Thank you for attending today's Accel Entertainment to acquire Fairmount Holdings Conference Call. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. If you'd like to queue for a question on today's call, you can do so by dialing star one on your telephone keypad. I'd now like to turn the call over to Derek Harmer, General Counsel and Chief Compliance Officer. You may proceed.
Good afternoon, and welcome to today's call. Participating on the call are Andy Rubenstein, Accel's Chief Executive Officer; Matt Ellis, Accel's Chief Financial Officer; and Mark Phelan, Accel's President of U.S. Gaming. Earlier today, we announced that Accel had entered into a definitive agreement to acquire Fairmount Holdings, the owner of the FanDuel Sportsbook and Horse Racing. Please refer to our website for the press release and accompanying investor presentation that will be discussed on this call. Today's call is being recorded and will be available on our website under Events and Presentations within the Investor Relations section of our website. Some of the comments in today's call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties.
Actual results may differ materially from those discussed today, and the company undertakes no obligation to update these statements unless required by law. For a more detailed discussion of these and other risk factors, investors should review the forward-looking statements section of the press release and the accompanying investor presentation available on our website and filed with the SEC, as well as other risk factor disclosures in our filings with the SEC. Any projected financial information presented in this call is for illustrative purposes only and should not be relied upon as being predictive of future results. The inclusion of any financial forecast information in this call should not be regarded as a representation by any person that the results reflected in such forecasts will be achieved. During the call, we may discuss certain non-GAAP financial measures.
For reconciliations of the non-GAAP measures, as well as other information regarding these measures, please refer to our press release and accompanying investor presentation and other materials in the Investor Relations section of our website. I would now like to turn the call over to Andy.
Thanks, Derek, and good afternoon, everyone. We're excited to be with you today to announce a compelling transaction in the U.S. local gaming market, one that builds on the core capabilities we've honed over the last 15 years as a growth company with attractive returns on capital and free cash flow. On today's call, I'll kick us off with an overview of the deal and a refresher on how Accel creates value. Matt will dig into our capital allocation playbook, and Mark will cover this exciting deal in a bit more detail. Finally, I'll reframe the Accel value proposition before we take your questions. Let's start with what we're most excited to share today. Accel Entertainment is acquiring the FanDuel Sportsbook and Horse Racing in Collinsville, Illinois, broadening its reach in the attractive local gaming market. Here are the highlights.
Today's transaction extends Accel's local gaming footprint with the purchase of the only active horse racing venue in the Greater St. Louis area and one of two active horse racing venues in Illinois. This deal includes an organization gaming license to offer casino gaming positions, as well as a partnership with FanDuel to participate in sports wagering in Illinois. In this transaction, Accel is purchasing Fairmount Holdings, the owner of the FanDuel Sportsbook and Horse Racing, for 3.5 million Accel shares, approximately $35 million in consideration. We are purchasing from co-owners Bill Stiritz, former CEO of Post Holdings and Ralston Purina, and Rob Vitale, CEO and Chairman of Post Holdings. This compelling deal builds on Accel's strong, distributed, route-based platform with an advantage, single-site, real estate-light, local gaming asset.
In the transaction, we're acquiring an active racetrack with 65 race days and approximately 435 races annually, the preliminary suitability by the Illinois Gaming Board to develop a casino that's yet to be constructed, and a master sports betting license used in a revenue share agreement with FanDuel. Looking ahead, Accel is committed to maintaining Fairmount's rich horse racing history, including further supporting the mission of the Illinois Racing Board to enhance the Illinois horse racing industry. From here, we'll be implementing capital-efficient plans to build temporary and permanent casino facilities, improve the quality of the horse racing experience, and we will have a partner on food and beverage amenities.
As part of this, we've engaged with RRC Gaming Management, including Tony Rodio, former CEO of Caesars Entertainment, and Holly Gagnon, current CEO of HGC Hospitality Gaming Consulting and former CEO of several casino companies, including the Seneca Gaming Corporation. Stepping back, this transaction is a compelling first move into an advantaged, single-site, real estate-light, local gaming asset, a gaming niche which is defined by convenience, lower CapEx requirements, favorable competitive dynamics, and an attractive high return. Before we dive deeper into the deal, this is a great time for me to take a step back and talk about Accel Entertainment, who we are, how we create value, why this deal fits well, and what makes our equity risk reward so compelling.
