Macomber International (Dean Macomber)

REVIEW OF FACILITIES AND

MARKETING PROGRAMS

AS PROPOSED BY APPLICANTS FOR THE KANSAS SOUTHEAST ZONE CASINO LICENSE

Presented by:

Dean M. Macomber

Macomber International,

Inc.

June 10, 2015, v.2.0.

CONFIDENTIALITY, LIMITED USE, AND

OTHER TERMS AND CONDITIONS

This presentation (“Presentation”) is for the exclusive use of the Kansas Lottery

Commission and other official Kansas agencies associated with the granting of the

Southeast Zone (defined) casino license. Any other use for other purposes or by other

individuals, enterprises, or other entities is strictly prohibited without the prior written

permission of Macomber International, Inc. (“MI”), the Report’s author.

This report is an abbreviated summary of the longer MI report entitled “Evaluation of

Project Concept, Programing, Design, and Marketing as Proposed by Applicants for

the Kansas Southeast Zone Casino License,” dated 6/8/15 v.3.0. (“Report”).

Any information, evaluation, and/or conclusions shown in this Presentation should not

be used, applied, or relied upon without reading and referring to the full Report.

This Presentation is subject to the same limited use, terms and conditions found in the

Report. MI accepts no liability for the information contained in the Report or this

Presentation.

SUMMARY OF THE SUMMARY In a market with greater than normal risk, all three proposed casino

projects have virtually the same potential to achieve and sustain success

with their Phase 1 proposal even though they come to this net position

with a different set of pluses and minuses.

The primary risk management strategy appears to have been to propose

a project that has the minimum critical mass to win the bid but also to

achieve Phase 1 success. The optimum potential of the market will not

be realized until Phase 2 and beyond.

The largest project positioned to be a regional casino provides the greatest

potential revenues and upside but is accompanied by less room for error. The

two smaller locals’ oriented casinos offer the opposite.

Thus, the first order decision is not so much about which of the

three casinos to award the license but rather which of the two

risk-reward profiles are preferred. Afterward, if the preference

is for a regional casino there is only one. If the preference is for

a locals’ casino there are two projects but they are about

equal. The choice between them should be heavily weighted

based upon the perceived abilities of the owner and and team

to monitor conditions and react appropriately more so than the

efficacy of the Phase 1 concept, design, and marketing plan.

Caveat: The differential of the gaming tax rate between KS

and OK is a pall that hangs over this opportunity because it

provides a mechanism for the OK casino owners to wage a

Marketing War.

The development environment

COMPETITION AND RISK

The marketplace (“Marketplace”) for the Kanas Southeast Zone (“SE Zone”) may be

defined as a 90 mile radius segmented by an inner market (30 mile ring), middle market

(60 mile ring) and outer market (90 mile ring).

The facilities and marketing programs submitted by the three applicants are remarkably

similar in terms of the macro-dynamics of the Kanas Southeast Zone that are:

1. A mature and medium to high competitive

environment.

2. Relative to the SE Zone, a lightly populated,

rural inner ring, a similar middle ring with the

exception of Springfield, MO, and an outer

ring with large, dense, urban populations of

the Greater Tulsa Kansas City Metro Areas.

3. A spread in the gaming tax rate between Kansas vs. Oklahoma casinos that ranges

from +10% to +27%. This spread may potentially be used by Oklahoma casinos

reactively and/or proactively to defend against adverse impact from a SE Casino.

4. Other development risks.

The result is a greater than normal development risk.

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

0 100 200 300 400 500 600

% W

ho V

isit A

tlant

ic Cit

y

Miles from Atlantic City

Visitation Curve

The development environment … pragmatically leads to a

LIMITED DEVELOPMENT STRATEGY

Either …

1. A locals’-oriented casino

designed to primarily attract

inner ring players and whatever

additional demand from the

middle and outer rings as

justified (“Locals’ Casino”).

Or …

2. A destination locals’ / regional

casino-resort that will appeal to

less price / value sensitive local

players but more so to middle

and outer ring regional players

(“Locals’ / Regional Casino”).

1. Locals’ Casino

a. Smaller … to right-size to potential.

b. Less expensive … middle market needs.

c. Crawford County … further away from

northeast OK competition.

1. Local’s / Regional Casino

a. Larger to …

Satisfy demand for greater variety

To accommodate greater volume needed to make it “work.”

To compete (others are big to huge).

b. More expensive …

To satisfy demand for higher quality.

