unique ideas planned here, his ideas so far have been very outside the box and I love it.

http://finance.yahoo.com/news/full-h...133000223.html

5. FLL acquired Bronco Billys casino in Cripple Creek, CO for $30m or 6x EBITDA, funded 100% with debt. This hasn't closed yet and will be dependent on FLL successfully refinancing their debt which they haven't yet announced. They said early 2016 so should be any day now. Dan Lee has also referenced the possibility of expanding the casino here and also adding a hotel.

http://finance.yahoo.com/news/full-h...131500245.html

Assuming the acquisition goes through, i think FLL is a $24m EBITDA company going forward

Silver Slipper: $10m
Silver Slipper Hotel: $4m
Rising Star: $5m
Bronco Billys: $5m
Stockman Casino: $3m
Grand Lodge: $1m (probably upside if they are investing $ in renovating/expanding)
Corporate: (4m)
American Place Proposal Option: $0


Total: 24m EBITDA

Stock: $1.36
Mk Cap: 25.8m
EV: $87m + 30m debt from acquisition: $117m
EV/EBITDA: 4.87x

I think their best comp is MCRI which owns 2 properties and trades for 7x EV/EBITDA

7x * 24m = $168m - 91.3m net debt: $76.7m / 19m shares = $4.03/share (196% upside)

The super upside case is this:

Silver Slipper: 10m
SS Hotel: 4m
Rising Star: 10m (they said they thought this was possible)
Bronco Billys: 6m
Stockman: 4m
Grand Lodge: 2m
Corporate: (4m)

Total: $32m + optionality from American Place proposal + expansion/hotel at Bronco Billys + whatever other ideas Dan Lee will inevitably come up with.

$32m * 8x = $256m - 91.3m net debt: $164.7m / 19m shares = $8.66/share (537% upside)

There is obviously lots of debt here and they still need to refinance their current debt to really get the ball rolling here. I wouldn't put more than 5-7% of your portfolio in this name because there is real risk of loss here but I think there is a clear path to value creation and continued reinvestment in the current properties to improve profitability for several years to come here. I think if they hit that $24m EBITDA number, people will really start buying into Dan Lee as a manager and will reward the stock with an EV/EBITDA multiple higher than 4.8x. The debt will provide the jet fuel for the stock in this turnaround.

FLL results were excellent; however, the chaos in the junk bond market really screwed up the refinancing of their debt and it sounds like it may put their latest acquisition at risk and the interest rate on the refinancing is not going to be nearly as favorable as previously expected which really sucks. The core operations are on an excellent trend but they have a TON of interest expense that is really eating into their cashflow generation. They also didn't win the American Place proposal but Lee said he is determined to continue looking for way to relocate some of their gaming machines at Rising Star elsewhere in Indiana. He is also building an RV Park at Rising star on an old parking lot they haven't used for 10 years, have to love how he is continually trying to maximize the assets that he has. I think this is a 22-25m EBITDA company going forward, if they can successfully delever, refinance debt, things are looking really good but with this much debt there is still a significant amount of risk.

Good quarter for FLL, the CEO's comment on debt refinancing is a big plus.

"Lastly," concluded Mr. Lee, "while no deal is truly complete until the signatures are exchanged, we believe we are very close to simultaneously closing on the refinancing of our debt and the acquisition of Bronco Billy's in Cripple Creek, Colorado. We have the appropriate commitments from our lenders and we are close to having all regulatory approvals. We hope to close that complicated transaction by the middle of May."