First, I want to focus everyone on the $15+ billion gross gaming revenue opportunity in the local gaming market that we compete in. This is a market that has historically grown low- to mid-single digits, with very attractive profitability, cash flow, and returns. We segment this broad target market into a couple of buckets. Non-destination, single-site gaming, making up approximately 60% of our addressable TAM. These are casinos that generate less than $75 million of annual GGR, and they represent about 14% of the entire U.S. Class III commercial casino market. Route-based gaming, our legacy core franchise, making up nearly 1/3 of our TAM, and card room, charitable gaming, and historical horse racing making up the rest. We're a proven leader in this attractive space, a market where most assets remain unconsolidated with favorable acquisition pricing.
Much of this space is ignored by larger gaming companies, as individual opportunities are too small to move the needle, and also ignored by financial buyers who lack operational expertise. Our business model works well across these local gaming markets, as our core strengths are building local relationships, providing superior player experiences with unique gaming technology, and deploying capital nimbly to sustain attractive returns on capital. Now, let's take a closer look at who we are, where we compete, and how we've built long-term success in distributed or route-based gaming.
Distributed gaming is legal and regulated in 11 states, and these state markets generally adhere to two basic business models: revenue share, which is defined by law, and the retailer and the gaming operator must be separate entities, or revenue share, which is negotiated between the retailer and the gaming operator, and either entity could be both. Accel was formed in 2009, and the Illinois market remains key to our core operations, home to our corporate headquarters and 2/3 of our workforce.
Today, we are a leading distributed gaming operator in the United States. We own and operate approximately 25,000 regulated electronic gaming machines in approximately 4,000 retail partner locations in 7 states. Organically and inorganically, over 15 years, we've scaled an attractive franchise with over $180 million of Adjusted EBITDA, strong and improving Free Cash Flow conversion, and low balance sheet net leverage of just over 1.6 x. Looking out a few years, our route-based business has four growth levers: organic growth in Illinois, Nebraska, and Georgia. And Georgia, with favorable legislation and operational execution, and finally, future opportunities in states likely to legalize local gaming in the future. Breaking our model down a little more, we create value in three ways. First, we support our retail partners' growth with low staffing burdens due to our self-service technology.
Second, we instill player loyalty and create memorable player experiences. And third, we maintain collaborative and reliable partnerships with regulators across 11 different regulatory structures. And since our founding, we've been very disciplined in our capital allocation. Since 2012, Accel has created a robust capital allocation process to add hundreds of locations per year, deploying equipment with a targeted 1.5-year payback period. Since 2009, we've acquired approximately 85 operating companies at accretive, synergistic multiples. Since our IPO in 2019, we've also bought approximately $124 million of the asset we know best, our own undervalued equity. And our returns on capital have grown to the low teens, well above cost of capital. With that overview, I'll hand it to Matt to talk through Accel's current footprint and key financial metrics in a bit more detail. Matt?
Thanks, Andy, and good afternoon, everyone. For the next few minutes, I'll dive into how Accel's disciplined and prudent capital allocation has steadily diversified our business over time. We've compounded growth in our installed base of gaming terminals at 27%, 15% in Illinois alone, and a meaningful growth contribution from machines in other states that are reaching increasingly profitable scale. These entries into new states have been accomplished through prudent tuck-in transactions and steady scaling from these initial toeholds in new states. Our revenue split has steadily diversified as well, with new states earlier in their penetration and profit curve scaling nicely and inflecting their profitability over time. Looking now at our impressive fundamental financial track record. From 2019 - 2023, our revenue is compounded at 29% per year.
This revenue has yielded healthy gross profit growth of 25%, even as we steadily diversified from our Illinois core into new states. We convert over half of this gross profit to strong EBITDA at robust mid-teens margins. More than half of this EBITDA converts to discretionary free cash flow, which we partially deploy in growth CapEx to support market penetration, retention, and growth. To reiterate, investors should expect less growth CapEx and meaningful improvement in our free cash flow conversion in coming years, as total CapEx ticks downward to levels closer to depreciation. Finally, we generate returns on capital well above cost to capital, with ROICs in the low teens, as Andy highlighted earlier. From here, we expect low single-digit revenue growth in our core business, delivered with tightening discipline around growth CapEx and operating costs.
This low single-digit revenue growth should yield mid-single-digit EBITDA growth as new states scale and continued expense discipline takes hold. Lower growth CapEx should allow us to deliver high single-digit free cash flow growth to reinvest in the promising new asset we're announcing today. Now, on to the main event, a discussion of the exciting transaction we're announcing today. For that, I'll turn it over to Mark.
