0 REVIEW OF ANCILLARY DEVELOPMENT South Central Zone Presented to:Kansas Lottery Gaming Facility Review Board Presented by: Dean M. Macomber Macomber International, Inc. December 1, 2010
ASSIGNMENTREVIEW THE ANCILLARY AMENITIESAS PROPOSED BY EACH APPLICANTFOR THESOUTH CENTRAL ZONE GAMING LICENSE Global Gaming Solutions, LLC (“GGS”) Peninsula Gaming Partners, LLC (“PGP”) Definition Ancillary Amenities = Non-Gaming Facilities
PROCESS REVIEWED APPLICANT SUBMISSION MATERIAL MACOMBER INTERNATIONAL, INC. (“MI”) EXTRACTED INFORMATION PERTINENT TO THE ANCILLARY DEVELOPMENT REVIEW AND CATEGORIZED IT AS FOLLOWS: I. Goal Set II. External Considerations III. Internal Considerations IV. Targeted Market Segments V. Product Marketing Plan VI. Demand Stimulation Marketing Plan VII. Sum of the Parts• MI THEN COMPARED AND RATED EACH SUBMISSION
PROCESS … continued THIS PRESENTATION WILL FOCUS ON HOW THE ANCILLARY DEVELOPMENT PROPOSAL OF EACH APPLICANT: o Satisfies and optimizes the State of Kansas goals set forth by its gaming legislation. o Supports and optimizes the gaming effort. o Act as independent activities. BY ITS NATURE THIS REVIEW, EVALUATION, AND CONCLUSIONS IS … o Part objective, tangible, and quantitative o Part subjective, intangible, and qualitative
QUALIFICATIONSThis review and evaluation was conducted solely by Dean M.Macomber, President, Macomber International, Inc. 36 years in the gaming industry. Held operation positions ranging from Dealer to President. Worked as a consultant for a public accounting firm as well as my own company, MI. Involved in the opening of 7 casinos and 2 takeovers. Projects have included: o Scope: 200 unit slot operation to >$2B mega Casino-Resorts. o Positioning: Locals’, Regional, Domestic/International; Value driven slot to VVIP table game operations; and virtually everything in between. o Location: Operations: Nevada, New Jersey, Canada, Macau Consulting: U.S., Canada, Caribbean, Latin America, Europe, Asia, Australia, Internet gaming, and technology o Projects similar to South Central Zone: Grove, OK; 2 in IA (not with PGP); 3 in suburban/rural WA; Pendleton, OR; Gary, IN; southeast WI; Greater LA market, CA 65 domestic/international presentations, university casino gaming courses, 14 articles Masters Hotel School of Administration, Cornell University plus undergraduate Marketing
CONTEXTDevelopment and subsequent operation will take place in thegrip of the Financial CrisesThe dynamics of casino demand show that the ‘inner’ and‘middle’ ring markets produce the greatest volume and ‘quality’gaming demand, i.e., more or less within 100 miles of the site.Extensive and well developed competition already exists in manyfeeder markets, particularly the outer markets where thegreatest population densities reside.Most of the Midwest and the South Central Zone in particular isinherently a middle market.
CONCLUSIONThe first and second goals of the Kansas gaming statutes – jobsand income to the State – are best achieved and sustained byeach South Central Zone development … First being … The Best Locals’ Casino It Can Be … and then second being … The Best Regional Casino It Can BeAnd, the derivative second conclusion is that gaming will be (andmust be) the marketing and profit engine for each casino.
CONCLUSION … continuedExperience elsewhere shows that the driving considerations for aLocal /Regional gamers are: First and foremost … the games and gaming experience: e.g., selection of games, price/cost/time-on-device, incentives, playing environment. A distant but still important second … the food, i.e., the minimum expectation is good food but preferably great food. In either case value pricing is expected and appreciated. Everything else comes next: parking, beverage, entertainment, hotel.Consequently, the primary goal of ancillary development should(must?) be to support gamers.
