Attached files

file filename
EX-31.1 - EX-31.1 - Eldorado Resorts, Inc.eri-20151231ex31122d806.htm
EX-32.1 - EX-32.1 - Eldorado Resorts, Inc.eri-20151231ex3216f0256.htm
EX-23.1 - EX-23.1 - Eldorado Resorts, Inc.eri-20151231ex23117e7c9.htm
EX-99.2 - EX-99.2 - Eldorado Resorts, Inc.eri-20151231ex992904def.htm
EX-32.2 - EX-32.2 - Eldorado Resorts, Inc.eri-20151231ex3229214fa.htm
EX-99.1 - EX-99.1 - Eldorado Resorts, Inc.eri-20151231ex991ba4c6b.htm
EX-21.1 - EX-21.1 - Eldorado Resorts, Inc.eri-20151231ex2114987ce.htm
EX-99.3 - EX-99.3 - Eldorado Resorts, Inc.eri-20151231ex993029de8.htm
EX-31.2 - EX-31.2 - Eldorado Resorts, Inc.eri-20151231ex312489a76.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10‑K

(Mark One)

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2015

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the transition period                to              

Commission File No. 001‑36629

ELDORADO RESORTS, INC.

(Exact name of registrant as specified in its charter)

Nevada
(State or other jurisdiction of
incorporation or organization)

46‑3657681
(I.R.S. Employer
Identification No.)

100 West Liberty Street, Suite 1150

Reno, Nevada 89501

(Address of principal executive offices)

Telephone: (775) 328‑0100

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

    

Name of each exchange on which registered

Common Stock, $.00001, par value

 

NASDAQ Stock Market

Securities registered pursuant to section 12(g) of the Act:  None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes   No 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes   No 

Indicate by check mark whether the registrant (1) has filed reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes   No 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§299.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b‑2 of the Exchange Act.

Large accelerated filer 

Accelerated filer 

Non‑accelerated filer 
(Do not check if a
smaller reporting company)

Smaller reporting company 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes   No 

The aggregate market value of the common stock held by non-affiliates of the Registrant was  $230.1 million at June 30, 2015 based upon the closing price for the shares of ERI’s common stock as reported by The Nasdaq Stock Market.  

As of March 2, 2016, there were 46,850,583 outstanding shares of the Registrant’s Common Stock.

Documents Incorporated by Reference

Portions of the Registrant’s definitive proxy statement to be filed with the Commission pursuant to Regulation 14A in connection with the Registrant’s 2016 Annual Meeting of Stockholders (the “Proxy Statement”) are incorporated by reference into Part III of this report.  Such Proxy Statement will be filed with the Commission not later than 120 days after the conclusion of the Registrant’s fiscal year ended December 31, 2015.

 

 


 

ELDORADO RESORTS, INC.

ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31, 2015

TABLE OF CONTENTS

 

 

 

 

 

 

 

Page

Part I 

Item 1. 

Business

Item 1A 

Risk Factors

14 

Item 1B 

Unresolved Staff Comments

25 

Item 2. 

Properties

25 

Item 3. 

Legal Proceedings

25 

Item 4. 

Mine Safety Disclosures

26 

Part II 

27 

Item 5. 

Market for Registrants’ Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities

27 

Item 6. 

Selected Financial Data

28 

Item 7. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

32 

Item 7A 

Quantitative and Qualitative Disclosures About Market Risk

53 

Item 8. 

Financial Statements and Supplementary Data

54 

Item 9. 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

54 

Item 9A 

Controls and Procedures

54 

Item 9B 

Other Information

57 

Part III 

58 

Item 10. 

Directors, Executive Officers and Corporate Governance

58 

Item 11. 

Executive Compensation

58 

Item 12. 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

58 

Item 13. 

Certain Relationships and Related Transactions, and Director Independence

58 

Item 14. 

Principal Accounting Fees and Services

58 

Part IV 

59 

Item 15. 

Exhibits and Financial Statement Schedules

59 

EXHIBITS 

 

SIGNATURES 

63 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF ELDORADO RESORTS, INC.

64 

 

 

 

 

i


 

PART  I

Item 1.  Business.

Eldorado Resorts, Inc. is referred to as the “Company,” “ERI,” or the “Registrant,” and together with its subsidiaries may also be referred to as “we,” “us” or “our.”

Overview

We are a gaming and hospitality company that owns and operates gaming facilities located in Ohio, Louisiana, Nevada, Pennsylvania and West Virginia. Our primary source of revenue is generated by our gaming operations, but we use our hotels, restaurants, bars, entertainment, racing, retail shops and other services to attract customers to our properties. ERI is dedicated to providing exceptional guest service, a dynamic gaming product, award-winning dining, exciting entertainment and premier accommodations. We were founded in 1973 in Reno, Nevada as a family business by the Carano family and continue to maintain our commitment to customer service, high-quality dining and outstanding amenities. We believe that our extraordinary level of personal service and the variety, quality and attractive pricing of our food and beverage outlets are important factors in attracting customers to our properties and building customer loyalty.

We own and operate the following properties:

Eldorado Resort Casino Reno (“Eldorado Reno”)—A 814‑room hotel, casino and entertainment facility located in downtown Reno, Nevada;

Silver Legacy Resort Casino (“Silver Legacy”)—A 1,711‑room themed hotel and casino located adjacent to Eldorado Reno and Circus Reno;

Circus Circus Reno (“Circus Reno”)—A 1,571-room hotel-casino and entertainment complex connected via a skywalk to Eldorado Reno and Silver Legacy;

Eldorado Resort Casino Shreveport (“Eldorado Shreveport”)—A 403‑room, all suite art deco‑style hotel and tri‑level riverboat dockside casino situated on the Red River in Shreveport, Louisiana;

Mountaineer Casino, Racetrack & Resort (“Mountaineer”)—A 354‑room resort with a casino and live thoroughbred horse racing located on the Ohio River at the northern tip of West Virginia’s northwestern panhandle;

Presque Isle Downs & Casino (“Presque Isle Downs”)—A casino and live thoroughbred horse racing facility with slot machines, table games and poker located in Erie, Pennsylvania; and

Eldorado Gaming Scioto Downs (“Scioto Downs”)—A modern “racino” offering approximately 2,140 video lottery terminals (“VLT”) located 15 minutes from downtown Columbus, Ohio.

In addition, Scioto Downs, through its subsidiary RacelineBet, Inc., also operates Racelinebet.com, a national account wagering service that offers online and telephone wagering on horse races as a marketing affiliate of TwinSpires.com, an affiliate of Churchill Downs, Inc.

History

ERI was formed in September 2013 to be the parent company following the merger of wholly owned subsidiaries of the Company into Eldorado HoldCo LLC (“HoldCo”), a Nevada limited liability company formed in 2009 that is the parent company of Eldorado Resorts LLC (“Resorts”), and MTR Gaming Group, Inc. (“MTR Gaming”), a Delaware corporation incorporated in 1988 (the “Merger”). Effective upon the consummation of the Merger on

1


 

September 19, 2014 (the “Merger Date”), MTR Gaming and HoldCo each became a wholly owned subsidiary of ERI and, as a result of such transactions, Resorts became an indirect wholly owned subsidiary of ERI.

Prior to November 24, 2015 (the “Acquisition Date”), Resorts owned a 48.1% interest in the joint venture (the “Silver Legacy Joint Venture”) which owns Silver Legacy.  On November 24, 2015, Resorts consummated the acquisition of all of the assets and properties of Circus Circus Reno and the 50% membership interest in the Silver Legacy Joint Venture owned by Galleon, Inc. (collectively, the “Circus Reno/Silver Legacy Purchase” or the “Acquisition”) pursuant to a Purchase and Sale Agreement, dated July 7, 2015 (the “Purchase Agreement”), entered into with Circus Circus Casinos, Inc. and Galleon, Inc., each an affiliate of MGM Resorts International, with respect to the acquisition. On the Acquisition Date, Eldorado Resorts LLC also exercised its right to acquire the 3.8% interest in Eldorado Limited Liability Company (“ELLC”) held by certain affiliates and shareholders of the Company. As a result of these transactions, ELLC and CC-Reno, LLC, a newly formed Nevada limited liability company, became wholly-owned subsidiaries of ERI, and Silver Legacy became an indirect wholly‑owned subsidiary of ERI.

Business Strengths and Strategy

Personal service and high quality amenities

One of the cornerstones of our business strategy is to provide our customers with an extraordinary level of personal service. Our senior management is actively involved in the daily operations of our properties, frequently interacting with gaming, hotel and restaurant patrons to ensure that they are receiving the highest level of personal attention. Management believes that personal service is an integral part of fostering customer loyalty and generating repeat business. We continually monitor our casino operations to react to changing market conditions and customer demands. We target both premium-play and value-conscious gaming patrons with differentiated offerings at our state-of-the-art casinos, which feature the latest in game technology, innovative bonus options, dynamic signage and customer-convenient features.

Diversified portfolio across markets and customer segments

We are geographically diversified across the United States, with no single property accounting for more than 18% of our net revenues, on a combined basis, for the year ended December 31, 2015. Our customer pool draws from a diversified base of both local and out-of-town patrons. For example, approximately 20% of our customer base at Eldorado Reno is local, while 80% visit from out-of-town and utilize our hotel, restaurants and other amenities for a full-service gaming experience. We have also initiated changes to our marketing strategy to reach more potential customers through targeted direct mailings and electronic marketing. Lastly, we do not expect any material new competition in the foreseeable future as no new significant gaming operations have opened within the past two years in any of our primary markets with the sole exception of Hollywood Mahoning Casino in Youngstown, Ohio, which opened in September 2014. We believe we have assembled a platform on which we can continue to grow and provide a differentiated customer experience.

Management team with deep gaming industry experience and strong local relationships

We have an experienced management team that includes, among others, Gary Carano, our Chief Executive Officer and the Chairman of the Board, who has more than thirty years of experience in the gaming and hotel industry. Previously, Mr. Carano served as President and Chief Operating Officer of Eldorado Resorts LLC, where he was the driving force behind the Company's development and operations in Nevada and Louisiana. In addition to Gary Carano, our senior executives have significant experience in the gaming and finance industries. Our extensive management experience and unwavering commitment to our team members, guests and equity holders have been the primary drivers of our strategic goals and success. We take pride in our reinvestment in our properties and the communities we support along with emphasizing our family-style approach in an effort to build loyalty among our team members and guests. We will continue to focus on the future growth and diversification of our company while maintaining our core values and striving for operational excellence.

2


 

Properties

As of December 31, 2015, we owned and operated approximately 486,600 square feet of casino space with 10,300 slot machines and VLTs, 300 table and poker games, 45 restaurants and 4,900 hotel rooms.

For financial reporting purposes, we aggregate our properties into three reportable business segments: (i) Nevada, (ii) Louisiana and (iii) Eastern. For further financial information related to our segments as of and for the three years ended December 31, 2015, see Note 18, Segment Information, to our consolidated financial statements presented in Part IV, Item 15. Financial Statement Schedules.

The following table sets forth certain information regarding our properties as of and for the year ended December 31, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

Casino

    

 

    

 

    

Table and

    

 

    

 

    

Average

 

 

 

Year Opened

 

Space

 

Slot

 

 

 

Poker

 

Hotel

 

Hotel

 

Daily

 

 

 

or Acquired

 

(Sq. ft.)

 

Machines

 

VLTs

 

Games

 

Rooms

 

Occupancy(2)

 

Rate(2)

 

Nevada

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eldorado Reno

 

1973

 

76,500

 

1,191

 

N/A

 

57

 

814

 

80.8

%  

$

75.65

 

Silver Legacy(1)(2)

 

1995

 

89,200

 

1,350

 

N/A

 

63

 

1,711

 

60.5

%  

$

88.12

 

Circus Reno(2)

 

2015

 

55,000

 

908

 

N/A

 

34

 

1,571

 

53.7

%  

$

65.90

 

Louisiana

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eldorado Shreveport

 

2005

 

28,200

 

1,361

 

N/A

 

60

 

403

 

91.4

%  

$

63.71

 

Eastern

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mountaineer

 

1992

 

93,300

 

1,748

 

N/A

 

49

 

354

 

79.6

%  

$

47.24

 

Presque Isle Downs

 

2007

 

61,400

 

1,580

 

N/A

 

41

 

N/A

 

N/A

 

 

N/A

 

Scioto Downs

 

2012

 

83,000

 

N/A

 

2,143

 

N/A

 

N/A

 

N/A

 

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)     Silver Legacy opened in 1995 and was a 50/50 joint venture between Resorts and MGM Resorts International until we acquired the remaining 50% interest in 2015.

 

(2)     Hotel occupancy and ADR statistics are for the full twelve month period for Silver Legacy and Circus Reno.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nevada

The Eldorado Reno, Silver Legacy and Circus Reno properties, (the “Reno Tri-Properties”) are connected in a “seamless” manner by enclosed, climate controlled corridors. These enclosed corridors serve as entertainment bridge ways between the three properties and house slot machines, restaurants and retail shops. The Reno Tri-Properties comprise the heart of the Reno market’s prime gaming area and room base, providing the most extensive and the broadest variety of gaming, entertainment, lodging and dining amenities in the Reno area, with an aggregate of 4,096 rooms, 23 restaurants and enough parking to accommodate approximately 6,100 vehicles, and as of December 31, 2015, approximately 3,400 slot machines and 150 table and poker games. We believe that the centralized location and critical mass of these three properties, together with the ease of access between the facilities, provide significant advantages over other freestanding hotel/casinos in the Reno market.

A city‑owned 50,000 square‑foot ballroom containing approximately 35,000 square feet of convention space is operated and managed by Silver Legacy, together with Eldorado Reno and Circus Reno, and complements the existing Reno Events Center. It provides an elegant venue for large dinner functions and convention meeting space along with concert seating for approximately 3,000 attendees.

Reno is the second largest metropolitan area in Nevada, with a population of approximately 450,000 according to the most recently available census data, and is located at the base of the Sierra Nevada Mountains along Interstate 80, approximately 135 miles east of Sacramento, California and 225 miles east of San Francisco, California. Reno is a destination market that attracts year‑round visitation by offering gaming, numerous summer and winter recreational activities and popular special events such as national bowling tournaments. Management believes that approximately two‑thirds of visitors to the Reno market arrive by some form of ground transportation. Popular special events include

3


 

the National Championship Air Races, a PGA tour event, Street Vibrations, a motorcycle event, and Hot August Nights, a vintage car event.