Thank you, Matt. Turning now to Fairmount Park, which builds on the profitable cash-generative foundation Andy and Matt just walked through. As Andy suggested at the opening of our call, we're acquiring FanDuel Sportsbook and horse racing in Collinsville, Illinois, for approximately $35 million. At the election of the sellers, Bill Stiritz, former CEO of Post Holdings, and Ralston Purina, and Rob Vitale, CEO and chairman of Post Holdings, Accel will fund the transaction with 3.45 million shares of its common stock. This strategic transaction builds on Accel's strong distributed route-based platform and is a first-mover expansion into the local gaming market. The acquisition we're excited to announce today includes a sportsbook, a master sports betting license and partnership with FanDuel Sportsbook for retail and mobile sports betting in Illinois. The racetrack.
Racetrack operations are the only active horse racing venue in the greater St. Louis metropolitan area. Off-track betting. Currently, three active OTB locations with six open opportunities to develop future OTBs within the state of Illinois. In terms of the fundamentals we're underwriting here, Fairmount Park currently generates modest Adjusted EBITDA, and Accel sees significant opportunity to improve existing operations. Accel plans to invest $85 million-$95 million, this is in addition to the $35 million for the existing assets and casino license, to fund a temporary casino and subsequently a permanent casino, in addition to track improvements. Once the permanent casino is running at scale, Fairmount Park is expected to generate $20 million-$25 million of Adjusted EBITDA in five years or less.
In terms of the timeline, the temporary facility should open mid-2025, and the permanent facility is planned to open mid- to late 2027. We're excited that the acquisition is expected to be accretive to Adjusted EBITDA and Free Cash Flow at an implied multiple of approximately 5.5x. Importantly, much of this opportunity takes advantage of our core expertise, and we've identified key partners to operate and advise on some elements of this project. For the horse track and parimutuel betting, we will build on Fairmount's long-term horse racing management team with selected consultation from outside industry experts.
For the casino, we're engaged with RRC Gaming Management, including Tony Rodio, former CEO of Caesars Entertainment, for casino development and operations, and Holly Gagnon, current CEO of HGC Hospitality Gaming and former CEO of several casino companies, including the Seneca Gaming Corporation. In food and beverage, we're discussing food and beverage partnerships with several experienced F&B operators currently. In sports betting, we're assuming the existing long-term relationship with FanDuel Sportsbook, the number one sportsbook in Illinois. Broadly, these partners will complement Accel's expertise in retail gaming, regulatory partnerships, and capital allocation. The Fairmount track currently runs 65 race days, approximately 435 races per year, and we plan to improve the overall quality of racing for owners, trainers, and fans in support of the Illinois horse industry and to comply with state legislation.
In terms of the road ahead, we will invest in two stages. We will build out a temporary casino in the existing grandstand building of the track, with 200 slot machines, four to six table games, and existing food and beverage outlets. This will be relatively capital light and intended to open in about a year. From there, we'll erect a permanent casino on-site with detailed plans for 500 slot machines, 24 table games, and a FanDuel Sportsbook. We're excited to take your questions on this transaction and its compelling strategic logic. Before we do, we want to spotlight what makes Accel such a compelling risk-reward investment, and what drew Bill and Rob to seek equity in this transaction. Andy?
Thanks, Mark. To frame up Accel in a powerful illustration, we've compared our business to unweighted composites, averaging Las Vegas Strip operators and publicly listed regional gaming companies. As you can see here, Accel has lower margin than peers, but has good or better free cash flow conversion and superior returns on capital. We view this higher ROIC as the key measure of our skill as owners and capital allocators.
As noted earlier, our growth CapEx and route-based gaming will continue tapering from here, closer to maintenance levels, further boosting cash returns ahead and freeing up funds to reinvest in our new Fairmount asset. Turning now to Accel's equity risk reward. In spite of a compelling fundamental financial profile with strong and improving free cash flow, Accel trades at a low double-digit free cash flow yield and a mid-single digit enterprise value to EBITDA multiple. This represents a discount to blended peers. We think we're a hidden gem, with even more upside unlocked by the transaction we've described today. Wrapping things up, we are an experienced local gaming operator with a strong track record of organic and inorganic growth, generating attractive free cash flows and adjusted EBITDA returns.
We are owned and operated by founders that are governed by and aligned with incentivized owners with deep expertise in local gaming. Given our core capabilities and strong balance sheet, this acquisition is a natural extension of our distributed route-based gaming platform. Through FanDuel Sportsbook and horse racing, we are entering a complementary segment with low competitive intensity and a demonstrated right to win. With that, Matt, Mark, and I welcome your questions.
Thank you. We'll now begin the question and answer session. If you'd like to ask a question, please dial star one on your telephone keypad. If for any reason you'd like to remove that question, you can dial star two. As a reminder, if you're using a speakerphone on today's call, please remember to pick up your handset before asking your question. The first question is from the line of Steven Pizzella with Deutsche Bank. Your line is now open.