CONCLUSION … continuedAchieving the third goal of the Kansas gaming statutes –generating tourism – follows after gaming and the gamingexperience is fully supported.The proposals validate these contentions: Visitors within 100 miles : Total Visits 84% to 90% Gamers : Non-gamer visits 96% Gaming revenue : Total Revenue 87% to 91% Gaming departmental profit : EBITDA 121% to 201%MI’s review and evaluation took place in this context and basedupon these conclusions.
PROPONENT’S SUBMISSIONEVALUATION AND REVIEWGlobal Gaming Solutions, LLC(“GGS”)Peninsula Gaming Partners, LLC(“PGP”)
TOTAL PROJECT – full build out and 2016 GGS PGP Both are designated asCONCEPT “Entertainment “Regional “destinations,” destination” destination” “regional” andTHEME Midwest / Sumner County “entertainment” destinations.EXPERIENCE Midwest successful operations Both claim to havePOSITIONING Mid-market … conceptualized and 3-star hotels designed their projects Average food check $9 to $13 specific to Midwest,INVESTMENT $280M “all in” $285M “all in” Sumner CountyVISITORS 2016 dynamics.<100 mi. 2,113K 84% 2,611K 90% Both invest $280M to>100 mi. 417K 16% 291K 10% $285MTotal 2,530K 100% 2,902K 100% Both will depend largelyGamers 2,429K 96% 2,786K 96% upon gamers andNon-gamers 101K 4% 116K 4% visitors within 100 milesTotal 2,530K 100% 2,902K 100% of the site.
GAMING (a reference point) – 2016 GGS PGPCapacity 2000 slots 2000 slots Both are proposing 40 tables 50 tables virtually the same 20 poker 20 poker gaming capacityDemand – physical 2.4M gamers 2.8M gamers GGS’s forecast spendDemand – financial $157M GGR $202M GGR per visitor is 84% of PGP’s.GGR/visitor $64 $76 GGS is forecastingUtilization* 86% of the gamingPhysical 39% 42% visitors and 78% ofFinancial – WPPD $172 $214 the GGR of PGP.Slot revenue $135M $170M Profit margins are theTable** $ 22M $ 30M same so GGSPoker n.a. $ 3M departmental profit isTotal Revenue $157M $202M also 78% of PGP.Depart. Profit $ 82M $105M * MI calculationsMargin 52% 52% ** GGS table includes poker
DINING – full build out, all by 2016 GGS PGP GGS: Partnering with Emerging Brands/DESCRIPTION Deli $10 Snack bar $ 7 Jimmy’s Egg and Rock(ave. check) Sports bar $14 Food court $ 9 bottom. Buffet $15 Buffet $11 GGS: Higher margin Upscale $35 Upscale $43 may be due to 3rdCAPACITY 510 seats 430 seats party involvement.“S.F.” = square feet 21,377 S.F. 22,250 S.F. PGP: Higher BEAVE. CHECK* $13 average $ 9 average average check implies $10 breakeven $14 breakeven higher ‘quality.’UTILIZATION* 73% ave. day 84% ave. day PGP: Loss leader average check impliesREVENUE – cash $7.0M $ 3.9M attempt to use food asREVENUE – comp $0.0M $ 4.8M a marketing toolREVENUE - total $7.0M $ 8.7M PGP forecasting twicePROFIT/(LOSS) $1.8M ($3.0M) the total comp $ ofMargin 25% - 34% GGS although GGS* MI calculationsBE average check = total departmental expense / total covers shows $0 on P&L.
