Description

Overview

FLL is a regional casino owner/operator with 5 legacy casino properties and 2 recently launched casino properties. Earnings have been depressed over the last 3 years as FLL has pursued construction on a new casino in the northern Chicago suburbs (American Place) and another in the Colorado Springs area (Chamonix). FLL projects that these two locations should generate ~80% of their EBITDA in the medium-term or ~$100m/year with longer-term projections at ~$160m/year. The two casinos are now operational and FLL is on the cusp of a multi-year acceleration in both free cash flow and revenue growth. The two casino projects were announced in late 2021 and the bull story is the same as it was three years ago, with the stock down ~50% since then based on construction delays and overtures and a slow initial ramp at American Place. Despite most construction risk being behind us and strong momentum over the last 4-5 months at their temporary American Place casino, FLL trades in-line with peers on 2025 street EBITDA estimates and well below peers on light 2026 street EBITDA estimates with a far better growth outlook. We think current prices offer good risk/reward with upside to $9.50 or 82% upside driven by continued momentum at American Place and a better-than-expected EBITDA ramp at Chamonix in the important summer months.

Why does this opportunity exist?

FLL was last written up ~2 years ago on VIC, and the overall story is roughly the same with the stock down ~50%. Their track record on opening dates and construction budgets on Chamonix were poor. They had a 12-month opening delay at Chamonix and a $70m budget overature plus a 6-month opening delay at American Place. American Place also scaled less quickly than originally anticipated, and a newly revived lawsuit around their IL gaming license offers a very small, but still non-zero chance that they lose their rights to open the permanent American Place property. The stock also screens as over levered, although their leverage ratios should improve to peer averages as EBITDA scales over the next year. Despite some loss of faith in execution, we think the risk/reward looks far better today with construction risk largely behind us, both of their new locations up and running, and proof of scale at the temporary American Place location ($35m/year EBITDA run-rate today vs. target of $50m/year).

Business and Profitability Forecasts

American Place/Waukegan: ~$35m/year EBITDA run-rate today with medium/long term scale potential of $50m-$100m/year

FLL was awarded the license for the new American Place casino in late 2021 and began construction on the temporary facility in May of 2022. The new license was part of a 6-license expansion of gaming rights in IL that was approved by Governor Pritzker in 2019. Original expectations were for the temporary facility to open in the summer of 2022, which got gradually delayed until February of 2023. The temporary facility is located in a tent structure, and management believes it can do ~$50m of EBITDA per year at scale. Revenue/EBITDA ramped slower than originally expected at American Place, but is finally at ~$35m of run-rate EBITDA and should ramp towards $50m by the time they open the permanent American Place facility in 2027 which management believes can scale to $100m of EBITDA/year. They indicated ~$3m/month in EBITDA in February, March, and April with revenue continuing to scale.

Location wise, Rivers Casino is the closest to them (~30 miles or a ~40-minute drive), and makes ~$250m-$300m/year in EBITDA as the largest casino in the state. The Potawatomi in Milwaukee (~50 miles or a 1-hour drive) makes ~$200m/year in EBITDA. Their casino is in Waukegan in the northern suburbs. American Place is the only casino located in Waukugen, IL which is a top 30 wealthiest county in America. They think revenue can eventually scale to ~$200m per year at the permanent casino if you assume $300 per person of gambling revenue in a region with 700k people. They also have another 11m people who live within 90 minutes of the casino. Chicagoland’s average gaming revenue also comes in below national average at ~$300 per person per year as opposed to ~$350 per person per year in comparable midwestern cities. This is driven by locations that are outside of the city, older gaming products (average age of ~20 years), and constraints on expansion. Bally’s recently received approval to open a large casino in downtown Chicago in River West which is expected to open in 2026. Their temporary location opened in September of 2023, and management cited limited to no impact from the opening. We think it’s more likely to take share from Rivers Casino given Rivers is located in between Bally’s and American Place. Bally’s is about 45 miles and a 90-minute drive from American Place.

The Wisconsin based Potawatomi Indian Tribe (owner of the Potawatomi in Milwaukee) filed a lawsuit around an unfair bidding process after the 2019 gaming license decision that ultimately awarded FLL with their gaming license. While it was originally dismissed, the lawsuit was reinstated in August of 2023. The Potawatomi proposal was ranked last in terms of the 5 Waukegan proposals by an independent evaluator and didn’t make it to the final 3 proposals that were considered by the gaming board. We think it’s highly unlikely that there is any merit to the lawsuit, which is against the city/state and not against FLL, but the very worst-case scenario would be a restart to the license selection process. Management believes that the lawsuit is intended to delay the opening of the permanent American Place casino protect the tribe’s Milwaukee casino from new competition. This has delayed the construction/financing of the permanent location until the lawsuit is concluded in Q4 of 2024 of Q1 of 2025. In conjunction, they received authorization to operate the Temporary casino until August of 2027.

The extension on the temporary location isn’t entirely a negative and will allow FLL more time to self-fund a greater part of the additional financing required for the permanent location. FLL committed to $500m of total funding, of which they’ve invested $125m to date in the temporary. A lot of the temporary expenditure should go towards the permanent American Place structure in the form of table games, slot machines, gaming taxes, structures, parking, employee hiring, etc. The majority of financing on casino projects isn’t required until ~6 months before opening, and given our expectations on FCF generation they will likely need to finance ~$150m in mid to late 2026. This gives them time for interest rates to potentially decline in the interim.

