Note 12 – 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 (net of surcharge revenue) associated with the lease was approximately $0.1 million for each of the three months ended September 30, 2016 and September 30, 2015, and $0.2 million for each of the nine months ended September 30, 2016 and September 30, 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 and nine months ended September 30, 2016 was less than $0.1 million related to the sublease of the two acres in Pahrump, Nevada.

Other 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 and nine months ended September 30, 2016 was less than $0.1 million for the sublet portion of the office headquarters building. See Note 14, 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				Nine Months Ended
	September 30, 2016		September 30, 2015		September 30, 2016		September 30, 2015
	(In thousands)				(In thousands)
Rent expense
Space lease agreements	$	10,284	$	6,445	$	30,730	$	6,445
Related party leases		468		433		1,873		433
Other operating leases		3,078		1,901		8,619		2,087
	$	13,830	$	8,779	$	41,222	$	8,965

The current and long-term obligations under capital leases are included in “Current portion of long-term debt, net” and “Long-term debt, net,” respectively. The majority of the capital leases relate to vehicles with minimum lease payment terms of three to four years.

As of September 30, 2016, future minimum lease payments, excluding contingent rents, were as follows:

	Remainder of
	2016		2017		2018		2019		2020		2021		Thereafter		Total
	(In thousands)
Minimum lease payments - operating leases
Space lease agreements	$	8,379	$	26,544	$	20,012	$	19,391	$	4,523	$	1,018	$	36	$	79,903
Related party leases		620		2,253		1,697		1,709		1,721		1,750		6,545		16,295
Other operating leases		2,553		9,405		8,113		7,365		7,222		6,537		50,740		91,935
	$	11,552	$	38,202	$	29,822	$	28,465	$	13,466	$	9,305	$	57,321	$	188,133

Minimum lease payments - capital leases
Furniture and equipment	$	304	$	573	$	555	$	515	$	242	$	79	$	–	$	2,268
Less: Amounts representing interest																(128	)
Total obligations under capital leases															$	2,140

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 and nine months ended September 30, 2016, the total contingent payments recognized by the Company (recorded in gaming expenses) under revenue share and participation agreements were $33.2 million and $94.1 million, respectively, including $0.6 million and $1.6 million, respectively, under revenue share and participation agreements with related parties, as described in Note 14, Related Party Transactions. During the three and nine months ended September 30, 2015, the total contingent payments recognized by the Company (recorded in gaming expenses) under revenue share and participation agreements were $16.2 million, including $0.2 million under revenue share and participation agreements with related parties.

The Company also enters into amusement device and ATM placement contracts in the form of revenue share agreements. Under these revenue share agreements, the Company pays the business location a percentage of the non-gaming revenue generated from the Company’s amusement devices and ATMs placed at the location. During the three and nine months ended September 30, 2016, the total contingent payments recognized by the Company (recorded in other operating expenses) for amusement devices and ATMs under such agreements were $0.3 million and $0.7 million, respectively.

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 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.