Lakes Entertainment, Inc.
Lakes Entertainment, Inc.
130 Cheshire Lane
Minnetonka, Minnesota 55305
Telephone: (952) 449-9092
Toll Free: (800) 946-9464
Fax: (952) 449-9353
Web site: http://www.lakesgaming.com
Incorporated: 1998 as Lakes Gaming, Inc.
Sales: $34.9 million (2001)
Stock Exchanges: NASDAQ
Ticker Symbol: LACOE
NAIC: 541611 Administrative Management and General Management Consulting Services; 713210 Casinos; 713290 Other Gambling Industries
Lakes Entertainment, Inc. (formerly Lakes Gaming, Inc.) has experience managing two casinos on Indian-owned land in Louisiana. When its contracts to manage those casinos ended in 2000 and 2002, the company lost its revenue sources and found itself without a casino to manage. The company has agreements in place with other Indian groups to manage potential future casinos, but it was faced with a slowly moving regulatory climate in which approvals were taking longer than expected. Hoping to generate new revenue sources, the company changed its name to Lakes Entertainment, Inc. in 2002 and invested in developing the World Poker Tour, a televised series of poker tournaments. It also invested in a joint venture to develop a time-share project on property it owned in Las Vegas.
Managing Two Casinos and Entering New Partnerships in 1999
Lakes Gaming, Inc. was formed on December 31, 1998, through a distribution of common shares to the shareholders of Grand Casinos, Inc., as part of the break-up of Grand Casinos’ business. Grand Casinos separated its Mississippi casinos in Tunica, Gulfport, and Biloxi, from its Indian casino management business. The Mississippi casinos were acquired by Park Place Entertainment Corp., a new gaming company formed by Hilton Hotels Corp. Lakes Gaming was formed to take over the former Grand Casinos’ Indian casino management business.
Lyle Berman, former chairman of Grand Casinos, became the chairman and CEO of Lakes Gaming. Berman, a serial entrepreneur, formed Grand Casinos, Inc. to manage Indian casinos in Minnesota following passage of the Indian Gaming Regulatory Act in 1988. Grand Casinos went public in 1991. Other senior executives also joined Lakes Gaming from Grand Casinos, including Thomas Brosig, former president of Grand Casinos, who became president of Lakes Gaming, and Timothy Cope, former chief financial officer of Grand Casinos, who became CFO of Lakes Gaming. In addition, Lakes’ board of directors was the same as that of Grand Casinos.
Lakes Gaming began by managing two Indian-owned casinos in Louisiana, Grand Casino Avoyelles and Grand Casino Coushatta. They were the two largest casino resorts in Louisiana. Grand Casino Avoyelles first opened in June 1994 and was located in the central part of the state in Marksville, about 80 miles northwest of Baton Rouge. Grand Casino Coushatta opened in January 1995 and was located in southwestern Louisiana.
Both casinos were land-based and had hotels with more than 200 rooms each. Grand Casino Avoyelles had a 50,000-square-foot gaming floor with some 1,700 slot machines, 50 table games, and an 11-table poker room. It also featured a 1,700-seat entertainment center, three restaurants, and a nightclub with live entertainment. Other amenities included a full-service RV resort and a child care activity center. Grand Casino Coushatta offered similar nongaming amenities. It had 98,000 square feet of gaming space with more than 3,000 slot machines, more than 75 table games, and a 12-table poker room.
Grand Casino Avoyelles was owned by the Tunica-Biloxi Indians of Louisiana, and Grand Casino Coushatta was owned by the Coushatta Tribe of Louisiana. The management contracts with each casino were of a seven-year duration, with the Grand Casino Avoyelles management contract set to expire in June 2001 and the Grand Casino Coushatta contract expiring in January 2002. When the contracts expired, the casino owners would have the option of renewing the contract, seeking a new company to manage the casinos, or managing the casinos themselves.
For the rest of 1999 Lakes Gaming sought new partners and agreements for the development and management of yet-to-be-built, Indian-owned casinos. In March the company entered into an agreement with Casino Resource Corporation to form a joint venture intended to approach the Pokagon Band of Potawatomi Indians, a Michigan-based tribe, and submit a proposal to oversee the development, construction, and management of a casino gaming resort facility. Lakes owned 80 percent of the joint venture and was the managing partner.
In June Lakes’ proposal to the Band was accepted, although various regulatory approvals were needed before development could begin. At the same time Lakes announced that it would not form the previously announced joint venture with Casino Resource Corporation. In August the development and management agreements were ratified by the Pokagon Band, thus finalizing the selection process.