BARS / LOUNGES – full build out, all by 2016 GGS PGP Both propose two bars, each with aDESCRIPTION Center casino Casino bar“S.F.” = square feet casino bar plus one bar 2,700 S.F. 2,700 S.F. other. Lounge and Sports bar bar 2,000 S.F. 3,000 S.F. GGS casino bar is a “center bar.”CAPACITY 4,700 S.F. 5,700 S.F. PGP proposes a stageAVE. CHECK n.a. n.a. in their casino barUTILIZATION* 75% ave. day 71% ave. day while GGS proposes aREVENUE – cash $3.8M $5.8M stage in their Lounge.REVENUE – comp $0.0M $0.0M GGS’s margin may beREVENUE - total $3.8M $5.8M due to 3rd parties.PROFIT/(LOSS) $2.7M $0.9M GGS’s revenue is 66%Margin 73% 16% of PGP’s but has 82% of PGP’s capacity. * MI calculation
ENTERTAINMENT – full build out, by 2016 GGS PGP GGS: 1400DESCRIPTION Event / Event/ Equine seat multi- Conv. Center Conv. Center Support Ctr. use theaterCAPACITY 3,000 seated/ 1,500 seats mimic-ingSeats 1,400 seats 4,200 concerts covered, their highlySpace (S.F. = sq. ft.) 42,549 S.F. 100,000 S.F. outdoor utilized Pre-function 1,657 S.F. 1,200 S.F. arena, 24 Riverwind Breakout rms. 1,360 S.F. unclear acres model.Implied attend. ~ 55,000 ~ 200,000 PGP @ $X ave. ticket $35 ticket $35/ticket proposes aImplied events 55 annually 80 annually larger multi- @ Y attend./event* 1000/show 2500/show use centerREVENUE – cash $1.9M $4.2M for enter-REVENUE – comp $0.0M $2.7M tainmentREVENUE - total $1.9M $7.0M and equinePROFIT/(LOSS) ($0.5)M ($0.5)M events.Margin - 25% - 8% * MI calculation
ENTERTAINMENT … continued GGS PGPGGS’s Event Center is positioned as a PGP’s Event Center is positioned asflexible entertainment venue with an equine-based multi-usemeeting / convention capabilities (pre- entertainment venue with meetingfunction area, 4 breakout rooms, and / convention capabilities (pre-flat ground floor in Event Center with function area, 2 breakout rooms innon-fixed seats, movable partitions). hotel).Tout their extensive experience with The equine nature of the center isentertainment in Oklahoma … 49 acts supported with stalls, feed, washappeared at their Riverwind Casino in area(s), dirt storage area(s), andOklahoma City in 2009. cleaning/odor control capabilities.Entertainment would ostensibly be Entertainment would be equinestars, acts, and shows appearing on based events in the indoor orstage. outdoor arenas plus ostensibly stars, acts, and shows appearing on the stage.
HOTEL – by 2016 and full build out GGS PGPBy 2016 80-100 rm., 3-star, $10M 300 rm., 3-star, $38M Comparables Holiday Inn Express/La Quinta Suites Hol. Inn Exprss./Hilton Grdn Inn Sq. ft. per room 320 standard/620 premium 450 standard/900 premium Other amenities Business center, pool, spa, exercise Business center, pool, spa, fitness area, small meeting area, brkftst. area. center, laundry, 2 meeting roomsAfter 2016 120 key, 4-star, $10-$15M* NoneAve. occ. / ADR 71% / $97 85% / $84REVENUE $2.5M $0.0MPROFIT $2.5M $0.0MMargin 100% 0%OTHER 3rd party to manage first hotel. Equity stake, but 3rd party Expect initial 30% to 40% management. Initial room comped increasing to 70% in a block 5 MW/10 WE. stabilized year, translates into Comps 7%-10% + discount 56 to 70 rooms/night. rooms 20% = 30% casino, *2nd hotel subject to market conditions ~ 90 rooms/night.
RV PARK – 2016 and full build out GGS PGP2016 Existing 37 space RV Park 100 space RV Park with with 2 lodges, 1 cabin. water/electric hookup.Year 10 Add 60 spaces. $7MResults No utilization, price, or No utilization, price, or financial results segregated financial results out or shown segregated out or shown
RETAIL – 2016 and full build out GGS PGP2016 1,200 S.F. store 650 S. F. storeGoods/items sold Sundries and logo Gift shop, sundries, and merchandise. logo merchandise*REVENUE – cash $0.1M $0.2MREVENUE – comp $0.0M $1.0MREVENUE – total $0.1M $1.2MPROFIT $0.0M $0.4MMargin 0% 34% MI: high comp revenue suggests possible Loyalty Club “points for merchandise” program may be credited here as comp revenue.
