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Pinnacle Entertainment Inc. (NYSE:PNK)

Q1 2008 Earnings Call

May 7, 2008 11:00 am ET

Executives

Chris Plant - VP and Treasurer

Dan Lee - Chairman and CEO

Steve Capp - CFO

Wade Hundley - President

Analysts

Joe Greff - Bear Stearns

Celeste Brown - Morgan Stanley

Felicia Hendrix - Lehman Brothers

David Katz - Oppenheimer

Larry Haverty - Gamco

Dennis Forst - KeyBanc

Operator

Good morning. My name is May and I will be your conference operator today. At this time I would like to welcome everyone to the Pinnacle first quarter 2008 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions).

I will now turn the conference over to Mr. Chris Plant, Vice President and Treasurer. Mr. Plant, you may begin your conference.

Chris Plant

Thanks, May. Good morning, everyone, and welcome to our first quarter 2008 Earnings Call. Earlier this morning we released our first quarter 2008 financial results. If you do not have a copy of the announcement and would like one sent to you, please contact us at 702-784-7777, or investors at pnkmail.com. In a few moments you will hear from and have an opportunity to ask questions of our Chairman and CEO, Dan Lee; President Wade Hundley; and CFO, Steve Capp.

So, let me remind you that during the course of this conference call management may state beliefs and make projections or other forward-looking statements regarding future events and future financial performance of the company. We wish to caution you that such statements are just projections and expectations and that actual results or events may differ materially. I refer you to the Safe Harbor statement that's included in today's press release and to our annual report on Form 10-K, quarterly reports on Form 10-K and to our press releases and documents filed with the SEC.

With that said, I'll turn the call over to our President, Wade Hundley.

Wade Hundley

Thanks, Chris, and good morning, everyone. Pinnacle's consolidated revenues for the first quarter of 2008 were up 10.5% from a year ago to $257 million, reflecting our first full quarter of operations from our new Lumiere Place property in St. Louis as well as or 252-guestroom addition at L'Auberge du Lac in Lake Charles.

Adjusted EBITDA for the quarter was $35 million compared to $43.8 million a year ago and was impacted by the many startup costs, which are associated with opening a property with the size and scope of Lumiere Place.

As I will elaborate on as I get to the results of each specific property, we have been pleased with the initial performance and trends that we are seeing at both Lumiere Place and the new rooms at L'Auberge and the potential each of these projects now have to add to our company's cash flows in the future.

At Lumiere Place specifically, we opened our casino and several of our restaurants in mid-December and then have continued to add additional elements to the property since opening its construction has been completed. Specifically, we began opening the 294-suite HoteLumiere in stages beginning in January and the 200-room Four Seasons at Lumiere Place in early February.

Several of our restaurants also opened during the quarter, including SLeeK, our high-end steakhouse managed by famed chef Hubert Keller; House of Savoy, serving the Italian food at the HoteLumiere, and Cielo at the Four Seasons Hotel. As the construction crews moved their equipment and trailers off the site in mid February in early March, we also picked up about 500 spaces of some of our most convenient parking.

In addition to the completion of the cabanas on the Four Seasons pool deck, the two last major elements to be completed at the property are a large video reader board sign along Interstate 20 in front of the property, which will be complete by the end of this month, and our pedestrian tunnel under Interstate 70 connecting Lumiere with the Edward Jones Dome and the St. Louis Convention Center. The tunnel will also give us access to another 600 parking spaces on the other side of the highway that will come in handy on Friday and Saturday nights.

For the quarter, Lumiere Place and the President combined produced $47.2 million in total revenues and negative $760,000 in adjusted EBITDA. Consistent with other new openings of this scale, we incurred very high costs associated with customer service and marketing activities during our first full quarter. We conducted a significant marketing and awareness campaign, which was very expensive in such a large media market, but has already resulted in over 250,000 active players in Lumiere's database since opening.

During the coming months, we will begin to scale back on this expensive awareness campaign and focus on more cost-effective, targeted marketing to known gamers in our database. We are also becoming more efficient every day utilizing the property and its many amenities to service our customers.

There are also some intricacies to the $500 loss limit in Missouri, which create the need for excess staffing levels, when you first open to get a player's card in each customer's hands, so that they can actually access the casino. This process also creates long lines at the Player's Club in the first few months of opening, and the customers spend less time on the slot machines or at the tables playing, resulting in a lower win per guest than we might expect once we have been open for awhile.

Trends at Lumiere Place have been encouraging since opening, as we have been improving in terms of casino win week to week. Casino win in March was over $14 million, which was up nicely from February and January before that. April gaming win was less than March, due to one less weekend and one less day to the month in April versus March, but if you compare a Monday to a Monday and Tuesday to a Tuesday and so forth, the trends are still positive.

Hotel occupancies at both hotels have also trended up significantly since opening. Specifically, occupancies at the Four Seasons for February of 10%, March 19% and April 37%. So, you can see we are trending up nicely at that hotel, and that's consistent with what Four Seasons likes to do; they like to open slowly. Also, at HoteLumiere, we were actually 82% occupied in February, but that was on a much reduced room base. We didn't open all of our rooms, had about half of our rooms open at that time, 64% in March and 75% in April. We are doing about $211 average daily rate at Four Seasons and $85 at HoteLumiere. So, we are pretty encouraged by what we see going on at our hotels, and we think that will impact our operations going forward.

On the cost side we are becoming more efficient each month in the major areas of labor and marketing, and we have made some adjustments to our slot mix based on demand that are really starting to pay dividends for us.

At L'Auberge du Lac, EBITDA and revenues during the quarter grew to $17.7 million and $81.3 million, respectively, up from $16.7 million and $77.8 million in the first quarter last year. The property benefited from the fact that we completed our 250-room expansion early in the quarter, bringing the total room count to 995 rooms, and also opened some additional retail space and a new adult pool.

Margins during the quarter were negatively impacted by the opening of these new operations as well as lower than normal table hold in January and February. There were some startup type costs similar to Lumiere, with the opening of the new hotel tower.

A normal table hold percentage during these two months would have added about $2 million additional to the bottom line. The new rooms have been very well-received, in March and April were very, very good months at the property. Unlike most areas of the country, the economy in Texas and Louisiana seems to be doing quite well, due to the strength in the oil and the gas industries.

In New Orleans our Boomtown property continued strong performance with EBITDA growing to $15.3 million from $14.6 million during last year's first quarter on a slight increase in revenue. This property has shown consistently strong performance since Hurricane Katrina.

At Belterra we felt a slight impact from the difficult economic environment in the Midwest during the first quarter. Revenues were down slightly to $42 million from $44 million a year ago, and EBITDA was $7.3 million as compared to $9.6 million in the first quarter of 2007. There were some weather impacts that we had, as you sometimes get in the first quarter, that we didn't have last year. The properties actually closed at two little stretches, once on a Saturday, which cost us quite a bit of money during the quarter. So, that was definitely the factor, and then I'd say the economy, we saw some impacts from the economy at Belterra.

In Bossier City, revenues and EBITDA were also down slightly to $23.7 million and $4.7 million, respectively, in the first quarter though the Shreveport/Bossier market remains very competitive, as it has been for some time as a result of the growth and expansion of the Native American facilities in Oklahoma.

On a positive note, the first quarter was the best quarter we have had at Bossier in the last four quarters, so we are pretty happy about that.

Revenues at our international operations grew $1.1 million from the same period a year ago to $9.7 million, primarily due to inflation in Argentina. EBITDA was down slightly to $2.7 million as we were negatively impacted by new smoking ban affecting our Argentina operations.

Finally, in Reno, we have continued to look for ways to improve our operations in that market. We have not seen an impact from the opening of Cabela's next door, as we had hoped, and the closing of the truck stop last year had a negative impact on comparisons. Revenue and EBITDA in the quarter were $10.7 million and negative $2.3 million, respectively, for the quarter.

