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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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FORM 10-K



(MARK ONE)

[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934



FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000



OR



[  ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)

OF THE SECURITIES EXCHANGE ACT OF 1934



FOR THE TRANSITION PERIOD FROM           TO



COMMISSION FILE NO. 0-24993



LAKES GAMING, INC.

(Exact name of registrant as specified in its charter)



<TABLE>

<S>                                            <C>

MINNESOTA                                      41-1913991

(State or other jurisdiction                        (I.R.S., Employer

of incorporation or organization)                     Identification No.)

</TABLE>



130 CHESHIRE LANE, MINNETONKA, MINNESOTA 55305

(Address of principal executive offices)



(952) 449-9092

(Registrant's telephone number, including area code)



Securities registered pursuant to Section 12(b) of the Act:

NONE.



Securities registered pursuant to Section 12(g) of the Act:



<TABLE>

<CAPTION>

NAME OF EACH EXCHANGE

TITLE OF EACH CLASS                            ON WHICH REGISTERED

-------------------                           ---------------------

<S>                                            <C>

Common Stock, $0.01 par value                      NASDAQ National Market

</TABLE>



Indicate by check mark whether the registrant (1) has filed all reports required

to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during

the preceding 12 months (or for such shorter period that the registrant was

required to file such reports) and (2) has been subject to such filing

requirements for the past 90 days. Yes [X] No [ ]



Indicate by check mark if disclosure of delinquent filers pursuant to Item 405

of Regulation S-K is not contained herein, and will not be contained, to the

best of the Registrant's knowledge, in definitive proxy or information

statements incorporated by reference in Part III of this Form 10-K or any

amendment to this Form 10-K. [X]



As of March 21, 2001, 10,637,953 shares of the Registrant's Common Stock were

outstanding. The aggregate market value of the Common Stock held by

nonaffiliates of the Registrant on such date, based upon the last sale price of

the Common Stock as reported on the NASDAQ National Market on March 21, 2001 was

$85,761,535. For purposes of this computation, affiliates of the Registrant are

deemed only to be the Registrant's executive officers and directors.



DOCUMENTS INCORPORATED BY REFERENCE



Part III.  Portions of the Registrant's definitive Proxy Statement in connection

with the Annual Meeting of Shareholders to be held on May 23, 2001 are

incorporated by reference into Items 10 through 13, inclusive.

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PART I



ITEM 1.  BUSINESS



The following discussion contains trend information and other

forward-looking statements that involve a number of risks and uncertainties. The

actual results of Lakes Gaming, Inc., a Minnesota corporation (the "Company"),

could differ materially from the Company's historical results of operations and

those discussed in the forward-looking statements. Factors that could cause

actual results to differ materially include, but are not limited to, those

identified in "Risk Factors."



Lakes Gaming, Inc., a Minnesota corporation ("Lakes" or the "Company")

develops, constructs and manages casinos and related hotel and entertainment

facilities in emerging and established gaming jurisdictions. The Company's

revenues are derived almost exclusively from management fees. Lakes currently

manages the largest casino resort in Louisiana, Grand Casino Coushatta, in

Kinder, Louisiana ("Grand Casino Coushatta"), owned by the Coushatta Tribe of

Louisiana (the "Coushatta Tribe"). The Company has entered into development and

management agreements with three separate tribes for three new casino

operations, one in Michigan and two in California. The Company also has

agreements for the development of at least one casino facility on Indian land in

California through a joint venture, and has entered into a joint venture

agreement for the development of land on the Las Vegas Strip.



For a portion of fiscal 2000 and prior, Lakes had a management contract

with the Tunica-Biloxi Tribe of Louisiana for Grand Casino Avoyelles. The

Tunica-Biloxi Tribe elected to exercise its option for an early buyout of the

contract effective March 31, 2000, which was scheduled to expire on June 3,

2001.



Lakes was established as a public corporation on December 31, 1998, via a

distribution (the "Distribution") of its common stock, par value $.01 per share

(the "Common Stock") to the shareholders of Grand Casinos, Inc. ("Grand"). As a

result of the Distribution, Lakes operates the Indian casino management business

and holds various other assets previously owned by Grand. Pursuant to the terms

of a Distribution Agreement entered into between Grand and Lakes and dated as of

December 31, 1998 (the "Distribution Agreement"), Grand shareholders received

.25 of one share of Lakes Common Stock for each share held in Grand. Immediately

following the Distribution, Grand merged with a subsidiary of Park Place

Entertainment Corporation, a Delaware corporation ("Park Place"), pursuant to

which Grand became a wholly owned subsidiary of Park Place (the "Merger"). Grand

shareholders received one share of Park Place common stock in the Merger for

each share they held in Grand.



Prior to the Distribution, Grand had management contracts for Indian-owned

casinos located at Grand Casino Hinckley and Grand Casino Mille Lacs, both

located in Minnesota. The management contract at Grand Casino Mille Lacs expired

at the end of the first quarter of 1998, and the management contract at Grand

Casino Hinckley ended November 30, 1998.



BUSINESS STRATEGY



Lakes' vision is to create a company with predictable long-term profitable

growth that will be highly valued by its investors. The Company is implementing

three business strategies to accomplish its vision. The first of the three

strategies is to grow the Company's assets. The more assets the Company has, the

greater its potential for diversification and growth. The Company plans to

increase its asset base through the growth of its Indian casino management

business. As the successor to Grand's Indian gaming business, Lakes enjoys a

reputation as an experienced and successful casino management company for Native

American owned casinos with available capital and experienced management. Lakes

develops, constructs and manages Indian-owned casino properties that offer the

opportunity for long-term development of related entertainment facilities,

including hotels, theaters, recreational vehicle parks and other complimentary

amenities designed to enhance the customers' total entertainment experience and

to differentiate facilities managed by Lakes from its competitors. Lakes

provides experienced corporate and casino management and develops and implements

a wide scale of marketing programs. In conjunction with this part of Lakes'

business strategy, in August, 2000, the Company formed a joint venture for the

purpose of developing at least one gaming facility on Indian-owned land in

California. Additionally, Lakes entered into three new agreements in 1999, for

the development, construction and management of three Indian-owned casinos.



On May 12, 1999, the Company announced that it would form a partnership for

the purpose of developing a gaming facility on Indian-owned land near San Diego,

California. Under the agreement, Lakes has formed a limited liability company

with Kean Argovitz Resorts, LLC ("KAR"), a limited liability company based in

Houston, Texas. The partnership between Lakes and KAR holds a contract to

develop and



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manage a casino resort facility with the Jamul Indian Village in California. The

contract is subject to approval by NIGC. In 2000, California voters approved an

amendment to the State Constitution which allows for Nevada-style gaming on

Indian land and ratifies the Tribal Compact. Development of the casino resort

will begin once various regulatory approvals are received.



On June 22, 1999, the Company announced that it has been selected by the

Pokagon Band of Potawatomi Indians (the "Band") to serve as the exclusive

developer and manager of a proposed casino gaming resort facility to be owned by

the Band in the state of Michigan. In connection with its selection, Lakes and

the Band have executed a development and management agreement governing their

relationship during the development, construction and management of the casino.

Various regulatory approvals are needed prior to commencement of development

activities. The United States Department of the Interior issued a Finding of No

Significant Impact (FONSI) in January 2001 and filed a legal notice of its

intent to place into trust 675 acres on behalf of the Pokagon Band. Under

Federal law, a 30-day waiting period was required for public comments to be made

before the land in trust process could be finalized. During the 30-day period, a

lawsuit was filed against the federal government by a Michigan-based group in an

attempt to block the casino development. The Department of Justice is defending

the suit on behalf of the Secretary of Interior. While the outcome of the suit

cannot be predicted at this time, we remain confident that this last hurdle will

be successfully overcome and the casino development will be approved. Casino

construction is not planned to start until land is accepted into trust status by

the Secretary of the Interior and the agreements are approved by the Chairman of

NIGC.



On July 15, 1999, the Company announced that it would form a partnership

for the purpose of developing a gaming facility on Indian-owned land near

Sacramento, California. Pursuant to the agreement, Lakes has formed a limited

liability company with KAR, a limited liability company based in Houston, Texas.

The partnership between Lakes and KAR has been awarded a contract to develop and

manage a casino resort facility with the Shingle Springs Band of Miwok Indians

in California. The contract is subject to approval by NIGC and placement of the

land where the gaming facility is to be located into trust with the Bureau of

Indian Affairs ("BIA"). In 2000, California voters approved an amendment to the

State Constitution which allows for Nevada-style gaming on Indian land and

ratifies the Tribal Compact. Development of the casino resort will begin once

various regulatory approvals are received.



On August 10, 2000, the Company announced that it had agreed to form a

joint venture for the purpose of developing gaming facilities on Indian owned

land in California. Under the agreement, Lakes formed a joint venture limited

liability company with MRD Gaming, a limited liability company. The partnership

between Lakes and MRD holds the contract to finance casino facilities with the

Cloverdale Rancheria of Pomo Indians. The planned site for the potential new

casino development is located on Highway 101 in Cloverdale, California,

approximately 60 miles north of San Francisco. Development will start as soon as

various regulatory approvals are obtained. Development is also subject to

completion of definitive financing arrangements. The joint venture also entered

into a contract relating to the Paskenta Band of Nomlaki Indians. Lakes has made

loans to the joint venture for this project. However, in February 2001, Lakes

announced its intention to discontinue its involvement with the Paskenta

project.



Lakes is dedicated to developing superior facilities and providing guest

service that exceeds expectations. Facilities managed by Lakes are staffed with

well-trained local casino employees and offer a casual environment designed to

appeal to the family-oriented, middle income customer. Lakes strives to offer

its casino customers creative gaming selections in a pleasant, festive, smoke

and climate-controlled setting. Lakes' managed casinos also offer reasonably

priced, high-quality food, first class hotel rooms, video arcades and a

professionally supervised entertainment and child care center.



The second business strategy is to remove a number of uncertainties

surrounding the Company. Consistent with this part of the Lakes strategy, the

Company announced on June 19, 2000, that a settlement agreement had been reached

regarding both the Stratosphere shareholders' litigation and the Grand Casinos,

Inc. shareholders' litigation. The agreement required Lakes to pay $9 million to

the Grand Casinos, Inc. shareholders and $9 million to the Stratosphere

shareholders for a total of $18 million, which was reflected as a non-operating

expense in 2000.



This amount was paid into escrow and related accounts in July 2000 for full

and final settlement for all federal and state related actions. Such amount is

included as restricted cash on the accompanying consolidated balance sheet as of

December 31, 2000. The settlement is subject to final approval by the respective

courts.



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Another uncertainty addressed during fiscal 2000 was the potential sale or

development of the land owned or controlled by the Company in Las Vegas. On July

31, 2000, Lakes announced that it had formed a joint venture, Metroplex-Lakes,

LLC, to develop an upscale, retail, commercial, hotel and entertainment complex

on the approximate 16 acres surrounding the corner of Harmon Avenue and Las

Vegas Boulevard (the "Strip") in Las Vegas. The joint venture has a two-year

option to buy the majority of the site from Lakes at a price that will

approximately equal Lakes' investment in the property. Lakes will have voting

control of the joint venture, however, development decisions affecting the real

estate purchased by the joint venture must be mutually agreed upon. Lakes and

Metroplex will share results from the joint venture equally.



The other uncertainty facing Lakes relates to the proposed casino

developments. At each California location, the Tribes need to have land accepted

into trust on their behalf by the Bureau of Indian Affairs. At the Michigan

location, the Secretary of the Interior has accepted the land into trust,

however, during the 30-day public comment period a group called "Taxpayers of

Michigan Against Casinos" filed a complaint to stop the U.S. Department of

Interior from placing it into trust. The Department of Justice will defend this

lawsuit on behalf of the Secretary of the Interior. Additionally, the National

Indian Gaming Commission needs to approve the applicable Lakes' management

contracts. Lakes is actively working with the Tribes to bring these issues to a

successful conclusion.



Diversification is important to Lakes' long-term success and it is the

third of the business strategies. Lakes currently plans to buy or create new

long-term business opportunities through the use of cash, stock or debt to

complement its Indian casino management business. Substantial long-term growth

and low multiple values to generate high returns are just a few of the

attributes in companies or start-ups that Lakes is looking for in new

opportunities to help enhance shareholder value.



MARKETING



Lakes targets its marketing strategy at its managed operations to attract

and retain the repeat customer. Management believes that Lakes' emphasis on

enhancing the entertainment value of these facilities, coupled with marketing

programs, contributes to attracting the repeat customer.



Lakes' operations strategy seeks to combine retail, gaming and

entertainment marketing techniques. Lakes profiles its casino customers

utilizing available demographic data, regularly conducted customer surveys and

other sources. Based upon this data, Lakes uses a variety of initial special

promotions to attract the first-time customer and, thereafter, seeks to leverage

initial customer satisfaction through a mix of marketing programs dedicated to

developing a repeat customer. A variety of other events, facilities and

entertainment media provide the patron with a total entertainment experience.

Lakes markets these programs through a variety of direct and media marketing

techniques utilizing a significant customer database at each location.