According to the Reno‑Sparks Convention & Visitors Authority (the “Visitors Authority”), the greater Reno area attracted approximately 4.7 million and 4.6 million visitors during the years 2015 and 2014, respectively. Based on information reported by the Nevada State Gaming Control Board, gaming revenues for the Reno/Sparks gaming markets were $694.0 million, $671.6 million and $670.1 million in 2015, 2014 and 2013, respectively.

The National Bowling Stadium, located one block from the Reno Tri-Properties, is one of the largest bowling complexes in North America and has been selected to host multi‑month tournaments in Reno every year through 2018 except for 2017. It has also been selected to host ten United States Bowling Congress (“USBC”) tournaments from 2019 through 2026. During this period, two of the ten USBC Tournaments may be held in the same year. Historically, these multi‑month bowling tournaments have attracted a significant number of visitors to the Reno market and have benefited business in the downtown area. The USBC Tournaments brought approximately 73,000 bowlers to the Reno area during the 2013 tournament period which began on March 1st and continued through July 7th. Both tournaments returned to Reno in 2014 and brought approximately 62,000 bowlers to the Reno area during the 2014 tournament period which began on February 28th and continued through July 12th. The USBC Tournament attracted approximately 15,600 women bowlers to the Reno market from March to July in 2015. Both tournaments return to Reno in 2016 and are expected to attract approximately 38,000 bowlers beginning in March and continuing through July 10th. 

Eldorado Reno

We own and operate the Eldorado Reno, an 814‑room premier hotel, casino and entertainment facility. The interior of the hotel is designed to create a European ambiance where hotel guests enjoy panoramic views of Reno’s skyline and the majestic Sierra Nevada mountain range. Management believes the attention to detail, décor and architecture have created an identifiable and innovative presence in the Reno market for Eldorado Reno. Eldorado Reno is centrally located in downtown Reno, Nevada.

Eldorado Reno currently offers:

Approximately 76,500 square feet of gaming space, with approximately 1,200 slot machines and 57 table and poker games;

814 finely‑appointed guest rooms, including 134 suites, which include “Eldorado Player’s Spa Suites” with bedside spas and one or two bedroom suites;

Nine restaurants featuring nationally‑recognized cuisine which ranges from buffet to gourmet, with an aggregate seating capacity of more than 1,400;

An approximately 560‑seat showroom, a VIP lounge, three retail shops, a versatile 12,010 square foot convention center and an outdoor plaza located diagonal to Eldorado Reno which hosts a variety of special events; and

Parking facilities for over 1,100 vehicles, including an approximately 640‑space self‑park garage, a 120‑space surface parking lot and a 350‑space valet parking facility.

Silver Legacy

Silver Legacy, formerly a joint venture between Resorts and MGM Resorts International (the “Silver Legacy Joint Venture”) in which we acquired the remaining 50% interest on November 24, 2015, opened in July 1995. Silver Legacy is the tallest building in northern Nevada consisting of 37-, 34- and 31-floor tiers. Silver Legacy’s opulent interior showcases a casino built around Sam Fairchild’s 120-foot tall mining rig, which appears to mine for silver. The rig is situated beneath a 180-foot diameter dome, which is a distinctive landmark on the Reno skyline. The interior

4


 

surface of the dome features dynamic sound and laser light shows, providing visitors with a unique experience when they are in the casino. The Silver Legacy is centrally located in downtown Reno, Nevada.

Silver Legacy features:

Approximately 89,200 square feet of gaming space, with approximately 1,300 slot machines and 63 table games;

1,711 finely‑appointed guest rooms, including 141 player spa suites, eight penthouse suites and seven hospitality suites;

Eight restaurants, which have an aggregate seating capacity of more than 1,000, offering award winning dining cuisine; and

Retail shops, exercise and spa facilities, a beauty salon and an outdoor swimming pool and sundeck and a parking garage which can accommodate approximately 1,800 vehicles.

Circus Reno

Circus Reno, which we acquired on November 24, 2015, is an iconic, circus‑themed hotel‑casino and entertainment complex with two hotel towers. It is conveniently located as the first casino directly off of Interstate 80 when entering downtown Reno, Nevada.

Circus Reno currently offers:

Approximately 55,000 square feet of gaming space, with approximately 900 slot machines and 34 table games;

1,571 hotel rooms, including 67 mini suites, four executive suites and four VIP suites;

3,200 parking spaces including a surface lot and two garages;

Two fine dining restaurants, a buffet and three casual dining restaurants; and

A midway featuring a total of 158 games, live circus acts, an arcade and a full service wedding chapel with reception services for groups of 25 or more.

Louisiana

Eldorado Shreveport

Eldorado Shreveport is a premier resort casino located in Shreveport, Louisiana, the largest gaming market in Louisiana, adjacent to Interstate 20, a major highway that connects the Shreveport market with the attractive feeder markets of East Texas and Dallas/Fort Worth, Texas. Eldorado Shreveport was built next to an existing riverboat gaming and hotel facility formerly operated by Harrah’s Entertainment and now operated by Boyd Gaming Corporation. The two casinos form the first and only “cluster” in the Shreveport/Bossier City market, allowing patrons to park once and easily walk between the two facilities. There are currently six casinos and a racino operating in the Shreveport/Bossier City market in Louisiana. The Shreveport/Bossier City gaming market permits continuous dockside gaming without cruising requirements or simulated cruising schedules, allowing casinos to operate 24 hours a day with uninterrupted access. Based on information published by the state of Louisiana, the six casino operators and racino in the Shreveport/Bossier City market generated $732.5 million, $736.1 million, and $727.3 million in gaming revenues in 2015, 2014 and 2013, respectively.

5


 

The principal target markets for Eldorado Shreveport are patrons from the Dallas/Fort Worth Metroplex and East Texas. There are approximately 7.6 million adults who reside within approximately 200 miles of Shreveport/Bossier City. Eldorado Shreveport is located approximately 180 miles east of Dallas and can be reached by car in approximately three hours. Flight times are less than one hour from both Dallas and Houston to the Shreveport Regional Airport.

Eldorado Shreveport is a modern, Las Vegas‑style resort with a gaming experience that appeals to both local gamers and out‑of‑town visitors. Our integrated casino and entertainment resort benefits from the following features:

A purpose‑built 80,634‑square foot barge that houses approximately 28,200 square feet of gaming space, as measured by the actual footprint of the gaming equipment, offering approximately 1,400 slots, 52 table games and a poker room with eight tables;

Numerous restaurants and entertainment amenities, including a gourmet steakhouse, VIP check‑in, a premium quality bar and a retail store;

A luxurious 403‑room, all‑suite, hotel, with updated rooms featuring modern décor and flat screen TVs;

A 380‑seat ballroom with four breakout rooms, a 5,940‑square foot spa, a fitness center and salon, a premium players’ club and an entertainment show room; and

Two parking lots and an eight story parking garage providing approximately 1,800 parking spaces that connects directly to the pavilion by an enclosed walkway, including valet parking for approximately 300 vehicles.

Eastern

Mountaineer

Mountaineer is one of only four racetracks in West Virginia currently permitted to operate slot machines and traditional casino table gaming. Mountaineer is located on the Ohio River at the northern tip of West Virginia’s northwestern panhandle, approximately thirty miles from the Pittsburgh International Airport and a one‑hour drive from downtown Pittsburgh. Mountaineer’s market is comprised of eight casinos, including Presque Isle Downs, in West Virginia, Ohio and Pennsylvania. Based on information published by these states, this market generated $1.6 billion, $1.5 billion, and $1.4 billion in gaming revenues in 2015, 2014 and 2013, respectively.

Mountaineer is a diverse gaming, entertainment and convention complex with:

93,300 square feet of gaming space housing approximately 1,700 slot machines, 37 casino table games (including blackjack, craps, roulette and other games), and 12 poker tables;

354 hotel rooms, including the 256‑room, 219,000 square foot Grande Hotel at Mountaineer, 27 suites, a full‑service spa and salon, a retail plaza and indoor and outdoor swimming pools and a golf course;

12,090 square feet of convention space, which can accommodate seated meals for groups of up to 575, as well as smaller meetings in more intimate break‑out rooms that can accommodate 75 people and entertainment events for approximately 1,500 guests;

Live thoroughbred horse racing conducted from March through December on a one‑mile dirt surface or a 7/8 mile grass surface with expansive clubhouse, restaurant, bars and concessions, as well as grandstand viewing areas with enclosed seating for 3,570 patrons;

On‑site pari‑mutuel wagering and thoroughbred, harness and greyhound racing simulcast from other prominent tracks, as well as wagering on Mountaineer’s races at over 1,400 sites to which the races are simulcast;

6


 

A 69,000 square foot theater and events center that seats approximately 5,000 patrons for concerts and other entertainment offerings; and

Surface parking for approximately 5,300 vehicles.

Presque Isle Downs

Presque Isle Downs located in Erie, Pennsylvania, opened for business in 2007 and commenced table gaming operations in 2010. Erie is located in northwestern Pennsylvania and Erie County has a population of approximately 280,000 according to the most recently available census data. Presque Isle Downs is located directly off of highway 90 and Presque Isle State Park attracts nearly four million visitors annually. Presque Isle Downs’ market is comprised of eight casinos, including Mountaineer, in West Virginia, Ohio and Pennsylvania. Based on information published by these states, this market generated $1.6 billion, $1.5 billion, and $1.4 billion in gaming revenues in 2015, 2014 and 2013, respectively. The Company is redirecting its marketing focus from the highly competitive Cleveland area to Erie County and the surrounding areas. The 153,400 square foot facility consists of:

61,400 square feet of gaming space housing approximately 1,600 slot machines, 32 casino table games and a nine table poker room, which we began operating on October 3, 2011;

Live thoroughbred horse racing conducted from May through September on a one‑mile track with a state‑of‑the‑art one‑mile synthetic racing surface with grandstand, barns, paddock and related facilities, and indoor and outdoor seating for approximately 750 patrons;

Six restaurants including a steakhouse, buffet and 300 seat clubhouse overlooking the racetrack;

On‑site pari‑mutuel wagering and thoroughbred and harness racing simulcast from other prominent tracks, as well as wagering on Presque Isle Downs’ races at over 1,200 sites to which the races are simulcast; and

Surface parking for approximately 3,200 vehicles.

Scioto Downs

Scioto Downs is located in the heart of Central Ohio, off Highway 23/South High Street, approximately eight miles from downtown Columbus. Columbus is the largest metropolitan area within the state of Ohio with a population of approximately 835,000 and a greater metropolitan area of approximately 2.0 million within 60 miles of downtown. The Columbus market generated $290.4 million, $275.9 million and $274.8 million in slot revenues in 2015, 2014 and 2013, respectively.

Scioto Downs ran its first Standardbred horse race in 1959 and has since established a rich and deep connection within the regional racing community. Opening VLT operations with a new 132,000 square foot gaming facility on June 1, 2012, Scioto Downs became the first “Racino” operation in the State of Ohio and is one of only two licensed gaming facilities in the Columbus area. The gaming facility was designed to integrate as much as possible with the iconic and instantly recognizable racing structures, blending architectural features and aspects as much as possible to ensure a fluid seamless and marketable look.

In October 2015, the Company entered into a joint venture with Vista Host, Inc. to develop a new 118-room Hampton Inn & Suites hotel that will be attached to Scioto Downs. Construction of the new hotel began in November 2015 with a targeted completion date in late 2016. Scioto Downs is located on a 208 acre site strategically designed for future expansion, including table games, additional parking capacity and retail development

Scioto Downs currently offers:

83,000 square feet of gaming space housing approximately 2,140 VLTs (with the ability to install up to 2,500 VLTs), including a 3,200 square foot outdoor gaming patio;

7


 

The Brew Brothers, a new microbrewery and restaurant which opened in October 2015 and seats approximately 230 offering live entertainment;

Six full service bars and six restaurants ranging from fine dining to a buffet;

Live standard bred harness horse racing conducted from May through mid‑September with barns, paddock and related facilities for the horses, drivers and trainers, that can accommodate over 2,600 patrons for live racing as well as a Summer Concert Series, featuring national acts;

On‑site pari‑mutuel wagering and thoroughbred, harness and greyhound racing simulcast from other prominent tracks, as well as wagering on Scioto Downs’ races at over 800 sites to which the races are simulcast; and

Surface parking for approximately 3,500 vehicles.

Competition

The gaming industry includes land‑based casinos, dockside casinos, riverboat casinos, casinos located on Native American reservations and other forms of legalized gaming. There is intense competition among companies in the gaming industry, many of which have significantly greater resources than we do. Certain states have legalized casino gaming and other states may legalize gaming in the future. Legalized casino gaming in these states and on Native American reservations near our markets or changes to gaming laws in states surrounding Nevada, Louisiana, West Virginia, Pennsylvania, or Ohio could increase competition and could adversely affect our operations. We also compete, to a lesser extent, with gaming facilities in other jurisdictions with dockside gaming facilities, state sponsored lotteries, on‑and‑off track pari‑mutuel wagering, card clubs, riverboat casinos and other forms of legalized gambling. In addition, various forms of internet gaming have been approved in Nevada and New Jersey and legislation permitting internet gaming has been proposed by the federal government and other states. The expansion of internet gaming in Nevada and other jurisdictions could result in significant additional competition.

Nevada.    Of the 30 casinos currently operating in the Reno market, we believe we compete principally with the six hotel‑casinos, like Eldorado Reno and Silver Legacy, that each generate at least $36 million in annual gaming revenues. At this time, we cannot predict the extent to which new and proposed projects will be undertaken or the extent to which current hotel and/or casino space may be expanded. We expect that any additional rooms added in the Reno market will increase competition for visitor revenue. There can be no assurance that any growth in Reno’s current room base or gaming capacity will not adversely affect our financial condition or results of operations.

