MTR Gaming Group Management Discusses Q4 2012 Results - Earnings Call Transcript

Mar. 7.13 | About: Eldorado Resorts, (ERI)

MTR Gaming Group (MNTG) Q4 2012 Earnings Call March 7, 2013 4:30 PM ET

Executives

William R. Schmitt - Managing Director

Jeffrey J. Dahl - Chief Executive Officer, President and Director

John W. Bittner - Chief Financial Officer and Executive Vice President

Joseph L. Billhimer - Chief Operating Officer and Executive Vice President

Narciso A. Rodriguez-Cayro - Vice President of Regulatory Affairs, Secretary and General Counsel

Analysts

James Kayler - BofA Merrill Lynch, Research Division

John Maxwell - Jefferies & Company, Inc. Fixed Income Research

David Hargreaves - Sterne Agee & Leach Inc., Research Division

Jim Devlin

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the MTR Gaming Group Fourth Quarter 2012 Earnings Conference Call. Today's call is being recorded. [Operator Instructions] I would now like to turn the conference over to Mr. William Schmitt of ICR. Please go ahead, sir.

William R. Schmitt

Thank you, Tom. Good afternoon, everyone, and welcome. Before we get started, I just want to remind you that the company's remarks may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended concerning the company's prospects. Actual results could differ materially from those projected or suggested in any forward-looking statements as a result of a variety of factors, which are described in the company's periodic reports filed with the Securities and Exchange Commission and in the company's news releases.

Additionally, the company may discuss EBITDA, or earnings before interest, taxes, depreciation and amortization, which is a non-GAAP financial measure. Such information and any disclosure required by the SEC Regulation G can be found in MTR's March 7, 2013 news release, which is reproduced on the company's website under Investor Relations.

Finally, under certain circumstances, the federal securities laws may require the company to file a transcript of this call, including your questions, with the SEC. Accordingly, if you ask a question, the company will assume that you have consented to the inclusion of your question and identity in any such required filing.

It is now my pleasure to introduce your host, Mr. Jeff Dahl, President and CEO for MTR Gaming. Jeff?

Jeffrey J. Dahl

Thanks, Bill, and good afternoon, everyone. Thank you for your interest in MTR Gaming. Joining me on the call today are several members of our senior leadership team: John Bittner, our CFO; Joe Billhimer, Chief Operating Officer; Nick Rodriguez-Cayro, our General Counsel; and Fred Buro, our Chief Marketing Officer.

2012 was a banner year for MTR with the opening of our new gaming facility at Scioto Downs in Columbus, Ohio. We achieved record adjusted EBITDA for the year of $93.8 million, which exceeded our previous records set last year by nearly 14%. Our fourth quarter saw continued strong results from Scioto despite the expansion of gaming in the Columbus market, leading to an overall 12% gain in revenue and 6% gain in adjusted EBITDA for MTR, a record for the fourth quarter. For the quarter, Scioto generated $32.4 million in revenue and nearly $11 million in adjusted EBITDA. We have maintained our market share in Columbus and continue to produce premium revenues for VLT versus the market. And it appears the market continues to develop with our revenues increasing sequentially month-over-month since the opening of the Penn property. The ramp up of operations continues apace and Scioto continues to exceed our original expectations for market share with February revenues of nearly $11 million, which is 47.4% of total Columbus market slot revenues.

Our customer database continues to grow and now nears 200,000 players. Considering the additional competition in Columbus, we believe Scioto is entrenched in a strong position and we thank the entire Scioto team for another solid quarter and continuing to provide Metro Columbus with a tremendous entertainment experience.

While Scioto continues to perform and exceed our expectations, we did see declines at our other regional gaming facilities. While those facilities are still performing within our expectations, competition, overall weakness in consumer spending and weather impacts did have an effect on their fourth-quarter results. In Mountaineer, we saw a 16% decline in revenue and a more significant decline in our adjusted EBITDA figures and margin. While we believe our marketing programs are properly positioned, the additional competition from Cleveland, Ohio has affected Mountaineer's performance. We will be watching our costs closely in order to minimize further adjusted EBITDA margin deterioration.