To pay for higher capacity

c. Located in Cherokee County … to get

closer to I-44, primary access road.

Applicant Expectations

DEMAND PHYSICAL DEMAND – number of visitors

FINANCIAL DEMAND – gross gaming revenue (“GGR”)

CAMPTOWN KANSAS CROSSING CASTLE ROCK

Locals' Locals' Locals'/Regional

1.0. PHYSICAL DEMAND

1.1. PLAYER VISITOR-DAYS

Kansas 209,000 257,000 297,000

Ex-Kanas 740,000 273,000 892,000

Total Player Visitor-Days 949,000 530,000 1,189,000

Per Average Day 2,600 1,452 3,258

1.2. NON-GAMING VISITOR-DAYS 64,000 21,000 63,000

1.3. TOTAL VISITOR DAYS 1,013,000 551,000 1,252,000

Per Average Day 2,775 1,510 3,430

3.0. FINANCIAL DEMAND

3.1. GROSS GAMING REVENUE ("GGR") 10,632,000$ 22,873,000$ 22,252,000$

Kansas

Ex-Kanas 37,000,000 24,359,000 66,755,000

MI Adjustment to match pro forma 2,670,000

Total Gross Gaming Revenue 47,632,000$ 47,232,000$ 91,677,000$

GGR/Gaming Visitor-Day $50 $89 $77

Applicant Programming

GAMING, FOOD & BEVERAGE



2.0. CAPACITY

2.1. GAMING

Casino Square Feet 31,236 22,000 65,000

Number of slots 750 625 1,400

Number of tables 16 15 35

Number of poker tables 4 1 16

Total positions 913 746 1,830

Square Fett per Position 34 29 36

2.2. FOOD

Venues 3 1 4

Total Seats 265 125 488

Comments Gilley's Saloon takeaway in Don Shula Steak plus

+buffet + snack/deli restaurant 24hr+buffet+sports bar

2.3. BEVERAGE

Venues 2 1 2

Total Seats 83 30 90

Comments 2 Casino Bars 1940 sf. Feature Bar Center Bar

+ Gilley's Saloon includes food? Lounge Bar

Applicant Programming …ENTERTAINMENT

ROOMS, OTHER, & PARKING



2.4. ENTERTAINMENT

Description - all venues Gilley's Saloon with 400-seat Event Center Ballroom in meeting

5,273 sf plus 2000-seat Outdoor space + Lounge Bar

ad hoc venues plus ad hoc venues on weekends+ad hoc

2.5. ROOMS

Brand Marriott Fairfield Hampton Inn Independent

Star rating 3 star 3.5 star 4 star

Total Rooms 62 123 200

Standard / Premium / Suites 46 / 16 / 0 87 / 16 / 20 unknown

Square feet per room 280-360 / 380-400 / 0 320 / 436 / unknown unknown

Comments: 22% casino usage 65% casino usage unknown

2.6. OTHER Descripttion Retail 600 sq. ft. None 27,000 sf meeting

2.7. PARKING

Total spaces 1,082 at least 1000 1,500

Valet included above 100 unknown 200 valet

Bus / RV / Truck 10 / 0 / 0 0 / 20 / 40 25 / 50 / 30

Applicant Proposal

DESIGN -- EXTERIOR

CAMPTOWN

Locals’ casino

KANSAS CROSSING

Locals’ casino

CASTLE ROCK

Locals’ / regional casino

CAMPTOWN Kansas / Mid-west Western.

3-star hotel maybe sets 3-star standard for property.

If so, good alignment with middle-Middle Market.

KANSAS CROSSING A little more Kansas / Mid-west modern (?).

3.5 star hotel maybe sets 3.5 standard for property.

If so, slightly better chance to market to upper-Middle.

CASTLE ROCK Contemporary, modern outside. Juxtapose to rural area nearby.

4 star hotel maybe sets 4-star standard for property.

If so, good because broader appeal one down, one up.

X

Applicant Proposal

DESIGN -- MASTER PLAN

CAMPTOWN

Locals’ casino

KANSAS CROSSING

Locals’ casino

CASTLE ROCK


CAMPTOWN More shopping mall entry and landscape.

KANSAS CROSSING Slightly more rural. “Resort-esque” (?) one side of hotel and

outdoor event venue

CASTLE ROCK Vertical offsets large surface parking but could have done more

to project more of a resort-esque experience.

