A Full House Resorts board member resigned last week over a dispute with the casino operator’s management and, in particular, how the company is handling the shutdown of its five properties due to the COVID-19 coronavirus pandemic.
In a filing with the Securities and Exchange Commission last Friday, Las Vegas-based Full House said it “rejects and disagrees” with the “assertions, suggestions and conclusions” spelled out in a resignation letter from former board member Craig Thomas.
He is the second board member to leave the company in recent days. A week earlier, the company told the SEC that Ellis Landau, 76, a long-time financial executive in the gaming industry, had decided to retire from the board and not run for re-election.
In the company’s April 23 proxy statement, filed with the SEC, Full House told shareholders that Thomas was not recommended for re-election by a majority of the board and he, as a result, chose to resign.
Thomas, in his letter, said the company should “prioritize liquidity over the ease of reopening” its casinos, which have been closed since mid-March. He said Full House’s monthly “cash burn rate” of $3 million was “too high.”
Thomas also called for the removal of CEO Dan Lee, writing that Full House should “conduct a thorough CEO search and evaluation” of Lee, whose contract expires in November.
In an SEC filing the week before Thomas’ resignation, Full House said it had $21.4 million in cash on its balance sheet. On Wednesday, Full House said in a further SEC filing that it struck an agreement with lenders over certain fees covering debt not due until 2024.
Thomas, who is the founder of Shareholder Advocates for Value Enhancement, said he disagreed with the one-third deferrals of the company’s executive salaries in response to the pandemic, deferrals that accrue with an “interest rate of approximately 13%.” Full House furloughed 1,600 workers from its properties in Mississippi, Colorado, and Indiana, and its two casinos in Nevada.
“I find the concept morally objectionable and repugnant, given the scale of the COVID-19 crisis and its widespread impact on the less fortunate and well-off,” Thomas wrote. He cited examples of executive management teams in gaming and other industries where salaries were reduced outright, without deferrals.
“In many instances, the CEOs of these companies cut salaries to zero,” Thomas wrote. He said Full House Chairman Brad Tirpak volunteered to reduce his pay to zero, but that executive management “missed the mark to demonstrate strong, moral, and effective leadership to all of its constituents when it indicated it wanted to charge usurious interest rates on deferred compensation.”
According to the Full House Proxy, an independent study of the senior management team’s compensation found “the base salary of the CEO, was below the market 25th percentile” when evaluated against the company’s peer group. The CEO’s total direct compensation was also “below the market 25th percentile.”
Full House CEO Dan Lee/Photo via LVRJ
Lee, 63, has been CEO of Full House since December 2014 after leading an investor group that controlled 6.2% of the company’s stock in a two-month proxy battle for control of the casino operator. Lee is the former CEO of Pinnacle Entertainment and a longtime gaming financial executive. He was CFO of Mirage Resorts in the 1990s.
Last week, Full House reduced staff to just 30 employees, including surveillance and security personnel. The executive salary deferrals will continue until at least four of the company’s casinos, including the flagship Silver Slipper Casino in Bay St. Louis, Mississippi, have reopened.
Full House also halted the first phase of the expansion at Bronco Billy’s Casino and Hotel in Cripple Creek, Colorado, which was in the early stages of constructing the venue’s parking garage.
The company highlighted its six mobile sports betting agreements in Colorado and Indiana, which are expected to provide a combined $7 million annually in revenues.
Thomas, in his letter, agreed that the sports betting deals will be beneficial to Full House.
“I am optimistic that with the right leadership, the company will thrive, and it will perform substantially better after the crisis abates, as there is substantial low-hanging fruit in operations,” Thomas wrote, suggesting the water ferry service that connects the Rising Star Casino in Indiana with communities in Ohio be eliminated, along with the Christmas Casino theme at Bronco Billy’s.
Thomas also cited “excessive corporate overhead and excessive development expenditures for a business of this size.”
Shares of Full House closed Wednesday at $1.62, up 17 cents, or 11.72%.
Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at hstutz@cdcgaming.com. Follow @howardstutz on Twitter.