We also compete with hotel‑casinos located in the nearby Lake Tahoe region as well as those in other areas of Nevada, including Las Vegas. A substantial number of customers travel to both Reno and the Lake Tahoe area during their visits. Consequently, we believe that our success is influenced to some degree by the success of the Lake Tahoe market. The number of visitors increased during the year ended December 31, 2015 compared with the prior year, and while we do not anticipate a significant change in the popularity of either Reno or Lake Tahoe as tourist destination areas in the foreseeable future, any decline could adversely affect our operations.

Since visitors from California comprise a significant portion of our customer base, we also compete with Native American gaming operations in California. In total, the State of California has signed and ratified compacts with 72 Native American tribes, and there are currently 60 Native American casinos operating in California, including casinos located in northern California, which we consider to be a significant target market. These Native American tribes are allowed to operate slot machines, lottery games and banking and percentage games on Native American lands.

Management believes the Reno market draws over 50% of its visitors from California. As northern California Native American gaming operations have expanded, we believe the increasing competition generated by these gaming operations has negatively impacted, and may continue to negatively impact, principally drive‑in, day‑trip visitor traffic from our main feeder markets in northern California.  

Louisiana.    The Shreveport/Bossier City, Louisiana gaming market is characterized by intense competition and the market has not grown appreciably since Eldorado Shreveport opened in December 2000. We compete directly with

8


 

five casinos, all but one of which have operated in the Shreveport/Bossier City market for several years and have established customer bases. In addition, we also compete with the slot machine facility at Harrah’s Louisiana Casino and Racetrack located in Bossier City and WinStar Casino and casino facilities owned by the Choctaw Nation located in Oklahoma. Casino gaming is currently prohibited in several jurisdictions from which the Shreveport/Bossier City market draws customers, primarily Texas. The Texas legislature has from time to time considered proposals to legalize gaming. Any such proposal would require an amendment to the Texas State constitution, which requires approval by two‑thirds of the Texas State Legislature and approval by a majority of votes cast in a statewide voter referendum. Such approvals would legalize gaming in Texas notwithstanding vetoes by the Governor of casino gambling bills. There can be no assurance that casino gaming will not be approved in Texas in the future, which would have a material adverse effect on our business. Eldorado Shreveport competes with several Native American casinos located in Oklahoma, certain of which are located near our core Texas markets. Because Eldorado Shreveport draws a significant amount of customers from the Dallas/Fort Worth, Texas area, but is located approximately 190 miles from that area, we believe we will continue to face increased competition from gaming operations in Oklahoma and would face significant competition that may have a material adverse effect on our business and results of operations if casino gaming were to be approved in Texas.

In June 2013, construction was completed on a hotel casino in Bossier City across the Red River from Eldorado Shreveport. In December 2014, a new luxury, land‑based casino opened in Lake Charles, Louisiana approximately 200 miles south of Eldorado Shreveport, but closer to the Houston, Texas market.

Eastern.    Mountaineer, Presque Isle Downs and Scioto Downs primarily compete with gaming facilities located in West Virginia, Ohio and Pennsylvania, including, to a certain extent, each other, and gaming locations located in neighboring states including New York, Indiana and Michigan. In particular, Mountaineer (and to a lesser extent Presque Isle Downs) competes with other gaming facilities located in Pennsylvania, including The Rivers Casino located in downtown Pittsburgh, Pennsylvania and The Meadows Racetrack and Casino located in Washington, Pennsylvania, approximately 50 miles southeast of Mountaineer. An additional license has been granted for a casino to be located in Lawrence County, Pennsylvania, approximately 45 miles from Mountaineer and 90 miles from Presque Isle Downs, which would result in further competition for both of those properties. Further, gaming facilities in Ohio represent our main competition, including the Horseshoe Casino Cleveland, Hollywood Casino Columbus, ThistleDown Racino, Northfield Park and Beulah Park.

Mountaineer competes with smaller gaming operations conducted in local bars and fraternal organizations. West Virginia law permits limited video lottery machines (“LVLs”) in local bars and fraternal organizations. The West Virginia Lottery Commission authorizes up to 7,500 slot machines in these facilities throughout West Virginia. No more than five slot machines are allowed in each establishment licensed to sell alcoholic beverages, and no more than ten slot machines are allowed in each licensed fraternal organization. As of December 31, 2015, there were a total of approximately 1,000 LVL’s in bars and fraternal organizations in Hancock County, West Virginia (where Mountaineer is located) and the two neighboring counties (Brooke and Ohio counties). Although the bars and fraternal organizations housing these machines lack poker and table gaming, as well as the amenities and ambiance of our Mountaineer facility, they do compete with Mountaineer, particularly for the local patronage.

While there are three other tracks and one resort in West Virginia that offer slot machine and table gaming, only one, Wheeling Island Casino, lies within Mountaineer’s primary market in Wheeling, West Virginia. Wheeling Island Casino currently operates approximately 1,400 slot machines, nine poker tables, and 22 casino table games.

Scioto Downs has also competed with smaller gaming operations in Ohio commonly referred to as Internet/sweepstakes cafes. These establishments offer services including internet time and computer access, in addition to offering games such as poker and games that operate like slot machines. In March 2013, the Ohio General Assembly passed legislation which effectively bans the Internet cafes by defining use of the computers in these facilities as illegal gambling. Efforts have been underway to enforce the closure of the internet cafes.

Mountaineer’s, and to a lesser extent Presque Isle Downs’, racing and pari‑mutuel operations compete directly for wagering dollars with racing and pari‑mutuel operations at a variety of other horse and greyhound racetracks that conduct pari‑mutuel gaming, including Wheeling Island Casino, in Wheeling, West Virginia; ThistleDown and Northfield Park, in Cleveland, Ohio; Beulah Park, in Austintown, Ohio and The Meadows Racetrack & Casino, in

9


 

Washington, Pennsylvania. Wheeling Island Casino conducts pari‑mutuel greyhound racing, simulcasting and casino gaming. Both ThistleDown and Northfield Park conduct pari‑mutuel horse racing, with video lottery gaming which commenced in 2013. Beulah Park was relocated from Columbus, Ohio to Austintown, Ohio in 2014 and conducts pari‑mutuel wagering, simulcasting and video lottery gaming. The Meadows Racetrack & Casino conducts live harness racing, simulcasting and casino gaming. Mountaineer (and to a lesser extent, Presque Isle Downs) also will compete with Valley View Downs in Lawrence County, Pennsylvania, if it is constructed and opened. Since commencing export simulcasting in August 2000, Mountaineer competes with racetracks across the country to have its signal carried by off‑track wagering parlors. Mountaineer, Presque Isle Downs and Scioto Downs also competes for wagering dollars with off‑track wagering facilities in Ohio and Pennsylvania, and competes with other racetracks for participation by quality racehorses.

General.    All of our gaming operations also compete to a lesser extent with operations in other locations, including Native American lands, and with other forms of legalized gaming in the United States, including state‑sponsored lotteries, on‑ and off‑track wagering, high‑stakes bingo, card parlors, and the emergence of Internet gaming, including proposals at the state and federal levels that would legalize various forms of internet gaming. In addition, casinos in Canada have likewise recently begun advertising and increasing promotional activities in our target markets. See “Item 1A. Risk Factors—Risks Related to Our Business—We face substantial competition in the hotel and casino industry and expect that such competition will continue” which is included elsewhere in this report.

Governmental Gaming Regulations

The gaming and racing industries are highly regulated and we must maintain our licenses and pay gaming taxes to continue our operations. We are subject to extensive regulation under laws, rules and supervisory procedures primarily in the jurisdictions where our facilities are located or docked. These laws, rules and regulations generally concern the responsibility, financial stability and characters of the owners, managers, and persons with financial interests in the gaming operations. If additional gaming regulations are adopted in a jurisdiction in which we operate, such regulations could impose restrictions or costs that could have a significant adverse effect on us. From time to time, various proposals have been introduced in legislatures of jurisdictions in which we have operations that, if enacted, could adversely affect the tax, regulatory, operational or other aspects of the gaming industry and us. We do not know whether or when such legislation will be enacted. Gaming companies are currently subject to significant state and local taxes and fees in addition to normal federal and state corporate income taxes, and such taxes and fees are subject to increase at any time. Any material increase in these taxes or fees could adversely affect us.

Some jurisdictions, including those in which we are licensed, empower their regulators to investigate participation by licensees in gaming outside their jurisdiction and require access to periodic reports respecting those gaming activities. Violations of laws in one jurisdiction could result in disciplinary action in other jurisdictions.

Under provisions of gaming laws in jurisdictions in which we have operations, and under our organizational documents, certain of our securities are subject to restriction on ownership which may be imposed by specified governmental authorities. The restrictions may require a holder of our securities to dispose of the securities or, if the holder refuses, or is unable, to dispose of the securities, we may be required to repurchase the securities.

A more detailed description of the regulations to which we are subject is contained in Exhibit 99.1 to this Annual Report on Form 10‑K, which is incorporated herein by reference.

Reporting and Record‑Keeping Requirements

We are required periodically to submit detailed financial and operating reports and furnish any other information about us and our subsidiaries which gaming authorities may require. We are required to maintain a current stock ledger which may be examined by gaming authorities at any time. If any securities are held in trust by an agent or by a nominee, the record holder may be required to disclose the identity of the beneficial owner to gaming authorities. A failure to make such disclosure may be grounds for finding the record holder unsuitable. Gaming authorities may, and in certain jurisdictions do, require certificates for our securities to bear a legend indicating that the securities are subject to specified gaming laws.

10


 

Taxation

Gaming companies are typically subject to significant taxes and fees in addition to normal federal, state and local income taxes, and such taxes and fees are subject to increase at any time. We pay substantial taxes and fees with respect to our operations. From time to time, federal, state, local and provincial legislators and officials have proposed changes in tax laws, or in the administration of such laws, affecting the gaming industry. It is not possible to determine with certainty the likelihood of changes in tax laws or in the administration of such laws.

Internal Revenue Service Regulations

The Internal Revenue Service requires operators of casinos located in the United States to file information returns for U.S. citizens, including names and addresses of winners, for keno, bingo and slot machine winnings in excess of stipulated amounts. The Internal Revenue Service also requires operators to withhold taxes on some keno, bingo and slot machine winnings of nonresident aliens. We are unable to predict the extent to which these requirements, if extended, might impede or otherwise adversely affect operations of, and/or income from, the other games.

Regulations adopted by the Financial Crimes Enforcement Network of the Treasury Department (“FINCEN”) and the Nevada Gaming Authorities require the reporting of currency transactions in excess of $10,000 occurring within a gaming day, including identification of the patron by name and social security number. This reporting obligation began in May 1985 and may have resulted in the loss of gaming revenues to jurisdictions outside the United States which are exempt from the ambit of these regulations. In addition to currency transaction reporting requirements, suspicious financial activity is also required to be reported to FINCEN.

Other Laws and Regulations

Our businesses are subject to various federal, state and local laws and regulations in addition to gaming regulations. These laws and regulations include, but are not limited to, restrictions and conditions concerning alcoholic beverages, food service, smoking, environmental matters, employees and employment practices, currency transactions, taxation, zoning and building codes, and marketing and advertising. Such laws and regulations could change or could be interpreted differently in the future, or new laws and regulations could be enacted. Material changes, new laws or regulations, or material differences in interpretations by courts or governmental authorities could adversely affect our operating results.

The sale of alcoholic beverages is subject to licensing, control and regulation by applicable local regulatory agencies. All licenses are revocable and are not transferable. The agencies involved have full power to limit, condition, suspend or revoke any license, and any disciplinary action could, and revocation would, have a material adverse effect upon our operations.

Intellectual Property

We use a variety of trade names, service marks, trademarks, patents and copyrights in our operations and believe that we have all the licenses necessary to conduct our continuing operations. We have registered several service marks, trademarks, patents and copyrights with the United States Patent and Trademark Office or otherwise acquired the licenses to use those which are material to conduct our business. We also own patents relating to unique casino games. We file copyright applications to protect our creative artworks, which are often featured in property branding, as well as our distinctive website content.

Seasonality

Casino, hotel and racing operations in our markets are subject to seasonal variation. Winter conditions can frequently adversely affect transportation routes to each of our properties and also may cause cancellations of live horse racing at Mountaineer, Scioto Downs and Presque Isle Downs. As a result, unfavorable seasonal conditions could have a material adverse effect on our operations.

11


 

Environmental Matters

We are subject to various federal, state and local environmental, health and safety laws and regulations, including those relating to the use, storage, discharge, emission and disposal of hazardous materials and solid, animal and hazardous wastes and exposure to hazardous materials. Such laws and regulations can impose liability on potentially responsible parties, including the owners or operators of real property, to clean up, or contribute to the cost of cleaning up, sites at which hazardous wastes or materials were disposed of or released. In addition to investigation and remediation liabilities that could arise under such laws and regulations, we could also face personal injury, property damage, fines or other claims by third parties concerning environmental compliance or contamination or exposure to hazardous materials, and could be subject to significant fines or penalties for any violations. We have from time to time been responsible for investigating and remediating, or contributing to remediation costs related to, contamination located at or near certain of our facilities, including contamination related to underground storage tanks and groundwater contamination arising from prior uses of land on which certain of our facilities are located. In addition, we have been, and may in the future be, required to manage, abate, remove or contain manure and wastewater generated by concentrated animal feeding operations due to our racetrack operations, mold, lead, asbestos‑containing materials or other hazardous conditions found in or on our properties. Although we have incurred, and expect that we will continue to incur, costs related to the investigation, identification and remediation of hazardous materials or conditions known or discovered to exist at our properties, those costs have not had, and are not expected to have, a material adverse effect on our financial condition, results of operations or cash flow.

Employees

As of December 31, 2015, we had approximately 7,800 employees. As of such date, we had 11 collective bargaining agreements covering approximately 1,100 employees.