Presque Isle Downs saw revenue decline 22% from the prior year quarter and adjusted EBITDA also declined as the property was negatively impacted by the competition in Ohio and weather. As with Mountaineer, we will continue to focus on our marketing programs as well as any potential operating efficiencies in order to maximize our margins at Presque Isle. Our plans for 2013 are relatively straightforward. In addition to our emphasis on focus marketing, we will continue our efforts to optimize our customer's gaming and entertainment experience through targeted and thoughtful spending on capital improvements at our facilities. We will be renovating hotel rooms at Mountaineer, reconfiguring our property's gaming floors to improve efficiencies, as well as making other facility improvements throughout our suite of properties. To that end, we expect to spend approximately $19 million in capital expenditures in 2013. We believe these meaningful improvements will help prepare us to address the difficult competition from Ohio.

To sum up, we look to improve on our strong 2012 and we believe Scioto will continue to generate solid results while we focus on improving the guest experience and maintaining our margins at our other properties.

And with that, I'll turn it over to John who will take you through our financials.

John W. Bittner

Thank you, Jeff. Let's go through the fourth quarter numbers. Net revenue for the fourth quarter of 2012 was $116.3 million, up 12% from the $103.6 million in the prior year quarter due to the second full quarter's contribution from the new VLT facility at Scioto Downs, which opened June 1.

For the fourth quarter of 2012, the company's adjusted EBITDA from continuing operations was $21.2 million up 6% compared to $20 million in the fourth quarter of 2011. Overall, net adjusted EBITDA margins for the fourth quarter of 2012 from continuing operations was 18.2%, a decrease of 110 basis points from the prior-year period. Net adjusted EBITDA margin for Scioto Downs in the fourth quarter of 2012 was 33.4%, while net adjusted EBITDA margin for the fourth quarter for Mountaineer was 15.3% compared to 21% for the prior-year period. In the adjusted -- net adjusted EBITDA margin for Presque Isle Downs was 15.7% compared to 23% for the prior-year period.

Loss per share from continuing operations for the fourth quarter of 2012 amounted to $0.20 compared to the fourth quarter of 2011 loss per share from continuing operations of $0.24. The prior year quarter had a $700,000 impairment charge and excluding that charge, the loss from continuing operations in the fourth quarter of 2011 would have been $0.22 per share. The provision for income taxes reflects additional valuation allowances relating to our deferred taxes. And during the fourth quarter of 2012, corporate operating expenses increased to $2.6 million compared to $2.3 million in the fourth quarter of 2011 with the increase primarily due to corporate marketing costs and insurance related expenditures.

Capital expenditures for the fourth quarter, including capital project-related payable amounts if any, were $3.3 million, consisting primarily of $1.5 million for Mountaineer, $1 million for Presque Isle Downs and approximately $800,000 for Scioto Downs. As Jeff mentioned, we are expecting to spend approximately $19 million in capital during 2013, including over 50% of which, will be utilized for Mountaineer. We also anticipate capital reimbursement from West Virginia under the modernization fund of approximately $2 million.

Depreciation expense for the fourth quarter was $7.5 million, up from $6.9 million in the prior-year period. Interest expense for the quarter was $17.4 million compared to $17.2 million for the prior-year period. Capitalized interest for the quarter was only $21,000.

Our total debt as of the end of the quarter was $556.7 million net of the discount and we have cash and cash equivalents on hand of $115.1 million. Additionally, we have the undrawn $20 million availability under our credit facility.

And with that, I'll turn it back over to Jeff.

Jeffrey J. Dahl

Thank you, John. Now, Tom, please open the line for questions.

Question-and-Answer Session

Operator

[Operator Instructions] We'll take our first question from James Kayler with Bank of America Merrill Lynch.