So overall, our Louisiana operations continued to perform very well. We are excited about the potential at Lumiere Place, we are battling a little economic weakness at Belterra and we are focusing on ways to get more from our Reno property.

With that, I'll turn it over to Steve.

Steve Capp

Thanks, Wade, good morning, all. Just a couple of notes working down the income statement that might be a bit clarifying is depreciation and [amort] obviously up by about $8 million for the quarter. Almost precisely $7 million of that was attributable to the new Lumiere Place complex, and about $1 million of that associated with the new facilities at L'Auberge du Lac.

Interest expense of $12.1 million on the book side, and total for the quarter was about $19 million. That includes some non-cash, but that's the total expense for the quarter, or I should say total charge; some of that booked on that capitalized, obviously.

And then obviously, we point out in the press release and did comment on this in our year-end documentation of the settlement agreement one of our insurers resulting in a payment of $36.8 million, which cash was received in March. You can see that's driving the income statement with a net-of-tax number of $21.2 million quite positively, but we are obviously very pleased about that settlement. Dan Lee will have some more comments on the whole insurance situation in a moment.

On from a CapEx perspective for the quarter, we spent a total of $123 million. About $17 million of that was finishing up and cleaning up L'Auberge, $57 million of that continuing with St. Louis, with Lumiere Place and HoteLumiere, and then about $26 million of that for various Atlantic City monies, mostly for a couple of land parcels purchases in the quarter.

And then finally, from balance sheet perspective, we have actually remained fairly static. But we did close the quarter with a little over $200 million in cash. We used less than half of that in day-to-day operations. We had $150 million drawn on a revolver with plus about $22 million of letters of credit, which are outstanding, so the net of those against a $350 million permissible borrow on that credit facility gives you net liquidity that is today very solid.

Remember that our revolver is $625 million in total size. We have access to $350 million of it pursuant to our most -- our tightest indenture. But the math there will take you to a very, very solid, almost $400 million of net liquidity in the company with which we are very comfortable and again we will build on that as we go.

That's all I have. Over to Dan.

Dan Lee

Okay, just a couple of things to add to that. I think Wade had covered a lot of stuff, but at L'Auberge as Wade said, we did $17.7 million versus $16.7 million. Had the win percentage been normal, we probably would have had about $19.7 million of EBDIT versus $16.7 million. To put it in perspective, the table game hold percentage in the quarter was 13.4%. Last year in the same quarter, it was 15.1%, and our long-term average since we opened was 15.4%. Even last year it was a little below average, but this year it's quite a bit below average and that happens. The shorter the period, the bigger the swings, and it's a function of the fact that we do, do some pretty high-end table game business there, and sometimes the guys win. And that's fine. You can think of it as marketing expense; they will be back.

Then, if you would look at the addition we added about three months ago, it was about $60 million for 250 rooms including quite a few very nice new suites, a new suite product that are, frankly, some of the nicest rooms that we have in the whole company. And more than double the retail space, added to the swimming pool area because it was getting pretty crowded on weekends, and so on.

So, that $60 million I think we should get a 15% return on, at least, so maybe that's an incremental $10 million a year. This property has done $75 million a year in each of the past two years. So, with the addition, I think we are looking for and you should look for $85 million of run rate. That would be up about 13%. Now, in the first quarter, of course, we didn't have all of that stuff open for the full quarter, and we had some extra costs associated with it. But even with the low win percentage, we were up 6. If you adjust for the win percentage, we were up 18. So I think we are pretty much on track that property would be at about $85 million a year going forward.

At Lumiere Place, as Wade said, almost every week the daily casino win creeps up as people come down and visit us and realize how nice the place is and get comfortable with it. So, our run rate right now at the whole complex is around $17 million or $18 million per month in casino win. About $13 million or $14 million of that, almost $15 million sometimes, is at Lumiere Place, and about $3 million is at the President.

The tunnel opens in about a week. That connects us directly to the convention center and to the central business district. The central business district has 100,000 people, who work there every day, so that's a pretty big asset for us. We are a five-minute walk from most of those office buildings when this tunnel is opened, and so I think that will certainly give us some lift. And then the huge reader board, I think it's one of the largest reader boards ever built and certainly the largest one in the Midwest, will be also done May 15th, that kind of looms over I-70.

And then as Wade said, occupancy of both hotels is climbing pretty steadily. If you take the current run rate of casino win in downtown St. Louis for us, it's about $200 million a year. Then, if you assume HoteLumiere, which has about just under 300 rooms, use 70% occupancy in an average rate of $100, which is actually less than it made as an Embassy Suites, where it was doing about $120 a night. But frankly, net of the franchise fee and net of the cost of providing all the free breakfast that they have, we are better off with an average rate of $100. I think we will eventually do better than that. But if you just use $100 as a round number, you get about $8 million a year in room revenue. The Four Seasons probably runs a little lower occupancy, as luxury hotels tend to, but that's about 200 rooms at, say, 60% occupancy, $200 average rate – we are already a little above that -- you get another $8 million. So, each hotel is probably about $8 million of room revenue.

And then typically, food and beverage valet, retail stores, spa, all that stuff adds up to a little more than room revenue at most properties, and the run rate in St. Louis is similar to that. So, $15 million or $20 million a year of miscellaneous revenue, so you get about $235 million to $240 million of annual revenue, is kind of the run rate we are at now.

So then, what margin do you put on that? Well, our margin for the year at L'Auberge, which is, in a lot of ways, comparable, it's got a hotel, it's got a spa and all that stuff. It was 23.4%. Belterra is also pretty comparable with 22.1%. I wouldn't compare it with Boomtown Bossier -- Boomtown New Orleans, for example, which doesn't have a hotel. You could also look within Missouri because there's a loss limit in Missouri that we don't have in Louisiana and Indiana. But AmeriStar's margins are in the high 20s, maybe even 30% in some places. The Argosy Kansas City, I think, is about 30%. Harrah's, we think, is about 25%; they don't break it out very well. But as near as we can tell, it's about 25%.

So, if you put a 20% margin on the current run rate of revenues, you get just under $50 million of EBDIT, and if you put a 25% margin you get above $50 million. So, we think that's the ballpark of where we hope to be in '09. You kind of run the math yourself, and that's how we get to it.

Now, in '08, much more difficult because the payroll is working its way down through attrition, as employees learn their jobs better, you find out you can run a restaurant with six waiters instead of eight. Frankly, the waiters would rather have fewer waiters because they make more money in tips and so on. So, gradually, the payroll works its way down, again, through attrition, principally. And then so that happens gradually.

And the other big thing that swings in the margins is the marketing cost. We are still doing very heavy marketing to get the brand-name recognition in the area, and we will do that until we are comfortable that our revenues have solidified and that we can scale back the marketing and then direct it more directly to known players in our database. So, the slope and timing of that decline is going to be pretty significant factor in this year's EBDIT, which is why we are not at a $50 million run rate today. In fact, it basically broke even in the first quarter; it lost a little bit of money. We probably make a little money in the second quarter, and we will make more in the third and more in the fourth. But I think would be at a run rate in line with what I outlined in the first quarter next year.

And by the way, if you look back the first seven months that L'Auberge was opened, it earned pretty much zero. So, it's just the right way to open these places and make sure it's a long-term solid business, which L'Auberge has certainly turned out to be and we believe that Lumiere Place will be as well.

Shifting gears a little bit, at River City we are acting as our own general contractor, putting in the foundations in order to expedite construction there. We are about a third of the way done with that. That should be done in September. We have put out to bid all of the remainder work. Five general contractors are working through it now. They have another couple of weeks to come back to us with bids, and part of that bid process is to give us a guaranteed maximum price and also estimate the time. So, we hope to be done and somewhere in the middle of '09, but obviously cost and time are kind of counterbalance each other, if you spend more money, sooner.