GRAND CASINO COUSHATTA



Grand Casino Coushatta opened in January 1995 and currently consists of a

223 room hotel and approximately 98,000 square feet of casino gaming space

containing approximately 3,100 slot machines and 90 table games. Three

restaurants plus a food court, a full-service RV resort, a Kids Quest(SM) child

care center, a video arcade, a gift shop and parking for approximately 1,600

vehicles are among the property's non-gaming amenities.



On February 25, 1992, Grand, as predecessor to Lakes, entered into a

construction agreement and management contract with the Coushatta Tribe for the

development, construction, and management of a casino facility in Kinder,

Louisiana. Grand purchased approximately 688 acres of land adjacent to the

Coushatta reservation. Grand donated approximately 530 acres of land to the

Coushatta Tribe which has been placed in trust. The remaining land was sold to

the Coushatta Tribe, and Lakes holds a promissory note to secure payment of the

purchase price with an outstanding balance of $.8 million at December 31, 2000.



Grand loaned the Coushatta Tribe an aggregate of approximately $38.3

million to construct and open Grand Casino Coushatta, of which amount up to

approximately $20.3 million was not, but may need to be, approved by the BIA

and/or NIGC. The loans bear interest at 1% over the prime rate and are payable

over the remaining term of the Coushatta Agreement. Approximately $5.2 million

of such loans remained outstanding as of December 31, 2000.



The Coushatta Tribe constructed a hotel on trust land located adjacent to

the casino. Pursuant to the Distribution, Lakes guaranteed $25.0 million of

indebtedness incurred by the Tribe in connection therewith. Such indebtedness

has a repayment term of approximately five years. Lakes subordinated payment of

its



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management fee and repayment of any loans outstanding from the Coushatta Tribe

to the repayment of such indebtedness. As of December 31, 2000, the amount

outstanding was $13.0 million.



The Coushatta management agreement was approved by the BIA on February 27,

1992. The Coushatta Tribe and the State of Louisiana entered into a tribal-state

compact on September 15, 1992, which was approved by the Secretary of the

Interior on November 4, 1992. The compact expired on November 4, 1999 and the

State of Louisiana delivered a written notice of non-renewal. The Governor and

the Tribe have agreed on three extensions totaling thirteen months, which were

approved by the Department of the Interior. On December 11, 2000, the Tribe and

the State of Louisiana agreed to terms of a new compact. The compact is subject

to approval by the Department of the Interior.



The current Coushatta Management Agreement expires on January 16, 2002. The

net distributable profits, if any, as determined on a modified cash basis, are

distributed each month 60% to the Coushatta Tribe and 40% to Lakes. The

Coushatta Tribe and Lakes have agreed on a five year contract renewal beginning

January 17, 2002, subject to NIGC approval. Net distributable profits, if any,

under the new contract will be determined in accordance with IGRA and

distributed each month 90% to the Coushatta Tribe and 10% to Lakes.



FUNDING AGREEMENTS



Pursuant to the terms of the Distribution Agreement, Lakes assumed Grand's

obligations under various agreements (the "Funding Agreements") with the

Coushatta Tribe to provide temporary funding, if necessary, for the construction

of certain additional amenities on Grand Casino Coushatta. The terms of the

Funding Agreements require each party to advance money for the payment of

construction costs if and when the casino operating funds designated for such

purpose are insufficient. Any funds advanced are to be repaid, together with

interest at the prime rate plus one percent, over the remaining term of the

respective management agreement. Advances of $14.9 million have been made to the

Coushatta Tribe through December 31, 2000. As of December 31, 2000, $6.2 million

remains outstanding.



COMPETITION



The gaming industry is highly competitive. Gaming activities include

traditional land-based casinos; river boat and dockside gaming; casino gaming on

Indian land; state-sponsored video lottery and video poker in restaurants, bars

and hotels; pari-mutuel betting on horse racing, dog racing, and jai-alai;

sports bookmaking; and card rooms. The casinos managed and to be managed by

Lakes compete with all of these forms of gaming, and will compete with any new

forms of gaming that may be legalized in additional jurisdictions, as well as

with other types of entertainment. Lakes also competes with other gaming

companies for opportunities to acquire legal gaming sites in emerging gaming

jurisdictions and for the opportunity to manage casinos on Indian land. Some of

the competitors of Lakes have more personnel and greater financial and other

resources than Lakes. Further expansion of gaming could also significantly

affect Lakes' business.



The Louisiana markets are highly competitive and numerous Louisiana

casinos, along with others in Mississippi, compete with Grand Casino Coushatta.

A single large land-based casino in downtown New Orleans competes for customers

with the casino managed by Lakes. Louisiana has also legalized river boat

gaming. There are presently 14 licensed river boats in operation in Louisiana,

four of which are operating in the vicinity of Lake Charles, Louisiana, within

approximately 50 miles of Grand Casino Coushatta.



The riverboats compete with the Louisiana casino managed by Lakes.

Moreover, if the legalization of casino gaming in Texas occurs, it could have a

material adverse effect on the casino managed by Lakes. Louisiana has also

enacted legislation allowing racetracks in certain parishes to install slot

machines, which has been approved in local referenda. The slot machine

operations could also have a material effect on the casino managed by Lakes.

Video poker machines may be located in facilities that serve liquor, at truck

stops, and at pari-mutuel racetracks and off-track betting facilities.



REGULATION



The ownership, management, and operation of gaming facilities are subject

to extensive federal, state, provincial, tribal and/or local laws, regulations

and ordinances, which are administered by the relevant regulatory agency or

agencies in each jurisdiction (the "Regulatory Authorities"). These laws,

regulations and ordinances vary from jurisdiction to jurisdiction, but generally

concern the responsibility, financial stability and character of the owners and

managers of gaming operations as well as persons financially interested or

involved



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in gaming operations. Certain basic provisions that are currently applicable to

Lakes in its management, development and financing activities are described

below.



Neither Lakes nor any subsidiary may own, manage or operate a gaming

facility unless proper licenses, permits and approvals are obtained. An

application for a license, permit or approval may be denied for any cause that

the Regulatory Authorities deem reasonable. Most Regulatory Authorities also

have the right to license, investigate, and determine the suitability of any

person who has a material relationship with Lakes or any of its subsidiaries,

including officers, directors, employees, and security holders of Lakes or its

subsidiaries. In the event a Regulatory Authority were to find a security holder

to be unsuitable, Lakes may be sanctioned, and may lose its licenses and

approvals if Lakes recognizes any rights in such unsuitable person in connection

with such securities. Lakes may be required to repurchase its securities at fair

market value from security holders that the Regulatory Authorities deem

unsuitable. Lakes' Articles of Incorporation authorize Lakes to redeem

securities held by persons whose status as a security holder, in the opinion of

the Lakes' Board, jeopardizes gaming licenses or approvals of Lakes or its

subsidiaries. Once obtained, licenses, permits, and approvals must be

periodically renewed and generally are not transferable. The Regulatory

Authorities may at any time revoke, suspend, condition, limit, or restrict a

license for any cause they deem reasonable.



Fines for violations may be levied against the holder of a license, and in

certain jurisdictions, gaming operation revenues can be forfeited to the State

under certain circumstances. No assurance can be given that any licenses,

permits, or approvals will be obtained by Lakes or its subsidiaries, or if

obtained, will be renewed or not revoked in the future. In addition, the

rejection or termination of a license, permit, or approval of Lakes or any of

its employees or security holders in any jurisdiction may have adverse

consequences in other jurisdictions. Certain jurisdictions require gaming

operators licensed therein to seek approval from the state before conducting

gaming in other jurisdictions. Lakes and its subsidiaries may be required to

submit detailed financial and operating reports to Regulatory Authorities.



The political and regulatory environment for gaming is dynamic and rapidly

changing. The laws, regulations, and procedures pertaining to gaming are subject

to the interpretation of the Regulatory Authorities and may be amended. Any

changes in such laws, regulations, or their interpretations could have a

material adverse effect on Lakes.



Certain specific provisions to which Lakes is currently subject are

described below.



INDIAN GAMING



The terms and conditions of management contracts for the operation of

Indian-owned casinos, and of all gaming on Indian land in the United States, are

subject to the IGRA, which is administered by NIGC, and also are subject to the

provisions of statutes relating to contracts with Indian tribes, which are

administered by the Secretary of the Interior (the "Secretary") and the BIA. The

regulations and guidelines under which NIGC will administer IGRA are evolving.

The IGRA and those regulations and guidelines are subject to interpretation by

the Secretary and NIGC and may be subject to judicial and legislative

clarification or amendment.



Lakes may need to provide the BIA or NIGC with background information on

each of its directors and each shareholder who holds five percent or more of

Lakes' stock ("5% Shareholders"), including a complete financial statement, a

description of such person's gaming experience, and a list of jurisdictions in

which such person holds gaming licenses. Background investigations of key

employees also may be required. Lakes' Articles of Incorporation contain

provisions requiring directors and 5% Shareholders to provide such information.



IGRA currently requires NIGC to approve management contracts and certain

collateral agreements for Indian-owned casinos. Prior to NIGC assuming its

management contract approval responsibility, management contracts and other

agreements were approved by the BIA. All of Lakes' current management contracts

and collateral agreements were approved by the BIA; however, the NIGC may review

such management contracts and collateral agreements for compliance with IGRA at

any time in the future. The NIGC will not approve a management contract if a

director or a 5% Shareholder of the management company (i) is an elected member

of the Indian tribal government that owns the facility purchasing or leasing the

games; (ii) has been or is convicted of a felony gaming offense; (iii) has

knowingly and willfully provided materially false information to the NIGC or the

tribe; (iv) has refused to respond to questions from the NIGC; or (v) is a

person whose prior history, reputation and associations pose a threat to the

public interest or to effective gaming regulation and control, or create or

enhance the chance of unsuitable activities in gaming or the business and

financial



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arrangements incidental thereto. In addition, the NIGC will not approve a

management contract if the management company or any of its agents have

attempted to unduly influence any decision or process of tribal government

relating to gaming, or if the management company has materially breached the

terms of the management contract or the tribe's gaming ordinance, or a trustee,

exercising due diligence, would not approve such management contract.



A management contract can be approved only after NIGC determines that the

contract provides, among other things, for (i) adequate accounting procedures

and verifiable financial reports, which must be furnished to the tribe; (ii)

tribal access to the daily operations of the gaming enterprise, including the

right to verify daily gross revenues and income; (iii) minimum guaranteed

payments to the tribe, which must have priority over the retirement of

development and construction costs; (iv) a ceiling on the repayment of such

development and construction costs; and (v) a contract term not exceeding five

years and a management fee not exceeding 30% of profits; provided that the NIGC

may approve up to a seven year term and a management fee not to exceed 40% of

profits if NIGC is satisfied that the capital investment required, and the

income projections for the particular gaming activity justify the larger profit

allocation and longer term.



While Lakes believes that the Coushatta Management Agreement, as extended,

meets all requirements of IGRA, there is a risk that the NIGC may reduce the

term or the management fee provided for in any such contract. Currently, the

management contract (i) has not been reviewed or approved by NIGC, and (ii) NIGC

could call them for review at any time and may not approve the contract at all

or may require modification prior to granting approval.



IGRA established three separate classes of tribal gaming -- Class I, Class

II, and Class III. Class I includes all traditional or social games played by a

tribe in connection with celebrations or ceremonies. Class II gaming includes

games such as bingo, pulltabs, punch boards, instant bingo and card games that

are not played against the house. Class III gaming includes casino-style gaming

and includes table games such as blackjack, craps and roulette, as well as

gaming machines such as slots, video poker, lotteries, and pari-mutuel wagering.



IGRA prohibits substantially all forms of Class III gaming unless the tribe

has entered into a written agreement with the state in which the casino is

located that specifically authorizes the types of commercial gaming the tribe

may offer (a "tribal-state compact"). IGRA requires states to negotiate in good

faith with tribes that seek tribal-state compacts, and grants Indian tribes the

right to seek a federal court order to compel such negotiations. Many states

have refused to enter into such negotiations. Tribes in several states have

sought federal court orders to compel such negotiations under IGRA; however, the

Supreme Court of the United States held in 1996 that the Eleventh Amendment to

the United States Constitution immunizes states from suit by Indian tribes in

federal court without the states' consent.



Because Indian tribes are currently unable to compel states to negotiate

tribal-state compacts, Lakes may not be able to develop and manage casinos in

states that refuse to enter into, or renew, tribal-state compacts.



In addition to IGRA, tribal-owned gaming facilities on Indian land are

subject to a number of other federal statutes. The operation of gaming on Indian

land is dependent upon whether the law of the state in which the casino is

located permits gaming by non-Indian entities, which may change over time. Any

such changes in state law may have a material adverse effect on the casinos

managed by Lakes.



Title 25, Section 81 of the United States Code states that "no agreement

shall be made by any person with any tribe of Indians, or individual Indians not

citizens of the United States, for the payment or delivery of any money or other

thing of value . . . in consideration of services for said Indians relative to

their lands . . . unless such contract or agreement be executed and approved" by

the Secretary or his or her designee. An agreement or contract for services

relative to Indian lands that fails to conform with the requirements of Section

81 will be void and unenforceable. Any money or other thing of value paid to any

person by any Indian or tribe for or on his or their behalf, on account of such

services, in excess of any amount approved by the Secretary or his or her

authorized representative will be subject to forfeiture. Lakes believes that it

has complied with the requirements of Section 81 with respect to its management

contract for Grand Casino Coushatta.