PARKING – 2016 and full build out GGS PGP2016 0.9M square feet paved parking 1.5M sq. ft. paved parking 2,357 parking spaces 3,965 parking spaces 485 valet spaces 200 valet spaces 384 employee spaces 295 employee spaces 27 RV space 100 RV spaces No additionalPOST 2016 996 space parking garage 3,353 total spaces 3,965 parking spaces Ostensibly, the parking garage could be built sooner if demand so dictates.
M.I.C.E. – by 2016 and full build outM.I.C.E. = Meeting, Incentive, Convention and Exhibition GGS PGPM.I.C.E. 42,549 square foot multi-use 100,000 square foot event center with 1,657 S.F. multi-use event/equine pre-function area plus center, includes 31,700 1,360 S.F. breakout room S.F. pre-function space and space (4 rooms) 1,200 S.F. breakout room space (2 rooms) in hotel.AS SUPPORTED BY HOTEL OPERATIONS (previously reviewed)HOTEL by 2016 80-100 rm., 3-star, $10M 300 rm., 3-star, $38M Sq. ft. per room 320 std./620 prem. 450 std./900 prem. Other amenities Business center, pool, spa, exercise Bus ctr., pool, spa, fitness center, area, small meeting area, brkfst area. laundry, 2 mtg. rms.After 2016 120 key, 4-star, $10-$15M* None
TRAVEL PLAZA – full build out, by 2016 GGS PGPBy 2016 OnCue travel plaza. None 5000 S.F. convenience store and other premises.Goods/items sold Convenience: snacks, beverage, and limited hot food. Trucker services: overnight parking, showers, and laundry. Fuel: multiple unleaded octanes, multiple ethanol, and diesel.REVENUE – cash $9.0MREVENUE – comp $0.0MREVENUE – total $9.0MPROFIT $0.6MMargin 7%
TOURIST ACTIVITIES – full build out GGS PGP (with MI adjustments)HOTEL HOTEL80 – 100 room, 3-star 300 room, 3-star120 room, 4-star subject to market conditionsTRAVEL PLAZA EQUESTRIAN CENTERPreviously described Previously describedGOLF COURSE RENOVATIONUpgrade greens and clubhouse (“destinationclubhouse”) of Wellington Municipal GolfCourseSPEEDWAY260 ac. Sports car racecourse for vintage car,motorcycle, performance production racingADDITIONAL 420-acres AVAILABLE
TOURIST ACTIVITIES – full build out GGS PGP (with MI adjustments)TRAVEL PLAZA $8M HOTEL with MI ADJUSTMENTPreviously described 300-rm. Hotel $38M Less GGS 220-rm. 1 & 2 - $25MGOLF COURSE RENOVATION $3M “Net” large hotel add $13MUpgrade greens and clubhouse(“destination clubhouse”) of EQUESTRIAN CENTERWellington Municipal Golf Course with MI ADJUSTMENT Total Event/Equine/ ConventionSPEEDWAY $7M to $10M Complex $25M260 ac. Sports car racecourse for Lessvintage car, motorcycle, performance GGS 1400 seat MI adj. - $10Mproduction racing “Net” Equine add $15MTOTAL TOURIST INVEST. $18M-$21M TOTAL TOURIST INVEST. ADJ. ~$28M% of total $280M investment 6%-8% % of total $285M investment 10%Forecast Tourist visitors 417,000 Forecast Tourist visitors 291,000
TOURIST ACTIVITIES – full build out GGS PGP (with MI adjustments)TRAVEL PLAZA $8M HOTEL with MI ADJUSTMENTPreviously described 300-rm. Hotel $38M Less GGS 100-rm. Hotel 1 - $13MGOLF COURSE RENOVATION $3M “Net” large hotel add $25MUpgrade greens and clubhouse(“destination clubhouse”) of EQUESTRIAN CENTERWellington Municipal Golf Course with MI ADJUSTMENT Total Event/Equine/ ConventionSPEEDWAY $7M to $10M Complex $25M260 ac. Sports car racecourse for Lessvintage car, motorcycle, performance GGS 1400 seat MI adj. - $10Mproduction racing “Net” Equine add $15MTOTAL TOURIST INVEST. $18M - $21M TOTAL TOURIST INVEST. ADJ. ~$40M% of total $280M investment 6%-8% % of total $285M investment 14%Forecast Tourist visitors 417,000 Forecast Tourist visitors 291,000