But one of the nice things we have found is that there was a lot of interest. Six months ago I am not sure we could have found two contractors. Now we have five. They are all pretty eager. I think the credit crunch that has happened nationally has resulted in contractors not having as much work on their books, and so we are getting a lot of attention. And hopefully, we can get some really good bids and get going on that. Well, we are already going on it, but accelerate it on to fruition.

Also in Missouri, last Friday, the Schools First initiative filed the signatures for the referendum. We had way more than enough signatures, and it should be on the ballot in November. This is the bill that would raise north of $100 million for schools in Missouri by increasing the gaming tax by 1 percentage point. It also eliminates the loss limits and put a caps on the number of licenses. The cap is really necessary to help the voters realize this is not an expansion of gaming. They don't want to see casinos in certain parts of the state. Current law would allow casinos to go into those parts of the state. Putting a cap on it assures people in those areas that they don't have to worry about a casino going there.

The cap does, however, include our three licenses there at Lumiere Place, the President and River City. So it's going to be very busy next six months as we work through that. But it's a bill that makes an awful lot of sense for the State of Missouri, and we are optimistic that it will pass.

Of course, the estimates I gave earlier for what Lumiere Place would earn does not include the loss limits. But I think the biggest thing about the loss limits is the disruption of people trying to go into the casino. Even at our other casinos, not that many people lose more than $500 on a visit. But if you watched not too long ago, the Rams were playing the Pittsburgh team, and that football game let out. I watched thousands and thousands of people from Pittsburgh come across the street to go into our casino, and we had to have security guards tell them to go stand in line for two hours to get one of these little cards. Of course, people from Pittsburgh didn't understand this because they don't understand what a loss limit thing is. We had tons of extra staff trying to spew these cards out as fast as possible. Frankly, it caused us to miss a lot of revenue, it caused the State of Missouri to miss a lot of revenue and inconvenienced a lot of people, who were visiting Missouri from out-of-state, who wanted to go play a slot machine, and we didn't let them get there. So, I think that's probably the biggest positive of getting rid of loss limits.

From the voters' perspective, the most important aspect is the money it raises for schools. I think, like most states, Missouri's schools are challenged in certain areas, and people would like to see more money for schools. Hence, the name of the bill is YES To Schools First, I believe.

In Baton Rouge, of course, we just finished one of these referendums, and won back in February by a pretty wide margin. We have until July to submit our plans in Baton Rouge, which we will, of course, and we are working through all the various entitlements there. We need zoning, we need court approval, we needed levy board approval, we need a master development plan of the city, all of that. And all of that is going smoothly, and we are eager to get under construction in Baton Rouge, although those entitlements will take some time. So it's still several months away, but we'll probably be underway some time in '09.

In Kentucky, I was actually fairly nervous that they were going to legalize slots at tracks. The sitting Governor actually ran for governor on a pro-gaming platform; a very important part of his whole platform. Of course, the racetracks in Kentucky are politically more powerful than they are anywhere else -- the home of Churchill Downs, Turfway Park, which Harrah's owns half of, and so on.

And it turns out it never got close, and it never got to either House of the Legislature. And I'm told that it cannot come up again until 2010. Had Kentucky done that, it would have been pretty bad for our property at Belterra, where our single biggest market is Cincinnati, the second biggest market is Louisville. And we are under an hour from Cincinnati, and a little over an hour from Louisville. Of course, Churchill Downs is in the center of Louisville and Turfway Park is right across the river from Cincinnati.

So, there are still slots going into the tracks in Indianapolis. That's 2.5 hours away. Obviously, it's not a plus for us, but I don't think it's too big a negative. We don't get nearly as many people from Indianapolis as we do from Cincinnati and Louisville. And then about a year from now I think Penn is going to open their new boat in Lawrenceburg, which is bigger than the one they have now, and that's a competitive feature that we have got to pay attention to.

We do have the best casino hotel in the region, and we are going to maintain that position and market it accordingly and I think we will hold our own. But clearly, it's a competitive market. The fact that Kentucky did not legalize slots of tracks was a pretty big plus for us.

In Atlantic City, we are still working on the plans. There is numerous government approvals ahead of us -- city, [care for a] state and so on. We hope to file the plans for the Coastal Areas Facility Review Act in June or July, and I am estimating it's going to take a year and half to two years to get all the entitlements in Atlantic City. It could even be longer than that. It just takes a long time, and in Atlantic City there is a lot of different agencies.

In the meantime, we have done the conceptual design. The spending burn rate at this point is relatively small. I think we have about 18 employees in Atlantic City. About half of them are security guards and we have got real estate taxes, of course. But otherwise, we have a nice site there and we are going to work towards getting the entitlements. You don't want to spend the money designing the water lines and electric circuitry in the hotel unless you are sure you have the entitlements to build it. So, we are at a point, where we have done the conceptual design. We are almost done with that, that we can submit to get the entitlements.

And when we get the entitlements, then we will do the rest of it. In a project of this scope, the full design plans will cost in the neighborhood of $100 million. Well, most of that you don't want to spend until you know you can actually build it, and then it makes sense to build it. So, while we are getting all the entitlements, we want to watch Harrah's. It just expanded to about 3000-rooms and the Borgata, which is about to expand about 3000 rooms. That will be the first time there have been 3000-room hotels in Atlantic City, and we are thinking of something of similar scale. We are watching Pennsylvania, which has two of the ugliest slot parlors you have ever seen. Bill Harrah is spinning in his grave if they put the Harrah's name on Harrah's Chester. Sorry; I couldn't resist.

But there's two more yet to come. We want to see what the impact is there. The City Council has now put a smoking ban in Atlantic City, which -- you know, I hate smoking, too, but I think you have to have an even playing field. At the moment, it's not an even playing field because you can smoke at the racetracks in Philadelphia, and you cannot now in Atlantic City. I think it's important to watch and see what the impact is of that.

So, we are going to be a lot smarter about this market in two years, when we have all the entitlements lined up. Hopefully, the stars are aligned, the planets are aligned and we can move ahead. I think size wise, if you look at get the size of Pinnacle and the size of what you would want to build in Atlantic City, it's pretty obvious that we need to finish River City, Sugarcane Bay and Baton Rouge first, and that's certainly our game plan. And I think the time it takes to get the entitlements, that's going to work at about right anyway. So, that's where we are going.

Shifting gears a little bit, we have an agreement this week that we are trying to document and get on paper with Allianz, which was one of the two insurance companies that we left from the hurricanes that destroyed our property in Biloxi. To give you the background, we had $400 million dollars of insurance at the time. Insurance is structured in layers, if you will. There was a pretty wide assortment of companies that had the first $100 million layer, and they paid us over a year ago.

Allianz, the large German Insurance Company had the next layer, which was from $100 million to $150 million. They had not paid us; they paid us $5 million about a year ago. They were alleging that the damage was caused by a flood, and there was a flood exclusion, where our insurance was limited to $100 million from flood damage. But our insurance had a pretty clear definition of catastrophic weather event, and the federal judge here in Nevada issued a summary judgment about a month ago, I guess a month and half ago, saying that Hurricane Katrina was a hurricane, not a flood, in effect, and that we were covered.

Allianz sat down with us earlier this week, and we argued that they should have paid us a year ago, when their own experts estimated the total cost to rebuild the building was something like $178 million, so that their layer was clearly wiped out. And after some discussion, they have agreed to pay us $53 million within the next 30 days. So they are paying us $3 million more than their policy limits, which is roughly speaking, an interest charge, if you will, for not having paid us sooner. They argued that they wanted to see the summary judgment and so on.

So, we are trying to get that done. Just to be clear, it's $48 million additional. They had given us $5 million last year, so it's a total of $53 million for the $50 million layer, but it's an incremental $48 million now. And I will have to say, once we had the summary judgment, the Allianz guys were very forthright in getting this resolved.