The Indian Trader Licensing Act, Title 25, Section 261-64 of the United

States Code ("ITLA") states that "any person other than an Indian of the full

blood who shall attempt to reside in the Indian country, or on any Indian

reservation, as a trader, or to introduce goods, or to trade therein, without

such license, shall forfeit all merchandise offered for sale to the Indians or

found in his possession, and shall moreover be liable to a penalty of $500..."

No such licenses have been issued to Lakes to date. The applicability of ITLA to

Indian



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gaming management contracts is unclear. Lakes believes that ITLA is not

applicable to its management contracts, under which Lakes provides services

rather than goods to Indian tribes. Lakes further believes that ITLA has been

superseded by IGRA.



Indian tribes are sovereign nations with their own governmental systems,

which have primary regulatory authority over gaming on land within the tribe's

jurisdiction. Because of their sovereign status, Indian tribes possess immunity

from lawsuits to which the tribes have not otherwise consented or otherwise

waived their sovereign immunity defense. Therefore, no contractual obligations

undertaken by tribes to Lakes would be enforceable by Lakes unless the tribe has

expressly waived its sovereign immunity as to such obligations. Courts strictly

construe such waivers. Lakes has obtained immunity waivers from each of the

tribes to enforce the terms of its management agreements, however, the scope of

those waivers has never been tested in court, and may be subject to dispute.

Additionally, persons engaged in gaming activities, including Lakes, are subject

to the provisions of tribal ordinances and regulations on gaming. These

ordinances are subject to review by NIGC under certain standards established by

IGRA. The possession of valid licenses from the Coushatta Tribe are conditions

of the Coushatta Agreement.



NON-GAMING REGULATIONS



The Company and its subsidiaries are subject to certain federal, state and

local, safety and health laws, regulations pertaining to operation of barges and

other marine laws, and regulations and ordinances that apply to non-gaming

businesses generally, such as the Clean Air Act, Clean Water Act, Occupational

Safety and Health Act, Resource Conservation Recovery Act and the Comprehensive

Environmental Response, Compensation and Liability Act. The Company believes

that it is currently in material compliance with such regulations. The coverage

and attendant compliance costs associated with such laws, regulations and

ordinances may result in future additional cost to the Company's operations.



EMPLOYEES



At March 21, 2001, Lakes had approximately 30 employees. Lakes believes its

relations with employees are positive.



RISK FACTORS



In addition to factors discussed elsewhere in this Annual Report on Form

10-K, the following are important factors that could cause actual results or

events to differ materially from those contained in any forward-looking

statement made by or on behalf of the Company.



INDEMNIFICATION OBLIGATIONS.  Under the Distribution Agreement and under

the Agreement and Plan of Merger, relating to the Merger (the "Merger

Agreement") Lakes agreed to indemnify Grand and affiliates of Grand for (i)

liabilities of Grand retained by Lakes in the Distribution, (ii) Grand's ongoing

indemnification obligations to current and former directors and officers of

Grand and (iii) contingent liabilities related to Stratosphere Corporation

("Stratosphere"). As described under Item 3, a settlement agreement has been

reached regarding both the Stratosphere shareholders' litigation and the Grand

Casinos, Inc. shareholders' litigation. The agreement required Lakes to pay $9

million to the Grand Casinos, Inc. shareholders and $9 million to the

Stratosphere shareholders for a total of $18 million. This amount has been paid

into escrow and related accounts in July 2000 for full and final settlement for

all federal and state related actions. The settlement is subject to final

approval by certain courts. If the settlement is not approved, Lakes'

obligations could be greater than the amount it has already paid, which may have

a material adverse effect on Lakes. As described under Item 3, there are

currently a number of other litigation matters for which Lakes has

indemnification obligations under the Distribution Agreement and the Merger

Agreement. Until Lakes has reached a final resolution with respect to these

matters, there can be no assurance that Lakes' indemnification obligations will

not have a material adverse effect on Lakes.



LAKES' FUNDING OBLIGATION.  As security to support Lakes' indemnification

obligations to Grand, Lakes agreed to deposit, in trust for the benefit of

Grand, as a wholly owned subsidiary of Park Place, an aggregate of $30 million

to cover various commitments and contingencies related to, or arising out of,

Grand's Non-Mississippi business and assets (as defined in the Merger Agreement)

(including by way of example, but not limitation, tribal loan guarantees, real

property lease guarantees for Lakes' subsidiaries and director and executive

officer indemnity obligations) consisting of four annual installments of $7.5

million, payable at the end of each year for a four year period subsequent to

the effective date of the Merger if the indemnification



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obligation still exists. Lakes made the first deposit of $7.5 million on

December 31, 1999. In partial satisfaction of the indemnification obligation,

Lakes deposited $18 million in an escrow account for settlement of both the

Stratosphere shareholders' litigation and the Grand Casinos, Inc. shareholders'

litigation. Such amounts are included as restricted cash on the accompanying

balance sheet as of December 31, 2000. In 2001, Lakes has also purchased the

Shark Club property in Las Vegas for $10.1 million in settlement of another

claim that was subject to the indemnification obligation. Lakes' ability to

satisfy further the funding obligation is materially dependent upon the

continued success of its operations and the general risks inherent in its

business. In the event Lakes is unable to satisfy its funding obligation, it

would be in breach of its agreement with Grand, possibly subjecting itself to

additional liability for contract damages, which could have a material adverse

effect on Lakes' business and results of operations.



HIGHLY REGULATED INDUSTRY.  The ownership, management and operation of

gaming facilities are subject to extensive federal, state, provincial, tribal

and/or local laws, regulations, and ordinances, which are administered by the

relevant regulatory agency or agencies in each jurisdiction. These laws,

regulations and ordinances vary from jurisdiction to jurisdiction, but generally

concern the responsibility, financial stability and character of the owners and

managers of gaming operations as well as persons financially interested or

involved in gaming operations. See "Regulation."



OPERATING COVENANTS; DIVIDEND RESTRICTIONS.  So long as Lakes is required

to indemnify Grand for certain specified liabilities, including (i) contingent

liabilities assumed by Lakes under the Distribution Agreement, (ii) ongoing

director and officer indemnification obligations and (iii) contingent

liabilities related to Stratosphere, Lakes has agreed that it will not declare

or pay any dividends, make any distribution on account of Lakes' equity

interests, or otherwise purchase, redeem, defease or retire for value any equity

interest in Lakes, without the written consent of Park Place, which consent can

be given or withheld in Park Place's sole and absolute discretion.



FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING.  Lakes anticipates

that the cash it received in the Distribution, interest expected to be earned

thereon and its anticipated revenues will be sufficient to finance its

operations. There can be no assurance, however, that Lakes will not seek or

require additional capital at some point in the future through either public or

private financings. Such financings may not be available when needed on terms

acceptable to Lakes or at all. Moreover, any additional equity financings may be

dilutive to Lakes shareholders, and any debt financing may involve additional

restrictive covenants. An inability to raise such funds when needed might

require Lakes to delay, scale back or eliminate some of its expansion and

development goals, and might require Lakes to cease its operations entirely. See

"Management's Discussion and Analysis of Financial Condition and Results of

Operations of Lakes -- Capital Resources, Capital Spending and Liquidity."



COMPETITION.  The gaming industry is highly competitive. Gaming activities

include traditional land-based casinos; river boat and dockside gaming; casino

gaming on Indian land; state-sponsored lotteries and video poker in restaurants,

bars and hotels; pari-mutuel betting on horse racing, dog racing and jai alai;

sports bookmaking; and card rooms. The Indian-owned casinos managed by Lakes

compete, and will in the future compete, with all these forms of gaming, and

will compete with any new forms of gaming that may be legalized in additional

jurisdictions, as well as with other types of entertainment.



In Louisiana, there are presently 14 licensed river boats in operation that

compete with Grand Casino Coushatta, one land based casino and two other Native

American casino operations. Lakes also competes with other gaming companies for

opportunities to acquire legal gaming sites in emerging and established gaming

jurisdictions and for the opportunity to manage casinos on Indian land. Because

the Distribution resulted in the unavailability of historical cash flows and

assets represented by Grand's Mississippi business, Lakes' ability to compete

for and develop future gaming or other business opportunities will be

restricted, both in the size and number of development projects it can pursue.



Many of Lakes' competitors have more personnel and most have greater

financial and other resources than Lakes. Such competition in the gaming

industry could adversely affect Lakes' ability to attract customers and thus,

adversely affect its operating results. In addition, further expansion of gaming

into new jurisdictions could also adversely affect Lakes' business by diverting

customers from its managed casinos to competitors in such jurisdictions.



MANAGEMENT CONTRACTS OF LIMITED DURATION.  Lakes is prohibited under the

IGRA from having an ownership interest in any casino it manages for Indian

tribes. The current management contract for Grand Casino Coushatta expires

January 16, 2002. The Coushatta Tribe and Lakes have agreed on a five-year



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contract renewal beginning January 17, 2002, subject to NIGC approval. Net

distributable profits, if any, under the new agreement will be determined in

accordance with IGRA and distributed each month 90% to the Coushatta Tribe and

10% to Lakes. Lakes' 10% share under the new agreement will be lower than under

the current agreement. Under the current agreement, Lakes is entitled to 40% of

adjusted cash flows of the casino. Although the reduction in percentage will be

offset somewhat by the fact that net distributable profits are expected to be

higher than the current adjusted cash flow measure, Lakes' revenues from the

Coushatta casino are expected to be lower under the new agreement than under the

current agreement. Further, there can be no assurance that the management

contract will be approved by the NIGC. The failure to renew Lakes' management

contract would result in the loss of revenues to Lakes derived from such

contract, which would have a material adverse effect on Lakes' results of

operations.



The Coushatta Tribe entered into tribal-state compacts with the State of

Louisiana on September 29, 1992. The compact was approved in November, 1992 by

the Secretary of the Interior. The compact expired in November, 1999 and the

State of Louisiana delivered a written notice of non-renewal. The Governor and

the Tribe have agreed on three extensions, which were approved by the Department

of the Interior. On December 11, 2000, the Coushatta Tribe and the State of

Louisiana agreed to terms for a new compact. The compact is subject to approval

by the Department of Interior. In the event that the compact is not approved but

the management contract is renewed, Lakes will continue to operate the casino at

this location.



Currently, the management contract for Grand Casino Coushatta generates

substantially all of Lakes' operating revenues. Without the renewal of the

existing management contract or the realization of new business opportunities or

new management contracts, the non-renewal of the Louisiana management contract

or failure of the Department of Interior to approve the new compact could have a

material adverse impact on Lakes' results of operations and financial condition.



MANAGEMENT CONTRACTS SUBJECT TO GOVERNMENTAL MODIFICATION.  The NIGC has

the power to require modifications to Indian management contracts under certain

circumstances or to void such contracts or ancillary agreements including loan

agreements if the management company fails to obtain requisite approvals or to

comply with applicable laws and regulations. While Lakes believes that its

management contracts meet the requirements of the IGRA, NIGC has the right to

review each contract and has the authority to reduce the term of a management

contract or the management fee or otherwise require modification of the

contract, which could have an adverse effect on Lakes. Currently, the management

contracts (i) have not been reviewed or approved by NIGC and (ii) NIGC could

call them for review at any time, in which case NIGC may not approve the

contracts at all or may require modification prior to granting approval. In

addition, Lakes has made loans to an Indian tribe in excess of the loan ceiling

set forth in the Indian management contracts. Under certain circumstances, these

loans may not be enforceable by Lakes. As of December 31, 2000, loan balances

outstanding to the tribe were approximately $12.2 million.



LIMITED RECOURSE AGAINST TRIBAL ASSETS.  Lakes has made, and will make

substantial loans to tribes for the construction, development, equipment and

operations of casinos managed by Lakes. Lakes' only recourse for collection of

indebtedness from a tribe or money damages for breach or wrongful termination of

a management contract is from revenues, if any, from casino operations. Lakes

has subordinated, and may in the future subordinate, the repayment of these

loans to a tribe and other distributions due from a tribe (including management

fees) in favor of other obligations of the tribe to other parties related to the

casino operations. Accordingly, in the event of a default by a tribe under such

obligations, Lakes' loans and other claims against the tribe will not be repaid

until such default has been cured or the tribe's senior casino-related creditors

have been repaid in full.



DEPENDENCE ON KEY PERSONNEL.  Lakes' success will depend largely on the

efforts and abilities of its senior corporate management, particularly Lyle

Berman, its Chairman and Chief Executive Officer. The loss of the services of

Mr. Berman or other members of senior corporate management could have a material

adverse effect on Lakes. Lakes does not have an employment agreement with Mr.

Berman.



LIMITED BASE OF OPERATIONS.  Lakes' principal operations currently consist

of the management of one Indian-owned casino. The management contract for Grand

Casino Coushatta expires January 16, 2002. The Coushatta Tribe and Lakes have

agreed on a five-year contract renewal beginning January 17, 2002, subject to

NIGC approval. Lakes' revenues from Coushatta are expected to decrease

significantly under the new contract, and Lakes must seek increased revenues

from other sources or its results will be adversely affected. The combination of

only one managed casino and the potentially significant investment associated

with any new managed casino may cause the operating results of Lakes to

fluctuate significantly and adversely affect the profitability of Lakes.