Cautionary Statement Regarding Forward‑Looking Information

This report includes “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. Forward‑looking statements include statements regarding our strategies, objectives and plans for future development or acquisitions of properties or operations, as well as expectations, future operating results and other information that is not historical information. When used in this report, the terms or phrases such as “anticipates,” “believes,” “projects,” “plans,” “intends,” “expects,” “might,” “may,” “estimates,” “could,” “should,” “would,” “will likely continue,” and variations of such words or similar expressions are intended to identify forward‑looking statements. Forward‑looking statements speak only as of the date they are made, and we assume no duty to update forward‑looking statements. Although our expectations, beliefs and projections are expressed in good faith and with what we believe is a reasonable basis, there can be no assurance that these expectations, beliefs and projections will be realized. There are a number of risks and uncertainties that could cause our actual results to differ materially from those expressed in the forward‑looking statements which are included elsewhere in this report. Other factors beyond those listed below could also adversely affect us. Such risks, uncertainties and other important factors include, but are not limited to:

Our substantial indebtedness and significant financial commitments could adversely affect our results of operations and our ability to service such obligations;

Restrictions and limitations in agreements governing our debt could significantly affect our ability to operate our business and our liquidity;

Our facilities operate in very competitive environments and we face increasing competition;

Our dependence on our Nevada, Louisiana, West Virginia, Pennsylvania and Ohio casinos for substantially all of our revenues and cash flows;

Our ability to integrate the operations of Circus Reno, the Silver Legacy and the MTR Gaming properties and realize the benefits of the Circus Reno/Silver Legacy Purchase, the Merger and other future acquisitions;

12


 

Our operations are particularly sensitive to reductions in discretionary consumer spending and are affected by changes in general economic and market conditions;

Our gaming operations are highly regulated by governmental authorities and the cost of complying or the impact of failing to comply with such regulations;

Changes in gaming taxes and fees in jurisdictions in which we operate;

Risks relating to pending claims or future claims that may be brought against us;

Changes in interest rates and capital and credit markets;

Our ability to comply with certain covenants in our debt documents;

The effect of disruptions to our information technology and other systems and infrastructure;

Construction factors relating to maintenance and expansion of operations;

Our ability to attract and retain customers;

Weather or road conditions limiting access to our properties;

The effect of war, terrorist activity, natural disasters and other catastrophic events;

The intense competition to attract and retain management and key employees in the gaming industry; and

Other factors set forth under “Item 1A. Risk Factors.”

In light of these and other risks, uncertainties and assumptions, the forward‑looking events discussed in this report might not occur. These forwardlooking statements speak only as of the date of this Annual Report on Form 10‑K, even if subsequently made available on our website or otherwise, and we do not intend to update publicly any forward‑looking statement to reflect events or circumstances that occur after the date on which the statement is made, except as may be required by law.

You should also be aware that while we from time to time communicate with securities analysts, we do not disclose to them any material non‑public information, internal forecasts or other confidential business information. Therefore, you should not assume that we agree with any statement or report issued by any analyst, irrespective of the content of the statement or report. To the extent that reports issued by securities analysts contain projections, forecasts or opinions, those reports are not our responsibility and are not endorsed by us.

Available Information

We file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission (the “SEC”). You may read and copy, at prescribed rates, any document we have filed at the SEC’s public reference room in Washington, D.C. Please call the SEC at 1‑800‑ SEC‑0330 (1‑800‑732‑0330) for further information on the public reference room. The SEC also maintains a website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC (http://www.sec.gov). You also may read and copy reports and other information filed by us at the office of The NASDAQ Stock Market, One Liberty Plaza, 165 Broadway, New York, NY 10006.

We make our Annual Reports on Form 10‑K, our Quarterly Reports on Form 10‑Q, our Current Reports on Form 8‑K, and all amendments to these reports, available free of charge on our corporate website (www.eldoradoresorts.com) as soon as reasonably practicable after such reports are filed with, or furnished to, the SEC. In addition, our Code of Ethics and Business Conduct and charters of the Audit Committee, Compensation Committee, and the Nominating and Corporate Governance Committee are available on our website. We will provide reasonable

13


 

quantities of electronic or paper copies of filings free of charge upon request. In addition, we will provide a copy of the above referenced charters to stockholders upon request.

References in this document to our website address do not incorporate by reference the information contained on the website into this Annual Report on Form 10‑K.

 

Item 1A.  Risk Factors.

Risks Related to ERI’s Capital Structure and Equity Ownership

We have significant indebtedness

On July 23, 2015, the Company issued $375 million in aggregate principal amount of 7.0% senior notes due 2023 (“Senior Notes”) and entered into a new $425.0 million seven year term loan (the “New Term Loan”) and a new $150.0 million five year revolving credit facility (the “New Revolving Credit Facility” and, together with the New Term Loan, the “New Credit Facility”). As a result of our New Credit Facility and outstanding Senior Notes, we have a significant amount of indebtedness. As of December 31, 2015, we and our restricted subsidiaries had $891.4 million of total indebtedness outstanding, of which $516.4 million was secured, and $56.5 million of availability under the New Credit Facility. This indebtedness may have important negative consequences for us, including:

limiting our ability to satisfy our obligations;

increasing our vulnerability to general adverse economic and industry conditions;

limiting our flexibility in planning for, or reacting to, changes in our businesses and the markets in which we operate;

placing us at a competitive disadvantage compared to competitors that have less debt;

increasing our vulnerability to, and limiting our ability to react to, changing market conditions, changes in our industry and economic downturns;

limiting our ability to obtain additional financing to fund working capital requirements, capital expenditures, debt service, general corporate or other obligations;

subjecting us to a number of restrictive covenants that, among other things, limit our ability to pay dividends and distributions, make acquisitions and dispositions, borrow additional funds, and make capital expenditures and other investments;

limiting our ability to use operating cash flow in other areas of its business because we must dedicate a significant portion of these funds to make principal and/or interest payments on our outstanding debt;

exposing us to interest rate risk due to the variable interest rate on borrowings under our New Credit Facility;

causing our failure to comply with the financial and restrictive covenants contained in our current or future indebtedness, which could cause a default under such indebtedness and which, if not cured or waived, could have a material adverse effect on us; and

affecting our ability to renew gaming and other licenses necessary to conduct our business.

Despite our current indebtedness levels, we and our subsidiaries may still incur significant additional indebtedness. Incurring more indebtedness could increase the risks associated with our substantial indebtedness

14


 

 

We and our subsidiaries may be able to incur substantial additional indebtedness, including additional secured indebtedness, in the future. The terms of the indenture governing the Senior Notes (the “Indenture”) and our credit agreement governing our New Credit Facility restrict, but will not completely prohibit, us from doing so. As of December 31, 2015, we had $56.5 million of borrowing availability under our New Credit Facility. The Indenture will also allow us to incur certain other additional secured and unsecured debt and does not prevent us from incurring other liabilities that do not constitute indebtedness.  

 

We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful

 

Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond our control. We will also be required to obtain the consent of the lenders under the senior secured credit facilities to refinance material portions of our indebtedness. We cannot assure you that we will maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.

 

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital or restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. If our operating results and available cash are insufficient to meet our debt service obligations, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. We may not be able to consummate those dispositions or to obtain the proceeds that we could realize from them, and these proceeds may not be adequate to meet any debt service obligations then due. Additionally, the credit agreement governing the New Credit Facility and the Indenture limits the use of the proceeds from any disposition; as a result, we may not be allowed, under these documents, to use proceeds from such dispositions to satisfy all current debt service obligations.

 

The Indenture governing the notes and the credit agreement governing the New Credit Facility will impose significant operating and financial restrictions on us and our subsidiaries, which may prevent us from capitalizing on business opportunities

 

The credit agreement governing the New Credit Facility and the Indenture will impose significant operating and financial restrictions on us. These restrictions limit our ability, among other things, to:

incur additional debt;

create liens or other encumbrances;

pay dividends or make other restricted payments;

agree to payment restrictions affecting our restricted subsidiaries;

prepay subordinated indebtedness;

make investments, loans or other guarantees;

sell or otherwise dispose of a portion of our assets; or

make acquisitions or merge or consolidate with another entity.

In addition, the credit agreement governing the New Credit Facility contains certain financial covenants, including minimum interest coverage ratio and maximum total leverage ratio covenants.

15


 

As a result of these covenants and restrictions, we are limited in how we conduct our business and we may be unable to raise additional debt or equity financing to compete effectively or to take advantage of new business opportunities. The restrictions caused by such covenants could also place us at a competitive disadvantage to less leveraged competitors.

A failure to comply with the covenants contained in the credit agreement governing the New Credit Facility, Indenture or other indebtedness that we may incur in the future could result in an event of default, which, if not cured or waived, could result in the acceleration of the indebtedness and have a material adverse effect on our business, financial condition and results of operations. If our indebtedness were to be accelerated, there can be no assurance that our assets would be sufficient to repay such indebtedness in full. Moreover, in the event that such indebtedness is accelerated, there can be no assurance that we will be able to refinance it on acceptable terms, or at all.

We are a holding company and will depend on our subsidiaries for dividends, distributions and repayment of our indebtedness

We are structured as a holding company, a legal entity separate and distinct from its subsidiaries. Our only significant asset is the capital stock or other equity interests of our operating subsidiaries. As a holding company, we conduct all of our business through our subsidiaries. Consequently, our principal source of cash flow will be dividends and distributions from our subsidiaries. If our subsidiaries are unable to make dividend payments or distributions to us and sufficient cash or liquidity is not otherwise available, we may not be able to pay interest or principal on our indebtedness.  

Our ability to service all of our indebtedness depends on our ability to generate cash flow, which is subject to factors that are beyond our control

Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial condition and operating performance, which is subject to general economic, financial, competitive and other factors that are beyond our control. In addition, a further deterioration in the economic performance of our casino properties may cause us to reduce or delay investments and capital expenditures, or to sell assets. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations.

The market price of ERI’s common stock could fluctuate significantly

The U.S. securities markets in general have experienced significant price fluctuations in recent years. The market price of ERI’s common stock may be volatile and subject to wide fluctuations. In addition, the trading volume of ERI’s common stock may fluctuate and cause significant price variations to occur. Some of the factors that could cause fluctuations in, or have a material adverse effect on, the stock price or trading volume of ERI’s common stock include:

general market and economic conditions, including market conditions in the hotel and casino industries;

actual or expected variations in operating results;

differences between actual operating results and those expected by investors and analysts;

changes in recommendations by securities analysts;

operations and stock performance of competitors;

accounting charges, including charges relating to the impairment of goodwill;

significant acquisitions or strategic alliances by ERI or by competitors;

16


 

sales of ERI’s common stock or other securities in the future, including sales by our directors and officers or significant investors;

recruitment or departure of key personnel;

conditions and trends in the gaming and entertainment industries;

changes in the estimate of the future size and growth of our markets; and

changes in reserves for professional liability claims.

We cannot assure you that the stock price of ERI common stock will not fluctuate or decline significantly in the future. In addition, the stock market in general can experience considerable price and volume fluctuations that may be unrelated to ERI’s performance. If the market price of ERI common stock fluctuates significantly, ERI may become the subject of securities class action litigation which may result in substantial costs and a diversion of management’s attention and resources.

ERI has not historically paid dividends and the credit agreement governing the New Credit Facility and the Indenture contain restrictive covenants limiting our ability to pay dividends

ERI does not currently expect to pay dividends on its common stock. Any determination to pay dividends in the future will be at the discretion of the ERI board of directors and will depend upon among other factors, ERI’s earnings, cash requirements, financial condition, requirements to comply with the covenants under its debt instruments, legal considerations, and other factors that the ERI board of directors deems relevant. If ERI does not pay dividends, then the return on an investment in its common stock will depend entirely upon any future appreciation in its stock price. There is no guarantee that ERI’s common stock will appreciate in value or maintain its value.

The volatility and disruption of the capital and credit markets and adverse changes in the U.S. and global economies may negatively impact our access to financing

During recent years, a confluence of many factors has contributed to diminished expectations for the U.S. economy and increased market volatility for publicly traded securities, including the common shares and notes issued by public companies. These factors include the availability and cost of credit, declining business and consumer confidence and increased unemployment. These conditions have combined to create an unprecedented level of market volatility, which could negatively impact our ability to access capital and financing (including financing necessary to refinance our existing indebtedness), on terms and at prices acceptable to us, that we would otherwise need in connection with the operation of our businesses.

Risk Factors Relating to our Operations

Our business is sensitive to reductions in discretionary consumer spending as a result of downturns in the economy

Consumer demand for casino hotel and racetrack properties such as ours is particularly sensitive to downturns in the economy and the associated impact on discretionary spending on leisure activities. Changes in discretionary consumer spending or consumer preferences brought about by factors such as perceived or actual general economic conditions, effects of declines in consumer confidence in the economy, including the recent housing, employment and credit crisis, the impact of high energy and food costs, the increased cost of travel, the potential for continued bank failures, decreased disposable consumer income and wealth, or fears of war and future acts of terrorism could further reduce customer demand for the amenities that we offer, which have had, and may continue to have, a negative impact on our results of operations. Increases in gasoline prices, including increases prompted by global political and economic instabilities, can adversely affect our operations because most of our patrons travel to our properties by car or on airlines that may pass on increases in fuel costs to passengers in the form of higher ticket prices. Economic downturns and other related factors which impact discretionary consumer spending and other economic activities have had direct effects on

17


 

our business and the tourism industry in the past. We cannot be sure how these factors will impact our operations in the future or the extent of the impact.

We face substantial competition in the hotel and casino industry and expect that such competition will continue

The gaming industry is characterized by an increasingly high degree of competition among a large number of participants, including land‑based casinos, dockside casinos, riverboat casinos, casinos located on Native American reservations and other forms of legalized gaming. There is intense competition among companies in the gaming industry, many of which have significantly greater resources than we do. Certain states have legalized casino gaming and other states may legalize gaming in the future. Legalized casino gaming in these states and on Native American reservations near our markets or changes to gaming laws in states surrounding Nevada, Louisiana, West Virginia, Pennsylvania, or Ohio could increase competition and could adversely affect our operations. We also compete, to a lesser extent, with gaming facilities in other jurisdictions with dockside gaming facilities, state sponsored lotteries, on‑and‑off track pari‑mutuel wagering, card clubs, riverboat casinos and other forms of legalized gambling. In addition, various forms of internet gaming have been approved in Nevada and New Jersey and legislation permitting internet gaming has been proposed by the federal government and other states. The expansion of internet gaming in Nevada and other jurisdictions could result in significant additional competition.