That leaves only one insurance company out there. In the layers, the next layer went from $150 million to $250 million and that layer was jointly held by two companies. One was Arch, and the other was RSUI. We reached a settlement with Arch in the first quarter, where they paid us $36.5 million for their $50 million exposure. Now, RSUI has $50 million of that layer, and then they by themselves have the entire back $150 million layer.

So, based on our estimate of the replacement cost, our current estimate of the replacement cost and business interruption insurance, we think the cost to have rebuild this place plus the business interruption insurance is in the ballpark of $300 million. In fact, I think $297 million. So, based on our estimate, RSUI owes us approximately $97 million. They paid us, $2 million. Or wait -- I don't even the think we have got the $2 million yet, but we expect -- oh, we got the $2 million dollars the other day? Okay.

So they paid us $2 million. We think they owe us $97 million and the $97 million does not include interest and penalties for dealing in bad faith. It has been 2.5 years since the hurricane, so we think they are the nice on whether they have acted in good faith or not. So, I think this is going to be the most problematic piece to resolve. We do expect it to go to trial inside of a year here in Federal Court in Nevada. We think we are going to get a significant recovery from RSUI, eventually. But I will say it's probably not imminent. If you add it all up at this point, we are at 100 -- were all looking at each other -- $175 million, roughly, that we have received.

Wade Hundley

Yes, plus the land, of course.

Dan Lee

And then, we sold the land to Harrah's for $50 million. So, our Biloxi property that was making $15 million year, we have recovered $2.25 million and still have a significant claim against RSUI. So, I don't wish for another hurricane, but we came out of this one okay. We have that one remaining piece, and again, I don't think it's imminent.

On the capital front, I do see some cranks in the credit crunch. Some high-yield bond deals are getting done, whereas back in January and February none were getting done. Some term loans are getting done, still expensive. It also appears to me, and I am not a banker, but it appears to me that the Harrah's paper is gradually seeping out from the banks that have been more or less stuffed with it back when they closed their deal. And I think that's important to improving liquidity in the business. Of course, the question that I keep hearing is -- what's going to happen with Penn? I have no idea what's going to happen with Penn, but that's out there.

So, we are watching this. At some point, we would like to refinance our two old bond issues, and at some point we are going to have to arrange some financing for Baton Rouge and maybe even the tail part of Sugarcane Bay, and then certainly Atlantic City. But Atlantic City is quite a ways down the road, whereas Sugarcane Bay and Baton Rouge are not that far down the road. As Steve said, we have got about $200 million of cash, we have got about $200 million of availability under our credit line, no gun to our heads. We are comfortably within all our covenants.

Steve Capp

Insurance incoming.

Dan Lee

Insurance incoming, which would make it $250 million of cash and then the major CapEx even at River City is really going to fall into next year. We are spending money now on foundations, but that's not a big number; I think its $10 million or $12 million through September, maybe $20 million through September. But the heavy the CapEx is, when you get into the later stages of construction, which, in the case of River City, will be '09, and then Sugarcane Bay is probably six months behind that and Baton Rouge is probably six months behind that.

So, the major CapEx is quite a ways out. We are watching the capital markets. We are not rushing to it imminently, but if we see an opportunity we will go refinance at least one and maybe both of those bond issues.

So, on that, I would be happy to take any questions.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from Joe Greff with Bear Stearns.

Dan Lee

Hi, Joe.

Joe Greff - Bear Stearns

Dan, can you give us an update on Sugarcane Bay? I know you talked it about a couple of different times during your prepared comments. I guess maybe just give us an update there, the priority of that versus Baton Rouge. Then, I have a couple of follow-ups.

Dan Lee

Well, it's not an either/or. Sugarcane Bay is largely designed. We are waiting. The Coast Guard has taken a position, they're no longer going to certify boats, and they'd rather spend their resources certifying boats that really go somewhere. They don't want to certify casino boats. And the Louisiana law has said that the Coast Guard had to certify the boats. So, the law is being changed to allow them to use a private company; I think it's called the American Bureau of Shipping, to certify the boats. That's in progress. If it hasn't happen already, it's close to happening.

So, we have told Louisiana we need to know what qualifies as a boat before we can finish the plans and get underway. So, we are working with the gaming commission to resolve that, hope to resolve it the next couple of months. Then frankly, the plans are mostly done. We just have to figure out, does the -- do the walls and the ceiling of the casino have to float, or can those be on land and only float boats, which is basically the walls and ceiling at L'Auberge float, but in St. Louis the walls and the ceiling don't float, only the floor floats, which is less expensive and more customer friendly. So we're trying to resolve that issue. We've lined up a contractor. They're going through the plans to try to confirm the cost that the cost estimates we have, so they can build this on budget.

We intend to use Manhattan Construction in Lake Charles that we used for L'Auberge and had a very good experience with them. But this time around we want to make sure we have a guaranteed maximum price. So we're working with the same contractor but in a slightly different form, whereas in River City we are allowed to bid to five contractors.

So, in effect, Sugarcane Bay is largely an expansion of L'Auberge. It's right next door, it will be connected, it will be managed by the same management team and so on. So we just finished the $60 million expansion. We're kind of catching our breath, making sure the plans conform with Louisiana law and hopefully get underway on it later this year.

Wade Hundley

We spent $7 million in the quarter at Sugarcane Bay and $21 million in total, so not a whole lot. And yet, we're basically ready to go, pending just the state issues that Dan referred to.

Dan Lee

The land is leased from the port, so the $21 million is really the design cost.

Joe Greff - Bear Stearns

So are you looking at 2010 as when that possibly opens?

Wade Hundley

Hopefully, earlier than that.

Dan Lee

If we can get underway, it should take about 18 months to build. So it's really an issue of, when do you get underway, and that's as much a function of the gaming commission at this point as us.

Joe Greff - Bear Stearns

Just to clarify one of your earlier comments on Lumiere Place. Did I hear you correctly in that you thought the second quarter would be EBITDA positive for Lumiere Place? Were you just talking about the casino or the complex?

Dan Lee

Actually, we were positive EBITDA at the casino in the first quarter. But when you open a luxury hotel, like the Four Seasons, which is heavily staffed, and then run it at 10% occupancy, it doesn't make money. So we ended up losing, between the two hotels, what we made in the casino. So we ended up with a small negative and I think we'll have a positive number on an overall basis in the second quarter.

It might be enough to buy lunch for us, Joe, so I wouldn't hold my breath for a big number, but then third and fourth quarters, as the marketing cost starts to rationalize, it should ramp up. I think by the time we get to the first quarter next year, hopefully we're at a run rate that's somewhere in that $50 million area.

Joe Greff - Bear Stearns

And then corporate expense, Steve, what should we be using you or thinking about going forward?

Steve Capp

We're looking to hold it flat year over year, Joe, this year. We came in at right about 40 last year. That's the target, or hopefully something a little less.

Dan Lee

We were at 44 last year; we're trying to get to 40. I'd like to get it to about $10 million, under $10 million a quarter. We were at $9.8 million this quarter. So we haven't -- if you've watched the interplay between MGM and Steve Wynn, where MGM announced huge layoffs the day after they disclosed how much their Chairman made, which was a lot more than I make.

Then the next day, Steve Wynn said he's never laid off anybody in his life. But through attrition, they have reduced their payroll by 300 people, and I thought that was kind of amusing because, proportionally, MGM is a much bigger employer than they are. Steve Wynn has actually reduced his payroll more than MGM has, but he did it through attrition. He didn't put out a press release. It's typical Steve; it's very smart of him.

And we have the same thing. We have a hiring freeze we've put in place several months ago. To be hired at corporate takes my personal approval, even if it's to replace an employee, and my personal approval is not easy to get these days. So, we're trying to tighten up, but we're trying to do it through attrition. Because, as Steve said, when you have a layoff, what it does to the overall morale and work ethic is probably more costly than what it saves you in payroll dollars. I think he's absolutely right on that. But that doesn't mean we're not tightening our belts and watching our expenses. Certainly, we are.

Joe Greff - Bear Stearns

Great, thanks guys.