Accordingly, poor operating results at Grand Casino Coushatta or a delay in the



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opening or non-opening of any future casinos could materially affect the

profitability of Lakes. Future growth in revenues and profits will depend to a

large extent on Lakes' ability to continue to increase the number of its managed

casinos or develop new business opportunities.



RISKS ASSOCIATED WITH NEW DEVELOPMENT ACTIVITIES.  Although Lakes and

certain members of its management team have experience developing, operating and

managing casinos owned by Indian tribes and located on Indian land, neither the

Company nor any of these individuals has developed or operated a casino in

either the State of California or the State of Michigan. In addition, the gaming

industry in each of the locations where Lakes plans to develop and operate

casinos has a limited operating history and faces several legal and procedural

challenges which will need to be resolved prior to the commencement of Lakes'

development activities and the opening and operation of the respective casinos.



The opening of each of the proposed Lakes' facilities in the State of

California and in the State of Michigan, respectively, will be contingent upon,

among other things, the completion of construction, hiring and training of

sufficient personnel and receipt of all regulatory licenses, permits,

allocations and authorizations. The scope of the approvals required to construct

and open these facilities will be extensive, and the failure to obtain such

approvals could prevent or delay the completion of construction or opening of

all or part of such facilities or otherwise affect the design and features of

the proposed casinos.



The start of development and construction of the casino projects is subject

to various regulatory approvals. No assurances can be given that once a schedule

for such construction and development activities is established, such

development activities will begin or will be completed on time, or any other

time, or that the budget for these projects will not be exceeded. Major

construction projects entail significant risks, including shortages of materials

or skilled labor, unforeseen engineering, environmental and/or geological

problems, work stoppages, weather interference, unanticipated cost increases and

non-availability of construction equipment. Construction, equipment or stalling

problems or difficulties in obtaining any of the requisite licenses, permits,

allocations and authorizations from regulatory authorities could increase the

total cost, delay or prevent the construction or opening or any of these planned

casino developments or otherwise affect their design. In addition, once

developed, no assurances can be given that the Company will be able to manage

these casinos on a profitable basis or to attract a sufficient number of guests,

gaming customers and other visitors to make the various operations profitable

independently.



Although Lakes generally provides only preliminary construction financing

for its managed casinos, with each project Lakes is subject to the risk that its

investment may be lost if the project cannot obtain adequate financing to

complete development and open the casino successfully. In some cases, Lakes may

be forced to provide more financing than it originally planned in order to

complete development, increasing the risk to Lakes in the event of a default by

the casino.



RISKS ASSOCIATED WITH DIVERSIFICATION.  Lakes has announced that part of

its strategy involves diversifying into other gaming-related businesses, such as

Internet gaming. These projects involve business risks separate from the risks

involved in casino development and these investments may result in future losses

to Lakes. Lakes also is investing significant resources into a joint venture to

develop commercial property in Las Vegas. As with casino development projects,

major real estate projects entail significant risks, including delays and

unanticipated cost increases. There is no assurance that diversification

activities will successfully add to Lakes' future revenues and income.



ITEM 2.  PROPERTIES



CORPORATE OFFICE FACILITY



Pursuant to the terms of the Distribution Agreement, Grand has assigned to

Lakes, and Lakes has assumed a lease agreement dated February 1, 1996 covering

Lakes' current corporate office space of approximately 65,000 square feet with a

lease term of fifteen years. The lease commenced on October 14, 1996 and the

annual base rent is $768,300 plus building operating costs.



LAS VEGAS LAND



The Company owns, or holds purchase options for, approximately sixteen

acres of land surrounding the corner of Harmon Avenue and Las Vegas Boulevard in

Las Vegas, Nevada. On July 31, 2000, Lakes announced that it had formed a joint

venture, Metroplex-Lakes LLC to develop the properties. The joint venture has a

two-year option to buy the majority of the site from Lakes at a price that will

approximately equal Lakes' investment in the property plus the assumption of

Lakes' future obligations under a long-term



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ground lease. The joint venture will also assume Lakes' option to purchase the

remainder of the site from a third party.



TRAVELODGE PARCEL



A Lakes subsidiary is tenant under a ground lease (the "Travelodge Lease")

which commenced on June 17, 1996, and will (unless sooner terminated in

accordance with the provisions thereof) remain in effect until June 16, 2095.

The Travelodge Lease provides for a base rent (in the initial amount of $166,667

per month) that is adjusted each lease year based on a cost of living formula.

In addition to the base rent, the tenant must pay all taxes on and costs of

maintaining the leased property. Lakes has the option to purchase the leased

property during the 20th lease year for the purchase price of $30 million. Lakes

manages the hotel building located on the leased property. A third party had a

sublease interest in the leased property. That claimed interest was terminated

pursuant to an agreement between the third party and Lakes that provides for

payments by Lakes in the amount of $150,000 per quarter for a period of ten

years after such party surrendered possession of the property to Lakes. A

portion of the building located on the leased property is subleased, which Lakes

currently has the right to terminate by making certain prescribed payments, and

complying with certain other conditions stated, in the sublease.



POLO PLAZA SHOPPING CENTER PARCEL



On October 1, 1999, the Company purchased the shopping center and land

owned by the Nevada Resort Properties Polo Plaza Limited Partnership (the

"Partnership") in lieu of exercising its right to purchase the remaining 51%

interest in the Partnership. Prior to the purchase, the Company held a 49%

ownership interest in the Partnership. In consideration for the purchase, the

Company paid approximately $3.3 million and paid off the outstanding partnership

mortgage of approximately $6.3 million. A $6.2 million loan to the Partnership

made by the Company during January 1999 was repaid and satisfied at the closing

by offsetting an appropriate amount against the purchase price as agreed by the

Company and the Partnership. Pursuant to the purchase agreement relating to this

transaction, the Partnership is currently being dissolved. Lakes continues to

operate the site as a commercial shopping center.



SHARK CLUB PARCEL



The Shark Club Parcel is an approximate 3.4 acre undeveloped site adjacent

to the Polo Plaza Shopping Parcel and the Travelodge. A subsidiary of Lakes was

the tenant on this site under a ground lease (the "Shark Club Lease"). In

connection with the Merger, Lakes agreed with Park Place that Lakes would either

exercise, or cause one of its subsidiaries to exercise, the Shark Club Lease

purchase option prior to the earliest time when the landlord could require Lakes

(or Grand as the guarantor) to purchase the subject real estate. On January 10,

2001, Lakes exercised its option to purchase the Shark Club Parcel for $10.1

million.



CABLE PARCEL



Pursuant to a November 1, 1997 Option Agreement, and a June 1, 2000 amended

Option Agreement, Lakes acquired an option to purchase approximately 4.5 acres

of land located near the Polo Plaza Shopping Center anytime prior to January 2,

2003. As consideration for the option, Lakes paid the landowner a non-

refundable monthly option payment of $80,000 through May 31, 2000 and began

paying $100,000 per month commencing June 1, 2000. The option agreement states

that the purchase price for the rear parcel, consisting of approximately 3

acres, is $18 million and the purchase price for the entire Cable property, 4.5

acres, is $39.1 million.



ITEM 3.  LEGAL PROCEEDINGS



The following summaries describe certain known legal proceedings to which

Grand is a party which Lakes has assumed, or with respect to which Lakes has

agreed to indemnify Grand, in connection with the Distribution.



STRATOSPHERE SHAREHOLDERS LITIGATION -- FEDERAL COURT



In August 1996, a complaint was filed in the U.S. District Court for the

District of Nevada -- Michael Ceasar, et al v. Stratosphere Corporation, et

al -- against Stratosphere and others, including Grand. The complaint was filed

as a class action, and sought relief on behalf of Stratosphere shareholders who

purchased



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their stock between December 19, 1995 and July 22, 1996. The complaint included

allegations of misrepresentations, federal securities law violations and various

state law claims.



In August through October 1996, several other nearly identical complaints

were filed by various plaintiffs in the U.S. District Court for the District of

Nevada. The defendants in the actions submitted motions requesting that all of

the actions be consolidated. Those motions were granted in January 1997, and the

consolidated action is entitled In re: Stratosphere Corporation Securities

Litigation -- Master File No. CV-S-96-00708 PMP (RLH).



In February 1997, the plaintiffs filed a consolidated and amended complaint

naming various defendants, including Grand and certain current and former

officers and directors of Grand. The amended complaint includes claims under

federal securities laws and Nevada laws based on acts alleged to have occurred

between December 19, 1995 and July 22, 1996.



In February 1997, various defendants, including Grand and Grand's officers

and directors named as defendants, submitted motions to dismiss the amended

complaint. Those motions were made on various grounds, including Grand's claim

that the amended complaint failed to state a valid cause of action against Grand

and Grand's officers and directors.



In May 1997, the court dismissed the amended complaint. The dismissal order

did not allow the plaintiffs to further amend their complaint in an attempt to

state a valid cause of action.



In June 1997, the plaintiffs asked the court to reconsider its dismissal

order, and to allow the plaintiffs to submit a second amended complaint in an

attempt to state a valid cause of action. In July 1997, the court allowed the

plaintiffs to submit a second amended complaint.



In August 1997, the plaintiffs filed a second amended complaint. In

September 1997, certain of the defendants, including Grand and Grand's officers

and directors named as defendants, submitted a motion to dismiss the second

amended complaint. The motion was based on various grounds, including Grand's

claim that the second amended complaint failed to state a valid cause of action

against Grand and Grand's officers and directors.



In April 1998, the Court granted Grand's motion to dismiss, in part, and

denied the motion in part. Thus, the plaintiffs are pursuing the claims in the

second amended complaint that survived the motion to dismiss.



In June 1998, certain of the defendants, including Grand and Grand's

officers and directors named as defendants, submitted a motion for summary

judgment seeking an order that such defendants are entitled to judgment as a

matter of law. In December 1998, the plaintiffs completed fact discovery related

to the issues raised by the summary judgment motion. Expert discovery was

completed in March of 1999. All papers relating to this matter were filed on

June 1, 1999.



On October 6, 1999, the District Court entered its Order, granting in part

and denying in part, defendants' Motion for Summary Judgment and Summary

Adjudication. The Court dismissed all allegations in reference to (1) Phase II

funding levels; (2) "over-allotments uses", as stated in the December 19, 1995

Prospectus; (3) the purpose and use of the Grand Casino Completion Guaranty, as

stated in the June 6, 1996 Press Statement; (4) the vague expressions of general

optimism (issued within the December 19, 1995 Prospectus, the 10-Q and 10-K

Filings, press releases and other public statements) referred to in this Order;

(5) the adoption of statements in securities analysts reports; (6) the alleged

utterance of misleading statements before the Nevada Gaming Commission; and (7)

the temporary diversion of Phase II proceeds to fund Phase I. The remaining

claims relate to the accuracy of defendants' budgetary estimates issued in

Stratosphere's December 1995 Prospectus and SEC 10-Q and 10-K Reports. The Court

concluded that there were triable issues as to whether defendants misstated

anticipated construction costs or omitted to disclose material cost overruns.



The court added the Company as an additional defendant because of its

indemnity obligation and stipulation.



The parties have reached a settlement covering the Stratosphere

shareholders litigation. A stipulation of settlement was approved by the court

on December 4, 2000. The Stratosphere state and federal settlement was for $9

million, inclusive of all plaintiffs fees and costs. A conditional judgement was

entered and no distribution of the settlement will occur until the Minnesota

federal litigation is also dismissed.



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STRATOSPHERE SHAREHOLDERS LITIGATION -- NEVADA STATE COURT



In August 1996, a complaint was filed in the District Court for Clark

County, Nevada -- Victor M. Opitz, et al v. Robert E. Stupak, et al -- Case No.

A363019 -- against various defendants, including Grand. The complaint seeks

relief on behalf of Stratosphere Corporation shareholders who purchased stock

between December 19, 1995 and July 22, 1996. The complaint alleges

misrepresentations, state securities law violations and other state claims.

Grand and certain defendants submitted motions to dismiss or stay the state

court action pending resolution of the federal court action described above. The

court has stayed further proceedings pending the resolution of In re:

Stratosphere Securities Litigation.



As described under "Stratosphere Shareholders Litigation -- Federal Court"

above, the parties have reached a $9 million settlement covering the

Stratosphere shareholders litigation in federal and state courts. A Stipulation

and Order for Dismissal with Prejudice was entered on January 11, 2001,

providing that the state court litigation be dismissed with prejudice inasmuch

as the parallel federal court action has been resolved.



GRAND CASINOS, INC. SHAREHOLDERS LITIGATION



In September and October 1996, two actions were filed by Grand shareholders

in the U.S. District Court for the District of Minnesota against Grand and

certain of Grand's current and former directors and officers. The complaints

allege misrepresentations, federal securities law violations and other claims in

connection with the Stratosphere project.



The actions have been consolidated as In re: Grand Casinos, Inc. Securities

Litigation -- Master File No. 4-96-890 -- and the plaintiffs filed a

consolidated complaint. The defendants submitted a motion to dismiss the

consolidated complaint, based in part on Grand's claim that the consolidated

complaint failed to properly state a cause of action. The consolidated complaint

sought class action treatment for a class comprising all persons (other than the

defendants) who purchased Grand common stock during the period from December 19,

1995 through July 19, 1996.