Applicant Proposal

DESIGN -- CASINO CONFIGURATION

CAMPTOWN

Locals’ casino KANSAS CROSSING

Locals’ casino

CASTLE ROCK


CAMPTOWN Classical recti-linear layout.

Table games at entry to T-intercept to casino bar. Gilley’s right.

Second casino bar + food serving “left side.”

KANSAS CROSSING Recti-linear layout but a bit more square makes “bigger” area.

No casino center bar leaves big mass. Three walls = little activity.

Porous nature of Feature Bar. Slots block entry to Event Center

and restaurant (?).

CASTLE ROCK Square casino but with center casino bar.

Food, beverage, entertainment on two sides.

Good hotel access / egress point.

Applicant Proposal

DESIGN -- CASINO

CAMPTOWN

Locals’ casino CASTLE ROCK


KANSAS CROSSING

Locals’ casino

CAMPTOWN Less Western inside (but Gilley’s will amplify … see next).

But, organic, rug, fabrics soften. Makes more informal.

KANSAS CROSSING A bit of step up but still around organic themes.

Broad appeal. 3.5 stars?

CASTLE ROCK Crystal. Chandeliers. More contemporary. Formal.

4-stars? Off-putting or attractive to mid-Middle market?

.

Applicant Proposal

DESIGN -- NON-GAMING

CASTLE ROCK


KANSAS CROSSING

Locals’ casino

CAMPTOWN

Locals’ casino

CAMPTOWN Gilley’s. Gilley’s. Gilley’s.

Very western but meant to be a fun, party atmosphere.

Unclear how much western theme will permeate rest of property.

KANSAS CROSSING Western ceiling. Contemporary floor. 3.5 stars?

Shows porosity of entry to Feature Bar. Will it work.

CASTLE ROCK Hotel lobby “shouts” four-star. Chic. Modern. “Special.”

Looks a step more formal than Downstream.

But, too much for northeast Oklahoma or aspirational?

Applicant Performance

METRICS CAMPTOWN KANSAS CROSSING CASTLE ROCK


6.0. "PERFORMANCE"

6.1. GAMING

Percent visitors gambling 94% 96% 95%

Slots - Win per Unit per Day $150 $169 $144

Tables -Win per Unit per Day $900 $1,544 $980 incl. Poker

Poker - Win per Unit per Day $900 $662 n.a.

Total GGR - Win per Position per Day $143 $173 $137

Utilization - Average Day 47% 32% 30%

6.2. FOOD

% visitors having 1 meal 28% 19% Unkown

Average cover $12 $11 Unkown

Utilization - Average Day 48% at 6 turns/day 33% at 7 turns/day Unkown

Comments None 35% F&B comped None

6.3. BEVERAGE

% visitors having 1 drink 67% 70% Unkown

Average price per drink $5 $3 MI assumed Unkown

Utilization Average Day 21% bars only 47% bars only Unkown

Comments None 35% F&B comped None

6.4. ENTERTAINMENT

Metric $100K/yr. expenses $155K/yr. expenses Unkown

Comments None 45% comped None

6.5. ROOOMS

Occupancy 62% 85% 75%

Average Daily Rate $105 $123 $137

6.6. OTHER

Metric $0.18/visitor-day $0.26/visitor-day None

Comments Retail store Retail 20% comped None

Applicant Marketing Effort

MARKETING EFFORT

“PART A” – COMPS, CASH BACK, POINT REDEMPTION, ADVERTISING AND +++

“PART B” – NON-GAMING AS LOSS LEADERS, MARKETING TOOLS



5.0. MARKETING

5.1. PROMOTIONAL ALLOWANCES 4,600,000$ 4,529,000$ 2,670,000$

Percent of GGR 10% 10% 3%

Comments Estimated by MI

5.2. G&A MARKETING 5,100,000$ 3,472,000$ 4,957,000$


5.3. TOTAL PRO FORMA MARKETING 9,700,000$ 8,001,000$ 7,627,000$


Departmental Profit CAMPTOWN KANSAS CROSS. CASTLE ROCK

FOOD

+58%

-81% Unknown

BEVERAGE -2% Unknown

ENTERTAINMENT -$100K expense +3% Unknown

HOTEL +35% Unknown – 3rd party Unknown

EBITDA MARGIN 26% 20% 26%


REVENUE, MARKETING, AND PROFIT (EBITDA)