Operator

Your next question comes from the line of Celeste Brown with Morgan Stanley.

Celeste Brown - Morgan Stanley

Guys, good morning. Can you talk about how you plan to deal with the new competition coming on versus Belterra, the tracks in Indiana, the new parking garage at the Argosy property? You know, Atlantic City operators said they weren't so worried about Pennsylvania racetracks, but we've learned to be a bit cautious from there. Can you discuss that, please?

Dan Lee

Well, we were going to add 300 rooms there, and we canceled them because we were a little afraid of this. So we are being cautious. It wouldn't surprise me if our '09 EBDIT is below '08. Now, strategically, we're still much better, and I think we are much better than the new Argosy boat will be, mostly because I think I've seen everything that Penn has ever built, and none of it was very tasteful.

So we've got wonderful suites. We've redone the suites. We're going to spruce up the casino. Of course, the new road makes us pretty convenient. We are willing to grant appropriate amounts of credit. We are willing to allow high betting limits. We've got a staff that's very good at taking care of the customers. We've got a great steakhouse. We've got -- one of the things that we are looking at is, for example, we operate a seaplane out of Lake Charles, and that seaplane is kind of a flying limo, if you will. It can land at any airport, and it lands on the water at Lake Charles.

It's something we experimented with. It was kind of -- in Atlantic City, the casinos used to and, I think, still occasionally do use helicopters to come down from Manhattan. A helicopter is very, very expensive, although it's fun; it's half an hour in the helicopter and you land on the boardwalk. Trump used to land them on the steel pier. I don't know if he still does, but he used to. But helicopters are very expensive to buy, very expensive to operate.

Well, at Lake Charles, because we're right on the water, the water is smooth in front of us and wide enough, we actually hired a couple of pilots out of Alaska who took people fishing, and we bought a seaplane that was Tim Horton's seaplane from Tim Horton's doughnuts, that he had landed once with his wheels down and stood it up on its nose and destroyed the engine. So we bought his airplane, put a new engine in it, outfitted it like a limo and, for a little more than $1 million, have a flying limo. Well, that picks people up anywhere in Texas, lands on the water and pulls up to a dock that's connected to our suites.

So, looking at Belterra, obviously the seaplane wouldn't make sense for anybody from Cincinnati; it's going to be just as quick to drive. But if you look at cities that are equal distance as Houston is to Lake Charles, for example, you pick up Columbus, Dayton, Nashville, Indianapolis. And you get to the outskirts of Pittsburgh, Cleveland, Chicago and even St. Louis.

And Belterra is not convenient to any airport. The closest airport is 40 minutes away. So we may try the little seaplane trick there. We keep that seaplane awfully busy down in Lake Charles, and I think at Belterra you probably can't go 12 months a year; you can probably only go 9 or 10 months a year. You don't really want to land on the Ohio River when there's ice on it. But we're right above a lock; the water is pretty stable in front of us. Frankly, for these guys from Alaska, it's pretty easy flying.

But by reaching out to that large population base that is a little further away, but would be willing to come for a Tom Fazio go of course and Jeff Ruby's restaurant and all that stuff, I think that's a pretty good market for us. I think Argosy is really tailored for the masses, and I think we're set up, that we can do well as more of the high roller place in the region.

Celeste Brown - Morgan Stanley

Thank you.

Operator

Your next question comes from the line of Felicia Hendrix, Lehman Brothers.

Felicia Hendrix - Lehman Brothers

Wade, do you get an extra bonus, depending on how fast you talk?

Dan Lee

(Inaudible).

Felicia Hendrix - Lehman Brothers

My fingers were bleeding. So, on River City, I was just wondering, as you're still bidding out the GMP contracts, is there any potential continued or for any kind of further cost increases?

Dan Lee

I think we're really in good shape on the costs because, we frankly scaled the property to try to make sure it's in there. I think there's greater uncertainty on the timing. We'd like to be open in May, but it wouldn't surprise me if the contractors came back and said they can't make May. But we're trying to find that out. Our head of construction is saying, don't do that, because you are going to -- none of the contractors will come back and say they can do it in May now.

But we feel pretty good about the cost, especially since I think some of the construction cost inflation might be going the other way. These guys are really sharpening their pencils to try to get the work.

Felicia Hendrix - Lehman Brothers

Is there any chance at all this is the 2010?

Dan Lee

River City?

Felicia Hendrix - Lehman Brothers

Yes.

Dan Lee

No; we would have to build it awfully slowly to not be open in 2009. I think it's a question of which month, and our agreement with the county calls for us to try to be open in May. That's probably the tougher thing. We were kind of studying it yesterday whether, gee, does it end up being June? But I think we're in that ballpark. I don't think -- it's clearly not 2010; it's somewhere mid-'09.

Felicia Hendrix - Lehman Brothers

Okay, good. And just moving on to Lumiere, and it might be very early, but can you tell how many customers you're getting now from the River City area?

Dan Lee

Yes. I think last time I saw we've got it carved up into regions, but roughly 25% of the people going into Lumiere Place live south of the city.

Wade Hundley

I've got 28.

Steve Capp

A little above 25.

Dan Lee

Yes, 28%. They're kind of overlapping circles and shades of gray, if you will. But there's a large population base in Jefferson County, which is to the south of Lemay that we're not getting that many people yet. Well, it's a pretty good drive from there to downtown St. Louis. But obviously, the people who live between Lemay and downtown that's who we're seeing downtown.

Felicia Hendrix - Lehman Brothers

Okay. That's great. And this might be an impossible question to answer, but I'm sure you guys have done your statistics on this. If the loss limits were repealed, you have been consistently talking about a $50 million EBITDA run rate at Lumiere. What do you think it could be?

Dan Lee

Well, I'll let you run your own numbers. But if you look at the Illinois riverboats, the win per patron is consistently higher than the win per patron of the boats at Missouri. Now, you've got to be a little careful because, if you take the high rollers out of, say, the Casino Queen and put them into Lumiere Place, we'd have a bigger base. So I don't think it moves the average as far, okay, if you will. But I think in rough numbers, the win per patron, in Missouri, they have two numbers. They have admissions, and they have patrons. They charge you every two hours for the people who are in the place, and that's admissions. But if you look at the number of people coming, the win per person at AmeriStar and Harrah's are somewhere around $60, and that the (Inaudible) and that the Casino Queen, it's around $80.

The daily patron counts of AmeriStar and Harrah's are around 10,000 patrons. We are less than that; we are at 9000 patrons. Our win per patron is still around $40, coming up on $50. It's been climbing fairly steadily since we opened, but it's just under $50 today. So you can run that math; it's pretty significant.

Now, the increase in taxes, the one percentage point increase, which applies to all revenue, all gaming revenue. In other words, we get a 1% increase in gaming tax even against somebody who comes in and bets $10 and never gets near the loss limit, but at least a good chunk of that will be offset by not having to have these huge counters staffed with people trying to deal with all these cards and everything.

Felicia Hendrix - Lehman Brothers

And then, I know that the credit crunch has loosened up a little bit, but would you consider looking towards JV partners? I'm not talking about Atlantic City right now, but at some of your other future projects?

Dan Lee

Yes, I mean the smaller projects; it's not really an issue. I don't want or certainly don't want or need a partner at River City or Sugarcane Bay or even Baton Rouge. It would be pretty complicated to have a partner in St. Louis or Lake Charles because we own the competing place that we own 100% of. So in Atlantic City, I'm sure we'd consider it at the appropriate time, but the appropriate time is probably two years away.

And if you think of this, Felicia, if I went and found a partner, who do you find as a partner? If I partnered with Steve Wynn and then found out that Sheldon Adelson wanted to buy Pinnacle to have a network to feed into the Venetian because he doesn't have one today and he needs one because he has to compete with City Center; well, he's not going to want to buy Pinnacle if we have a partnership in Atlantic City with Steve Wynn.

