Quarterly report pursuant to Section 13 or 15(d)

COMMITMENTS AND CONTINGENCIES

v3.10.0.1
COMMITMENTS AND CONTINGENCIES
 9 Months Ended
Sep. 30, 2018
Commitments and Contingencies Disclosure [Abstract]  
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES
 
Litigation

We are party to a number of pending legal proceedings related to matters that occurred in the normal course of business.  Management does not expect that the outcome of any such proceedings, either individually or in the aggregate, will have a material effect on our financial position, results of operations and cash flows.

Options to Purchase or Lease Land and Buildings

Bronco Billy’s Expansion. During November 2017, the Company capitalized $0.2 million of costs for options to either purchase or lease various buildings and land in Cripple Creek, Colorado, near Bronco Billy’s. The options include:

•
A land lease with purchase option, consisting of a closed casino that was renovated and reopened on November 1, 2018 as the Christmas Casino. The Company exercised the lease option during the second quarter of 2018, with a lease commencement of August 2018. The lease includes a minimum three-year term with annual lease payments of $0.2 million, and can be extended an additional two years with annual lease payments of $0.3 million. The Company can also purchase the casino prior to lease-end at a price that increases over time, with a purchase price of $2.5 million if bought by October 31, 2019, and increasing by $0.1 million on each anniversary thereafter up to $2.8 million;
•
An option to purchase land improved with a hotel for $1.7 million, which the Company exercised during the second quarter of 2018 and now owns; and
•
An option to purchase land for $0.3 million, which the Company exercised during the first quarter of 2018 and now owns.

The Company also had a short-term lease on a parking lot behind Bronco Billy’s that included an option to purchase the lot for $1.2 million. The Company exercised its right to purchase such land in June 2018 and closed on the purchase in August 2018.

La Posada del Llano Racetrack Proposal in New Mexico. During July 2018, the Company paid $125,000 for options to purchase approximately 520 acres of adjoining land in Clovis, New Mexico as part of its racetrack casino proposal to the New Mexico Racing Commission. The proposal was in response to the New Mexico Racing Commission’s request for proposals related to the potential issuance of the state’s sixth racing license. The options include:

•
A $75,000 option to purchase 200 acres of land, which ends on the earlier of either July 2019 or 60 days following granting of the sixth license to conduct horseracing by the New Mexico Racing Commission and New Mexico Gaming Control Board (“License Award”) and all related approvals, permits, and other licenses. Prior to the end of the initial option period, the Company may extend the purchase option by one additional period for another $75,000 under the same terms. Prior to the end of the initial option period, or as extended, the Company may exercise the purchase option for $1.4 million, which can be reduced by the option payment.
•
A $50,000 option to purchase 320 acres of land, which ends on the earlier of either July 2019 or 60 days following granting of the License Award and all related approvals, permits, and other licenses. Prior to the end of the initial option period, the Company may extend the purchase option by one additional period for another $50,000 under the same terms. Prior to the end of the initial option period, or as extended, the Company may exercise the purchase option for $1.6 million, which can be reduced by the option payment.

Operating Leases
 
In addition to the following leases, we have less-significant operating leases for certain office and warehouse facilities, office equipment, signage and land.

Silver Slipper Casino Land Lease through April 2058 and Options to Purchase.  In 2004, our subsidiary, Silver Slipper Casino Venture, LLC, entered into a land lease with Cure Land Company, LLC for approximately 31 acres of marshlands and a seven-acre parcel on which the Silver Slipper Casino and Hotel is situated. The land lease includes base monthly payments of $77,500 plus contingent rents of 3% of monthly gross gaming revenue (as defined in the lease agreement) in excess of $3.65 million. Total rent payments during the nine-months ended September 30, 2018 were $1.2 million.

The land lease also includes an exclusive option to purchase the leased land during the period from February 26, 2019 through October 1, 2027, for $15.5 million plus a seller-retained interest in Silver Slipper Casino and Hotel’s operations of 3% of net income (as defined) for ten years following the purchase date. In the event that we sell or transfer (i) substantially all of the assets of Silver Slipper Casino Venture, LLC, or (ii) our membership interests in Silver Slipper Casino Venture, LLC in its entirety, the purchase price will increase to $17.1 million plus the retained interest mentioned above for ten years.

Bronco Billy’s Lease through January 2035 and Option to Purchase.  Bronco Billy’s leases certain parking lots and buildings, including a portion of the hotel and casino, under a long-term lease. The lease term includes six renewal options in three-year increments to 2035. Bronco Billy’s exercised its first renewal option through January 2020, which increased the monthly rents from $18,500 to $25,000 for the first two years of the renewal period and $30,000 for the third year. The lease also contains a $7.6 million purchase option exercisable at any time during the lease and a right of first refusal on any sale of the property.

Grand Lodge Casino Lease through August 2023.  Our subsidiary, Gaming Entertainment (Nevada), LLC, has a lease with Hyatt Equities, L.L.C. (“Hyatt”) to operate the Grand Lodge Casino.  The lease is collateralized by the Company’s interests under the lease and property as defined in the lease and is subordinate to the liens of the Notes. Hyatt has an option, beginning January 1, 2019, to purchase our leasehold interest and related operating assets of the Grand Lodge Casino subject to assumption of applicable liabilities. The option price is an amount equal to the Grand Lodge Casino’s positive working capital, plus Grand Lodge Casino’s earnings before interest, income taxes, depreciation and amortization (“EBITDA”) for the twelve-month period preceding the acquisition (or pro-rated if less than twelve months remain on the lease), plus the fair market value of the Grand Lodge Casino’s personal property. On January 1, 2018, the monthly rent payment increased from $145,833 to $166,667.

Corporate Office Lease. In June 2017, the Company began occupying 4,479 square feet of office space in Las Vegas, Nevada. The office lease terms include an expiration date in January 2025 and approximately $0.2 million of annual rents.