Management believes EBITDA can eventually scale towards $100m at the American Place permanent location with the transition from a large tent structure to a nicer permanent structure doing a better job of driving traffic. This seems reasonable given the demographics and ~$200m-$250m/year of EBITDA from their nearest competitors.  

Colorado Springs: Achieved breakeven EBITDA in April; upside to ~$50m-$60m/year

Their new Colorado location is a high end, 300 room Casino/Hotel which is adjacent to their legacy Bronco Billy property in Cripple Creek, CO. This is the closest high-end gaming area to the Colorado Springs populace (~45-minute drive). The casino officially opened in late December of 2023 with a phased opening, later than their original plan of Spring of 2023 and with the budget expanding from $180m to $250m. The hotel/gaming areas are now fully open at Chamonix with the pool/spa amenities expected to open before Memorial Day. Early Revenue/EBITDA contributions have been weak, but largely attributable to poor weather conditions in the area. There were several large snowstorms in the area during Q1 which shut down road access and had a disproportionate effect on an area that has historically had little lodging/accommodations. The entire town lost electricity for a few days in March. Management expects EBITDA to scale to $50m-$60m once the location ramps. We expect revenue/EBITDA to significantly expand in the summer months given CO tourism and an expanded marketing campaign heading into the summer season. EBITDA reached breakeven in the month of April after a ~$0.5m loss in Q1’24.

They maintain that their Cripple Creek location to be the only high-end casino option in the immediate area, and their hotel is the only 4-star product in the area. Cripple Creek has 3-4 existing casinos that are on the lower end of the spectrum and typically cater to locals. This includes their legacy property Brono Billy which is adjacent to the new location. Bronco Billy has been partially closed since early 2022 given construction to the new facility and should return to cash flow generation now that construction is largely complete.

Denver is a relatively underpenetrated market for casinos/gaming with only ~$200 per capita of casino revenue per year, and even lower in the Colorado Springs area which has one of the lowest per capita gaming revenues in the country. This compares to a national average closer to $350, nearby Seattle/Washington at $375 per capita, and California at $350 per capita. Management thinks the disparity is due to the lack of quality options in the area. FLL views Monarch and Ameristar in Black Hawk, CO as their two most comparable high-end comps in the area. Monarch does over ~$100m in EBITDA per year with a 500-room hotel compared to FLL’s 300 room hotel, which should equate to ~$60m as a medium/long term EBITDA target for the new location. Black Hawk is around 1-hour away from Cripple Creek and is situated 1-hour from Denver (~4m people), and 2-hours from Colorado Springs (~1m people), and Cripple Creek is 2-hours from Denver and 45 minutes to an hour from Colorado Springs.

Legacy Properties: ~$25m-$30m/year in EBITDA

Their other properties do ~$25m-$30m of EBITDA per year in total EBITDA. This includes the Silver Slipper Casino/Hotel outside of New Orleans, the Rising Star Casino outside of Cincinnati, the Grand Lodge Casino on the north shore of Lake Tahoe in NV, the Stockman’s Casino an hour east of Reno, and Bronco Billy’s Casino in Cripple Creek. EBITDA for their legacy properties has been slowly trending down, although we believe Bronco Billy should offset declines at the other locations as it’s EBITDA contribution recovers from the disruptions and partial closures from the Chamonix construction.  

Online Gambling: ~$8m/year Revenue/EBITDA run-rate with upside to ~$12m-$15m/year

FLL also has several sports wagering “skins” that allow them to operate an online sports wagering website. They have a total of 3 skins in Colorado, 3 in Indiana, and 1 in Chicago. They currently rent/lease out four of those skins to third-party operators that pay them a % of revenue subject to annual minimums. These revenues flow down almost 100% to EBITDA. Their Illinois skin began operations in August of 2023 with a minimum payment of $5m per year of revenue from Circa. Two Colorado skins are subject to a $1m per year each in revenue minimum which began in June 2020 and March 2023. One Indiana skin is also subject to a $1m annual minimum which began in December 2021.

They have two idle skins in Indiana and one idle skin in Colorado. Two third-party operators ceased operations using their Indiana and Colorado skin in Q3 of 2023. FLL will likely look to lease those out when possible. This segment should roughly fund their corporate overhead of ~$2m/quarter.

Valuation

Casino comps are trading at around 7x to 9x EV/EBITDA on CY 2026 street numbers. We think FLL deserves to trade closer to ~8x EV/EBITDA. While regional casinos likely deserve a multiple discount, FLL owns almost all of their underlying real estate and should have a better growth profile than peers in outer years with the permanent American Place location providing up to ~$50m of additional EBITDA upside between 2027-2029. Factoring in an additional $150m of debt on top of their current obligations and our base case of ~$115m of 2026 EBITDA ($50m American Place, $40m Chamonix, $25m legacy properties, online gambling offsetting corporate overhead) gets you to $9.50/share or ~82% upside.

In a bear case scenario, Chamonix scales slower than expected and/or the growth stalls at the temporary American Place location and EBITDA ends up ~$100m. They then must raise $180m-$200m in new financing, and at 7.5x EV/EBITDA the stock has downside to ~$3/share.

Risks

• Chamonix scales slower than expected
• American Place’s recent momentum stalls out or proves short-lived
• Legacy properties decline even faster than anticipated
• Legal risk from the American Place lawsuit
• The story is levered to cash flow generation over the next 2 years given $325m of remaining capex on the permanent American Place location. Interest rates could increase before they need to tap the debt markets in mid-2026.
• Recession risk

Catalyst

- Continued momentum at their temporary American Place property

- Faster than expected EBITDA ramp at their Chamonix property in the key summer months

- Resolution of the American Place lawsuit