3.0. FINANCIAL DEMAND

3.1. GROSS GAMING REVENUE ("GGR") 10,632,000$ 22,873,000$ 22,252,000$

Kansas

Ex-Kanas 37,000,000 24,359,000 66,755,000

MI Adjustment to match pro forma 2,670,000

Total Gross Gaming Revenue 47,632,000$ 47,232,000$ 91,677,000$

GGR/Gaming Visitor-Day $50 $89 $77

3.2. NON-GAMING REVENUE 8,585,000$ 2,840,000$ 21,046,000$

Non-Gaming Revenue/Visitor-Day $8 $5 $17

% NG Rev. of Total Revenue 15% 6% 19%

3.3. TOTAL GROSS REVENUE 56,217,000$ 50,072,000$ 112,724,000$

Total Revenue/Visitor-Day $55 $91 $90

3.4. PROMOTIONAL ALLOWANCES -4,600,000 -4,529,000 -2,670,000

% of GGR -9.7% -9.6% -2.9% est'ed by MI

3.5. NET REVENUE 51,617,000$ 45,543,000$ 110,054,000$

4.0. MARKETING

4.1. PROMOTIONAL ALLOWANCES 4,600,000$ 4,529,000$ 2,670,000$


Comments Estimated by MI

4.2. G&A MARKETING 5,100,000$ 3,472,000$ 4,957,000$


4.3. TOTAL PRO FORMA MARKETING 9,700,000$ 8,001,000$ 7,627,000$


5.0. PROFIT

5.1. EBITDA $14,846,000 $9,895,000 $29,137,000

Margin - % Total Revenue 26% 20% 26%

Comments After Rent + Manage-

ment Fee. Otherwise

MI expects upper-20%.


SQUARE FEET, INVESTMENT, FUNDING, ROI CAMPTOWN KANSAS CROSSING CASTLE ROCK


7.0. SQUARE FEET

7.1. CASINO, FOOD, BEVERAGE, OTHER 47,000 57,000 298,000

7.2. HOTEL 42,000 80,000 125,000

7.3. TOTAL SQUARE FEET 89,000 137,000 423,000

If equalized to 150 rooms 149,000 155,000 392,000

8.0. INVESTMENT

8.1. HARD COST 69,607,000$ 52,721,000$ 120,210,000$

Hard Cost per Square Foot $778 $385 $284

If land and no. rooms equalized $531 $525 $281

8.2. SOFT COST 8,299,000 12,018,000 13,788,000

8.3. LICENSE FEE AND RELATED 6,125,000 5,500,000 5,500,000

8.4. TOTAL INVESTMENT 84,032,309$ 70,239,910$ 139,498,565$

If land and no. rooms equalized $94,000,000 $99,000,000 $130,000,000

Total Investment per Square Foot $940 $514 $330

If land and no. rooms equalized $627 $638 $331

EBITDA Return on Investment 18% 14% 21%

MI adjusted for rent and Project high teen ROI

management fee

9.0. FUNDING

9.1. EQUITY Unknown 25,909,000$ 44,498,000$

9.2. DEBT Unknown 44,330,000 95,000,000

9.3. TOTAL 84,032,309$ 70,239,000$ 139,498,000$

Debt to Total Investment unknown 63% 68%

SUMMARY OF THE SUMMARY In a market with greater than normal risk, all three proposed casino

projects have virtually the same potential to achieve and sustain success

with their Phase 1 proposal even though they come to this net position

with a different set of pluses and minuses.

The primary risk management strategy appears to have been to propose

a project that has the minimum critical mass to win the bid but also to

achieve that success. The optimum potential of the market will not be

realized until Phase 2 and beyond.

The largest project positioned to be a regional casino provides the greatest

potential revenues and upside but is accompanied by less room for error. The

two smaller locals’ oriented casinos offer the opposite.

Thus, the first order decision is not so much about which of the

three casinos to award the license but rather which of the two

risk-reward profiles are preferred. Afterward, if the preference

is for a regional casino there is only one. If the preference is for

a locals’ casino there are two projects but they are about

equal. The choice between them should be heavily weighted

based upon the perceived abilities of the owner and

management team more so than the efficacy of the concept,

design, and marketing plan.

Caveat: The differential of the gaming tax rate between KS

and OK is a pall that hangs over this opportunity because it

provides a mechanism for the OK casino owners to wage a

Marketing War.

Thank you.

Dean M. Macomber Dean M. Macomber, President

Macomber International, Inc.

Mobile: +1.702.682.2229

Office: +1.702.456.6066

Skype: macomberinternational

Email: [email protected]

Macomber International (Dean Macomber)

Government & Nonprofit

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