Hey, good afternoon, everybody. Thanks for taking our questions. Maybe we could just start and get a little background first, I guess. How did this deal come about? Why go in this strategic direction, and I guess why now?
Thank you, Steve. Starting with kind of how it developed, we had the opportunity presented to us by the bank representing the property, and they had identified us as a potential good partner, as Rob and Bill were looking for reliable business partners to take over the. This was a natural adjacency to the locals market that we have had developed an experience over the last 13 years, operating not just in Illinois, but across the country. As we've expanded out of the six machines in the Illinois market, we've gone to 15 machines in Nevada and 20 machines in Montana, where we operate those establishments ourselves.
There's a lot of similarities in working with the local player, maintaining the slot machines, optimizing them, the cash collection, that we believe that we are the leader in that industry throughout the United States. So when this opportunity presented itself, it was a natural for us to look at. We quickly identified where we needed to bring in expertise, identifying Tony Rodio and Holly Gagnon as partners in this project, and we will be soon naming a food and beverage partner that will also be involved in this. So this is... The timing was right. We have grown as a company.
We have developed a management team that we believe is second to none in this industry, and this is adjacent to our existing business in the Metro East market, which we are the leader in providing gaming entertainment, and we feel very comfortable with that customer base, and we think we'll be bringing a new, fresher form of gaming entertainment to that market. Yeah, now is the time, as we've got good partners in Bill and Rob, and as we have in the past, when we find the right partners, that's when the deal makes sense.
Okay, great. Thank you. And then as we think about just kind of incorporating it into our models, can you talk about the timing of the-
Yeah. Thank you, Steve. I'm gonna have Mark kind of provide some color on that as he's working more directly on the project and managing the capital investment.
Hey, Steve. As we stated in the press release, we're expecting to go live with the temp by mid-2025, and then with a permanent phase II construction project, hopefully by the end of 2027. The temp has about 200 slot machines, whereas the permanent would have about 500. We can kind of probably take it offline in terms of the specifics we use to back out the gaming revenue, but we're looking for roughly $60 million-$65 million of gross gaming revenue steady state, with margins in the high 20s% on gaming. And then you can back that out, and then add it to what we make off the sportsbook and the horse race at the track.
Okay, great. Makes sense. Thank you. And then just one final one from us. Can you just talk about what are kind of the economics you are getting from the sportsbook? And I guess, how long is that contract? Is there any, I guess, contract risk on, renewals, any you could add there?
Contract, I'll kind of leave it at that, but it's over 10 years. In terms of the economics, that's proprietary, but it's an attractive relationship, and it's definitely one of the reasons why we were attracted to the asset in the first place. So we're looking forward to partner with the number one sportsbook operator in the state of Illinois.
Okay, great. Appreciate it. Thanks, guys.
Thank you. The next question is from the line of Chad Beynon with Macquarie. Your line is now open.
Afternoon, all. Thanks for everything thus far. Congrats on the announcement here. Mark, maybe one more for you just in terms of kind of the details of the project. Can you talk about, I guess, what needs to happen from, like, an approval standpoint from the Illinois Gaming Board? Is there anything that you need after, you know, this is closed in terms of additional plans, scope, et cetera? And then the second part of that is, are there any other details in terms of, like, maximum slot machines, minimum slot machines, expected spend, or are the details that you provided, was that more, you know, kind of Accel’s controllables? Was there anything that was guardrailed by the Illinois Gaming Board with the project? Thanks.
Thanks for the question, Chad. So actually, you need approval from both the Illinois Racing Board and the Illinois Gaming Board to operate a casino. In terms of your second question, there's no requirement of minimum or maximum. I think maximum is about 950 seats, approximately. But there's no requirement for minimum. The requirement is to really put your full effort into the project and take advantage of the opportunity and be a good partner with the state, which we plan to do in all three parts. Specifically in terms of the milestones, and the way to think about it is, we have to get a racing board license first, and then we pursue the gaming board license.
You know, in terms of a timetable, we do that in conjunction with trying to develop the casino, the temporary casino, as well as run the racetrack. And again, we have what we think is a relatively achievable milestone date of mid-2025 for going live with the first stage of the construction.
Gotcha. Thank you. And then, as it relates to Missouri House Bill 2835, which, you know, we were discussing last year, not sure where that stands now, and then also the gray market machines in the market, understanding that that's across the border, but how do those two factors come into how you were thinking about this? You know, could this be a way to put even more focus and leverage into that market? You know, if there's any change in the gray games, do you think maybe your GGR estimates could end up being conservative? Any kind of puts and takes related to those items?