JOBS – 2016 GGS PGP GGS forecasts 1,103 FTEsCASINO 660 519 vs. GGP’s 879.HOTEL 67 73 The primary variance is in gaming with GGS showingFOOD 141 more FTE’s or 21% 185 186BEVERAGE greater than PGP evenENTERTAINMENT though PGP having 4% 134 66 more capacity.RETAIL The 68 more FTE’s in GGSOTHER 20 6 Entertain./Retail may beG&A 37 20 due to the Travel Plaza.TOTAL 1,103 879 It is likely that the number ofLABOR $ $31.2M $35.0M employees and labor cost may not be % Tot. Rev.* 17% 16% apples-to-apples due to accountingLabor/Employ.* $28,269 $39,843 treatment of third-party employees. * MI calculations
PHASING GGS PGP + 9 MONTHS – PHASE 1A Nov. 2011 1310 slots, 32 table games 50 seat snack bar, several F&B kiosks+14 MONTHS – PHASE 1A1300 slots, 30 tables, 20 poker tables100 seat food court, 250 seat buffet, 140 seat sports bar, steakhouse 50 seat center bar, 90 seat show lounge1400 seat event center+18 MONTHS – PHASE 1B80 to 100 room 3-star hotel +21 MONTHS – PHASE 1B Nov. 2012 1500 slots, 42 table games, 10 poker Food court (2 outlets), 250 seat buffet, 110 seat steakhouse 100,000 sq. ft. indoor arena 150 room 3-star hotel, 20 space RV park
PHASING – Non-critical to Gaming GGS PGP+36 MONTHS – PHASE 1B1550 slots, 40 tables, 20 poker tablesGolf course renovation + clubhouse and Travel Plaza +45 MONTHS – PHASE 2 Nov. 2014 2000 slots, 50 table games, 20 poker 3-star hotel expanded to 300 rooms, 40 space RV park 24 acre Equine/Rodeo Center expansion+60 MONTHS – PHASE 1B1800 slots, 40 tables, 20 poker tablesBEYOND 2016PHASE 2A FUTURE DEVELOPMENTYr. 7: 2200 slots, 40 tables, 20 poker Additional hotelYr. 8: 996 space parking garage Master planned retail developmentYr. 10: 120 key 4-star hotel + additional Phase 2 expansion of Equine CenterRV spaces + race track. 100 space RV Park
PHASING - Summary GGS PGP Opens with permanent facility but Opens 5 months ahead of GGS but 5 mo’s. after PGP – Month 14. with interim facility – Month 9. Opens with 1300 slots, 30 tables, Opens with 1310 slots, 32 table 20 poker tables and full FB&E. games Gets to 2200 slots, 40 tables, 20 Full permanent facility with full poker in Year 7 FBE, 1500 slots, 42 tables, 10 80 to 100 room hotel opens in poker, and 150 room hotel opens Month 18 Month 21 Gets to 2000 slots, 50 tables, 10 poker and expansion to 300 room hotel in Month 45 (approx. Year 4)Performance: GR / Tot. Rev. Performance: GR / Tot. Rev. 2013 $129M / $141M 2013 $148M / $163M 2016 $157M / $181M 2016 $202M / $226M
P&L – 2016 GGS PGP Higher PGP gaming revenue due toGAMING REV. $157M $202M higher forecastALL OTHER REV. $ 24M $ 24M gamer visitorTOTAL REVENUE $181M $226M volume, higher average spend perEBITDA $ 67M $ 59M visit, and slightly% margin 37% 26% more capacity. Possibly also due to almost $20M more spent on Marketing. Margin difference due to higher PGP Marketing and G&A, expenses and GGS’s hotel and other non- gaming profit.
