Note

– Commitments and Contingencies

Rocky Gap Lease

The Company has an operating ground lease with the Maryland Department of Natural Resources for approximately 270 acres in the Rocky Gap State Park in which Rocky Gap is situated. The lease expires in 2052, with an option to renew for an additional 20 years.

Under the lease, rent payments are due and payable annually in the amount of $275,000 plus 0.9% of any gross operator share of gaming revenue (as defined in the lease) in excess of $275,000, and $150,000 plus any surcharge revenue in excess of $150,000. Surcharge revenue consists of amounts billed to and collected from guests and are $3.00 per room per night and $1.00 per round of golf. Rent expense associated with the lease was $0.1 million (net of surcharge revenue) for each of the three months ended March 31, 2016 and March 29, 2015.

Gold Town Casino Leases

The Company’s Gold Town Casino is located on four leased parcels of land, comprising approximately nine acres in the aggregate, in Pahrump, Nevada. The leases are with unrelated third parties and have various expiration dates beginning in 2026 (for the parcel on which the Company’s main casino building is located, which we lease from a competitor), and the Company subleases approximately two of the acres to an unrelated third party. Rental income during the three months ended March 31, 2016 was less than $0.1 million related to the sublease of the two acres in Pahrump, Nevada.

Other Operating Leases

The Company leases its branded tavern locations, office headquarters building, equipment and vehicles under noncancelable operating leases that are not subject to contingent rents. The original terms of the current branded tavern location leases range from one to 14 years with various renewal options from one to 15 years. The Company has operating leases with related parties for certain of its tavern locations and its office headquarters building. The lease for the Company’s office headquarters building expires in July 2025. A portion of the office headquarters building is sublet to a related party. Rental income during the three months ended March 31, 2016 was less than $0.1 million for the sublet portion of the office headquarters building. See Note 13,

Related Party Transactions

, for more detail. Gaming device placement contracts in the form of space lease agreements are also accounted for as operating leases. Under space lease agreements, the Company pays fixed monthly rental fees for the right to install, maintain and operate its gaming devices at business locations, which are recorded in gaming expenses.

Operating lease rental expense, which is calculated on a straight-line basis, net of surcharge revenue, associated with all operating leases was as follows:

	Three Months Ended
	March 31, 2016		March 29, 2015
	(In thousands)
Rent expense
Space lease agreements	$	10,137	$	—
Related party leases		702		—
Other operating leases		2,727		112
	$	13,566	$	112

As of March 31, 2016, future minimum lease payments, excluding contingent rents, were as follows:

	Remainder of
	2016		2017		2018		2019		2020		2021		Thereafter
	(In thousands)
Minimum lease payments
Space lease agreements	$	25,705	$	25,392	$	18,860	$	18,240	$	3,372	$	121	$	36
Related party leases		2,113		2,604		2,053		2,070		2,105		2,140		8,573
Other operating leases		7,716		8,599		7,428		6,650		6,451		5,778		48,500
	$	35,534	$	36,595	$	28,341	$	26,960	$	11,928	$	8,039	$	57,109

Participation and Revenue Share Agreements

The Company also enters into gaming device placement contracts in the form of participation and revenue share agreements. Under revenue share agreements, the Company pays the business location a percentage of the gaming revenue generated from the Company’s gaming devices placed at the location, rather than a fixed monthly rental fee. Under participation agreements, the business location holds the applicable gaming license and retains a percentage of the gaming revenue that it generates from the Company’s gaming devices. During the three months ended March 31, 2016, the total contingent payments recognized by the Company (recorded in gaming expenses) under revenue share and participation agreements was $28.2 million, including $0.5 million under revenue share and participation agreements with related parties, as described in Note 13,

Related Party Transactions

. No such amounts were recorded during the three months ended March 29, 2015.

Argovitz Demand for Arbitration

On March 13, 2015, Jerry Argovitz filed a Demand for Arbitration with the American Arbitration Association, alleging that the Company and/or its subsidiary Lakes Jamul, Inc. breached the terms of an agreement under which Mr. Argovitz retained certain rights to share in potential revenue from a gaming facility development project the Company (through its subsidiaries) pursued with the Jamul Tribe. Mr. Argovitz alleged that the Company breached such agreement by failing to protect his alleged contractual rights when the Company restructured its contractual relationship with the Jamul Tribe over the course of its involvement in the project and/or by ultimately exercising its contractual right in March 2012 to terminate its involvement in the Jamul casino project, which had not resulted in the successful opening of a gaming facility. Mr. Argovitz was seeking a declaration that, if the Jamul casino opened, then the Company had an obligation to pay him $1.0 million per year for up to seven years of operation of the Jamul casino.

The Company denied Mr. Argovitz’s allegations and vigorously defended the case. On September 2, 2015, the three-member arbitration panel denied the parties’ cross-motions for summary judgment. On January 5, 2016, the arbitration panel held an evidentiary hearing on the merits. Following the hearing, the parties submitted post-trial briefs. On March 21, 2016, the panel concluded that Mr. Argovitz’s claims in this arbitration should be dismissed with prejudice.

Miscellaneous Legal Matters

From time to time, the Company is involved in a variety of lawsuits, claims, investigations and other legal proceedings arising in the ordinary course of business, including proceedings concerning labor and employment matters, personal injury claims, breach of contract claims, commercial disputes, business practices, intellectual property, tax and other matters. Although lawsuits, claims, investigations and other legal proceedings are inherently uncertain and their results cannot be predicted with certainty, the Company believes that the resolution of its other currently pending matters will not have a material adverse effect on its business, financial condition, results of operations or liquidity. Regardless of the outcome, legal proceedings can have an adverse impact on the Company because of defense costs, diversion of management resources and other factors.