So at the point, if you had to do it with the partner, and hopefully, we'll see what the credit markets are at the time and whether there is an appropriate partner or frankly, we'll see if it even makes sense to go ahead in Atlantic City. But at the appropriate time, we'd look at that. And, you don't really want to do it any sooner than you absolutely have to.

Felicia Hendrix - Lehman Brothers

All right. And then just finally, you didn't mention anything about Kansas.

Dan Lee

Kansas is something we're studying pretty carefully. We've actually got a meeting with the lottery board, I think, next week. They sent us a contract that they want our comments on. It's not a contract we feel real good about. Probably one of the biggest hurdles we're trying to deal with is they want every applicant to post $25 million, not a letter of credit but an actual $25 million of cash, and they would get the interest on the cash. There's, I think, eight applicants for the license in Wyandotte County. So they are going to sit on $200 million of other people's cash, they're going to earn the interest on the cash. Then, if they pick you and you don't go ahead, they keep the $25 million.

In this environment, you'd like to know that if you went to project finance it, I don't know whether you can get the money or not. And in the credit markets, there are some cracks in it, but they are far from wide-open yet. And so do you put $25 million at risk, and then, if you can't arrange the financing, you are out the $25 million? So that's something we're looking at. Or do you go arrange the financing today? Well, if you arrange the financing today, then each of the eight applicants is putting up big commitment fees to arrange the financing, and seven of the eight are never going to need it. So to us, it's a little bit backwards to say you've got to put $25 million at risk; and, if the financial markets aren't willing to allow you to build this, then you lose the $25 million. So that's something we look forward to discussing with the lottery board next week.

Felicia Hendrix - Lehman Brothers

Okay. Well, thanks a lot.

Operator

Your next question comes from the line of David Katz with Oppenheimer.

David Katz - Oppenheimer

River City for a couple of minutes, and I think one of the issues out there is, as we move closer, how do we get comfortable? That expectations for both the budget and the return that have been discussed today, how do we get comfortable that those are fairly firm?

Dan Lee

David, this very first part of your comment was cut off. I don't whether the phone is 100%. Was this River City you were asking about?

David Katz - Oppenheimer

Yes, St. Louis County.

Dan Lee

Well, first is within three weeks, four weeks? May 15th, we're supposed to get the bids from the contractors, and typically those things come in and there will be a little bit of apples and oranges, and it takes awhile to parse through those and define it and make sure you are comparing with everybody equally. Then you pick somebody. So we're pretty comfortable with our budget, but we'll be a lot more comfortable when we have a guaranteed maximum price from a reputable, bonded contractor. So hopefully, by our next earnings call, we will be there. So that's on the budget side.

Now, we didn't have a guaranteed maximum price at Lumiere Place, and we went over budget. I'm not happy about it. Maybe we had gotten a little too comfortable because, at L'Auberge, we were right on budget and we also didn't have a guaranteed maximum price contract, but we were dealing with a contractor we've had a lot of experience with, and it wasn't an environment with the construction in place that we've had the last three years, and it wasn't the urban environment of St. Louis.

Frankly, there's a saying in Missouri which is pretty appropriate, that St. Louis is the westernmost eastern city, and Kansas City is the easternmost western city. And in the construction business it's very true; building in St. Louis is probably a lot like building in Atlantic City or New York. It's just kind of a tougher construction environment or industry or so on. Houston is kind of a western city, and Lake Charles is like Houston. But we've kind of learned our lesson from that. We have complete drawings to River City, so we're not building it as we are designing it, as we did downtown. And I don't think we'll ever build a place without a guaranteed maximum price contract again.

So on the projections, projections are projections. Everybody has them, and they're never 100% right. But probably the thing that gives me the greatest comfort is I look at Harrah's and AmeriStar and St. Charles. They're essentially across the river from each other, and sharing the same population base, if you will. The population base that they share is significantly smaller than the population base that would be shared by our two places plus the Casino Queen.

If you parse it up, if we get two-thirds of the gambling expenditures by the population that lives closer to that triumvirate and compared that with Harrah's and AmeriStar do, at least in theory, when we are mature, ten years from now, we would be earning more than they do. Those two places combined have EBDIT of almost $200 million a year.

And we are looking for $130 million, $140 million or something like that between the two places. I think there's probably upside to those ten years from now. When we've had ten years of experience under our belt, as each of those do, I think the number could be significantly larger but if you're just looking at the population base that's feeding it.

The other thing you can look at is, Las Vegas just passed the 2 million person population mark. St. Louis is 3 million. Think of all localist casinos there are in Las Vegas, all the Stations properties, a lot of the Boyd properties and so on, the Coast resorts, which is part of Boyd now and so on, and they make a pretty good living. And St. Louis is kind of, right now, a de facto cap. And if the referendum passes, an actual cap, which leaves it with five casinos on the Missouri side and two on the Illinois side. And, Illinois also has a cap on the number of licenses. So you're looking at a total of seven. There's no Indian tribe, there's no other state nearby. So, you have a total of seven casinos for a city of 3 million people.

David Katz - Oppenheimer

All right. And if I can just follow up the question about JVs for a moment, and just looking out into Atlantic City, when is the date? And maybe this is a better Steve question. But, when is the date by which you would need to start, let's say, raising money or sort of have the proposed capital structure set? How far out is that from here?

Dan Lee

Well, it's quite a ways. Recognize, there are at least three public streets or alleys running through our property, and it's pretty critical for us to get those closed. Back in 1980, when everybody was in a mad rush to build, they made some compromises that we can't afford to do, today. We have some competition in Pennsylvania and Connecticut and Delaware and in the Marina District that, frankly, they didn't have in 1980 and so they were rushing to get open.

Well, they didn't try to close streets. So, you have the Bally's Casino that's elevated and goes over a street. The Tropicana Casino is elevated, goes over a street. Then you also have things where, like Resorts International doesn't have frontage on Pacific Avenue. Even the Taj Mahal doesn't have much frontage on Pacific Avenue and so on. This is a much more competitive environment. And we need to have the ability to build something that's comparable to the Borgata or Harrah's Marina, which are sprawling properties with the casino on the lower level, one-level casino, easily accessed, surrounded by rooms and so on. And that's what we're designing.

Well, in order to build that, we had to get several city streets closed. We have to fill out some of the sites. We've got to find places to build a huge amount of parking, and all this stuff. We have to make sure the traffic plans will allow a huge number of cars to get to us, because we are five blocks from the foot of the Atlantic City Expressway and we need to be able to get people through the streets, which means the streets have to be widened and turning lines have to be put it. And it's all very, very complicated in terms of entitlements, and that takes time. It actually doesn't take an awful lot of money. It takes some lawyers and lobbyists and a lot of discussion with elected officials at both the state and the city of what we need to do and what we would build and how exciting it would be.

We also have a large retail component in the project, not unlike what the Venetian has here in Las Vegas. It takes two years to go find tenants for stores like that and restaurants like that. And so, that's a long process which we have not yet launched. So we're at least a year and probably two years away from trying to arrange the financing, and that's the point where you look at doing it.

Look, there's really, at the end of the day, only four real possibilities with that land in Atlantic City, if you will. The one we're most hopeful on and the one we intend to do is to design and build these ourselves. Now, in order to do that, if you just run the math, when we build these other places first, River City, Sugarcane Bay and Baton Rouge, the EBDIT of the company will be significantly more than in this today, probably almost double.

And then if you say, well, if you could borrow against that EBDIT in normal times, you could typically borrow about six times against EBDIT. Last year, you could borrow ten times, which is why some of these leveraged buyouts happened, and three months ago, you probably couldn't even get five times. But in normal times, you get six. In my 25 years of being around casino financing, 90% of those years, you could do six. So, if we could borrow six times what our EBDIT is with those new projects that frees up about $1 billion that we can borrow against our existing stuff to go into Atlantic City.