EQUIVALENCIES,DIFFERENCES, AND ‘FINALCOMPARATIVE RATING’
EQUIVALENCIES - ‘Big Picture’ GGS PGP Entertainment destination, destination resort Mid-market Theme and development adopted to Midwest, Kansas, Sumner County Community partnership and partnering program Midwest, successful development, operating, and marketing history Reasonably well developed pre- and post opening Marketing Plan Investment at full build out: $280M for GGS and $285M for PGP
EQUIVALENCIES GGS PGPGAMING DIRECTGAMING: Full build out capacity … GAMING: Full build out capacity … Slots 2200 Slots 2000 Table games 40 Table games 50 Poker tables 20 Poker tables 10FOOD 510 seats / 4 outlets FOOD 430 seats / 4 outletsBEVERAGE 140 seats / 2 outlets BEVERAGE 185 seats / 2 outletsHOTEL: 80-100 room 3-star hotel HOTEL: 150 room 3-star hotel 90 space RV Park at full build out 100 space RV ParkTOURISM ORIENTEDMEETING AND CONVENTION MEETING AND CONVENTIONMulti-use event center + pre-function Multi-use indoor event center + pre-area + 4 breakout rooms function area + 2 breakout rooms
DIFFERENCES GGS PGPGAMING DIRECTGAMING: GAMING:• Gaming opens Month 14 in • Gaming opens Month 9 in interim permanent building with all critical facility with sufficient but modest FBE. FBE. Permanent opens Month 21.• Maximum capacity Year 7 but can • Maximum capacity completed by be accelerated if demand warrants. end of Year 4FOOD PRICE: $13 ave. food check FOOD PRICE: $9 average food checkENTERTAINMENT ENTERTAINMENT 1400 seat multi-use event center Larger 3000 TO 4200 seat multi use event/equine centerPARKING 2357 spaces / 485 valet PARKING 3965 spaces / 200 valetYear 8 or upon demand – 996 spaceparking garageMARKETING (2016): $14M, 8% TR MARKETING (2016): $34M, 15% TR
DIFFERENCES GGS PGPTOURISM ORIENTEDGOLF Upgraded of municipal golf HOTEL Expansion of initial 150course and clubhouse expansion/ room 3-star hotel to 300 rooms inupgrade Month 36 Month 45TRAVEL PLAZA Month 36 ENTERTAINMENT 24-acre expansion for Equine/Rodeo Center in Mo. 45HOTEL Year 10 – 2nd hotel, 120room, 4 star hotel. Additional spacesin RV Park. Add speedway.PERFORMANCE - 2016Gaming Revenue $157M Gaming Revenue $202MOther Revenue $ 24M Other Revenue $ 24MTotal Revenue $181M Total Revenue $226MEBITDA $ 67M EBITDA $ 59MMargin 37% Margin 26%
RATING – one person’s (consultant’s) viewGLOBAL GAMING SOLUTIONS LLC SCORE 7.1, 93% of PGP• Concept, positioning, investment same or about equal with PGP• Opens with permanent casino in 14 months• Critical FBE gaming support about equal with PGP• Tourism activities deemed not as compelling as PGPPENINSULA GAMING PARTNERS LLC SCORE 7.6 Opens with interim casino in 9 months 4 yr. full build out PGP apparent willingness to use food as a marketing tool (price subsidy) PGP’s apparent more aggressive marketing ($ spent). PGP larger hotel with no outs. PGPs larger, triple use Event, Equine, and Meeting/Convention Center. More effective use of capex on Tourism generators (hotel + event center).
Thank you. Dean M. Macomber Macomber International, Inc.