Gaming competition is intense in most of the markets in which we operate. There has been significant competition in our markets as a result of the expansion of facilities by existing market participants, the entrance of new gaming participants into a market or legislative changes in prior years. For example, casino gaming is currently prohibited in several jurisdictions from which the Shreveport/Bossier City market draws customers, primarily Texas. The Texas legislature has from time to time considered proposals to legalize gaming, and there can be no assurance that casino gaming will not be approved in Texas in the future, which would have a material adverse effect on our business. Additionally, since visitors from California comprise a significant portion of our customer base in Reno, we also compete with Native American gaming operations in California. Native American tribes are allowed to operate slot machines, lottery games and banking and percentage games on Native American lands. Although many existing Native American gaming facilities in northern California are modest compared to the Nevada properties, a number of Native American tribes have established large‑scale gaming facilities in California. Additionally, a hotel casino opened in Bossier City across the Red River from Eldorado Shreveport opened in June 2013 and in December 2014, a land‑based opened in Lake Charles, Louisiana approximately 200 miles south of Eldorado Shreveport, but closer to the Houston, Texas market. With respect to our MTR Gaming facilities, an additional license has been granted for a casino to be located in Lawrence County, Pennsylvania, approximately 45 miles from Mountaineer and 90 miles from Presque Isle Downs, which would result in further competition for both of those properties. Further, gaming facilities in Ohio that commenced operations in recent years, including the Horseshoe Casino Cleveland, Hollywood Casino Columbus, ThistleDown Racino, Austintown, Hollywood Mahoning Casino, Hollywood Casinos, at Dayton Raceway and Northfield Park, present significant competition for Mountaineer, Presque Isle Downs and Scioto Downs.

Increased competition may require us to make substantial capital expenditures to maintain and enhance the competitive positions of our properties to increase the attractiveness and add to the appeal of our facilities. Because we are highly leveraged, after satisfying our obligations under our outstanding indebtedness, there can be no assurance that we will have sufficient funds to undertake these expenditures or that we will be able to obtain sufficient financing to fund such expenditures. If we are unable to make such expenditures, our competitive position could be materially adversely affected.

We will be subject to extensive state and local regulation and licensing, and gaming authorities have significant control over our operations, which could have an adverse effect on our business

The ownership and operation of casino gaming, riverboat and horseracing facilities are subject to extensive federal, state, and local regulation, and regulatory authorities at the federal, state, and local levels have broad powers with respect to the licensing of gaming businesses and may revoke, suspend, condition or limit our gaming or other licenses, impose substantial fines, and take other actions, each of which poses a significant risk to our business, financial condition, and results of operations. We currently hold all state and local licenses and related approvals necessary to conduct our present gaming operations, but we must periodically apply to renew many of our licenses and registrations.

18


 

We cannot assure you that we will be able to obtain such renewals. Any failure to maintain or renew our existing licenses, registrations, permits or approvals would have a material adverse effect on us. Furthermore, if additional laws or regulations are adopted or existing laws or regulations are amended, these regulations could impose additional restrictions or costs that could have a significant adverse effect on us. As an example, on August 26, 2014, the Board of Health of Hancock County, West Virginia adopted and approved the Clean Air Regulation Act of 2014 (“Regulation”), which became effective July 1, 2015. The Regulation bans smoking in public places in Hancock County including at Mountaineer. To comply with the Regulation upon its effective date, Mountaineer built a 9,300 square foot smoking pavilion which opened on July 1, 2015 and currently houses 216 slot machines and six table games. Notwithstanding our efforts to mitigate the impact of the smoking ban, the Regulation has had a negative impact on our business and results of operations at Mountaineer and we expect that it will continue to negatively impact our business and results of operations and such impact may be material.

Any of the Nevada Gaming Commission, the Louisiana Gaming Control Board, the West Virginia Alcohol Beverage Control Administration, the West Virginia Lottery Commission, the West Virginia Racing Commission, the Pennsylvania Gaming Control Board, the Pennsylvania Racing Commission, the Pennsylvania Liquor Control Board, the Ohio Lottery Commission, and the Ohio State Racing Commission (which we refer to collectively as the Gaming Authorities) may, in their discretion, require the holder of any securities issued by us to file applications, be investigated, and be found suitable to own our securities if it has reason to believe that the security ownership would be inconsistent with the declared policies of their respective jurisdictions. Further, the costs of any investigation conducted by any of the Gaming Authorities under these circumstances must be paid by the applicant, and refusal or failure to pay these charges may constitute grounds for a finding that the applicant is unsuitable to own the securities. If any of the Gaming Authorities determines that a person is unsuitable to own our securities, then, under the applicable gaming or horse racing laws and regulations, we can be sanctioned, including the loss of their approvals, if, without the prior approval of the applicable Gaming Authority, we conduct certain business with the unsuitable person.

Our officers, directors, and key employees will also be subject to a variety of regulatory requirements and various licensing and related approval procedures in the various jurisdictions in which we operate gaming facilities. If any of the applicable Gaming Authorities were to find an officer, director or key employee of ours unsuitable for licensing or unsuitable to continue having a relationship with us, we would have to sever all relationships with that person. Furthermore, the Gaming Authorities may require us to terminate the employment of any person who refuses to file appropriate applications. Either result could materially adversely affect our gaming operations.

Applicable gaming laws and regulations restrict our ability to issue securities, incur debt and undertake other financing activities. Such transactions would generally require approval of applicable Gaming Authorities, and our financing counterparties, including lenders, might be subject to various licensing and related approval procedures in the various jurisdictions in which we operate gaming facilities. If state regulatory authorities were to find any person unsuitable with regard to his, her or its relationship to us or any of our subsidiaries, we would be required to sever our relationships with that person, which could materially adversely affect our business.

In addition, gaming companies are generally subject to significant revenue based taxes and fees in addition to normal federal, state, and local income taxes, and such taxes and fees are subject to increase at any time. We pay substantial taxes and fees with respect to our operations. From time to time, federal, state, and local legislators and officials have proposed changes in tax laws, or in the administration of such laws, affecting the gaming industry. In addition, worsening economic conditions could intensify the efforts of state and local governments to raise revenues through increases in gaming taxes and/or property taxes. It is not possible to determine with certainty the likelihood of changes in tax laws or in the administration of such laws. Such changes, if adopted, could have a material adverse effect on our business, financial condition and results of operations. The large number of state and local governments with significant current or projected budget deficits makes it more likely that those governments that currently permit gaming will seek to fund such deficits with new or increased gaming taxes and/or property taxes, and worsening economic conditions could intensify those efforts. Any material increase, or the adoption of additional taxes or fees, could have a material adverse effect on our future financial results.

We rely on our key personnel and we may face difficulties in attracting and retaining qualified employees for our casinos and race tracks

19


 

Our future success will depend upon, among other things, our ability to keep our senior executives and highly qualified employees. We compete with other potential employers for employees, and we may not succeed in hiring or retaining the executives and other employees that we need. A sudden loss of or inability to replace key employees could have a material adverse effect on our business, financial condition and results of operation.

In addition, the operation of our business requires qualified executives, managers and skilled employees with gaming and horse racing industry experience and qualifications who are able to obtain the requisite licenses and approval from the applicable Gaming Authorities. While not currently the case, there has from time to time been a shortage of skilled labor in our markets. In addition to limitations that may otherwise exist in the supply of skilled labor, the continued expansion of gaming near our facilities, including the expansion of Native American gaming, may make it more difficult for us to attract qualified individuals. While we believe that we will continue to be able to attract and retain qualified employees, shortages of skilled labor will make it increasingly difficult and expensive to attract and retain the services of a satisfactory number of qualified employees, and we may incur higher costs than expected as a result.

We depend on agreements with our horsemen and pari‑mutuel clerks to operate our business

The Federal Interstate Horse Racing Act and the state racing laws in West Virginia, Ohio and Pennsylvania require that, in order to simulcast races, we have written agreements with the horse owners and trainers at those racetracks. In addition, in order to operate slot machines in West Virginia, we are required to enter into written agreements regarding the proceeds of the slot machines (a “proceeds agreement”) with a representative of a majority of the horse owners and trainers and with a representative of a majority of the pari‑mutuel clerks.

If we fail to maintain operative agreements with the horsemen at any of our racetracks, we will not be permitted to conduct live racing and export and import simulcasting at the applicable racetrack. In addition, if we fail to maintain operative agreements with the horsemen at Mountaineer, Presque Isle Downs and Scioto Downs (including if we do not have in place the legally required proceeds agreement with the Mountaineer pari‑mutuel clerks union), we will not be permitted to continue our gaming operations at those facilities. If we fail to renew or modify existing agreements on satisfactory terms, this failure could have a material adverse effect on our business, financial condition and results of operations.

Work stoppages, organizing drives and other labor problems could negatively impact our future profits

Some of our employees are currently represented by labor unions. A lengthy strike or other work stoppages at any of our casino properties could have an adverse effect on our business and results of operations. Given the large number of employees, labor unions are making a concerted effort to recruit more employees in the gaming industry. In addition, organized labor may benefit from new legislation or legal interpretations by the current presidential administration. Particularly, in light of current support for changes to federal and state labor laws, we cannot provide any assurance that we will not experience additional and more successful union organization activity in the future.

Because portions of the land on which our facilities are situated are leased, the termination of such leases could adversely affect our business

Resorts owns the parcel on which Eldorado Reno is located, except for approximately 30,000 square feet which is leased from C. S. & Y. Associates, a general partnership of which Donald Carano, father of Gary L. Carano, is a general partner (the “CSY Lease”). The CSY Lease expires on June 30, 2027. If Resorts defaults on a payment under the CSY Lease or if certain other specified events were to occur, C. S. & Y. Associates has the right to terminate the lease and take possession of the property located on the premises. If C. S. & Y. Associates were to exercise these rights, this could adversely affect our business.

A subsidiary of Resorts is party to a ground lease with the City of Shreveport for the land on which Eldorado Shreveport was built (the “Shreveport Lease”). The Shreveport Lease automatically renewed on June 17, 2015, and will be available for automatic renewal again on December 20, 2020. If Resorts defaults on a payment under the Shreveport

20


 

Lease or if certain other specified events were to occur, the City of Shreveport could terminate the lease. If the City of Shreveport were to exercise this right, this could adversely affect our business.

Circus Reno is situated on a three block area in downtown Reno, of which approximately 90% of the underlying land is owned by the Company and the remainder is held under two separate leases which expire in 2032 and 2033, respectively. If the Company defaults on a payment under the leases, the lessor could terminate the lease.

 

Because we own real property, we will be subject to extensive environmental regulation, which creates uncertainty regarding future environmental expenditures and liabilities

We are subject to various federal, state and local environmental, health and safety laws and regulations that govern activities that may have adverse environmental effects, such as discharges to air and water, as well as the use, storage, discharge, emission and disposal of solid, animal and hazardous wastes and exposure to hazardous materials. These laws and regulations are complex and frequently subject to change. In addition, our horseracing facilities are subject to laws and regulations that address the impacts of manure and wastewater generated by Concentrated Animal Feeding Operations (“CAFO”) on water quality, including, but not limited to, storm water discharges. CAFO regulations include permit requirements and water quality discharge standards. Enforcement of CAFO regulations has been receiving increased governmental attention. Compliance with these and other environmental laws can, in some circumstances, require significant capital expenditures. We have from time to time been responsible for investigating and remediating, or contributing to remediation costs related to, contamination located at or near certain of our facilities, including contamination related to underground storage tanks and groundwater contamination arising from prior uses of land on which certain of our facilities are located. In addition, we have been, and may in the future be, required to manage, abate, remove or contain manure and wastewater generated by concentrated animal feeding operations due to our racetrack operations, mold, lead, asbestos‑containing materials or other hazardous conditions found in or on our properties. Moreover, violations can result in significant fines or penalties and, in some instances, interruption or cessation of operations.

We are also subject to laws and regulations that create liability and cleanup responsibility for releases of regulated materials into the environment. Certain of these laws and regulations impose strict, and under certain circumstances joint and several, liability on a current or previous owner or operator of property for the costs of remediating regulated materials on or emanating from its property. The costs of investigation, remediation or removal of those substances may be substantial.

An earthquake, flood, act of terrorism other natural disasters could adversely affect our business

Although we maintain insurance that is customary and appropriate for our business, each of our insurance policies is subject to certain exclusions. In addition, in some cases our property insurance coverage is combined among certain of our properties or is otherwise in an amount that may be significantly less than the expected replacement cost of rebuilding our facilities in the event of a total loss. Such losses may occur as a result of any number of casualty events, including as a result of earthquakes, floods, hurricanes or other severe weather conditions. In particular, the Reno area has been, and may in the future be, subject to earthquakes and other natural disasters and Eldorado Shreveport is located in a designated flood zone. Inadequate insurance or lack of available insurance for these and other certain types or levels of risk could expose us to significant losses in the event that a catastrophe occurred for which we are underinsured. In addition to the damage caused to our properties by a casualty loss, we may suffer business disruption as a result of the casualty event or be subject to claims by third parties that may be injured or harmed. While we carry general liability insurance and business interruption insurance, there can be no assurance that insurance will be available or adequate to cover all loss and damage to which our business or our assets might be subjected. In addition, certain casualty events, such as labor strikes, nuclear events, loss of income due to terrorism, deterioration or corrosion, insect or animal damage and pollution, may not be covered under our policies. Any losses we incur that are not adequately covered by insurance may decrease our future operating income, require us to fund replacements or repairs for destroyed property and reduce the funds available for payments of our obligations. In addition, upon the expiration of our current policies which expire in August 2016 (subject to annual renewal), we cannot assure that adequate coverage will be available at economically justifiable rates, if at all.

21


 

We are subject to risks relating to mechanical failure

All of our facilities will generally be subject to the risk that operations could be halted for a temporary or extended period of time, as the result of casualty, forces of nature, mechanical failure, or extended or extraordinary maintenance, among other causes. In addition, our gaming operations could be damaged or halted due to extreme weather conditions. These risks are particularly pronounced at Eldorado Shreveport’s riverboat and dockside facilities because of their location on and adjacent to water.