Later in 1999 Lakes set its sights on managing Indian casinos in California, even though California voters had not yet approved a gaming amendment. In May the company agreed to form a limited liability corporation (LLC) with Kean Argovitz Resorts (KAR), based in Houston, Texas, to develop a casino on Indian-owned land near San Diego. In July Lakes announced that it would develop and manage a second proposed Indian gaming facility with KAR near Sacramento.
In November Thomas Brosig resigned as president of Lakes Gaming to concentrate on his duties as president of the mid-South region of Park Place Entertainment Corp. In December Lakes announced a proposed merger with Rainforest Cafe, Inc., which was another venture of Lyle Berman’s. The merger was called off the next month, however, reportedly due to negative reactions from Rainforest’s shareholders.
For 1999 Lakes Gaming reported income of $54.7 million, all of which came from management fees. Net income for the year was $28.8 million. The company’s balance sheet showed $160 million in equity, which consisted almost entirely of cash, assets convertible to cash, and land held for sale or development.
Focusing on New Casino Projects in 2000
In the first half of 2000 Lakes Gaming announced a new five-year management contract with the Coushatta Tribe of Louisiana. Under the terms of the contract, Lakes’ management fees would be reduced. Nevertheless, Lakes felt that the new formula was fair to both parties. If approved by the Tribe, the contract would become effective January 2002 and continue until January 2007.
On the other hand, the Tunica-Biloxi Tribe of Louisiana elected to exercise its option for an early buyout of Lakes’ management contract for Grand Casino Avoyelles. The contract, which was scheduled to expire on June 3, 2001, was concluded on March 31, 2000. Under the terms of the original management agreement, Lakes would be compensated for the management fees it would have received through the original expiration date.
Lakes received good news in California in March when voters there overwhelmingly approved a state constitutional amendment that would allow California tribes to operate Nevada-style casinos on Indian land. At the time Lakes had agreements in place for the development and management of casino resort operations with the Jamul Indian Village near San Diego and the Shingle Springs Band of Miwok Indians near Sacramento, both in partnership with Kean Argovitz Resorts. By August Lakes had agreed to form another partnership with MRD Gaming, a Las Vegas-based company that had successfully developed Indian casinos in Arizona and Kansas. The partnership with MRD would form two separate LLCs to develop two new casinos on Indian-owned land in California.
In July Lakes formed a joint venture with Metroplex, LLC to develop Las Vegas real estate that was controlled by Lakes. The property consisted of about 16 acres at the corner of Harmon Avenue and Las Vegas Boulevard (also known as “The Strip”). The joint venture, called Metroplex-Lakes, LLC, planned to develop an upscale retail, commercial, hotel, and entertainment complex on the site. Metroplex, LLC was owned by Las Vegas-based real estate developer Brett Torino, who had a 20-year history of developing and managing award-winning residential and commercial communities in the Southwest.
During the second half of 2000 Lakes also was exploring other business opportunities, including life insurance and international Internet gaming. These investments, however, were subsequently written off over the next two years. By the end of the year Lakes was fully focused on the continued success of Grand Casino Coushatta in Louisiana and the five new casino projects slated for future development.
Lakes Entertainment, Inc. currently has development and management agreements with four separate tribes for four new casino operations, one in Michigan, two in California and one with the Nipmuc Nation on the East Coast. The company also has agreements for the development of one additional casino on Indian-owned land in California through a joint venture with MRD Gaming. The company also has an approximate 80 percent ownership in the World Poker Tour, LLC, a joint venture with an experienced producer of televised poker tournaments. The purpose of this joint venture is to launch the World Poker Tour and establish poker as the next significant televised mainstream sport. In addition, the company offers years of expertise in all casino disciplines for consulting projects large and small.
For 2000 Lakes reported revenue of $59.0 million and net income of $15.7 million. The company’s revenue for the year included compensation from the early buyout of its management agreement with Grand Casino Avoyelles. Net income was negatively affected by the company’s share of losses from unconsolidated affiliates and the write-off of investments in unconsolidated affiliates, which totaled $15.6 million.
Continuing to Pursue Management of Native American Casino Sites in 2001
In February Lakes and the Paskenta Band of Nomlaki Indians in California agreed to terminate Lakes’ involvement in Band’s planned casino development in northern California. The project was one of two joint ventures with MRD Gaming that Lakes had previously announced for the development of casinos on Indian-owned land in California.
