Darcy J. Will - Gamehost Inc.

In this episode of the Canadian Equities podcast Darcy J. Will, Vice President of Gamehost Inc., joins Robert Cooper to discuss the economics of the gaming industry, the influence of Las Vegas on other gaming markets and the Alberta economy. For the full length version of the Canadian Equities podcast connect with us at acumencapital.com/podcast.  

Transcript

Moderator 0:00

Welcome to Canadian Equities, a short biweekly podcast series, where we speak with top business leaders and hear their perspectives on the industries in which they operate for the full length version. Find our link in the podcast notes or connect with us at acumencapital.com I'm your host Robert Cooper today I'm joined by Darcy Wil vice president of game host, Inc G H on the TSX game. Host is deleting gaming and hospitality company operating in Alberta game. Host operates in a heavily regulated gaming environment. That is an essence in all the Gopal league, leading to advantage margins, especially for attentive operators. Today, we will discuss the economics of the gaming and. The influence of Las Vegas on gaming, the history of game hosts, the hospitality industry in general, and the Alberta economy, Darcy will welcome to the program.

Darcy Will 0:48

Thanks Robert

Moderator 0:49

Darcy tell our listeners the history of game host and how you ended up where you are.

Darcy Will 0:53

we started game host in 2003. we had some smaller gaming and hospitality operations prior to that. Um, it was a combination. Uh, some of my gaming assets and my father's, uh, hospitality assets, lodging assets that, uh, we formed and, put together and, uh, jumped on the income trust bandwagon at the time. that's where it came from

Moderator 1:18

Jamie. And Canada's a bit unique. Run us through the regulatory environment in Canada and particularly, you know,

Darcy Will 1:25

Yeah, gave me a candidate is different, um, than it is in the United States and Canada. It's a controlled by the criminal code, uh, which essentially says that it's illegal for an individual individual corporation to be directly involved in gaming. so what happened under those laws is the government is involved in gaming and we kind of act as a service provider. But it's really, it doesn't act or smell much different than it does in the United States where they basically take gaming revenues and tax them up here. What happens is, uh, the government and then Alberta, for example, they own, they regulate the gaming they own all of the slot machines. We act like a service provider to, you know, build a house to put those slots in. And we operate them for a fee or a percentage of the revenue and, uh, in the form of the tables. and this is unique to Canada is the government in Alberta does not share in the table revenue. we operate our tables and we split a portion of the proceeds with registered non-profit charities in the province of Alberta. So it originally started out. As a way for the government to regulate and for the charities to make money long before we had slot machines here, uh, and just the table games. it's kind of evolved where, you know, the government is really our business. They provide all the capital for the slots. we run them. So if you looked at a us regional gaming operation and their EBITDA, I guess at the end of the day, uh, you know, ours is as good or better than theirs. And, uh, we don't want us to put out the capital for the slot machines. So, we, we think it's a, it's a unique situation. but it provides the same, same kind of revenues.

Moderator 3:15

Walk our listeners through the economics of the various business units. And you touched on it a little bit there, but you've also got the hotel. So in game hosts, the tables, the slots, the restaurant, and the whole.

Darcy Will 3:26

So in game host, you know, we like, uh, we like the slot business because it creates large revenues and has a low cost operate in the form of labor and supplies. The table revenue, is a little smaller. It obviously takes a lot more labor, but in. The major center, like in Calgary, where we can drive higher numbers through high limit gaming. Uh, it's a very profitable business as well. The Rumi business is a great business. again, if you can get your occupancies to a high enough level, you go by your fixed costs pretty rapidly. And again, another high margin business with. Our different businesses. The most difficult business is the food business. you know, it has a high labor component, the high cost of input component with food. And as a result of that, the only place in the Northern properties, we actually lease out the restaurants, find a great qualified operator for a good food for us. And we just concentrate on the gaming. Uh, revenue. And of course the liquor revenue, the liquor department, we like, uh, because it has a, again, a high profitability in it. so the only food operation we run as in Calgary and that's because we have a property that, its conventions and its shows and we just, oh, We've never been able to wrap her head around, if we could sub that out because everything is so tied together. So we do operate there. Uh, but we have the opportunity to actually make a reasonable amount of money and food there when we're busy, because we drive very high walls.

Moderator 5:00

Kim host as advantage margins, relative to a lot of industries. And you touched on that, in that answer. And on average, I believe over the past 10 years has produced about 20 million of free cash flow each year. If you had to distill your business down to a handful of KPIs or things that you closely managed to, what would they be? And I guess more generally, what are the keys to running a really good gaming business in Alberta?

Darcy Will 5:25

The keys to, uh, keeping profitability in our business is, uh, focusing on short-term budgeting, not long-term budgeting. So we put a lot of effort into budgets that are month and two months in advance. cause you know, looking out a year in our business can be highly unpredictable. And by focusing on the near term budgets, we can focus the costs. We believe that we have to put out, labor specifically, to, you know, keep our margins where they're at. The other thing we do. And this is daily and all of our operations is we know every day, uh, every morning when we come to work, we know yesterday's revenues, yesterday's labor costs. Yesterday's input costs are everything. Purchased and the hotel and appeal is put into that daily sheet. So we know what we're spending every day. So if we get up through the middle of the month and we say, oh my gosh, um, it looks like business is waning. we need to cut now. We can't wait till the end of the month. So if it's the 15th and it looks like we're not. Our slot budget or a table budget, then we're back with management department managers saying, okay, we need to trim this back. we don't need this many staff. We don't need this, this much in the supply department. So we, we, we have a huge focus on managing our business on a daily basis.