We are or may become involved in legal proceedings that, if adversely adjudicated or settled, could impact our business and financial condition

From time to time, we are named in lawsuits or other legal proceedings relating to our respective businesses. In particular, the nature of our business subjects us to the risk of lawsuits filed by customers, past and present employees, competitors, business partners and others in the ordinary course of business. As with all legal proceedings, no assurances can be given as to the outcome of these matters. Moreover, legal proceedings can be expensive and time consuming, and we may not be successful in defending or prosecuting these lawsuits, which could result in settlements or damages that could significantly impact our business, financial condition and results of operations.

Our information technology and other systems are subject to cyber security risk including misappropriation of customer information or other breaches of information security

Our operations require that we collect customer data, including credit card numbers and other personally identifiable information, for various business purposes, including marketing and promotional purposes. The collection and use of personal data are governed by privacy laws and regulations enacted in the United States and other jurisdictions around the world. Privacy regulations continue to evolve and on occasion may be inconsistent from one jurisdiction to another. Compliance with applicable privacy regulations may increase our operating costs and/or adversely impact our ability to market our products, properties and services to our customers. In addition, non‑compliance with applicable privacy regulations by us (or in some circumstances non‑compliance by third parties engaged by us) or a breach of security on systems storing our data, including due to cyber‑attack, system failure, computer virus or unauthorized or fraudulent use by customers, employees or employees of third party vendors, may result in damage of reputation and/or subject us to fines, payment of damages, lawsuits or restrictions on our use or transfer of data.

Our operations have historically been subject to seasonal variations and quarterly fluctuations in operating results, and we can expect to experience such variations and fluctuation in the future

Historically, our operations have typically been subject to seasonal variations.

Our Reno, Nevada properties’ strongest operating results have generally occurred in the second and third quarters and the weakest results have generally occurred during the period from November through February when weather conditions adversely affected operating results. In the Reno market, excessive snowfall during the winter months can make travel to the Reno area more difficult. This often results in significant declines in traffic on major highways, particularly on routes to and from Northern California, and causes a decline in customer volume. Furthermore, management believes that approximately two‑thirds of visitors to the Reno market arrive by some form of ground transportation.

In addition, winter conditions can frequently adversely affect transportation routes to Mountaineer, Presque Isle Downs and Scioto Downs and cause cancellations of live horse racing. As a result, unfavorable seasonal conditions could have a material adverse effect on our operations.

In general, it is unlikely that we will be able to obtain business interruption coverage for casualties resulting from severe weather, and there can be no assurance that we will be able to obtain casualty insurance coverage at affordable rates, if at all, for casualties resulting from severe weather.

22


 

Because we will be heavily dependent upon hotel/casino and related operations that are conducted in certain limited regions, we will be subject to greater risks than a company that is geographically or otherwise more diversified

Our business is heavily dependent upon hotel/casino and related operations that are conducted in three discrete markets. As a result, we are still subject to a greater degree of risk than a gaming company that has greater geographical diversity. The risks to which we have a greater degree of exposure include the following:

local economic and competitive conditions;

inaccessibility due to weather conditions, road construction or closure of primary access routes;

changes in local and state governmental laws and regulations, including gaming laws and regulations;

natural and other disasters, including earthquakes and flooding;

a decline in the number of residents in or near, or visitors to, our operations; and

a decrease in gaming activities at any of our facilities.

Any of the factors outlined above could adversely affect our ability to generate sufficient cash flow to make payments on our outstanding indebtedness.

Significant negative industry or economic trends, reduced estimates of future cash flows, disruptions to our business, slower growth rates or lack of growth in our business may cause us to incur impairments to indefinite-lived intangible assets or long‑lived assets

We test indefinite-lived intangible assets for impairment annually or if a triggering event occurs. We will also be required to consider whether the fair values of any of our investments accounted for under the equity method have declined below their carrying value whenever adverse events or changes in circumstances indicate that recorded values may not be recoverable. Estimated fair value is determined using a discounted cash flow analysis based on estimated future results of the investee and market indicators of the terminal year capitalization rate. If any such declines are considered to be other than temporary, we will be required to record a write‑down to estimated fair value.

Security concerns, terrorist attacks and other geopolitical events could have a material adverse effect on our future operations

Security concerns, terrorist attacks and other geopolitical events can have a material adverse effect on leisure and business travel, discretionary spending and other areas of economic behavior that directly impact the gaming and entertainment industries in general and our business in particular. We cannot predict the extent to which any future security alerts, terrorist attacks or other geopolitical events might impact our business, results of operations or financial condition.

Risks Related to the Circus Reno/Silver Legacy Purchase and the Merger

We may not realize all of the anticipated benefits of Circus Reno/Silver Legacy Purchase and the Merger and we may encounter difficulties in integrating Circus Reno, Silver Legacy and the MTR Gaming properties with our operations

Our ability to realize the anticipated benefits of the acquisition of the Silver Legacy and Circus Reno will depend, to a large extent, on our ability to integrate our existing business with those businesses. Combining independent businesses is a complex, costly and time‑consuming process. In addition, while we have made significant progress in integrating the operations of MTR Gaming into our operations, the Merger was only recently consummated and completion of the integration of five different properties within a relatively short period of time may create additional challenges. As a result, we will be required to devote significant management attention and resources to integrating the businesses and operations of Eldorado, MTR Gaming, the Silver Legacy and Circus Reno. The integration process may

23


 

disrupt the combined business and, if implemented ineffectively, could preclude the realization of the full benefits of our acquisition transactions. In addition, we may pursue additional acquisition opportunities in the future, which would present further integration challenges. Our failure to meet the challenges involved in integrating the businesses that we have acquired or propose to acquire or to realize the anticipated benefits of such transactions could cause an interruption of, or a loss of momentum in, the activities of the Company and could adversely affect the Company’s results of operations. In addition, the combined company’s results of operations may not meet our expectations, which would then make it difficult to service our outstanding debt obligations.

The overall integration of the businesses may result in unanticipated problems. We may encounter unexpected expenses, liabilities, competitive responses and loss of customer relationships as we integrate the acquired business, all of which could divert management’s attention. The difficulties of combining the operations of the companies include, among others:

·

the diversion of certain management’s attention to integration matters;

·

difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects from combining our business with that of MTR Gaming, Silver Legacy and Circus Reno;

·

difficulties in integrating operations, business practices, internal controls and systems;

·

difficulties in assimilating employees;

·

difficulties in managing the expanded operations of a larger and more complex company;

·

challenges in retaining existing customers and suppliers;

·

challenges in obtaining new customers and suppliers;

·

potential unknown liabilities and unforeseen increased expenses associated with the acquisitions; and

·

challenges in retaining and attracting key personnel.

Many of these factors will be outside of our control and any one of them could result in increased costs, decreases in the amount of expected revenues and diversion of management’s time and energy, which could materially impact the business, financial condition and results of operations of the company. Further, even if the operations of the businesses of the Company, MTR Gaming, Silver Legacy and Circus Reno are integrated successfully, we may not realize the full benefits of the transactions, or the full benefits may not be achieved within the anticipated time frame, or at all.

Our estimates and judgments related to the acquisition accounting models used to record the purchase price allocation may be inaccurate

Our management will make significant accounting judgments and estimates for the application of acquisition accounting under GAAP and the underlying valuation models. Our business, operating results and financial condition could be materially and adversely impacted in future periods if our accounting judgments and estimates related to these models prove to be inaccurate.

24


 

We may be required to recognize impairment charges for other intangible assets

In accordance with GAAP, our management periodically assesses our goodwill and other intangible assets to determine if they are impaired. Significant negative industry or economic trends, disruptions to our business, inability to effectively integrate acquired businesses, unexpected significant changes or planned changes in use of the assets, divestitures and market capitalization declines may impair goodwill and other intangible assets. Any charges relating to such impairments would adversely affect results of operations in the periods recognized.  

Item 1B.  Unresolved Staff Comments.

None.

Item 2.  Properties.

Information relating to the location and general characteristics of our properties is provided in Part I, Item I, Business, Properties.

As of December 31, 2015, our facilities are located on property that we own or lease, as follows:

We lease approximately 30,000 square feet on the approximately 159,000 square foot parcel on which Eldorado Reno is located, in Reno, Nevada.

We also own a 31,000 square foot parcel of property across the street from Eldorado Reno and two other adjacent parcels totaling 18,687 square feet which could be used for expansion of Eldorado Reno.

Silver Legacy is located on five acres in Reno, Nevada.

Circus Reno leases approximately 36,000 square feet on the approximately 10 acres on which Circus Reno is located, in Reno, Nevada.

We lease approximately nine acres of land in Shreveport, Louisiana on which Eldorado Shreveport is located.

Mountaineer is located on approximately 1,730 acres of land that we own in Chester, Hancock County, West Virginia. Included in the 1,730 acres of land is approximately 1,350 acres of land that are considered non‑operating real properties that we intend to sell.

Scioto Downs is located on approximately 208 acres of land that we own in Columbus, Ohio.

Presque Isle Downs is located on 272 acres of land that we own in Summit Township, Erie County, Pennsylvania.

In addition, we own two other parcels of land: a 213‑acre site in McKean Township, Pennsylvania and an 11‑acre site in Summit Township that formerly housed an off‑track wagering facility. These two properties are considered non‑operating real properties that we intend to sell.

Substantially all of our assets are pledged to secure our outstanding indebtedness under the Senior Notes and credit obligations.

Item 3.  Legal Proceedings.

We are a party to various lawsuits, which have arisen in the normal course of our business. Estimated losses are accrued for these lawsuits and claims when the loss is probable and can be estimated. The current liability for the

25


 

estimated losses associated with those lawsuits is not material to our consolidated financial condition and those estimated losses are not expected to have a material impact on our results of operations.

Item 4.  Mine Safety Disclosures.

Not applicable.

26


 

PART II

Item 5.  Market for Registrants’ Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities.

On September 19, 2014, the Company issued an aggregate of 23,311,492 shares of common stock to former members of HoldCo upon consummation of the Merger. In December 2014, pursuant to the terms of the Merger Agreement, 25,290 shares were returned to the Company as a result of a post‑closing adjustment, resulting in a total of 23,286,202 shares of common stock issued to former members of HoldCo as a result of the Merger.

Our Common Stock began trading on September 22, 2014 and is quoted on the NASDAQ Global Select Market under the symbol “ERI”. On March 2, 2016, the NASDAQ Official Closing Price for our common stock was $10.50. As of March 2, 2016, there were 671 of record holders of our common stock.

The agreements governing our outstanding indebtedness restrict our ability to pay dividends. We historically have not paid cash dividends and do not intend to pay such dividends in the foreseeable future. For further information relating to our and our subsidiaries’ dividend policies, see Part II, Item 7, Liquidity and Capital Resources, included in this report.

The following table sets forth the range of high and low closing sale prices for our common stock since it began trading on September 22, 2014.

 

 

 

 

 

 

 

 

 

 

Stock Price

 

 

    

High

    

Low

 

Year Ended December 31, 2015:

 

 

 

 

 

 

 

First quarter

 

$

5.68

 

$

3.81

 

Second quarter

 

 

8.76

 

 

5.00

 

Third quarter

 

 

10.04

 

 

7.56

 

Fourth quarter

 

 

11.61

 

 

8.47

 

 

 

 

 

 

 

 

 

Year Ended December 31, 2014:

 

 

 

 

 

 

 

Third quarter

 

$

4.75

 

$

3.61

 

Fourth quarter

 

 

4.40

 

 

3.74

 

Equity Compensation Plan Information

The following table sets forth information as of December 31, 2015, with respect to compensation plans under which equity securities of the Company are authorized for issuance.

 

 

 

 

 

 

 

 

 

 

  

 

  

 

 

  

Number of securities

 

 

 

 

 

 

 

 

remaining available for

 

 

 

 

 

 

 

 

future issuance under

 

 

 

Number of securities to

 

Weighted average

 

equity compensation

 

 

 

be issued upon exercise

 

exercise price of

 

plans (excluding

 

 

 

of outstanding options,

 

outstanding options,

 

securities reflected

 

Plan Category

 

warrants and rights

 

warrants and rights

 

in column (a))

 

 

 

(a)

 

 

(b)

 

(c)

 

MTR Gaming Group, Inc. 2010 Long Term Incentive Plan

 

312,200

 

$

6.94

 

1,747,759

 

 

 

 

 

 

 

 

 

 

Eldorado Resorts, Inc. 2015 Equity Incentive Plan

 

917,283

 

$

4.09

 

3,882,717

 

 

The Eldorado Resorts, Inc. 2015 Equity Incentive Plan was approved by our shareholders in June 2015. No future equity awards will be made pursuant to the MTR Gaming Group, Inc. 2010 Long Term Incentive Plan (“MTR Plan”). However, outstanding awards granted under the MTR Plan will continue unaffected.

27


 

Stock Performance Graph

The following graph demonstrates a comparison of cumulative total returns of the Company, the NASDAQ Market Index (which is considered to be a broad index) and the Dow Jones US Gambling Index for the period since the Company’s common stock began trading on September 22, 2014. The following graph assumes $100 invested in each of the above groups and the reinvestment of dividends, if applicable.

Comparison of Cumulative Total Return Since the Merger Date

Assumes Initial Investment of $100

    December 2015

 

Item 6.  Selected Financial Data.

The following table sets forth selected consolidated financial data of the Company for each of the five years ended December 31, 2015. This information should be read in conjunction with the audited consolidated financial statements contained elsewhere in this report. Operating results for the periods presented below are not necessarily indicative of the results that may be expected for future years.

On November 24, 2015 (the “Acquisition Date”), we consummated the acquisition of all of the assets and properties of Circus Reno and the other 50% membership interest in the Silver Legacy Joint Venture owned by MGM Resorts International (collectively, the “Circus Reno/Silver Legacy Purchase” or the “Acquisition”). On the Acquisition Date, Eldorado Resorts LLC also exercised its right to acquire the 3.8% interest in ELLC held by certain affiliates and shareholders of the Company. As a result of these transactions, ELLC became a wholly-owned subsidiary of ERI and Silver Legacy became an indirect wholly‑owned indirect subsidiary of ERI.