James Kayler - BofA Merrill Lynch, Research Division

I guess first, have you tried at all or can you give us any color around the weather impacts in the quarter in terms of, if you go revenue estimate and/or it just in terms of like days or weekend lost?

Joseph L. Billhimer

James, this is Joe. I don't know that we can give you a quantified number. We were severely impacted in the quarter, primarily in December, from the year-over-year weather impact. Primarily, the last 2 weekends of the year right after -- with the Christmas holiday and New Year's, we were severely impacted that particular week but we're not going to provide specific dollars because they would be broad estimates anyway. We've heard some others put those numbers out but I can assure you that we were impacted by comparison to a fairly mild December prior year.

James Kayler - BofA Merrill Lynch, Research Division

And was it at -- were specific properties impacted more or was it across all 3 properties?

Joseph L. Billhimer

For the last week of December, we -- it really -- it went through Columbus, then Mountaineer and Erie. So all 3 were impacted the last week of the quarter, which as you know, is a highly visited week of the year for us.

James Kayler - BofA Merrill Lynch, Research Division

Changing gears. On the cost side, I mean obviously, with the sort of incremental competition and the revenue declines at the 2 existing properties, you would expect some flow through. I guess, can you talk about sort of how -- what you're thinking on the cost side, if you think there are opportunities to take out additional costs just given the revenue environment and sort of where you stand, what types of things you're looking at?

Joseph L. Billhimer

Well, I'll go ahead and start again. We always have cost containment programs underway. In particular we've focused obviously on labor year-over-year. The competition from Cleveland has been new to us so we're really evaluating the ebbs and flows of the competition there. We've also faced additional competition in terms of Rivers and Meadows that affect the Mountaineer facility and a bit at Presque Isle. So obviously, labor is a big one and we remain focused on the marketing spend and promotional activity in that regard but we're focused on expenses across all 3 properties on a continual basis and we'll be making adjustments from now until throughout the balance of the year.

John W. Bittner

Really, I think, James, as we look at Presque Isle, one of the things we have done and tried to do in anticipation of the increased competition was to really change the floor to create not just a more efficient floor but a much more customer-friendly floor and that took us a while through the Pennsylvania process. It's just a little different in Pennsylvania than the process we went through actually, at Mountaineer a couple of years ago. We did this exact same thing as Rivers and Meadows were really taking a large bite out of our top line revenue. So we've done this process at Mountaineer, we're doing this process at Presque Isle and the other piece of it, what we're really trying to do now is we're a bigger company than we were so we have some scale and we're really looking at all of our programs and finding a way to maximize the value of the bigger company, the scale that we now have. And we doing it in every area but I'll tell you right now, the focus is a lot of the marketing and advertising that we do, there's some real opportunities there. So the question you asked was, is there some opportunity and I can tell you, there isn't an operation in the world that doesn't have an opportunity to look at their expenses on a regular basis and find some improvement and that's what we do, that's what we did at Mountaineer and we're focused now not just on the cost at Presque Isle but we also think from a marketing standpoint, there's probably some of the processes we put in place at Mountaineer that were so successful, will have the same, we hope, impacts for us up there at Presque Isle.

James Kayler - BofA Merrill Lynch, Research Division

I guess on a somewhat related note. I saw that a bill was filed in West Virginia to potentially reduce the table games tax. Do you guys have a sense for if that has support in the legislature or not?

Jeffrey J. Dahl

One of the things I've always said about West Virginia is that, that is a state from the administration through all the legislative bodies, through the local government bodies that understands the importance of our industry and have always been very supportive. And there's clearly some issues there in terms of tax rate and as you know, there's a big issue from one of our competitors in West Virginia that's made a good deal of noise about how the $2.5 million fee for table games absolutely makes no sense for them at this point based on their volumes. I think there's some good traction out there. I really do have confidence that the state will tackle this in a very significant way. They'll give it due consideration. It's probably not like some other jurisdictions where you would just -- sometimes people throw some crazy bills out there and you know they don't have a snowball's chance. But in this case, we're dealing with a state that's already proven itself 2 sessions ago when they gave us the funds to help improve our floors with the capital reinvestment that John talked about. We get a $2 million benefit in 2013 from that legislative piece. So we're hopeful and we think it's going to be considered very thoughtfully by the legislature.