In mid-2001 Lakes announced that its management contract with the Coushatta Tribe of Louisiana for the management of Grand Casino Coushatta would expire in January 2002 and not be renewed. The Tribe decided that it would place its casino operations under its direct control. Lakes’ chairman and CEO Lyle Berman noted that “the Coushatta contract is currently our only significant source of revenue.” He expected, however, that the company’s current cash resources and financing for specific projects would be sufficient to fund operations until new casino projects began operation.
In July Lakes signed development and management agreements with the Nipmuc Nation of Massachusetts for a potential future casino resort on the East Coast. The Nipmuc Nation was in the process of obtaining federal recognition and had recently received a positive finding from the Bureau of Indian Affairs (BIA). The Nipmuc Nation had more than 1,600 enrolled members, most of whom lived in central Massachusetts. As part of the agreement, Lakes would help finance the Nipmuc Nation’s bid for federal recognition. In September 2001 the BIA reversed its position and issued a negative finding relating to the Nipmuc Nation’s bid for federal recognition.
Before the end of the year Lakes sold property that it owned in Las Vegas to Metroflag Polo, LLC, and leased adjacent property to a related company, Metroflag BP, LLC. Lakes would receive $31.8 million for the combined transaction, while incurring a one-time pre-tax charge of $26.5 million and receiving a tax benefit of some $10 million. The company continued to own a 3.4-acre undeveloped site known as the Shark Club property, which was adjacent to the property it sold. The Shark Club property was the subject of ongoing negotiations for the development of an upscale time-share project.
In reporting revenue of $34.9 million for 2001, Lakes’ management noted that regulatory and development approvals were moving more slowly than expected. The company began no new construction during the year. Several nonrecurring charges resulted in a net loss of $321,000 for the year.
Expansion into Related Businesses and a Name Change to Lakes Entertainment, Inc. in 2002
In March Lakes announced that it would enter into a joint venture with Steven Lipscomb, an experienced producer of televised poker tournaments. The venture, known as the World Poker Tour, LLC, was launched at the end of May and premiered its made-for-television poker tournament in June. Lakes made an initial investment of $100,000 in the World Poker Tour, which gave it a 78 percent ownership position, and committed to lend up to $3.2 million as needed. Lakes’ announcement of the venture also noted that its CEO, Lyle Berman, was a world-renowned poker player.
The World Poker Tour intended to produce 13 nationally televised poker events to be filmed in casinos around the world, with finalists competing for multimillion-dollar prize pools. The concept was premiered in June in Las Vegas at the Bellagio Five Diamond World Poker Classic. The event was filmed, with television broadcast to be arranged later. The second event was The Legend of Poker No-limit Texas Hold’em Championship, held on August 31 at The Bicycle Casino in Bell Gardens, California, where poker was legal.
On June 5, 2002, Lakes shareholders approved a change in the company’s name to Lakes Entertainment, Inc. The name change reflected the company’s involvement in the World Poker Tour and the potential for other gaming and nongaming entertainment-related business opportunities. In August the company announced that it had formed a joint venture with Diamond Resorts, LLC, to develop an upscale time-share project on its Shark Club property in Las Vegas, with construction of a 33-story, four-tower, 850-unit complex to begin in 2004. Although the company reported no new casino developments through the end of the third quarter, it remained committed to pursuing new business opportunities.
World Poker Tour, LLC (78%).
Harrah’s Entertainment, Inc.; Mandalay Resort Group; MGM Mirage; Park Place Entertainment Corporation.
- Lakes Gaming, Inc. is formed on December 31 through a distribution of common shares to the shareholders of Grand Casinos, Inc.
- Lakes Gaming operates the Indian casino management business formerly owned by Grand Casinos, consisting of two Indian-owned casinos in Louisiana.
- The contract to manage Grand Casino Avoyelles in Louisiana is terminated.
- The contract to manage Grand Casino Coushatta in Louisiana is not renewed.
- Lakes Gaming invests in the World Poker Tour and changes its name to Lakes Entertainment, Inc.
“Gambling Company to Finance Indians’ Push for Tribal Status,” Knight-Ridder/Tribune Business News, July 10, 2001.
“Minnetonka, Minn.-Based Gambling Firm May Be Left Without Casino,” Knight-Ridder/Tribune Business News, June 27, 2001.
Palmeri, Christopher, “Now the Public Takes the Risk,” Forbes, August 17, 1992, p. 108.
—David P. Bianco