The merger with MTR Gaming closed on September 19, 2014 (the “Merger Date”) and has been accounted for as a reverse acquisition of MTR Gaming by HoldCo under accounting principles generally accepted in the United States. As a result, HoldCo is considered the acquirer of MTR Gaming for accounting purposes. The financial information included in the following table for periods prior to the Merger Date are those of Resorts and its subsidiaries. The

28


 

presentation of information herein for periods prior to the Merger Date and the Acquisition Date and after the Merger Date and Acquisition Date, respectively, are not fully comparable because the results of operations for MTR Gaming and Circus Reno are not included for periods prior to the Merger Date or Acquisition Date, respectively, and the results of operations of the Silver Legacy Joint Venture were not consolidated prior to the Acquisition Date (see Note 1 below)

 

29


 

SELECTED CONSOLIDATED FINANCIAL DATA

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

 

    

2015

    

2014

    

2013

    

2012

    

2011

 

Consolidated Statement of Operations Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Casino

 

$

614,227

 

$

298,848

 

$

192,379

 

$

200,292

 

$

201,253

 

Pari-mutuel commissions

 

 

9,031

 

 

1,986

 

 

 

 

 

 

 

Food and beverage

 

 

97,740

 

 

68,233

 

 

60,556

 

 

59,317

 

 

58,915

 

Hotel

 

 

37,466

 

 

28,007

 

 

26,934

 

 

26,203

 

 

26,547

 

Other

 

 

26,077

 

 

13,198

 

 

10,384

 

 

10,458

 

 

10,754

 

 

 

 

784,541

 

 

410,272

 

 

290,253

 

 

296,270

 

 

297,469

 

Less promotional allowances

 

 

(64,757)

 

 

(48,449)

 

 

(43,067)

 

 

(41,530)

 

 

(41,397)

 

Net operating revenues

 

 

719,784

 

 

361,823

 

 

247,186

 

 

254,740

 

 

256,072

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Casino

 

 

357,572

 

 

167,792

 

 

101,913

 

 

104,044

 

 

104,057

 

Pari-mutuel commissions

 

 

9,973

 

 

2,411

 

 

 

 

 

 

 

Food and beverage

 

 

52,606

 

 

37,411

 

 

28,982

 

 

29,095

 

 

29,238

 

Hotel

 

 

11,307

 

 

8,536

 

 

7,891

 

 

8,020

 

 

7,866

 

Other

 

 

15,325

 

 

9,348

 

 

7,290

 

 

7,279

 

 

7,764

 

Marketing and promotions

 

 

31,227

 

 

21,982

 

 

17,740

 

 

18,724

 

 

18,743

 

General and administrative

 

 

96,870

 

 

58,738

 

 

43,713

 

 

44,936

 

 

44,817

 

Corporate

 

 

16,469

 

 

4,617

 

 

 

 

 

 

 

Depreciation and amortization

 

 

56,921

 

 

28,643

 

 

17,031

 

 

17,651

 

 

19,780

 

Operating expenses

 

 

648,270

 

 

339,478

 

 

224,560

 

 

229,749

 

 

232,265

 

Loss on sale or disposition of property

 

 

(6)

 

 

(84)

 

 

(226)

 

 

(198)

 

 

(120)

 

Acquisition charges

 

 

(2,452)

 

 

(7,411)

 

 

(3,173)

 

 

 —

 

 

 —

 

Equity in income (losses) of unconsolidated affiliates(1)

 

 

3,460

 

 

2,705

 

 

3,355

 

 

(8,952)

 

 

(3,695)

 

Impairment of investment in joint venture(2)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(33,066)

 

Operating income (loss)

 

 

72,516

 

 

17,555

 

 

22,582

 

 

15,841

 

 

(13,074)

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(61,558)

 

 

(30,734)

 

 

(15,665)

 

 

(16,055)

 

 

(18,445)

 

Gain on extinguishment of debt of unconsolidated affiliate

 

 

 

 

 

 

11,980

 

 

 

 

 

Gain on valuation of unconsolidated affiliate

 

 

35,582

 

 

 

 

 

 

 

 

 

Gain on termination of supplemental executive retirement plan

 

 

 

 

715

 

 

 

 

 

 

 

Loss on property donation

 

 

 

 

 

 

 

 

(755)

 

 

 

(Loss) gain on early retirement of debt, net

 

 

(1,937)

 

 

(90)

 

 

 —

 

 

(22)

 

 

2,499

 

Total other expense

 

 

(27,913)

 

 

(30,109)

 

 

(3,685)

 

 

(16,832)

 

 

(15,946)

 

Net income (loss) before income taxes

 

 

44,603

 

 

(12,554)

 

 

18,897

 

 

(991)

 

 

(29,020)

 

Benefit (provision) for income taxes(3)

 

 

69,580

 

 

(1,768)

 

 

 

 

 

 

 

Net income (loss)

 

 

114,183

 

 

(14,322)

 

 

18,897

 

 

(991)

 

 

(29,020)

 

Less net (income) loss attributable to non-controlling interest(4)

 

 

 

 

(103)

 

 

 

 

 

 

4,807

 

Net income (loss) attributable to the Company(4)

 

$

114,183

 

$

(14,425)

 

$

18,897

 

$

(991)

 

$

(24,213)

 

Basic net income (loss) per common share

 

$

2.45

 

$

(0.48)

 

$

0.81

 

$

(0.04)

 

$

(1.04)

 

Diluted net income (loss) per common share

 

$

2.43

 

$

(0.48)

 

$

0.81

 

$

(0.04)

 

$

(1.04)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating activities

 

$

56,715

 

$

31,606

 

$

23,536

 

$

28,366

 

$

21,171

 

Investing activities

 

 

(158,754)

 

 

40,413

 

 

(7,560)

 

 

(21,832)

 

 

(7,715)

 

Financing activities

 

 

92,713

 

 

(14,228)

 

 

(11,466)

 

 

(11,381)

 

 

(31,439)

 

Capital expenditures

 

 

36,762

 

 

10,564

 

 

7,413

 

 

9,181

 

 

7,889

 

Operating Data(5):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of hotel rooms(6)

 

 

4,853

 

 

1,571

 

 

1,217

 

 

1,217

 

 

1,217

 

Average hotel occupancy rate(7)

 

 

77.9

%  

 

84.1

%  

 

85.1

%  

 

84.1

%  

 

86.3

%  

Number of slot machines(6)

 

 

10,281

 

 

8,665

 

 

2,738

 

 

2,779

 

 

2,751

 

Number of table games(6)

 

 

263

 

 

177

 

 

100

 

 

97

 

 

99

 

 

 

30


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31,

 

 

    

2015

    

2014

    

2013

    

2012

    

2011

 

Consolidated Balance Sheet Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

78,278

 

$

87,604

 

$

29,813

 

$

25,303

 

$

30,150

 

Total assets

 

 

1,325,008

 

 

1,171,559

 

 

270,182

 

 

262,525

 

 

272,662

 

Total debt

 

 

892,192

 

 

778,862

 

 

170,760

 

 

176,102

 

 

183,502

 

Stockholders’ equity

 

 

270,667

 

 

151,622

 

 

75,575

 

 

61,003

 

 

66,023

 


Footnotes to Selected Consolidated Financial Data:

(1)Except as explained in note (2) below, equity in income (losses) of unconsolidated affiliates prior to the Acquisition Date represents (a) Resorts’ 48.1% joint venture interest in the Silver Legacy Joint Venture (or, prior to the Merger Date, its 50% interest in ELLC) and (b) for periods prior to September 1, 2014, Resorts’ 21.3% interest in Tamarack. Since the Company operates in the same line of business as the Silver Legacy and Tamarack, each with casino and/or hotel operations, the Company’s equity in the income (losses) of such affiliates is included in operating income (loss).

(2)As a result of the Company’s identification of triggering events, it recognized non‑cash impairment charges of $33.1 million in 2011 for its investment in the Silver Legacy Joint Venture, which is included in the consolidated statement of operations and comprehensive income. Such impairment charge eliminated the Company’s remaining investment in the Silver Legacy Joint Venture. Non‑controlling interests in the Silver Legacy Joint Venture were allocated $4.8 million of the non‑cash impairments, eliminating the remaining non‑controlling interest. As a result of the elimination of the Company’s remaining investment in the Silver Legacy Joint Venture as of December 31, 2011, we discontinued the equity method of accounting for our investment in the Silver Legacy Joint Venture until the fourth quarter of 2012 when additional investments in the Silver Legacy were made. At such time, the Company recognized its share of the Silver Legacy Joint Venture’s suspended net losses not recognized during the period the equity method of accounting was discontinued and resumed the equity method of accounting for its investment.

(3)Prior to September 19, 2014, HoldCo was taxed as a partnership under the Internal Revenue Code pursuant to which income taxes were primarily the responsibility of the partners. On September 18, 2014, as part of the merger with MTR Gaming, ERI became a C Corporation subject to the federal and state corporate‑level income taxes at prevailing corporate tax rates. While taxed as a partnership, HoldCo was not subject to federal income tax liability. Because holders of membership interests in HoldCo were required to include their respective shares of HoldCo and Resorts’ taxable income (loss) in their individual income tax returns, Resorts made distributions to its member, HoldCo and HoldCo made distributions to its members to cover such liabilities.

(4)Prior to the Acquisition Date, non‑controlling interest represented the minority partners’ share of ELLC’s 50% joint venture interest in the Silver Legacy Joint Venture. The non‑controlling interest in ELLC was owned by certain HoldCo equity holders and was approximately 4%. The non‑controlling interest in the Silver Legacy was 1.9%. The Company acquired the remaining 50% joint venture interest pursuant to the Circus Reno/Silver Legacy Purchase and exercised its rights to acquire the non‑controlling interest of ELLC.

(5)Excludes the operating data of the Silver Legacy, Circus Reno and Tamarack prior to the Acquisition Date.

(6)As of the end of each period presented. Total table games does not include poker games and total slot machines includes VLTs.

(7)For each period presented.

 

 

31


 

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion together with the financial statements, including the related notes and the other financial information, contained in this Annual Report on Form 10-K.

General

Eldorado Resorts, Inc. (“ERI” or the “Company”), a Nevada corporation, was formed in September 2013 to be the parent company following the merger of wholly owned subsidiaries of the Company into Eldorado HoldCo LLC (“HoldCo”), a Nevada limited liability company formed in 2009 that is the parent company of Eldorado Resorts LLC (“Resorts”), and MTR Gaming Group, Inc. (“MTR Gaming”), a Delaware corporation incorporated in 1988 (the “Merger”). Effective upon the consummation of the Merger on September 19, 2014 (the “Merger Date”), MTR Gaming and HoldCo each became a wholly owned subsidiary of ERI and, as a result of such transactions, Resorts became an indirect wholly owned subsidiary of ERI.

Resorts owns and operates the Eldorado Resort Casino Reno, a premier hotel, casino and entertainment facility centrally located in downtown Reno, Nevada (the “Eldorado Reno”), which opened for business in 1973. Resorts also owns Eldorado Resort Casino Shreveport (“Eldorado Shreveport”), a 403‑room all suite art deco‑style hotel and a tri‑level riverboat dockside casino complex situated on the Red River in Shreveport, Louisiana, which commenced operations under its previous owners in December 2000.

Prior to the Acquisition Date, Resorts owned a 48.1% interest in the joint venture (the “Silver Legacy Joint Venture”) which owns the Silver Legacy Resort Casino (the “Silver Legacy”), a major themed hotel and casino situated between and seamlessly connected at the mezzanine level to the Eldorado Reno and Circus Reno, (collectively the “Reno Tri-Properties”), a hotel and casino previously owned and operated by Galleon, Inc., an indirect, wholly owned subsidiary of MGM Resorts International.

On November 24, 2015, Resorts consummated the Circus Reno/Silver Legacy Purchase pursuant to that certain Purchase and Sale Agreement, dated as of July 7, 2015 (the “Purchase Agreement”), entered into by certain of our subsidiaries with Circus Circus Casinos, Inc. and Galleon, Inc., each an affiliate of MGM Resorts International, with respect to the acquisition. On the Acquisition Date, Eldorado Resorts LLC also exercised its right to acquire the 3.8% interest in Eldorado Limited Liability Company (“ELLC”) held by certain affiliates and shareholders of the Company. As a result of these transactions, ELLC and CC-Reno, LLC, a newly formed Nevada limited liability company, became wholly-owned subsidiaries of ERI, and Silver Legacy became an indirect wholly‑owned subsidiary of ERI.

Resorts previously owned a 21.3% interest in Tamarack Crossing, LLC (“Tamarack”), a Nevada limited liability company that owned and operated Tamarack Junction, a casino in south Reno which commenced operations on September 4, 2001. On September 1, 2014, and as a condition to closing the Merger, Resorts distributed to HoldCo, and HoldCo subsequently distributed to its members on a pro rata basis Resorts’ interest in Tamarack. No gain or loss was recognized in the accompanying consolidated financial statements as a result of such distribution because the distribution was in the amount of the book value of Tamarack and totaled $5.5 million.

MTR Gaming operates as a hospitality and gaming company with racetrack, gaming and hotel properties in West Virginia, Pennsylvania and Ohio. MTR Gaming, through its wholly owned subsidiaries, owns and operates Mountaineer Casino, Racetrack & Resort in Chester, West Virginia (“Mountaineer”), Presque Isle Downs & Casino in Erie, Pennsylvania (“Presque Isle Downs”), and Eldorado Gaming Scioto Downs (“Scioto Downs”) in Columbus, Ohio. Scioto Downs, through its subsidiary, RacelineBet, Inc., also operates Racelinebet.com, a national account wagering service that offers online and telephone wagering on horse races as a marketing affiliate of TwinSpires.com, an affiliate of Churchill Downs, Inc.

Presentation of Financial Information

ERI, HoldCo and MTR Gaming are collectively referred to as “we,” “us,” “our” or the “Company.” The financial information included in this Item 7 for periods prior to the Acquisition Date are those of Resorts and its

32


 

subsidiaries including Eldorado Reno, Eldorado Shreveport, MTR Gaming and its interest in the Silver Legacy Joint Venture.