Yeah. Thank you, Chad. This is Andy. The markets are fairly independent. We do expect some Missouri-based customers on the project. In the past, the Missouri legislation has not been successful. We really don't have a comment on whether we think it's gonna make it this year or next or in the future. We are actively involved in Missouri, and if the opportunity presents itself, we'll be involved in that market. So we'll be poised for the opportunity if it presents itself, but this project is entirely independent of whatever legislation may be passed there.
Okay. Thank you. And then lastly, as we think about future growth for the company, so the $20 million-$25 million EBITDA potential at this property, obviously, it's kind of a semi, you know, greenfield type of project. Once you have the management team and kind of the know-how from this, could there be other tuck-ins of this? You know, in slide four, you talked about some of those lower earning properties that might not matter as much for the big, for the bigger publicly traded companies. Is this a big area of growth, and is there a way to think about, you know, how frequently these opportunities could be announced going forward? Thank you.
Yeah. So I think you're correct in identifying that this will be an area that we will continue to look at opportunities and make sure that it's the right fit. We believe developing that skill set will take a little bit of time, but since it is a significant part of the overall gaming market and specifically almost 15% of the casino market, it's an area that we believe that we can be a leader as we excel in the locals markets, when it's really like local players coming to have that entertainment.
And as opportunities will always present themselves, whether one company is divesting parts of their portfolio or trying to refocus, we will be a player in that market, and we will investigate the opportunity and see whether it's appropriate for our portfolio.
Thanks, Andy, Matt, Mark. Appreciate it.
Thank you.
Thank you. The next question is from Greg Gibas with Northland. Your line is now open.
Hey, good afternoon, guys. Thanks for taking the questions, and congrats on the announcement. Wanted to ask if we could get a little color on the $90 million or so at the midpoint of the expected investment, you know, over the next five years. You know, how much would you say is kind of temporary casino base versus a permanent casino? How much would you kind of allocate to track-related improvements? And then is there anything else that you kind of intend on, you know, utilizing CapEx for?
Thanks, Greg. I'm gonna have Mark kind of give some detail on this, as, like I said, he's working diligently on the plan and the implementation.
Hey, Greg, one of the inherent advantages of this asset is its infrastructure, and so we plan on using the existing infrastructure to put up the first stage of construction, which is this temporary casino. It'll be within the grandstand of the racetrack. And it's a relatively modest capital investment. The balance of the capital investment will be in the single site permanent casino, which will be on the premises of the track, but it'll be a new physical infrastructure that is probably attached to the existing one. And that'll occur over, you know, give it three years or so.
Got it. Great. And then, you know, to follow up there, like, what do you kind of view are the, the biggest risks to maybe achieving that, that $20 million-$25 million uplift EBITDA?
You know, frankly, it's demand. You know, we get the demand. We know that area very well, given our core business. It's a great area. This asset has a lot of advantages to it that I don't think are totally well understood by the market, including its infrastructure, its familiarity with the St. Louis market. It's been around for 100 years. Its convenience. It's literally 2/10 of a mile from a major national interstate, has both on and off ramps heading both north and south. And it's, it'll have most of the eastern...
It's the most eastern casino property within the Metro East proper market, which affords us a massive amount of green space, and we are confident in our ability to come out with a really competitive product and take advantage of that.
Got it. You know, last one from me, just so I know, the acquisition includes the sportsbook, the horse racing, and then, you know, off-track betting. How do you kind of, can you give us a sense of maybe the revenue split between those?
You wanna take that, Matt?
Hey, Greg, it's Matt. I can probably take this one. I think overall, 60%-70% is gonna be gaming, and I would say the rest is non-gaming. And when I say gaming, truly from the racino itself, the relationship with FanDuel, obviously, we're a partner to them, so that flows through a bit differently rather than a typical sportsbook operator. And then the balance of it will be from racing and F&B.
Okay. Thank you. Very helpful.
Thank you. There are no further questions in queue, so as a final reminder, if you'd like to ask a question, please dial star one. There are no further questions. I'd like to hand the call back over to Andy Rubenstein for closing remarks.
Yes, thank you everyone for joining us today. We are super excited about this opportunity. We welcome you to come visit the track. We race every Tuesday and Saturday, and, as you'll see, the facility will make a lot of progress over the next couple of years and start to experience it now, and you'll appreciate the value that we'll be bringing to that community. So, looking forward to keeping you up to date, and we'll be talking to you soon again on our earnings call. Thank you again for joining us.
With that, we conclude today's conference call. Thank you for your participation. You may now disconnect your lines.