James Kayler - BofA Merrill Lynch, Research Division

And I guess just on the last piece, just on sort of cash flow and use of cash. In terms of the -- so the $19 million you plan on spending on CapEx, how much of that is sort of just pure maintenance versus projects like the room refresh?

Jeffrey J. Dahl

John's probably better suited to answer this, but I'll go ahead and jump out and he can correct me here when I make a mistake but I would class -- and really it's a net $17 million frankly because we do get the $2 million reimbursement from West Virginia. It's primarily maintenance CapEx. I mean, it's all granted on towards improving the gaming floor with new slot products. It's improving the air quality in our facilities. It's improving, as we said, the room refresh and new carpets and all the things that we think we need to do to be prepared for any competition, additional competition coming from Ohio.

James Kayler - BofA Merrill Lynch, Research Division

And I guess just finally, I've been seeing pretty substantial cash balance and should generate incremental free cash flow in the year. I guess obviously, it's to make the license payment but beyond that, strategically, how are you thinking about reinvesting the cash?

John W. Bittner

As we've said before, we're always looking for opportunities and one of the reasons why we're trying to build the cash position is to take advantage of any opportunities that may come our way. So we continue to look but really nothing to speak of or -- that we could focus on or address right now. We're also accumulating the cash in preparing for the additional competition that may be coming down the road. And as we talked a moment ago, just being able to spend the appropriate amount of CapEx that we need to improve our guest experience and maintain a competitive position as it relates to each of the individual properties.

Operator

[Operator Instructions] We'll take our next question from John Maxwell with Jefferies.

John Maxwell - Jefferies & Company, Inc. Fixed Income Research

So Jeff, I'm just wondering, could you comment a little bit on the Internet cafes in Ohio. I noticed on that Columbus Dispatch, there's like 35 room in Franklin County alone. Any way that you can kind of quantify how you think that's affecting Scioto's performance or obviously, it's doing well; I just wonder how much better it could be doing if these things were either regulated or presumably closed down?

Jeffrey J. Dahl

I appreciate the question, John, because it's certainly become apparent to us and I think to all the other legal gaming operators in the state of Ohio, that these illegal operations are impactful and to what extent is probably subject to a good deal of debate because frankly, we don't even know how many there are. The attorney general started the process last year, asking for these facilities to register with his office. Hundreds of them have registered. We know that there are possibly hundreds more that haven't registered. It was a voluntary request from the Attorney General and so whatever -- however many there are, they are substantial, they are good sized properties. I have been in a couple. I've seen some as big as 150 units in them. They are effectively mini casinos and there's no question that they are having an effect, a suppression of the slot numbers that are being generated by the legal casinos and VLT operators such as ourselves in the state of Ohio and although -- again, it's difficult for us to quantify because we don't think that 100% of that revenue is going to flow directly into the legal gaming establishment because some of it is a convenience play. They are in communities of very, very far from where any of the legal sites are. And so -- but I do know that others that operate a gaming establishment in the state of Ohio have done a lot of work studying this, even more than we have and the estimates are, this is hundreds of millions of dollars. There are more of these illegal devices operating in the state of Ohio, it's our belief, than there are legal devices operating in the state of Ohio and they are end to end in that state. So we think it's a substantial impact. We think that the path is very clear where the Attorney General's headed with this. And in terms of regulating, licensing, doing background checks, I mean, there are a lot of issues related to these establishments that are of concern to all of law-enforcement in Ohio and we support that effort completely.