Moderator 6:51

So changing topics a little bit here and moving to Las Vegas. How do trends in Las Vegas ultimately parlay into your business?

Darcy Will 6:59

We look at Vegas all the time. if you think about, um, people at gamble, so think about people in your own circle. let's say you got a hundred friends, 10 of them really liked to go and gamble. And 90% of them they'll go to a casino, not necessarily for gambling. So, you know, w how are, how am I going to get them into my casino if they're not getting. Which is the bulk of society is not gamblers. So they, Gus has always been way out in front with that where it's, uh, it's food, it's beverage, it's entertainment, it shows it's shopping. It's all that stuff. Obviously the shopping doesn't really work on our locations, but, we were the first, I was the first guy in Alberta in 1999 to put entertainment in the casino here. I had spent lots of time in Las Vegas. I liked the Rio hotel. It was kind of the party hotel walk in, you know, had a bang going, had the card pit beside the band. So you could hear and slot machines and everybody was having a good time. And I thought, oh, that, that, that, that looks like fun. And that'll attract, uh, what I call a social occasional gambler. So somebody who's not attracted just by, uh, uh, gambling. So we started that, As the years have evolved and we just finished spending. Between Deerfoot and, Fort McMurray, $10 million and the bulk of that went towards, better food offering a better showrooms. So yeah, we look at Vegas because they're, they're really good at figuring out how to attract all of these people. We think, the food and beverage, You're in, you're out is more and more important. we've just spent a whole bunch of money trying to do that. And we're actually going to go into grand Prairie and do some similar stuff with our food and beverage this spring. So Vegas is important because, uh, they set the trans.

Moderator 8:45

What are your thoughts on the Alberta economy? I know we're not supposed to say it's different this time, but it feels like this isn't just a run of the mill oil. Boom. so why do you like this market for the longterm?

Darcy Will 8:57

I think it's really interesting right now. I, I looked through the Alberta major projects site all the time. I read lots of things. I talked to people in different industries. Uh, there's just a bunch of fascinating stuff happening in Alberta. You know obviously the oil and gas bit is good right now. Um, but you know, as everybody's aware, We've got, uh, we've got all kinds of interesting projects. We've got bio biofuel projects, which involves ag ag is strong. We've got massive green projects here. the biggest solar farm can. Which is the one that Vulcan 454 megawatts, I think, which is only a hundred behind the biggest one in the United States. That's a wow thing. And I mean, there's windmill projects and we got. Uh, a lot of pipeline projects happening right now, connecting stuff up in Alberta. We have LNG Canada. It's common. I went through a big presentation on it with shell a couple of years ago, but, you know, when it's two trains, it's, it's, it's a massive amount of gas. It was about 25%. I think, of the, what we were producing out of the basin. Distribution. It's a, is a, is a really big deal. I mean, Amazon's building 4 million square feet. and one of the other really interesting things that's been coming of late, it was in the post of the day. We had heard it already from some of the bigger home builders and Calgary is, we've got, affordable housing in Calgary, in Alberta compared to. most of the provinces, uh, maybe extra scatch Swan, Calgary in particular, you know, is, is, uh, is, is, is a pretty nice destination, uh, for people to live. I mean, I think saw it the other day. Uh, one of the big home told us they opened up a subdivision in south Calgary and, within the first two weeks sold a hundred, a hundred places to Ontario people from, from the triangle. So we've got affordable housing. Uh, we're getting. Some diversification for our commodities. we've got plant turnarounds, like, uh, Geneses getting flipped to gas. I think when Alberta major project says currently the government right now, we've got $70 billion for the projects under construction, a lot of it's infrastructure, but that's okay. It's construction. It's jobs. It's stuff happening. They're building new hospitals and senior centers and overpasses and bio plants. And there's a lot of things going on here. and we're, you know, we're seeing the Racine, the tech come in and yeah, I'm, I'm, I'm thinking it's looking pretty good. And I think one of the keys to. All of that is when I'm talking to people out there right now that are in construction oil and gas, construction, oil, and gas servicing they're short people. So I think that it's already starting to kick. I think you're seeing the numbers now, but we've had some good immigration. I think that immigration continues to build and for me and my business, I need, I need more people. I need growing population and a good employment and, and that's what makes our business good. And you could track that back for like 15 years, but I think there's a, in the movie industries and other ones, I mean, I think last year was close to a record year and that's that's during COVID. So, uh, the, just prior to COVID at Deerfoot, for example, we'd done a great amount of business room business, which translated the food and beverage business with, uh, both Netflix and Amazon for their movie. And, uh, so we're excited about this pandemic coming off, but there's, there's a lot of green shoots here right now. I think, and they're not all just in one sector.

Moderator 12:38

thanks for spending time with us on Canadian

Darcy Will 12:39

equities. Okay. You're welcome. Robert, have a great day.

12:43

Note that this podcast is not making an investment recommendation on any companies discussed. We welcome your comments on today's episode or any other episode. Connect with us at Acumen Capital dot com.