The Merger closed on the Merger Date and has been accounted for as a reverse acquisition of MTR Gaming by HoldCo under accounting principles generally accepted in the United States (“US GAAP”). As a result, HoldCo is considered the acquirer of MTR Gaming for accounting purposes. The financial information included in this Item 7 for periods prior to the Merger Date are those of HoldCo and its subsidiaries. The presentation of information herein for periods prior to the Merger Date and the Acquisition Date and after the Merger Date and Acquisition Date, respectively, are not fully comparable because the results of operations for MTR Gaming and Circus Reno are not included for periods prior to the Merger Date or Acquisition Date, respectively, and the results of operations of the Silver Legacy Joint Venture were not consolidated prior to the Acquisition Date. Summary financial results of MTR Gaming for the year ended December 31, 2014 and 2013 are included in MTR Gaming’s Annual Report on Form 10‑K as filed with the Securities and Exchange Commission (“SEC”).

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide information to assist in better understanding and evaluating our financial condition and results of operations. Our historical operating results may not be indicative of our future results of operations because of these factors and the changing competitive landscape in each of our markets, as well as by factors discussed elsewhere herein. We recommend that you read this MD&A in conjunction with our audited consolidated financial statements and the notes to those statements included in this Annual Report.

Reportable Segments

The Company has aggregated its operating segments into three reportable segments: Eldorado Reno, Silver Legacy and Circus Reno as Nevada, Eldorado Shreveport as Louisiana, and Scioto Downs, Presque Isle Downs and Mountaineer as Eastern.  

Key Performance Metrics

Our primary source of revenue is generated by our gaming operations, but we use our hotels, restaurants, bars, entertainment, retail shops, racing and other services to attract customers to our properties. Our operating results are highly dependent on the volume of customers visiting and staying at our properties. Key performance metrics include volume indicators such as table games drop and slot handle, which refer to amounts wagered by our customers. The amount of volume we retain, which is not fully controllable by us, is recognized as casino revenues and is referred to as our win or hold. In addition, hotel occupancy and price per room designated by average daily rate (“ADR”) are key indicators for our hotel business. Our calculation of ADR consists of the average price of occupied rooms per day including the impact of complimentary rooms. Complimentary room rates are determined based on an analysis of retail or cash rates for each customer segment and each type of room product to estimate complimentary rates which are consistent with retail rates. Complimentary rates are reviewed at least annually and on an interim basis if there are significant changes in market conditions. Complimentary rooms are treated as occupied rooms in our calculation of hotel occupancy.

Significant Factors Impacting Financial Results

The following summary highlights the significant factors impacting our financial results during the years ended December 31, 2015, 2014 and 2013.

·

MTR Gaming Merger - The Merger has been accounted for as a reverse acquisition of MTR Gaming by HoldCo under accounting principles generally accepted in the United States. Our results of operations for the years ended December 31, 2015 and 2014 reflect incremental increases in revenues and expenses attributable to the addition of the MTR Gaming properties. Additionally, we incurred costs associated with the Merger totaling $7.4 million and $3.2 million in 2014 and 2013, respectively. 

 

33


 

·

Circus Reno/Silver Legacy Purchase - Pursuant to the Purchase Agreement, ERI paid $80.2 million in cash, comprised of the $72.5 million purchase price plus $7.7 million in working capital adjustments and the assumption of the amounts outstanding under Silver Legacy’s senior secured term loan facility. An additional $0.3 million was accrued as of Acquisition Date representing the final working capital adjustment. ERI funded the purchase price for the Acquisition and repaid the borrowings outstanding under the Silver Legacy Credit Faculty using a portion of the proceeds from the sale of its Senior Notes, borrowings under its revolving credit facility and cash on hand. Information presented prior to the Acquisition Date does not reflect the results of operations for Circus Reno, and only includes our interest in the Silver Legacy Joint Venture prior to the Acquisition as an investment in unconsolidated affiliate. As a result, incremental increases in revenues and expenses attributable to the addition of Circus Reno and Silver Legacy are reflected in our results of operations for the year ended December 31, 2015. In conjunction with the Acquisition, we incurred costs totaling $2.5 million and recorded a $35.6 million gain related to the valuation of our pre-acquisition investment in the Silver Legacy Joint Venture. We also expensed fees totaling $0.6 million, which are included in corporate costs, related to our equity offering initially intended to fund the Acquisition. These fees were expensed as a result of our election to fund the final component of the Acquisition with existing revolver capacity in lieu of an equity offering.

 

·

Execution of Cost Savings ProgramWe identified several areas to improve property level and consolidated margins through operating and cost efficiencies and exercising financial discipline throughout the Company without impacting the player experience. In addition to cost savings relating to duplicative executive compensation, legal and accounting fees and other corporate expenses that we have eliminated as a result of the Merger, we have achieved savings in marketing, food and beverage costs, selling, general and administrative expenses and other operating departments as a result of operating efficiencies and purchasing power of the combined MTR and Eldorado organization. These cost savings were reflected in our operating results for the year ended December 31, 2015 and exceeded our projected $10 million annual target a full quarter ahead of plan. Moreover, in addition to generating incremental revenues, we expect to realize savings resulting from cost synergies across the Reno Tri-Properties in 2016 as a result of the recent Acquisition.

 

·

Refinancing and Reduction in Interest Expense -  In July 2015, we successfully refinanced all of our indebtedness, including the debt we assumed in the Merger in 2014. We issued $375 million in Senior Notes and entered into a new $425 million term loan and a new $150 million revolving credit facility and applied the net proceeds to, among other things, purchase our Resorts senior secured notes and MTR second lien notes. The refinancing reduced our annualized cash interest payments by $35 million. As a result of the July 2015 refinancing, we recognized a $1.9 million net loss on the early retirement of debt. See “Liquidity and Capital Resources” for more information related to our recent refinancing.

 

·

Income Taxes - In 2015, the Company recorded a $69.6 million net benefit for income taxes resulting from an adjustment to its valuation allowance. This adjustment was based on management’s consideration of all evidence, including the positive impact of the Company’s recent refinancing and the Acquisition, related to the realization of its federal deferred tax assets. As a result, net income increased significantly in 2015 compared to 2014. (See “Income Taxes” below).

 

·

West Virginia Smoking Ban - On August 26, 2014, the Board of Health of Hancock County, West Virginia adopted and approved the Clean Air Regulation Act of 2014 (“Regulation”), which became effective July 1, 2015. The Regulation bans smoking in public places in Hancock County including at Mountaineer. To comply with the Regulation upon its effective date, Mountaineer built a 9,300 square foot smoking pavilion which opened on July 1, 2015 and currently houses 261 slot machines and six table games. Notwithstanding our efforts to mitigate the impact of the smoking ban, the Regulation has had a negative impact on our business and results of operations at Mountaineer and we expect that it will continue to negatively impact our business and results of operations and that such impact may be material.

 

34


 

·

Major Bowling Tournaments in the Reno Market - The National Bowling Stadium, located one block from the Reno Tri-Properties is one of the largest bowling complexes in North America and has been selected to host multi‑month tournaments every year through 2018 except for 2017. It has also been selected to host ten United States Bowling Congress (“USBC”) tournaments from 2019 through 2026. During this period, two of the ten USBC Tournaments may be held in the same year. Historically, these multi‑month bowling tournaments have attracted a significant number of visitors to the Reno market and have benefited business in the downtown area, including the Reno Tri-Properties. The USBC Tournaments returned to Reno in 2014 and brought approximately 62,000 bowlers to the Reno area during the 2014 tournament period which began on February 28th and continued through July 12th. The USBC Tournament attracted approximately 15,600 women bowlers to the Reno market from March to July in 2015. This decline in bowler attendance resulted in lower hotel occupancy in the downtown Reno market during the tournament period in comparison to the same prior year period. Both tournaments return to Reno in 2016 and are expected to attract approximately 38,000 bowlers beginning in March and continuing through July 10th.

 

·

Property Enhancement Capital Expenditures - We began to realize the benefits of our property enhancement initiatives that targeted product and service offering upgrades across our entire portfolio during the fourth quarter of 2015 as all of them were completed by year-end and helped drive increased volume to our properties. Most notably, the opening of The Brew Brothers, our restaurant and microbrewery at Scioto Downs, provided a meaningful increase in traffic and slot revenues in 2015. Additionally, we completed a $5.0 million five-phase design and facility enhancement program at Presque Isle Downs that added a new casino center bar, an improved high limit gaming area and new slot product. In 2015, over 200 rooms were remodeled at Eldorado Reno and we completely refurbished the exterior of the Eldorado Shreveport

 

·

Competition - Our results of operations over the past three years have been adversely impacted by the expansion of Native American gaming and the expansion of gaming in our regional markets.  

 

Nevada. A significant portion of our revenues and operating income are generated from patrons who are residents of northern California, and as such, our operations have been adversely impacted by the growth in Native American gaming in northern California. Many existing Native American gaming facilities in northern California are modest compared to the Reno Tri-Properties. However, a number of Native American tribes have established large‑scale gaming facilities in California and some Native American tribes have announced that they are in the process of expanding, developing, or are considering establishing, large‑scale hotel and gaming facilities in northern California. As northern California Native American gaming operations have expanded, we believe the increasing competition generated by these gaming operations has had a negative impact, principally on drive‑in, day‑trip visitor traffic from our main feeder markets in northern California. A 320,000 square foot gaming facility located in Sonoma County, California opened on November 5, 2013.

Louisiana. Casino gaming is currently prohibited in several jurisdictions from which the Shreveport/Bossier City market draws customers, primarily Texas. Although casino gaming is currently not permitted in Texas, the Texas legislature has from time to time considered proposals to authorize casino gaming and there can be no assurance that casino gaming will not be approved in Texas in the future, which would have a material adverse effect on our business. Eldorado Shreveport competes with several Native American casinos located in Oklahoma, certain of which are located near our core Texas markets. Because we draw a significant amount of our customers from the Dallas/Fort Worth area, but are located approximately 190 miles from that area, we believe we will continue to face increased competition from gaming operations in Oklahoma, including the WinStar and Choctaw casinos, and would face significant competition that may have a material adverse effect on our business and results of operations if casino gaming is approved in Texas. In June 2013, construction was completed on a 30,000 square foot casino and 400‑room hotel in Bossier City across the Red River from Eldorado Shreveport. The facility, which also includes several restaurants and a 1,000‑seat entertainment arena, opened on June 15, 2013. In December 2014, a new luxury, land‑based casino with 1,600 slot machines, 72 gaming tables, a poker room, and a

35


 

740‑room hotel with a ballroom and spa, opened in Lake Charles, Louisiana approximately 200 miles south of Eldorado Shreveport, but closer to the Houston, Texas market.

Eastern. The MTR Gaming properties experience varying competitive pressures, from casinos in western Pennsylvania, western New York, northern West Virginia and Ohio. We believe the expansion of gaming in Ohio, which includes casinos that opened in Cleveland in May 2012 and Columbus in October 2012 and additional casinos in Cincinnati and Toledo, as well as the installation of VLTs at existing horse race tracks near Cleveland, one of which opened in April 2013 and the other in December 2013 and the relocation of a racetrack to Austintown, Ohio, which opened in September 2014, has had and will continue to have a negative impact on our results of operations at all our properties and such impact may be material. In order to sustain our market share in the increased competitive environment, we continuously reevaluate our advertising strategies and promotional offers to our guests to ensure our reinvestment levels reflect the appropriate level of offerings to sustain our margins.

Results of Operations

The following table highlights the results of our operations (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended

 

 

 

 

 

 

 

 

December 31,

 

Change %

 

    

2015

    

2014

    

2013

    

2015 vs 2014

    

2014 vs 2013

Net revenues

 

$

719,784

 

$

361,823

 

$

247,186

 

98.9

%

 

46.4

%

Operating income

 

 

72,516

 

 

17,555

 

 

22,582

 

313.1

%

 

(22.3)

%

Net income (loss) attributable to ERI

 

 

114,183

 

 

(14,425)

 

 

18,897

 

891.6

%

 

(176.3)

%

Operating Results.    Our net revenues increased 98.9% and 46.4% in 2015 and 2014, respectively, over the same prior year periods primarily due to incremental revenues, consisting primarily of casino revenues, attributable to the aforementioned Merger and Acquisition. Improvements in revenues in Louisiana and Nevada also contributed to the increase in net revenues in 2015 compared to 2014. Operating income increased 313.1% in 2015 compared to 2014 as a result of post-closing operating activity resulting from the Merger and Acquisition while operating income declined in 2014 compared to 2013 primarily due to costs associated with the Merger combined with higher depreciation expense. Net income increased 891.6% in 2015 compared to 2014 as a result of the same factors impacting operating income combined with a $35.6 million gain related to the valuation of the Silver Legacy Joint Venture in conjunction with the Acquisition and the aforementioned $69.6 million in benefit for income taxes recorded in 2015. The decline in net income of 176.3% in 2014 compared to 2013 was due to the increase in interest expense associated with the Merger, a decline in the gain on retirement of debt of unconsolidated affiliate and the establishment of a tax provision in 2014 resulting from the Merger.

Net Revenues and Operating Income

The following table highlights our net revenues and operating income by reportable segment (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Revenues for the Year Ended December 31,

 

 

Operating Income for the Year Ended December 31,

 

 

2015

 

 

2014

 

 

2013

 

 

2015

 

 

2014

 

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nevada

 

$

127,802

 

$

103,695

 

$

106,691

 

 

$

13,989

 

$

(1,191)

 

$

4,856

Louisiana

 

 

136,342

 

 

133,960

 

 

140,495

 

 

 

21,423

 

 

13,405

 

 

17,726

Eastern

 

 

455,640

 

 

124,168

 

 

 —

 

 

 

56,491

 

 

11,086

 

 

 —

Corporate

 

 

 —

 

 

 —

 

 

 —

 

 

 

(19,387)

 

 

(5,745)

 

 

 —

Total

 

$

719,784

 

$

361,823

 

$

247,186

 

 

$

72,516

 

$

17,555

 

$

22,582

 

 

36


 

Year Ended December 31, 2015 Compared to the Year Ended December 31, 2014

Net revenues and operating expenses were as follows (dollars in thousands):