John Maxwell - Jefferies & Company, Inc. Fixed Income Research

Presumably, I mean, if these things get defined as a gaming device, they would all be closed down, right? I mean, it's just -- that was not in the bill.

Jeffrey J. Dahl

Right. If they were defined as a gaming device, it's clearly illegal. There are only certain locations and certain purposes that meets the definition of legal gaming devices in Ohio and these don't, in our opinion, don't meet that. Now I think the approach of the legislation right now is to regulate them in such a manner that they -- that their claim, that they're a sweepstakes type of event will be limited. So there'll be a maximum. The way legislation is written now, there's a maximum payout of like $10. They're going to have to go through background checks to run these things, which will probably eliminate several of the operators and I think legal, they're 100% shutdown. The Attorney General in Ohio is doing this a little differently than say, the Attorney General in Alabama, who has kind of a similar, not exactly the same situation but just our Attorney General in Ohio has taken an approach that yes, they may be illegal but let's look at it from a legislative process. I don't think there's any doubt that the legislators of the state of Ohio, who are now educated on these establishments, are in any way supportive of them. I don't think the administration will be a supporter of this activity and so I think that approach is going to be very effective and hopefully, very soon.

John Maxwell - Jefferies & Company, Inc. Fixed Income Research

And again, I mean, I know there's no hard numbers but the guess at this point, is it's probably a couple hundred million dollar business in Ohio?

Jeffrey J. Dahl

I think it's measured in the hundreds of millions. Some people have hired -- there was actually an article and I forget the newspaper but I believe that their estimate was $1 billion. So I don't know. Again, you're dealing with entities that first off, we don't know very much about them. No one really knows very much about them. They don't publicly report, there's no taxing, there's no monitoring, there's -- and frankly, with the voluntary registration process, so the hundreds and hundreds that have already sent their registration form in to the Attorney General, probably don't represent 100% of the population of these establishments in Ohio. So it's literally is anybody's guess but it's clearly substantial.

John Maxwell - Jefferies & Company, Inc. Fixed Income Research

Just last question on that, I mean I haven't seen the ones in Ohio but are they similar to the ones that are open -- that is down in Florida as well?

Joseph L. Billhimer

Yes, John. They're very similar and there are some that are actually put into slant tops so they don't look as much like a computer terminal. They actually look like an actual slot machine. So very similar to those that are all over Florida.

John Maxwell - Jefferies & Company, Inc. Fixed Income Research

And then at Presque, I know you were talking in the past about some road issues that you had there. Is there any update on that?

Joseph L. Billhimer

I would say that there is always going to be road construction in that part of the country. I think it's gotten a little bit better in the commute from Cleveland but there still are areas that pop up after the winter season. So I think we'll continue to see it but I don't -- we don't know of anything substantial in the near future that would be of any great magnitude.

John Maxwell - Jefferies & Company, Inc. Fixed Income Research

Then the last for me, the last payment you have on the Ohio license is $25 million. Is that due in May, is it a year from when you opened?

Jeffrey J. Dahl

June 1.

Operator

And we'll take our next question from David Hargreaves with Sterne Agee.

David Hargreaves - Sterne Agee & Leach Inc., Research Division

Looking across your different margin categories, it looks like food and beverage was probably one of the most challenging for you guys and I'm wondering if you could elaborate on what happened there cost wise and how you think you might be able to deal with it?

Joseph L. Billhimer

Well, I think primarily, some of the margins in terms of food have to do with Scioto Downs as we were getting started and getting our feet under us in terms of the offerings there. I think we've seen great strides in that particular area. Now, we've had some other cost of goods increases throughout the property ironically. We've got all 3 of our finance directors and food and beverage directors meeting today with some -- with our purchasing group in that regard. But I think largely, we've rectified some of the early growing pains of opening the new buffet at Scioto Downs.