Now, the land we own in Atlantic City has no debt on it. So we bought that land, and not long after that we went and issued equity and the equity offering was about the size of, actually a little larger than what we paid for the land. So our debt was then and is now right-sized versus our existing operations. So, in terms of going forward on Atlantic City, you take the land and the $1 billion I alluded to earlier, and then obviously you can borrow something against the place you're building.

We don't yet know what it costs to build what we have designed. We've got it designed enough that I think within about two weeks it goes off to the cost estimators, and hopefully sometime this summer we'll have a concrete idea of what it costs. And it's not unusual to have to go through yet another iteration because they come back and the number is higher than what we really want to invest, and then you go back through and say, well, maybe the guest rooms don't have to be 500 square feet; maybe they can be 460 square feet. And what does that save us? And so on. But we're kind of going through that process now.

So I think that it is entirely feasible for us to build this on our own, especially since, in the time it takes to get the entitlements, we're going to build these other places, and that is option one and where we hope to go.

Option two, obviously, is we could sell the land. But recognize that when we bought this land, we did a 1039 swap with our Biloxi assets, which was very important because from the IRS's point of view, these insurance proceeds are basically the sale of the property. And our Biloxi property was an older property and had a very low tax basis. In fact, most of the land we had there was leased, so it had no tax basis. What we did was swapped the low tax basis of Biloxi into Atlantic City so that, as we collect these insurance proceeds, that we pay very little income tax on this. We'll have big gains for book purposes, but for tax purposes they are small gains. Actually, I think the only thing we pay tax on is going to be the business interruption insurance piece, which is probably 20% of the total.

So of all these proceeds we're getting from the insurance company, the tax bill is quite small. In effect, it got deferred into the land in Atlantic City. And since land doesn't appreciate, it was the right place to put it. But if we sell the land, we're going to have a pretty good sized tax bill.

And I have had a lot of people call and say, why don't you sell the land in Atlantic City and buy your stock in? And the answer is, it's not that easy. This is a terrible environment to try to sell a development site, A. B, we would have a big tax bill if we did. And C, our debt covenants don't let us buy in stock, even if we had the money. But clearly, selling the land is always a possibility, although I think that's a low probability possibility.

Third is, you build it in a joint venture, which is what started your question and that's something you consider at the time, is that what is economically best for our shareholders? If you had somebody who wanted so badly to get into Atlantic City that they were willing to pay up for a 50% interest in this, and that that was the best deal for our shareholders, obviously we'd do it.

And then, the last possibility is, it's not hard to imagine having that conversation and having it leads to the sale of Pinnacle itself. Is there somebody out there who wants a network of casinos and also wants a big development deal in Atlantic City? And those last two items are not unrelated. If you start having a discussion with somebody about doing Atlantic City in a joint venture, it's not uncommon for that discussion to roll into, why don't we just buy you guys? But that's a discussion that I think is somewhere down the road, when we have the entitlements and so on.

And again, I think the number one item is still the 50% or better probability item, but if you start thinking about it, there's really only four possible outcomes and I think those are the four.

David Katz - Oppenheimer

Got it. Perfect. Thank you very much.

Dan Lee

Okay. Next question.

Operator

Your next question comes from the line of Larry Haverty with Gamco.

Larry Haverty - Gamco

Hi, Dan, two questions. One, you guys were the lucky losers in Aztar/Tropicana. That's now being dismembered. My guess is that you have your plate full. But what do you think is going to happen there? Do you have any interest in maybe taking control of Trop versus the land proposition in Atlantic City; and I guess the whole situation, which is, I guess, in the process of revolving with regard to Trop Entertainment, or whatever they're called?

Dan Lee

There are number of questions inherent in there, Larry. But I think, we had the right to match their bid. And while we bid up quite a ways, ultimately we didn't match their bid because we thought it was just too high a price. I guess, with time that has proven to be accurate.

Although I'd like to think that, had we bought it, we would have managed things better and hopefully have stayed in the good graces of the Atlantic City Gaming Commission because we have a lot of respect for all of our regulators. When they ask us to jump, we ask them how high. And I'd suggest that Columbia Sussex had a different attitude and found out that that's not a healthy thing. So I'd like to think we would have had a better outcome, had we prevailed. I don't take any delight in their problems, frankly. We've had a number of dealings with them, and I don't find them very pleasant people. But the hardship this puts on their employees is unbelievable, and that's sad. So we don't take any delight in it at all.

Now, in terms of the assets, quite honestly, we've made our bet in Atlantic City. I think we have a big enough bet there as it is; we don't need to up it again. In Las Vegas, someday there will be an opportunity for us here. It's probably after Atlantic City. I am 51 years old. So, judging by Kirk Kerkorian, I guess I have 39 more years to go. So we'll get here someday. After Atlantic City, we'll be a pretty significant company, and I daresay there will be an opportunity to pick up something here at the right price at some time. I don't think it's imminent, and I am quite sure it's not today, and I don't think it's imminent.

Now, the other observation I'll make is, they filed bankruptcy. That doesn't mean anything is immediately for sale. Bill Young still has 51% of the equity and the bondholders have 49%. Well, in this case, he may end up giving Atlantic City to the bondholders, and they own the equity, and that's how they try to keep the license. And then, he has some different ownership of everything else. And I hear this quite a bit from different bankers. One the other day said why doesn't Boyd cancel Echelon and just go buy stuff? So we obviously haven't been here lately, because Echelon is up to about the third floor and it's not easy to cancel it.

But second, I don't really see anything for sale that makes any sense. I see some guys, who are in trouble, but none of them are bargains, I mean the Cosmopolitan, you could probably pick up the equity pretty cheaply. But I'm not sure the project is worth the debt on it and the debt hasn't been cut yet. And that's not to say we want the Cosmopolitan, because we don't. But I'm just using it as an example. And so it reminds me of a few years ago, when we started building in St. Louis, Harrah's was buying Horseshoe and a few others, and Penn was buying Argosy and MGM was buying Mandalay Bay, and all this stuff. And everybody said, why are you building in St. Louis? They're all going to be selling assets. Why don't you buy them?

Well, think of the long list of assets that were bought. Almost all of them were debacles, the properties in [Prim], the properties in Laughlin, that East Chicago thing, the Harrah's Shreveport, almost everything that got sold. The guys at Harrah's and MGM are not stupid. They sell the dogs at premium prices. If they don't get a premium price, they don't sell it. Right? And I don't want to be buying the dog at a premium price. So I think there will be some restructurings and so on. And we look at them; we look at them all the time. And we bought the President out of bankruptcy, and we came pretty close to buying Aztar. If we find the right deal at the right price and it makes sense for our shareholders, we'll do it. But we probably do one in 50 deals we look at. So there we go.

Larry Haverty - Gamco

And then, I suspect there's, somewhere in your income statement, a category, certainly in the last two years, called government relations or lobbying expense this year for the referendum in St. Louis, last year for Baton Rouge. Can you give us any idea of what the order of magnitude of that number might be? And, is there a likelihood that it may, in fact, vanish by 2010?

Dan Lee

That it may in fact which?

Larry Haverty - Gamco

Vanish by 2010.

Dan Lee

Well, in actually Baton Rouge, a lot of the costs ended up in the first quarter. So, in Baton Rouge, I think the total cost of the campaign there, and it was pretty extensive, as Penn and Columbia Sussex very aggressively funded the opposition. They were the opposition, really. So I think the total cost of that campaign was somewhere around $7 million or $8 million. And I think we're probably going to be looking at a similar number, if not even a little bigger, in Missouri. But if you look at the present value to us of prevailing in both of those referendums, it's quite a bit higher than the cost. So obviously, we're willing to fund what makes sense for us.

But this is kind of an exceptional year. Last year, we had nothing of that order of magnitude. When we had the referendum for Sugarcane Bay, we spent a little bit of money, but it wasn't anywhere on this order of magnitude. Going back several years ago, I remember we tried to get slot machines on the card clubs in California; I think that was $3 million. We thought that was a huge amount of money. And we have lobbyists in most of the states in which we operate. We have government affairs people in most of the places we operate, and so it shows up at different places in the income statement. I think the lobbyists and government affairs people are somewhat kind of a permanent expense, and the occasional referendum is an occasional expense.