In December 1997, the court granted Grand's motion to dismiss in part, and

denied the motion in part. Thus, the plaintiffs are pursuing the claims in the

consolidated complaint that survived Grand's motion to dismiss. Discovery in the

action has begun.



The defendants have submitted a motion for summary judgment seeking an

order that the defendants are entitled to judgment as a matter of law. In

December 1998, the plaintiffs completed fact discovery related to the issues

raised by the summary judgement motion. Expert discovery was completed in March

of 1999.



The parties have completed follow-up discovery pertaining to the summary

judgement motion. The court heard the motion on September 2, 1999. On March 28,

2000, the court granted the motion in part and denied the motion in part. The

court dismissed with prejudice, all claims against the defendants as to the

members of the putative class who did not purchase Grand common stock during the

period from December 19, 1995 through June 6, 1996 inclusive.



In early February 1999, the plaintiffs filed a motion for leave to amend

the complaint in this action to include, as defendants in the case, both the

Company and Park Place. The motion for leave to amend the complaint has been

granted and Lakes has filed its answer.



On June 19, 2000, the Company announced that a settlement agreement had

been reached regarding the litigation. The agreement called for the Company to

pay $9 million to the Grand shareholders for full and final settlement of all

claims covering the original class period. The settlement agreement is subject

to final approval by the US District Court for the District of Minnesota. The $9

million was placed into an escrow account by Lakes on behalf of the recipients

in July 2000.



SLOT MACHINE LITIGATION



In April 1994, William H. Poulos brought an action in the U.S. District

Court for the Middle District of Florida, Orlando Division -- William H. Poulos,

et al v. Caesars World, Inc. et al -- Case No. 39-478-CIV-ORL-22 -- in which

various parties (including Grand) alleged to operate casinos or be slot machine

manufacturers were named as defendants. The plaintiff sought to have the action

certified as a class action.



A subsequently filed Action -- William Ahearn, et al v. Caesars World, Inc.

et al -- Case No. 94-532-CIV-ORL-22 -- made similar allegations and was

consolidated with the Poulos action.



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Both actions included claims under the federal Racketeering-Influenced and

Corrupt Organizations Act and under state law, and sought compensatory and

punitive damages. The plaintiffs claimed that the defendants are involved in a

scheme to induce people to play electronic video poker and slot machines based

on false beliefs regarding how such machines operate and the extent to which a

player is likely to win on any given play.



In December 1994, the consolidated actions were transferred to the U.S.

District Court for the District of Nevada.



In September 1995, Larry Schreier brought an action in the U.S. District

Court for the District of Nevada -- Larry Schreier, et al v. Caesars World, Inc.

et al -- Case No. CV-95-00923-DWH(RJJ). The plaintiffs' allegations in the

Schreier action were similar to those made by the plaintiffs in the Poulos and

Ahearn actions, except that Schreier claimed to represent a more precisely

defined class of plaintiffs than Poulos or Ahearn.



In December 1996, the court ordered the Poulos, Ahearn and Schreier actions

consolidated under the title William H. Poulos, et al v. Caesars World, Inc., et

al -- Case No. CV-S-94-11236-DAE(RJJ) -- (Base File), and required the

plaintiffs to file a consolidated and amended complaint. In February 1997, the

plaintiffs filed a consolidated and amended complaint.



In March 1997, various defendants (including Grand) filed motions to

dismiss or stay the consolidated action until the plaintiffs submitted their

claims to gaming authorities and those authorities considered the claims

submitted by the plaintiffs.



In December 1997, the court denied all of the motions submitted by the

defendants, and ordered the plaintiffs to file a new consolidated and amended

complaint. That complaint has been filed. Grand has filed its answer to the new

complaint.



The plaintiffs have filed a motion seeking an order certifying the action

as a class action. Grand and certain of the defendants have opposed the motion.

The Court has not ruled on the motion.



STANDBY EQUITY COMMITMENT LITIGATION



In September 1997, the Stratosphere Trustee under the indenture pursuant to

which Stratosphere issued its first mortgage notes filed a complaint in the U.S.

District Court for the District of Nevada -- IBJ Schroeder Bank & Trust Company,

Inc. v. Grand Casinos, Inc. -- File No. CV-S-97-01252-DWH (RJJ) -- naming Grand

as defendant.



The complaint alleges that Grand failed to perform under the Standby Equity

Commitment entered into between Stratosphere and Grand in connection with

Stratosphere's issuance of such first mortgage notes in March 1995. The

complaint seeks an order compelling specific performance of what the Trustee

claims are Grand's obligations under the Standby Equity Commitment.



The Stratosphere Trustee filed the complaint in its alleged capacity as a

third party beneficiary under the Standby Equity Commitment. Pursuant to the

Second Amended Plan, a new limited liability company (the "Stratosphere LLC")

was formed to pursue certain alleged claims and causes of action that

Stratosphere and other parties may have against numerous third parties,

including Grand and/or officers and/or directors of Grand. The Stratosphere LLC

has been substituted for IBJ Schroeder Bank & Trust Company, Inc. in this

proceeding.



In October of 1999, portions of the Motions for Summary Judgment by both

parties were denied in part. The Court subsequently denied Grand's request for

expedited appellate court review as to the portions of Motions that were denied.

Thereafter, the parties jointly sought the Court's consideration of a subsequent

summary judgment motion. During the August 30, 2000 scheduled pretrial

conference call, the Court and the parties agreed to try the action upon an

amended joint pretrial order and a series of post-trial briefs. Post-trial

briefing concluded on December 12, 2000 and oral argument was held January 22,

2001. During oral argument, the Court asked both parties to submit findings of

fact and conclusions of law within three weeks. The Court did not indicate its

decision.



STRATOSPHERE PREFERENCE ACTION



In April 1998, Stratosphere served on Grand and Grand Media & Electronics

Distributing, Inc., a wholly owned subsidiary of Grand ("Grand Media"), a

complaint in the Stratosphere bankruptcy case seeking



15

16



recovery of certain amounts paid by Stratosphere to (i) Grand as management fees

and for costs and expenses under a management agreement between Stratosphere and

Grand, and (ii) Grand Media for electronic equipment purchased by Stratosphere

from Grand Media.



Stratosphere claims in its complaint that such amounts are recoverable by

Stratosphere as preferential payments under bankruptcy law.



In May 1998, Grand responded to Stratosphere's complaint. That response

denies that Stratosphere is entitled to recover the amounts described in the

complaint. The matter is pending.



ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



None.



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PART II



ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED

STOCKHOLDER MATTERS



Lakes became a publicly held company as a result of the Grand Distribution

effective December 31, 1998. The Common Stock began trading on the Nasdaq

National Market under the symbol LACO on January 4, 1999.



For the period from January 4, 1999 through December 31, 2000, the high and

low sales prices per share of the Company's Common Stock are indicated below, as

reported on the Nasdaq National Market:



<TABLE>

<CAPTION>

FIRST     SECOND      THIRD     FOURTH

QUARTER    QUARTER    QUARTER    QUARTER

-------    -------    -------    -------

<S>                                                       <C>        <C>        <C>        <C>

Year Ended January 2, 2000:

High................................................    $12.38     $11.88     $13.25     $10.31

Low.................................................      7.88       8.00       9.31       6.84

Year Ended December 31, 2000:

High................................................    $ 9.50     $10.13     $10.63     $ 9.38

Low.................................................      7.50       6.63       8.50       7.13

</TABLE>



On March 21, 2001, the last reported sale price for the Common Stock was

$9.50 per share. As of March 21, 2001, the Company had approximately 1,064

shareholders of record.



The Company has never paid any cash dividends with respect to its Common

Stock and the current policy of the Board of Directors is to retain any earnings

to provide for the growth of the Company. So long as Lakes is required to

indemnify Grand, as a subsidiary of Park Place, for certain specified

liabilities, Lakes has agreed that it will not declare or pay any dividends,

make any distribution on account of Lakes' equity interests or otherwise

purchase, redeem, defease or retire for value any equity interest in Lakes

without the written consent of Park Place which consent can be given or withheld

in Park Place's sole and absolute discretion. Subject to the foregoing dividend

restrictions, the payment of cash dividends in the future, if any, will be at

the discretion of the Board of Directors and will depend upon such factors as

earnings levels, capital requirements, the Company's overall financial condition

and any other factors deemed relevant by the Board of Directors. See "Risk

Factors -- Operating Covenants -- Dividend Restrictions."



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ITEM 6.  SELECTED FINANCIAL DATA



The Selected Financial Data presented below should be read in conjunction

with the Financial Statements and notes thereto included elsewhere in this Form

10-K, and in conjunction with "Management's Discussion and Analysis of Financial

Condition and Results of Operations" included elsewhere in this Form 10-K.



<TABLE>

<CAPTION>

FISCAL YEARS ENDED OR AS OF:

--------------------------------------------------------------------

DECEMBER 31,   JANUARY 2,   JANUARY 3,   DECEMBER 28,   DECEMBER 29,

2000          2000         1999          1997           1996

------------   ----------   ----------   ------------   ------------

(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

<S>                                <C>            <C>          <C>          <C>            <C>

LAKES HISTORICAL

RESULTS OF OPERATIONS:

Total revenue.................      $  59         $  55        $  92         $  79         $    77

Total operating income........         47            45           76            70              60

Net Earnings (loss)...........         16(2)         29           61            45            (109)(3)

Net Earnings (loss) per

share -- basic.............       1.47(2)       2.72         5.80          4.32          (10.46)(3)

Net Earnings (loss) per

share -- diluted...........       1.47(2)       2.67         5.71          4.20          (10.46)(3)

OTHER OPERATING DATA:

EBITDA(1).....................         50            47           78            71              61

BALANCE SHEET:

Unrestricted Cash and cash

equivalents................      $  10         $  24        $  57         $  33         $    34

Total assets..................        213           184          161           132             114

Total debt....................          2             2            1             1               1

Shareholders' equity..........        176           160          132           119             104

</TABLE>



- ---------------

(1) 2000 includes $19.8 million in revenues from the management contract for

Grand Casino Avoyelles that concluded during 2000, including $16.0 million

relating to the early buyout of the agreement. 1998 results include $36.8

million in revenues from the management contracts for Grand Casino Mille

Lacs and Grand Casino Hinckley that concluded during 1998. The Company's

revenues and earnings will not include contributions from these operations

going forward. EBITDA is earnings before interest, taxes, depreciation and

amortization, which can be computed by adding depreciation and amortization

to operating income. EBITDA excludes the $18 million provision for the

Stratosphere litigation settlement and the $5.5 million write-off of

unconsolidated affiliates in 2000 and the $161 million write off of Grand's

investment in Stratosphere Corporation in 1996. EBITDA is presented

supplementally because management believes it allows for a more complete

analysis of results of operations. This information should not be considered

as an alternative to any measure of performance as promulgated under

accounting principles generally accepted in the United States (such as

operating income or income from continuing operations) nor should it be

considered as an indicator of the overall financial performance of Lakes.

The calculations of EBITDA may be different from the calculations used by

other companies and, therefore, comparability may be limited. Historical

depreciation and amortization for Lakes for the fiscal years ended December

31, 2000, January 2, 2000, January 3, 1999, December 28, 1997, and December

29, 1996 totaled $3 million, $2 million, $2 million, $1 million, and $1

million, respectively.



(2) Includes a non-recurring, non-cash $18 million provision for the

Stratosphere litigation settlement and a $5.5 million charge for the

write-off of unconsolidated affiliates.



(3) Includes a non-recurring, non-cash $161 million charge related to the

write-off of Lakes' investment in Stratosphere Corporation.



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ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS



OVERVIEW



Lakes Gaming, Inc., a Minnesota corporation ("Lakes" or the "Company") was

established as a public corporation on December 31, 1998, via a distribution

(the "Distribution") of its Common Stock, par value $.01 per share, to the

shareholders of Grand Casinos, Inc. ("Grand"). Pursuant to the terms of the

Distribution Agreement entered into between Grand and Lakes dated as of December

31, 1998, Grand shareholders received .25 of one share of Lakes Common Stock for

each share held in Grand. Historical references to the Company which precede the

Distribution give pro forma effect to the Distribution as if it had already

occurred.



Immediately following the Distribution, Grand merged with a subsidiary of

Park Place, pursuant to which Grand became a wholly owned subsidiary of Park

Place (the "Merger"). Grand shareholders received one share of Park Place common

stock in the Merger for each share they held in Grand.



As a result of the Distribution, Lakes operates the Indian casino

management business and holds various other assets previously owned by Grand.

The Company's revenues are derived almost exclusively from management fees.

Lakes manages a land-based, Indian-owned casino, Grand Casino Coushatta, in

Kinder, Louisiana ("Grand Casino Coushatta"), owned by the Coushatta Tribe of

Louisiana (the "Coushatta Tribe"). Pursuant to the Coushatta management

contract, Lakes receives a fee based on the net distributable profits (as

defined in the contracts) generated by Grand Casino Coushatta. The management

contract expires January 16, 2002. The Coushatta Tribe and Lakes have agreed on

a five-year contract renewal beginning January 17, 2002, subject to NIGC

approval. Net distributable profits, if any, under the new agreement will be

determined in accordance with IGRA and distributed each month 90% to the

Coushatta Tribe and 10% to Lakes.