David Hargreaves - Sterne Agee & Leach Inc., Research Division

Well, it was like 15% versus 28% last year for the quarter. Should we be thinking of sub-20% as a new normal or could you give us some sense as to what you think you might be to able to get back to?

John W. Bittner

I think once -- as Joe referred to the Scioto difficulties was with opening the buffet. I think once -- now that that's out and once we're moving forward, I think from a perspective and a margin point of view, it probably would be in the range of the midpoint for those amounts.

David Hargreaves - Sterne Agee & Leach Inc., Research Division

Getting back to the issue the sweepstake cafes, I was a little confused in terms of you guys seem to be a little back-and-forth about what's legal and what's not. Is the only thing that's illegal about these cafes is that they pay out prizes more than $10 is -- are they allowed within the state if they have prizes less than $10?

Narciso A. Rodriguez-Cayro

I don't -- it's Nick Rodriguez-Cayro. That position hasn't been defined. I mean obviously, there are arguments on both sides of the lane. The majority opinion and the opinion of the Attorney General is that they are not legal and/or that they should be heavily regulated. That's the opinion of [indiscernible], not my opinion.

David Hargreaves - Sterne Agee & Leach Inc., Research Division

Are they subject to any taxes, any gaming taxes?

Narciso A. Rodriguez-Cayro

Currently, they are not subject to any tax, any type of gaming tax.

Joseph L. Billhimer

They're not subject to any gaming tax nor are they subject to any background information or any due diligence in terms of how they're operating and what they would be "paying out".

John W. Bittner

Essentially, at this point, they're virtually unregulated.

David Hargreaves - Sterne Agee & Leach Inc., Research Division

I guess I'm just trying to understand conceptually, what would be attractive about one of these things to a customer. I think when you guys opened up there was some talk about customers not being used to gaming in Ohio and needing to learn to gamble and I don't know, at least the pictures of these things that we've seen, they look pretty dumpy. I'm trying to understand why anybody would want to play in one of these things?

Joseph L. Billhimer

Dave, there's 475 of them located in the greater Cleveland area between Cleveland and all the way down as far over to Ashtabula and down to Youngstown, Ohio. So the point is they're a convenience play to local neighborhoods. They're usually in strip malls, generally located in depressed areas. So they're basically a convenience play.

Operator

And we'll go next to Jim Devlin with Henley & Company.

Jim Devlin

Just on the Internet cafes, not to beat it to death but I think the Columbus Dispatch said that one out of every $4 now gambled in the state of Ohio is being gambled in these strip mall casinos according to the Attorney General and I believe that same article did reference it at $1 billion. Ohio clearly, Columbus would benefit with either the outright ban of these facilities or some kind of regulation, the $10 a day cap limit, which would certainly curtail the endeavors or certainly the growth or basically, legislate them out of business. So Columbus, I guess the Dispatch had a picture of the Columbus map and like 40 of them basically centered around your Scioto Downs facility. So Columbus would be a benefactor but as you had pointed out, Erie is right over the border. If these Internet sweepstakes cafes do disappear, do you also pick up business or foot traffic in Erie and/or West Virginia?

Jeffrey J. Dahl

I was going to say, Jim, Mountaineer's right over the river as well. So again, it's difficult for us to quantify but clearly, these establishments are throughout the state of Ohio at least, as we can tell and we'll see what the benefits will be but I think your point is exactly right on.

Jim Devlin

Right, so if the legislation breaks the right way for MTR, your win in Columbus, potentially a win in Erie, potentially a win in West Virginia?

Jeffrey J. Dahl

Yes. Our focus really is Columbus at this point. We think that, we and the other 4 gaming properties now open in the state of Ohio, we understood the lay of the land a little differently than the way it's worked out and I think there's a lot of support to address that issue from both the legislature and the administration in Ohio and that's really -- again, your point is that there could be some additional benefit to us and we think that's probably true as well.