So it's really kind of part of the project cost. That stuff in Baton Rouge, for example, is part of that project cost.

Larry Haverty - Gamco

Okay, great, thanks a lot, guys.

Dan Lee

Actually, we have been trying to figure out how to account for the costs in Missouri. We don't know whether to charge it to Lumiere Place or Lumiere Place in River City or just carry it in corporate. But we do expect to spend a significant amount of money on the loss limit numbers, and we'll tell you what it is and we'll tell you where the accountants told us to put it on the income statement. But it's kind of an interesting process of, are we paying for a license, or is it lobbying costs, or what is it?

Larry Haverty - Gamco

It should certainly go away in 2010 or 2009.

Dan Lee

Yes; I don't see anything in 2009 out there that would be similar. I really don't see anything at all that has to go to a public vote. I think, in 2009, we're just going to be very diligently building all this stuff we have in the pipeline now.

Larry Haverty - Gamco

Okay, great. Thanks a lot Dan.

Dan Lee

Okay. One more.

Operator

Okay. Our final question comes from the line of Dennis Forst with KeyBanc.

Dennis Forst - KeyBanc

Good morning.

Dan Lee

Good morning, Den

Steve Capp

Good morning, Den.

Dennis Forst - KeyBanc

I wanted to clarify one or two things and then ask a bigger-picture question. First, Steve, the pre-opening charges for Lumiere were about how much in the quarter? I think you had combined all the--

Steve Capp

They are in the press release, Dennis.

Dennis Forst - KeyBanc

Yes; that was just for the St. Louis combined. I wanted to try and see what the final number was for Lumiere.

Steve Capp

Pre-opening development in the first quarter, I don't know. Call me on the other side; I don't know that one off the top.

Dennis Forst - KeyBanc

That's fine. And CapEx, you said, was 123 in the quarter. Have you got an estimate for the year, what CapEx is going to look like this year?

Steve Capp

For the year --

Dan Lee

Most of it's coming into first quarter.

Steve Capp

Well, very timing driven, of course, Dennis, on a lot of the things we've been talking about here. But it may be in the neighborhood of 3 to 3.50 in cash expenditures.

Dennis Forst - KeyBanc

Okay. Most of that going forward would be River City?

Steve Capp

Yes, River City and Sugarcane Bay are the next two up and of course, we've got some Atlantic City things in there, got some land purchases and the like that obviously get capitalized.

Dennis Forst - KeyBanc

Okay. And then, where is stock comp expense in the income statement?

Steve Capp

Where is stock comp expense?

Dennis Forst - KeyBanc

Yes. Is that part of --?

Steve Capp

On the GAAP income statement, that's in G&A.

Wade Hundley

Not completely. Some people have options at the property level, and it goes against the property on the GAAP financials.

Steve Capp

Well, G&A includes all of corporate, FAS 123R and all of the property G&A as well. So I think it's all in there.

Dennis Forst - KeyBanc

And the $40 million of corporate expense does not include stock comp?

Steve Capp

Correct.

Dennis Forst - KeyBanc

And at least right now, it doesn't include any of the Missouri lobbying costs?

Steve Capp

That's also correct.

Dennis Forst - KeyBanc

Okay, good. Then a little bigger picture. What are the plans going forward for the President? Have you decided yet what you're going to do with that boat longer term, or whether you're going to trade it out, move it, sell the license, wherever?

Dan Lee

Don't know. The referendum puts a cap on the number of licenses, which all of a sudden gives a different angle to the President that it didn't have before. In fact, I think the referendum requires it to stay within the city of St. Louis, which is something we've assured the mayor, anyway. But we could move it elsewhere within the city of St. Louis, and it might make sense to do that or at some point, it's still doing north of $3 million a month in revenue. It's kind of interesting; we have spruced it up. It has a newer slot product that it used to have, and it has a much cheaper buffet than Lumiere Place, literally about half the price. Not nearly the same quality; I mean, the buffet at Lumiere Place is as nice as the one at Bellagio, which isn't too surprising, because that's where we got the chef.

And the buffet at Lumiere Place does real well, so I don't want to reduce the price on that buffet, but we all scratch our heads and say, wow, the President hangs in there north of $3 million a month. If we were to close it, would all that business go over to the Casino Queen, which has a cheap buffet, or would some of it stay at Lumiere Place, and how much? And then, what does the cost structure do, and all that stuff? And so we have been watching it. And for the moment, it stays open, and I think if the referendum were to pass, it probably stays open permanently. It's just a question of, where do we move it? Now, it doesn't have to be in that boat. That hull is over 100 years old.

Dennis Forst - KeyBanc

Yes; it has to close down. Isn't there some deadline?

Dan Lee

You could re-hull it, and so on. But it probably doesn't make sense to do that. We still own the two riverboats that we got from Harrah's in Lake Charles. They are kind of mothballed sitting in Orange, Texas. So it wouldn't be too hard to spruce one of those up and bring it up. That's something we've been studying, and I guess we didn't mention it. But both our boat in Bossier City and one of those Harrah's boats from Lake Charles, we just recently realized, are identical boats. They were both built by Boyd on spec in the mid-'90s. So we've been planning to build this escalator barge that you would walk onto in Bossier City and take escalators to the different floors, and we just suddenly realized, we have two identical boats. Maybe we could cobble it together into kind of a catamaran and have a much bigger gaming floor in Bossier, similar to what the Horseshoe has.

So that's something we're studying at the moment because it would be pretty interesting to do. Obviously, we already own the boat, and that would still leave us with another boat that we could move up. Obviously, both that idea for Bossier and anything we wanted to do with the President would be subject to approval of the pertinent regulatory agencies.

Dennis Forst - KeyBanc

Okay.

Dan Lee

But the answer is, we think the President is kind of a nice little asset to have, and we're not sure what to do with it.

Dennis Forst - KeyBanc

The short-winded answer is, you probably won't do anything until after the vote in November?

Dan Lee

I think that's a safe bet, yes.

Dennis Forst - KeyBanc

Okay, great. Thanks a lot. And, Steve, I'll call you later.

Steve Capp

Hey Dennis, that number specific to the Lumiere Place complex, of the 4.6 in the press release, it's 3.6.

Dennis Forst - KeyBanc

Okay. And it should be virtually nothing going forward?

Steve Capp

Yes; that's going to trail off almost entirely. We opened the hotels in kind of February-March, and then the pedestrian walkway will open in next week, mid-May. We have a few bucks for that, but it's going to trail off substantially.

Dan Lee

Actually, even of the county thing, which is most of that other $1 million in the county, is actually kind of funny accounting. Our lease there has us paying, I think its $4.4 million or $4.5 million per year beginning when we opened and going 99 years. And under GAAP, you have to add up the 99 years, not even present value, you just add it up. And you divide it by the 101 years between today and the end of the lease.

Steve Capp

Starting when you took control of the real estate--

Dan Lee

So every quarter we have a charge which is most of $1 million dollars, which is kind of a charge for rent we are not yet paying. And that will be offset by, when we open; the charge for rent will be slightly less than the rent we're actually playing for the next 99 years.

Steve Capp

If you amortize that balance, you carried--

Dan Lee

To me, that violates everything I learned in accounting in college, but it is the current required GAAP.

Dennis Forst - KeyBanc

Well, I never run a model more than about 50 years. So it's irrelevant to me.

Dan Lee

Well, thank you very much.

Dennis Forst - KeyBanc

All right. Thank you.

Steve Capp

Thank you.

Dan Lee

I'm sorry the call took so long.

Operator

We have reached the allotted amount of time for questions. Do you have any closing remarks? This concludes today's conference. You may now disconnect.

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