The Company also managed a second land-based, Indian-owned casino in

Marksville, Louisiana ("Grand Casino Avoyelles"), owned by the Tunica-Biloxi

Tribe of Louisiana (the "Tunica-Biloxi Tribe"). On March 31, 2000, the Company

reached an agreement with the Tribe for the early buyout of the management

contract for Grand Casino Avoyelles, which was scheduled to expire on June 3,

2001. The early buyout of the contract was provided for in the original

seven-year management agreement and, under the agreement, Lakes was compensated

for the management fees the company would have received had it managed Grand

Casino Avoyelles through the original contract expiration date of June 3, 2001,

discounted to their present value. Lakes was also repaid all amounts owing to it

under its loan agreements with the Tribe.



For a portion of fiscal 1998, and prior to the Distribution, Grand also had

management contracts for Indian-owned casinos located at Grand Casino Hinckley

and Grand Casino Mille Lacs in Minnesota. The management contract at Grand

Casino Mille Lacs expired at the end of the first quarter of 1998, and the

management of Grand Casino Hinckley ended November 30, 1998, with the buyout of

the remaining contract term.



Lakes develops, constructs and manages Indian-owned casino properties that

offer the opportunity for long-term development and related hotel and

entertainment facilities in emerging and established gaming jurisdictions.



On May 12, 1999, the Company announced that it would form a partnership for

the purpose of developing a gaming facility on Indian-owned land near San Diego,

California. Under the agreement, Lakes has formed a limited liability company

with KAR, a limited liability company based in Houston, Texas. The partnership

between Lakes and KAR holds a contract to develop and manage a casino resort

facility with the Jamul Indian Village in California. The contract is subject to

approval by NIGC. In 2000, California voters approved an amendment to the State

Constitution which allows for Nevada-style gaming on Indian land and ratifies

the Tribal Compact. Development of the casino resort will begin once various

regulatory approvals are received.



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On June 22, 1999, the Company announced that it has been selected by the

Pokagon Band to serve as the exclusive developer and manager of a proposed

casino gaming resort facility to be owned by the Pokagon Band in the State of

Michigan. In connection with its selection, Lakes and the Band have executed a

development and management agreement governing their relationship during the

development, construction and management of the casino. Various regulatory

approvals are needed prior to commencement of development activities.



On January 18, 2000, a Michigan Ingham County Circuit Judge ruled that the

Michigan State Legislature acted improperly in 1998 when it approved casino

compacts by joint resolution. The Governor of the State of Michigan has

indicated that he will appeal the ruling. The ruling directly affects four

tribes in Michigan, one of which is the Pokagon Band of Potawatomi Indians with

whom Lakes had development and management contracts.



In January 2001, the land comprising the casino site was accepted into

trust by the Secretary of Interior subject to a 30-day public comment period.

During the 30-day period a complaint was filed against the Secretary of the U.S.

Department of the Interior in the District Court of Columbus by a group called

"Taxpayers of Michigan Against Casinos", to stop the U.S. Department of Interior

from placing into trust the land for the casino site. The Department of Justice

will defend this lawsuit on behalf of the Secretary of the Interior.



On July 15, 1999, the Company announced that it would form a partnership

for the purpose of developing a gaming facility on Indian-owned land near

Sacramento, California. Pursuant to the agreement, Lakes has formed a limited

liability company with KAR, a limited liability company based in Houston, Texas.

The partnership between Lakes and KAR has been awarded a contract to develop and

manage a casino resort facility with the Shingle Springs Band of Miwok Indians

in California. The contract is subject to approval by NIGC and placement of the

land where the gaming facility is to be located into trust with the BIA. In

2000, California voters approved an amendment to the State Constitution which

allows for Nevada-style gaming on Indian land and ratifies the Tribal Compact.

Development of the casino resort will begin once various regulatory approvals

are received.



On October 1, 1999, the Company purchased the shopping center and land

owned by the Nevada Resort Properties Polo Plaza Limited Partnership in lieu of

exercising its right to purchase the remaining 51% interest in the Partnership.

Prior to the purchase, the Company held a 49% ownership interest in the

Partnership. In consideration for the purchase, the Company paid approximately

$3.3 million and paid off the outstanding partnership mortgage of approximately

$6.3 million. A $6.2 million loan to the Partnership made by the Company during

January 1999 was repaid and satisfied at the closing by offsetting an

appropriate amount against the purchase price as agreed by the Company and the

Partnership. Pursuant to the purchase agreement relating to this transaction,

the Partnership is currently being dissolved.



On June 19, 2000, the Company announced that a settlement agreement had

been reached regarding both the Stratosphere shareholders' litigation and the

Grand Casinos, Inc. shareholders' litigation. The agreement required Lakes to

pay $9 million to the Grand Casinos, Inc. shareholders and $9 million to the

Stratosphere shareholders for a total of $18 million, which has been reflected

as a non-operating expense in the second quarter of 2000. This amount was paid

into escrow and related accounts in July 2000 for full and final settlement for

all federal and state related actions. The settlement is subject to final

approval by the respective courts, which is expected to occur later this year.



On July 31, 2000, the Company announced that it had formed a joint venture,

Metroplex-Lakes, LLC, with Metroplex, LLC to develop Las Vegas real estate now

controlled by Lakes. Metroplex-Lakes, LLC plans to develop an upscale retail,

commercial, hotel and entertainment complex on approximately 16 acres

surrounding the corner of Harmon Avenue and Las Vegas Boulevard (the "Strip") in

Las Vegas. The joint venture has a two-year option to buy the majority of the

site from Lakes at a price that will approximately equal Lakes' investment in

the property plus the assumption of Lakes' future obligations under a long-term

ground lease. The joint venture will also assume Lakes' option to purchase the

remainder of the site from a third party. Lakes will have voting control of the

joint venture, however, development decisions affecting the real estate

purchased by the joint venture must be mutually agreed upon. Lakes and Metroplex

will share results from the joint venture equally.



20

21



On August 10, 2000, the Company announced that it had agreed to form a

joint venture for the purpose of developing new gaming facilities on Indian

owned land in California. Under the agreement, Lakes formed a limited liability

company with MRD Gaming, a limited liability company. The partnership between

Lakes and MRD holds the contract to develop casino facilities with the

Cloverdale Rancheria of Pomo Indians. The planned site for the potential new

casino development is located on Highway 101 in Cloverdale, California,

approximately 60 miles north of San Francisco. Development at the casino will

start as soon as various regulatory approvals are obtained by the tribe.

Development is also subject to completion of definitive financing arrangements.

The joint venture also entered into a contract relating to the Paskenta Band of

Nomlaki Indians. Lakes has made loans to the joint venture for this project.

However, in February 2001, Lakes announced its intention to discontinue its

involvement with the Paskenta project.



Lakes' investments in unconsolidated affiliates include a 50 percent

ownership interest in each of Lakes Cloverdale, LLC, and Lakes Corning, LLC,

joint ventures formed to develop gaming facilities on Indian-owned land in

California. Additionally, as a result of its spin-off from Grand, Lakes received

a 27 percent ownership interest in New Horizon Kids Quest, Inc., a publicly held

provider of child care facilities. On December 31, 2000, Lakes wrote off the

carrying value in the amount of $5.5 million of certain investments in

unconsolidated affiliates. The investments include Fanball.com, Inc., a start-up

internet provider of fantasy sports services, Interactive Learning Group, a

consumer products company, and Trak 21 Development, LLC, a developer of player

tracking systems for the casino industry.



A potential new business venture that Lakes is actively considering is

establishing one or more web sites to conduct online gaming in a regulated

country, taking wagers placed from only outside the United States. Lakes is

currently evaluating the technology of various web site providers. The chosen

provider would create and maintain a gaming web site subject to the negotiation

and execution of definitive documents, due diligence, regulatory approvals and

other conditions.



Lakes' limited operating history may not be indicative of Lakes' future

performance. In addition, a comparison of results from year to year may not be

meaningful due to the opening of new facilities during each year and the buy-out

and/or cessation of other casino management contracts. Lakes' growth strategy

contemplates the expansion of existing operations, the pursuit of opportunities

to develop and manage additional gaming facilities and the pursuit of new

business opportunities. The successful implementation of this growth strategy is

contingent upon the satisfaction of various conditions, including obtaining

governmental approvals, the impact of increased competition, and the occurrence

of certain events, many of which are beyond the control of Lakes.



The following discussion and analysis should be read in conjunction with

the consolidated financial statements and notes thereto for the years ended

December 31, 2000, January 2, 2000 and January 3, 1999.



RESULTS OF OPERATIONS



Revenues are calculated in accordance with accounting principles generally

accepted in the United States and are presented in a manner consistent with

industry practice. Net distributable profits are computed using a modified cash

basis of accounting in accordance with the management contracts. The effect of

the use of the modified cash basis of accounting is to accelerate the write-off

of capital equipment and leased assets, which thereby impacts the timing of net

distributable profits.



Lakes is prohibited by IGRA from having an ownership interest in any casino

it manages for Indian tribes. The management contract with Grand Casino

Coushatta expires January 16, 2002. The Coushatta Tribe and Lakes have agreed on

a five-year contract renewal beginning January 17, 2002, subject to NIGC

approval. There can be no assurance that the management contract will be renewed

upon expiration or approved by NIGC upon any such renewal. The failure to renew

the Lakes' management contract would result in the loss of revenues to Lakes

derived from such contract, which would have a material adverse effect on Lakes'

results of operations.



The Coushatta Tribe entered into a tribal-state compact with the State of

Louisiana on September 29, 1992. This compact was approved in November 1992 by

the Secretary of the Interior. The compact for the



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Coushatta Tribe expired November 4, 1999 and the State of Louisiana delivered a

written notice of non-renewal. The Governor and the Tribe agreed on two

six-month extensions, and one thirty-day extension, which were approved by the

Department of the Interior. On December 11, 2000, the State of Louisiana and the

Coushatta Tribe reached agreement on the terms of a new compact. The compact is

subject to approval by the Department of the Interior. In the event the compact

is not approved, gaming may not be permitted at Grand Casino Coushatta.



FISCAL YEAR ENDED DECEMBER 31, 2000 COMPARED TO FISCAL YEAR ENDED JANUARY 2,

2000



Revenues.  Total revenues were $59.0 million for the fiscal year ended

December 31, 2000, compared to $54.7 million for the prior year. Aggregate

management fee income from the Avoyelles and Coushatta casinos increased to

approximately $58.6 million during the twelve months ended December 31, 2000

from $54.7 million in the previous year. Contributing to the increase of $3.9

million was the early buyout of the management agreement for Grand Casino

Avoyelles by the Tunica-Biloxi Tribe of Louisiana in the first quarter of 2000.

Under the early buyout agreement, the Company was compensated for the management

fees it would have received had it managed Grand Casino Avoyelles through the

original contract expiration date which was June 3, 2001. As a result,

management fee income from Grand Casino Avoyelles increased approximately $5.6

million for the twelve months ended December 31, 2000 compared to the prior

year. Also, despite a 5% increase in total revenue at Grand Casino Coushatta,

management fee income decreased approximately $1.7 million for the twelve months

ended December 31, 2000 compared to the twelve months ended January 2, 2000.

This decrease is primarily due to increased marketing and employee benefit costs

at Grand Casino Coushatta.



As a result of the early buyout of the management agreement for Grand

Casino Avoyelles, the Company's revenues and earnings will not include

contributions from this operation going forward.



Under the proposed amendment to the Coushatta management agreement,

starting on January 17, 2002, the Company's share of the casino's income is

expected to change. Under the existing contract, the Company receives 40% of

modified cash flow. Under the proposed new agreement, the Company will receive

10% of the casino's "net distributable profits", calculated under applicable

gaming regulations. The reduction in percentage will be offset somewhat by the

fact that "net distributable profits" will be higher than the modified cash flow

calculated under the existing agreement, which is reduced by the casino's debt

service costs. However, management fee income from the Coushatta casino is

expected to decline significantly under the new agreement.



Costs and Expenses.  Total costs and expenses increased $2.3 million, to

$11.9 million for the year ended December 31, 2000, from $9.6 million for the

prior year. Selling, general and administrative expenses increased $1.3 million,

to $9.0 million for the year ended December 31, 2000 from $7.7 million for the

prior year. The increase primarily reflects development costs relating to new

casino projects. Depreciation and amortization expenses increased $1.0 million,

to $2.9 million for the year ending December 31, 2000 from $1.9 million for the

prior year, due to increased amortization in the current year related to the

early buyout of the Avoyelles management contract.



Taxes.  Provision for income taxes was $12.9 million for the year ended

December 31, 2000, compared to $22.1 million for the prior year. The effective

tax rates for 2000 and 1999 were 45.0% and 43.4%, respectively. The

reconciliation of the statutory federal tax rate of 35%, to the Company's actual

rate for each of the years is state income taxes, net of the federal income tax

benefit of 6%, and permanent differences in book to tax income of 4.0% and 2.4%

for 2000 and 1999, respectively.



Other.  Provision for litigation loss was $18.0 million for the year ended

December 31, 2000. This amount relates to a settlement agreement reached in June

2000 regarding both the Stratosphere shareholders' litigation and the Grand

Casinos, Inc. shareholders' litigation. The agreement required Lakes to pay a

total of $18.0 million, which has been reflected as a non-operating expense.