Jim Devlin

And then the second, just 2 other questions. Mark West Energy I guess, just announced another $1 billion commitment into the Utica Shale for tie-in lines for pipelines to get the nat gas out of the area. There's almost not a week that doesn't go by where billions of dollars of infrastructure dollars are being invested in the -- it's basically right in your guys' backyards. Are you starting to see your core customers, your consumers, are you starting to see any oil and gas traffic from the amount of monies innately being invested in what many are calling potentially the largest shale play growth-wise in the U.S.?

Jeffrey J. Dahl

Jim, you summed it up almost perfectly there. We've always talked about how excited we are about what's happening Eastern Ohio, Western Pennsylvania and the panhandle of West Virginia as it relates to the shale gas development and we see a lot of the same things you just discussed. The big commitments being made now, a lot of pipe being laid and the net result of that is going to be everything, I think and more than any of us could have imagined. I think we're actually though, a little bit in the lull here, Jim. We have the initial that came out and made all the lease down payments, initial payments and we saw I think, a good pick up in the economy as a result of that. We're sort of in that interim period now where the pipe's getting laid. There's not a lot of royalties being paid yet but that's just about to get turned on. And as you know, natural gas prices, although still at very historically fairly low levels, have firmed up. I think it's $3.60 or whatever. I saw just recently, $2, 6 months ago or 9 months ago. So we're starting to see I think, a real nice marriage of the developments being put in place. Hopefully with a little firm up in the gas price and the natural gas price and the net result will be everything that we anticipated. Particularly, I think, Jim, one of the things that we're most excited about is a lot of manufacturing appears to be on the very edge of really being rekindled. A lot of factories are being retooled, those are jobs that are generational jobs, we think, and that will bode well for us particularly at our Mountaineer facility.

Jim Devlin

From what I saw in a local telecast coming out of Ohio, I guess there's 7 cryogenic facilities that should be coming on board by the beginning of '14; they're refineries for the shale, if you will. They're like anywhere from like $0.75 billion to $1 billion facilities. I think the first ones supposed to come online here in the not too distant future but it looks like it's all coming your way.

Jeffrey J. Dahl

I think you're right.

Jim Devlin

So it's not here yet but the Utica is being well-financed and it's on its way, so that's good. And then my third question related to game content in the state of Ohio, vis-à-vis like video table games, video poker. As far as the game content is concerned in just the states, how many games are approved in the state? Do you think that the game content gets better breadth as far as -- it's still a new jurisdiction. Do you have all the right games that you think are viable to compete with or does the game content get better as time goes by?

Joseph L. Billhimer

I think the game content will get a little bit better as time goes on but the Ohio lottery has been very willing to accept virtually everything that's been put in front of them. There have been a few that have been kicked back and what's available in a video lottery facility versus a normal slot facility are virtually the same game type. So we're very happy and I think our guests have told us the games that we've selected for the Scioto facility have been very, very well received. In terms of the video table game or video poker, we have yet to see any approvals for that. We remain very diligent in pushing for those type games and we'll continue to do so.

Jeffrey J. Dahl

We think that's definitely a positive for the future. It's not -- it's very common for those games to be offered in VLT facilities and Ohio is learning. As you pointed out, it's really in its infancy. And so that's encouraging to us, that we are pacing where we are now and those things are yet to come and we're hopeful for all those things to happen.

Jim Devlin

Yes. I mean, here in New York, Aqueduct I guess, now is the biggest win since they're doing $1 billion a month in handle or something like that. You literally have to stand in line to play video craps or video roulette or video poker. They have like a high-stakes video poker salon and I think Empire Resorts up to the north of New York City, it's the same type of situation. Those games seem to play at a very high rate. You would think that the state would want to embrace higher rate win per day units. Is there any restrictions? Does it have to be legislated? Is it up to the state of Ohio to decide when you can get those types of games? How does that all play itself out?

Jeffrey J. Dahl

Basically, it's up to the lottery to approve game types in the state of Ohio.