This amount was paid into escrow and related accounts in July 2000 for full and

final settlement for all federal and state related actions. Such amount is

included as restricted cash on the accompanying consolidated balance sheet as of

December 31, 2000. The settlement agreement is subject to final approval by the

respective courts.



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The $5.5 million charge for the write down of unconsolidated affiliates

reflects the carrying value at December 31, 2000 for certain assets held as

investments including securities in Fanball.com, Inc., Interactive Learning

Group, Inc. and Trak 21 Development, LLC. Interest income increased $.3 million

to $7.9 million for the fiscal year ended December 31, 2000 from $7.6 million

for the prior year, primarily due to interest earned on additional notes

receivable, partially offset by the early extinguishment of notes from the

Avoyelles casino and decreased cash balances. Equity in loss of unconsolidated

affiliates was $2.9 million for each of the years ending December 31, 2000 and

January 2, 2000, due primarily to losses of Fanball.com, Interactive Learning

Group and Trak 21 before these investments were written down in 2000.



Earnings per Common Share and Net Earnings.  For the fiscal year ended

December 31, 2000 basic and diluted earnings per common share were $1.47 and

$1.47, respectively. This compares to basic and diluted earnings per common

share of $2.72 and $2.67, respectively, for the fiscal year ended January 2,

2000. Earnings decreased from $28.8 million for the fiscal year ended January 2,

2000 to $15.7 million for the fiscal year ended December 31, 2000.



FISCAL YEAR ENDED JANUARY 2, 2000 COMPARED TO FISCAL YEAR ENDED JANUARY 3, 1999



Revenues.  Grand Casino Avoyelles and Grand Casino Coushatta generated

$54.7 million in management fee income during the fiscal year ended January 2,

2000. Grand Casino Mille Lacs, Grand Casino Hinckley, Grand Casino Avoyelles and

Grand Casino Coushatta generated $92.3 million in management fee income during

the fiscal year ended January 3, 1999. Gross revenue increases at Grand Casino

Avoyelles and Grand Casino Coushatta partially offset the fact that the

management contracts for Grand Casino Mille Lacs and Grand Casino Hinckley ended

during 1998. Contributing to the increases were a 223-room hotel at Grand Casino

Coushatta, which opened in November of 1998 along with a 28,000 square foot

casino expansion at Coushatta which opened in December of 1998.



Also contributing to the increases were a special events center and RV

resort at Grand Casino Avoyelles, which opened during the first quarter of 1998,

and the addition of approximately 180 slot machines at Avoyelles from January 3,

1999 to January 2, 2000.



Costs and Expenses.  Total costs and expenses decreased $6.7 million from

$16.4 million for the fiscal year ended January 3, 1999 to $9.7 million for the

fiscal year ended January 2, 2000. Selling, general, and administrative expenses

decreased $6.8 million from $14.6 million for the fiscal year ended January 3,

1999 to $7.8 million for the fiscal year ended January 2, 2000 due primarily to

legal, professional and other costs associated with separating Lakes from Grand

incurred during 1998.



Other.  Interest income increased $2 million to $7.6 million for the fiscal

year ended January 2, 2000 from $5.6 million for the fiscal year ended January

3, 1999 due primarily to interest earned on increased cash balances and

additional notes receivable. Interest expense was $0.1 million for both periods.

Equity in loss of unconsolidated affiliates increased from $.4 million for the

fiscal year ended January 3, 1999 to $2.9 million for the fiscal year ended

January 2, 2000 due primarily to investments in Interactive Learning Group, Inc.

and Fanball.com.



Taxes.  A deferred tax asset was recorded in 1996 when the Company set up a

reserve allowance due to uncertainty related to the collectibility of the note

receivable from Stratosphere. However, a full valuation allowance was created

for the deferred tax asset and no income tax benefit was recognized at that

time. Upon writing off the receivable and realizing the tax deduction in 1998,

the Company reversed the deferred tax asset valuation allowance, resulting in

the recognition of a $17.3 million income tax benefit. Under the terms of its

tax sharing agreement with Grand, any further tax benefits relating to capital

losses resulting from the Company's write-off of its investment in Stratosphere

will be shared equally by Lakes and Park Place, up to a benefit of approximately

$12 million to Lakes.



Earnings per Common Share and Net Earnings.  For the fiscal year ended

January 2, 2000 basic and diluted earnings per common share were $2.72 and

$2.67, respectively. This compares to basic and diluted earnings per common

share of $5.80 and $5.71, respectively, for the fiscal year ended January 3,

1999.



23

24



Earnings decreased $32.3 million to $28.8 million for the fiscal year ended

January 2, 2000 compared to the same period in the prior year.



CAPITAL RESOURCES, CAPITAL SPENDING, AND LIQUIDITY



At December 31, 2000 Lakes had $40.7 million in restricted and unrestricted

cash and cash equivalents. The Company also had $32.5 million in short-term,

available-for-sale investments, consisting primarily of a fixed income portfolio

made up of various types of bonds which are rated A1 or better. The cash and

short-term investment balances are planned to be used for loans to current joint

venture and tribal partners to develop existing and anticipated Indian casino

operations and the Las Vegas real estate, the pursuit of additional business

opportunities, and settlement of pending litigation matters. The amount and

timing of Lakes' cash outlays for casino development loans will depend on the

timing of the regulatory approval process and the availability of external

financing.



For the years ended December 31, 2000, January 2, 2000 and January 3, 1999,

net cash provided by operating activities totaled $35.1 million, $36.5 million

and $85.8 million, respectively. For the same periods, net cash utilized in

investing activities totaled $49.5 million, $69.3 million and $10.3 million.

Included in these investing activities for the years ended December 31, 2000,

January 2, 2000 and January 3, 1999 are proceeds primarily from repayment of

notes receivable from Indian-owned casinos of $18.0 million, $12.0 million and

$6.6 million, respectively. Also, during these periods, payments for land held

for development amounted to $3.9 million, $22.9 million and $11.2 million,

respectively.



As a part of the Distribution Agreement and the Agreement and Plan of

Merger, dated as of June 30, 1998, by and among Hilton Hotels Corporation, Park

Place, Gaming Acquisition Corporation, Lakes and Grand (the "Merger Agreement"),

the Company has agreed to indemnify Grand against all costs, expenses and

liabilities incurred in connection with or arising out of certain pending and

threatened claims and legal proceedings to which Grand and certain of its

subsidiaries are likely to be parties. The Company's indemnification obligations

include the obligation to provide the defense of all claims made in proceedings

against Grand and to pay all related settlements and judgments. See Item 3.

Legal Proceedings.



As security to support Lakes' indemnification obligations to Grand under

each of the Distribution Agreement and the Merger Agreement, and as a condition

to the consummation of the Merger, Lakes agreed to deposit, in trust for the

benefit of Grand, as a wholly owned subsidiary of Park Place, an aggregate of

$30 million, consisting of four annual installments of $7.5 million, on each

annual anniversary of the Distribution and Merger. Lakes' ability to satisfy

this funding obligation is materially dependent upon the continued success of

its operations and the general risks inherent in its business. In the event

Lakes is unable to satisfy its funding obligation, it would be in breach of its

agreement with Grand, possibly subjecting itself to additional liability for

contract damages, which could have a material adverse effect on Lakes' business

and results of operations. The Company made the first deposit of $7.5 million on

December 31, 1999. In 2000, Lakes deposited $18.0 million into an escrow account

on behalf of the recipients in the Stratosphere shareholders' litigation and the

Grand Casinos, Inc. shareholders' litigation. Such amounts are included as

restricted cash on the accompanying consolidated balance sheets as of January 2,

2000 and December 31, 2000. In January 2001, Lakes also purchased the Shark Club

property in Las Vegas for $10.1 million in settlement of another claim that was

subject to the indemnification obligations.



SEASONALITY



The Company believes that the operations of all casinos managed by the

Company are affected by seasonal factors, including holidays, weather and travel

conditions.



REGULATION AND TAXES



The Company is subject to extensive regulation by state gaming authorities.

The Company will also be subject to regulation, which may or may not be similar

to current state regulations, by the appropriate authorities in any other

jurisdiction where it may conduct gaming activities in the future. Changes in

applicable laws or regulations could have an adverse effect on the Company.



24

25



The gaming industry represents a significant source of tax revenues. From

time to time, various federal legislators and officials have proposed changes in

tax law, or in the administration of such law, affecting the gaming industry. It

is not possible to determine the likelihood of possible changes in tax law or in

the administration of such law. Such changes, if adopted, could have a material

adverse effect on the Company's results of operations and financial results.



PRIVATE SECURITIES LITIGATION REFORM ACT



The Private Securities Litigation Reform Act of 1995 provides a "safe

harbor" for forward-looking statements. Certain information included in this

integrated Form 10-K/Annual Report and other materials filed or to be filed by

the Company with the Securities and Exchange Commission (as well as information

included in oral statements or other written statements made or to be made by

the Company) contain statements that are forward-looking, such as plans for

future expansion and other business development activities as well as other

statements regarding capital spending, financing sources and the effects of

regulation (including gaming and tax regulation) and competition.



Such forward looking information involves important risks and uncertainties

that could significantly affect the anticipated results in the future and,

accordingly, actual results may differ materially from those expressed in any

forward-looking statements made by or on behalf of the Company.



These risks and uncertainties include, but are not limited to, those

relating to development and construction activities, dependence upon existing

management, pending litigation, domestic or global economic conditions and

changes in federal or state tax laws or the administration of such laws and

changes in gaming laws or regulations (including the legalization of gaming in

certain jurisdictions). For further information regarding the risks and

uncertainties, see the "Business -- Risk Factors" section of this Annual Report

on Form 10-K for the fiscal year ended December 31, 2000.



ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



The Company's financial instruments include cash and cash equivalents,

marketable securities and long-term debt. The Company's main investment

objectives are the preservation of investment capital and the maximization of

after-tax returns on its investment portfolio. Consequently, the Company invests

with only high-credit-quality issuers and limits the amount of credit exposure

to any one issuer. The Company does not use derivative instruments for

speculative or investment purposes.



The Company's cash and cash equivalents are not subject to significant

interest rate risk due to the short maturities of these instruments. As of

December 31, 2000, the carrying value of the Company's cash and cash equivalents

approximates fair value. The Company's marketable debt securities (principally

consisting of commercial paper, corporate bonds, and government securities) have

a weighted average duration of one year or less. Consequently, such securities

are not subject to significant interest rate risk.



The Company's primary exposure to market risk associated with changes in

interest rates involves the Company's notes receivable related to loans for the

development and construction of Native American owned casinos. The loans and

related note balances earn various interest rates based upon a defined reference

rate. If interest rates rise or fall, the floating rate receivables may generate

more or less interest income than what is currently recorded. As of December 31,

2000, Lakes had $49.3 million of floating rate notes receivables. Based on the

applicable current reference rates and assuming all other factors remain

constant, interest income for a twelve-month period would be $5.42 million. A

reference rate increase of 100 basis points would result in an increase in

interest income of $.3 million. A 100 basis point decrease in the reference rate

would result in a decrease of $.5 million in interest income over the same

twelve-month period.



25

26



ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA



LAKES GAMING, INC. AND SUBSIDIARIES



INDEX TO FINANCIAL STATEMENTS



<TABLE>

<CAPTION>

PAGE

----

<S>                                                            <C>



Report of Independent Public Accountants....................    27



Consolidated Balance Sheets as of December 31, 2000 and

January 2, 2000...........................................    28



Consolidated Statements of Earnings for the fiscal years

ended December 31, 2000, January 2, 2000, and January 3,

1999......................................................    29



Consolidated Statements of Comprehensive Earnings for the

fiscal years ended December 31, 2000, January 2, 2000, and

January 3, 1999...........................................    30



Consolidated Statements of Shareholders' Equity for the

fiscal years ended December 31, 2000, January 2, 2000, and

January 3, 1999...........................................    31



Consolidated Statements of Cash Flows for the fiscal years

ended December 31, 2000, January 2, 2000, and January 3,

1999......................................................    32



Notes to Consolidated Financial Statements..................    33

</TABLE>



26

27



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To Lakes Gaming, Inc.:



We have audited the accompanying consolidated balance sheets of Lakes

Gaming, Inc. (a Minnesota corporation) and Subsidiaries as of December 31, 2000

and January 2, 2000 and the related consolidated statements of earnings,

comprehensive earnings, shareholders' equity and cash flows for each of the

three years in the period ended December 31, 2000. These consolidated financial

statements are the responsibility of the Company's management. Our

responsibility is to express an opinion on these consolidated financial

statements based on our audits.



We conducted our audits in accordance with auditing standards generally

accepted in the United States. Those standards require that we plan and perform

the audit to obtain reasonable assurance about whether the financial statements

are free of material misstatement. An audit includes examining, on a test basis,

evidence supporting the amounts and disclosures in the financial statements. An

audit also includes assessing the accounting principles used and significant

estimates made by management, as well as evaluating the overall financial

statement presentation. We believe that our audits provide a reasonable basis

for our opinion.



In our opinion, the consolidated financial statements referred to above

present fairly, in all material respects, the financial position of Lakes

Gaming, Inc. and Subsidiaries as of December 31, 2000 and January 2, 2000, and

the results of their operations and their cash flows for each of the three years

in the period ended December 31, 2000, in conformity with accounting principles

generally accepted in the United States.