Jim Devlin

Okay. And that has not been decided as of yet or...

Jeffrey J. Dahl

That's right. It's again, I think we have such a head start on the other VLT operators in the state that the lottery's got their hands full, they've been extremely supportive, we're very pleased with the relationship with the lottery, they're forward thinking folks. And I think to your point, at some point in the future, that they'll be tackling those additional game types and we're very encouraged by what that can mean to us, as you pointed out with your experience in New York. We think that...

Jim Devlin

Okay. So you have 2,200 units in Scioto now and you have a cap limit of 2,500. Are you kind of keeping those 300 games under wraps, under the hopes that video gaming comes to Ohio, video tables?

Joseph L. Billhimer

We didn't necessarily do it for that reason but we are very, as Jeff said, very optimistic that, that will change in the future. We did it more for the layout that we built and as we move forward with future development at that particular site, that we did want to leave ourselves some room to expand.

Operator

And we'll take our next question from Paul Strigler [ph] with Esplanade.

Unknown Analyst

Can we expect to see any impact or obstruction at Mountaineer during the upgrade when we think about modeling for 2013?

Joseph L. Billhimer

I wouldn't say you'll see any real impact. Most of the impacts in terms of the floor configuration occurred in the fourth quarter, so we're beyond that. As far as rooms coming out, we'll do that in a phased approach throughout the second half of the year and have as minimal an impact as we possibly can. It might be a slight bit but nothing in the terms of the disruption like we had in the fourth quarter in finishing out the floor and re-carpeting and things of that nature.

Operator

[Operator Instructions] We do have a follow-up from David Hargreaves with Sterne Agee.

David Hargreaves - Sterne Agee & Leach Inc., Research Division

Earlier on, Wheeling Island Downs had been engaging in some pretty staggeringly aggressive promotions and I'm just wondering if you could talk about what they're doing now?

Joseph L. Billhimer

I'm not sure that they were staggering. They've recently increased some of their promotional offerings in terms of direct mail and have done a little bit more aggressive retail-type promotions. But we've seen them increase just slightly. I think we've seen more increases from Meadows and Rivers in terms of getting aggressive in that particular area.

David Hargreaves - Sterne Agee & Leach Inc., Research Division

Trying to think of how you overlap with say, Rivers in terms of where you draw from. How much of your customer base would you say overlaps with them?

Joseph L. Billhimer

It's tough to stuff to say what would actually overlap. We do some intercept surveys so we have an idea that I probably wouldn't want to discuss on the call. But just by proximity, they're about 40 miles away. So there's definitely some overlap. Some of our early strategy for the Mountaineer facility from Chris and team there, they went back after Pennsylvania play that we had lost years earlier when Rivers opened to a great success and we've recently seen them increase their activity going back after they're inactive. So I don't know that I really answered your question in terms of how much overlap there is but there certainly is overlap with us and Rivers, Meadows and Wheeling for sure.

David Hargreaves - Sterne Agee & Leach Inc., Research Division

And could you talk about any sort of prospects for paying on the free cash flow suite feature on the bonds?

John W. Bittner

Well for 2012, with the construction at Scioto Downs, we certainly wouldn't expect to have any payout for 2012, which would be, if we happened to have a payout, would be here in March. But going forward, depending on the total CapEx and just how some of the other components such as the license fee are factored into the analysis, we may not have anything in 2013 either. But certainly beyond that, we would anticipate some payouts under the excess cash.

Jeffrey J. Dahl

Or at least an offer. As you probably know, David. It's an offer at 101, so not an obligated redemption at that point.

Operator

And that is all the time we have for questions today. Mr. Dahl, I'd like to turn the call back over to you for any closing remarks.

Jeffrey J. Dahl

Thank you, Tom, and thank you all for your continued interest in MTR Gaming. We appreciate you being with us today on the call.

Operator

And ladies and gentlemen, this does conclude today's conference. We appreciate your participation. You may disconnect at this time.

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