ARTHUR ANDERSEN LLP



Minneapolis, Minnesota

January 26, 2001



27

28



LAKES GAMING, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)



<TABLE>

<CAPTION>

2000        1999

--------    --------

<S>                                                             <C>         <C>

ASSETS

Current Assets:

Cash and cash equivalents.................................    $ 10,469    $ 24,392

Short-term investments....................................      32,477      27,433

Current installments of notes receivable..................      16,679      15,406

Accounts receivable.......................................       2,373       5,613

Deferred tax asset........................................      13,674       6,301

Other current assets......................................       2,383       1,079

--------    --------

Total Current Assets........................................      78,055      80,224

--------    --------

Property and Equipment-Net..................................       1,414       1,888

--------    --------

Other Assets:

Land held for development.................................      58,671      54,812

Notes receivable-less current installments................      35,337      20,022

Cash and cash equivalents-restricted......................      30,270      12,149

Investments in and notes from unconsolidated affiliates...       3,209       8,446

Other long-term assets....................................       5,853       5,997

--------    --------

Total Other Assets..........................................     133,340     101,426

--------    --------

TOTAL ASSETS................................................    $212,809    $183,538

========    ========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:

Accounts payable..........................................    $     79    $    488

Current maturities of long-term debt......................         525          --

Income taxes payable......................................       5,479       6,385

Litigation and claims accrual.............................      25,078       8,419

Other accrued expenses....................................       4,521       6,099

--------    --------

Total Current Liabilities...................................      35,682      21,391

--------    --------

Long-term Liabilities:

Long-term debt-less current maturities....................       1,325       1,500

Deferred income taxes.....................................          --         786

--------    --------

Total Long-Term Liabilities.................................       1,325       2,286

--------    --------

TOTAL LIABILITIES...........................................      37,007      23,677

--------    --------

COMMITMENTS AND CONTINGENCIES (NOTE 7 AND 8)



Shareholders' Equity:

Capital stock, $.01 par value; authorized 100,000 shares;

10,638 and 10,629 common shares issued and outstanding

at December 31, 2000, and January 2, 2000,

respectively...........................................         106         106

Additional paid-in-capital................................     131,525     131,406

Retained earnings.........................................      44,504      28,827

Accumulated other comprehensive loss......................        (333)       (478)

--------    --------

Total Shareholders' Equity..................................     175,802     159,861

--------    --------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..................    $212,809    $183,538

========    ========

</TABLE>



The accompanying notes are an integral part of these consolidated balance

sheets.



28

29



LAKES GAMING, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF EARNINGS

YEARS ENDED DECEMBER 31, 2000, JANUARY 2, 2000 AND JANUARY 3, 1999

(IN THOUSANDS, EXCEPT PER SHARE DATA)



<TABLE>

<CAPTION>

2000       1999       1998

--------    -------    -------

<S>                                                            <C>         <C>        <C>

REVENUES:

Management fee income....................................    $ 59,044    $54,716    $92,347

COSTS AND EXPENSES:

Selling, general and administrative......................       9,025      7,750     14,557

Depreciation and amortization............................       2,910      1,916      1,838

--------    -------    -------

Total Costs and Expenses...................................      11,935      9,666     16,395

--------    -------    -------

EARNINGS FROM OPERATIONS...................................      47,109     45,050     75,952

--------    -------    -------

OTHER INCOME (EXPENSE):

Interest income..........................................       7,943      7,580      5,601

Interest expense.........................................         (97)       (98)       (98)

Equity in loss of unconsolidated affiliates..............      (2,904)    (2,925)      (359)

Gain (loss) on sale of securities........................          61      1,264     (4,473)

Provision for litigation loss............................     (18,000)        --         --

Write-down of unconsolidated affiliates..................      (5,522)        --         --

Other....................................................           2         21        368

--------    -------    -------

Total other income (expense), net.....................     (18,517)     5,842      1,039

--------    -------    -------



Earnings before income taxes...............................      28,592     50,892     76,991

Provision for income taxes.................................      12,915     22,065     15,811

--------    -------    -------



NET EARNINGS...............................................    $ 15,677    $28,827    $61,180

========    =======    =======

BASIC EARNINGS PER SHARE...................................    $   1.47    $  2.72    $  5.80

========    =======    =======

DILUTED EARNINGS PER SHARE.................................    $   1.47    $  2.67    $  5.71

========    =======    =======

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING.................      10,635     10,600     10,550

DILUTIVE EFFECT OF STOCK COMPENSATION PROGRAMS.............           7        186        162

--------    -------    -------

WEIGHTED AVERAGE COMMON AND DILUTED SHARES OUTSTANDING.....      10,642     10,786     10,712

========    =======    =======

</TABLE>



The accompanying notes are an integral part of these consolidated financial

statements.



29

30



LAKES GAMING, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

YEARS ENDED DECEMBER 31, 2000, JANUARY 2, 2000 AND JANUARY 3, 1999

(IN THOUSANDS)



<TABLE>

<CAPTION>

2000       1999       1998

-------    -------    -------

<S>                                                             <C>        <C>        <C>

NET EARNINGS................................................    $15,677    $28,827    $61,180



OTHER COMPREHENSIVE INCOME, NET OF TAX:

Unrealized gains (losses) on securities:

Unrealized holding gains (losses) during the period....        145     (1,114)     3,583

Less: reclassification adjustment for gains (losses)

included in net earnings.............................         36        796     (2,818)

-------    -------    -------

COMPREHENSIVE EARNINGS......................................    $15,786    $26,917    $67,581

=======    =======    =======

</TABLE>



The accompanying notes are an integral part of these consolidated financial

statements.



30

31



LAKES GAMING, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

YEARS ENDED DECEMBER 31, 2000, JANUARY 2, 2000 AND JANUARY 3, 1999

(IN THOUSANDS)



<TABLE>

<CAPTION>

ACCUMULATED

COMMON STOCK                                                   OTHER            TOTAL

---------------     ADDITIONAL      DIVISION    RETAINED    COMPREHENSIVE    SHAREHOLDERS'

SHARES   AMOUNT   PAID-IN-CAPITAL    EQUITY     EARNINGS   EARNINGS (LOSS)      EQUITY

------   ------   ---------------   ---------   --------   ---------------   -------------

<S>                                <C>      <C>      <C>               <C>         <C>        <C>               <C>

Balance, December 28, 1997.......      --      --             --       $ 121,745        --        $(2,947)        $118,798

Distribution to Grand Casinos,

Inc. ........................      --      --             --         (51,890)       --             --          (51,890)

Other comprehensive earnings...      --      --             --              --        --          3,583            3,583

Net earnings...................      --      --             --          61,180        --             --           61,180

Distribution from Grand

Casinos, Inc.................  10,576     106        130,929        (131,035)       --             --               --

------    ----       --------       ---------   -------        -------         --------

Balance, January 3, 1999.........  10,576     106        130,929              --        --            636          131,671

Issuance of stock on options

exercised -- net.............      53      --            477              --        --             --              477

Other comprehensive loss.......      --      --             --              --        --         (1,114)          (1,114)

Net earnings...................      --      --             --              --    28,827             --           28,827

------    ----       --------       ---------   -------        -------         --------

Balance, January 2, 2000.........  10,629     106        131,406              --    28,827           (478)         159,861

Issuance of stock on options

exercised -- net.............       9      --             79              --        --             --               79

Tax benefits from exercise of

common stock options.........      --      --             40              --        --             --               40

Other comprehensive earnings...      --      --             --              --        --            145              145

Net earnings...................      --      --             --              --    15,677             --           15,677

------    ----       --------       ---------   -------        -------         --------

Balance, December 31, 2000.......  10,638    $106       $131,525       $      --   $44,504        $  (333)        $175,802

======    ====       ========       =========   =======        =======         ========

</TABLE>



The accompanying notes are an integral part of these consolidated financial

statements.



31

32



LAKES GAMING, INC. AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2000, JANUARY 2, 2000 AND JANUARY 3, 1999

(IN THOUSANDS)



<TABLE>

<CAPTION>

2000       1999       1998

-------    -------    -------

<S>                                                             <C>        <C>        <C>

OPERATING ACTIVITIES:

Net earnings..............................................    $15,677    $28,827    $61,180

Adjustments to reconcile net earnings to net cash provided

by operating activities:

Depreciation and amortization.............................      2,910      1,916      1,838

(Gain) loss on sale of securities.........................        (61)    (1,264)     4,473

Equity in loss of unconsolidated affiliates...............      2,904      2,925        359

Write down of assets held as investments..................      5,522         --         --

Deferred income taxes.....................................     (9,480)      (276)    (1,040)

Provision for litigation loss.............................     18,000         --         --

Changes in operating assets and liabilities:

Accounts receivable....................................      3,240      9,604     (8,792)

Income taxes...........................................       (906)    (4,638)    23,596

Accounts payable.......................................       (409)       488         --

Accrued expenses.......................................     (1,001)      (661)     6,193

Other..................................................     (1,284)      (465)    (2,040)

-------    -------    -------

Net Cash Provided by Operating Activities...................     35,112     36,456     85,767

-------    -------    -------

INVESTING ACTIVITIES:

Short-term investments, purchases.........................    (52,795)   (28,829)        --

Short-term investments, sales/maturities..................     48,080        500         --

Payments for land held for development....................     (3,858)   (22,949)   (11,229)

Payments for notes receivable.............................    (37,402)   (12,406)    (7,115)

Proceeds from repayment of notes receivable...............     18,038     11,950      6,567

Investment in and notes receivable from unconsolidated

affiliates.............................................     (2,917)    (8,035)      (807)

Increase in restricted cash, net..........................    (18,121)    (7,157)    (3,767)

Decrease (increase) in other long-term assets.............        (92)    (2,539)     1,216

Proceeds from sale of securities..........................         --        389      4,824

Payments for property and equipment, net..................       (397)      (239)        --

-------    -------    -------

Net Cash Used in Investing Activities.......................    (49,464)   (69,315)   (10,311)

-------    -------    -------

FINANCING ACTIVITIES:

Distribution to Grand.....................................         --         --    (51,890)

Proceeds from issuance of common stock....................         79        477         --

Proceeds on long-term debt................................        350         --         --

-------    -------    -------

Net Cash Provided by (Used in) Financing Activities.........        429        477    (51,890)

-------    -------    -------

Net increase (decrease) in cash and cash equivalents........    (13,923)   (32,382)    23,566

Cash and cash equivalents -- beginning of period............     24,392     56,774     33,208

-------    -------    -------

Cash and cash equivalents -- end of period..................    $10,469    $24,392    $56,774

=======    =======    =======

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid during the period for:

Interest..................................................    $    97    $    98    $    98

Income taxes..............................................     23,090     23,676      5,420

</TABLE>



The accompanying notes are an integral part of these consolidated financial

statements.

32

33



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000, JANUARY 2, 2000, AND JANUARY 3, 1999



1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:



Lakes Gaming, Inc., a Minnesota corporation ("Lakes" or the "Company") was

established as a public corporation on December 31, 1998, via a distribution

(the "Distribution") of its common stock, par value $.01 per share (the "Common

Stock") to the shareholders of Grand Casinos, Inc. ("Grand"). Pursuant to the

terms of a Distribution Agreement entered into between Grand and Lakes and dated

as of December 31, 1998 (the "Distribution Agreement"), Grand shareholders

received .25 of one share of Lakes Common Stock for each share held in Grand.

Historical references to the Company which predate the Distribution give pro

forma effect to the Distribution as if it had already occurred.



Immediately following the Distribution, Grand merged with a subsidiary of

Park Place Entertainment Corporation, a Delaware corporation ("Park Place"),

pursuant to which Grand became a wholly owned subsidiary of Park Place (the

"Merger"), Grand shareholders received one share of Park Place common stock in

the Merger for each share they held in Grand. The merger and distribution

received all necessary shareholder and regulatory approvals and was completed on

December 31, 1998. Grand obtained a ruling from the Internal Revenue Service

(IRS) that the Distribution qualified as a tax-free transaction, solely with

respect to Grand shareholders except to the extent that Grand shareholders

received cash in lieu of fractional shares.



Lakes currently manages the largest casino resort in Louisiana and has

entered into development and management agreements with three separate tribes

for three new casino operations, one in Michigan and two in California. The

Company also has agreements for the development of a casino on Indian owned land

in California through a joint venture, and has entered into a joint venture

agreement for the development of land on the Las Vegas strip.



MANAGEMENT CONTRACTS OF LIMITED DURATION



The ownership, management and operation of gaming facilities are subject to

extensive federal, state, provincial, tribal and/or local laws, regulation, and

ordinances, which are administered by the relevant regulatory agency or agencies

in each jurisdiction. These laws, regulations and ordinances vary from

jurisdiction to jurisdiction, but generally concern the responsibility,

financial stability and character of the owners and managers of gaming

operations as well as persons financially interested or involved in gaming

operations. The Company is prohibited by the Indian Gaming Regulatory Act from

having an ownership interest in any casino it manages for Indian tribes.



The Company reached an agreement with the Tunica-Biloxi Tribe of Louisiana,

effective March 31, 2000, for the early buyout of the management contract for

Grand Casino Avoyelles. The Tunica-Biloxi Tribe of Louisiana elected to exercise

its option for the early buyout of the contract, which was scheduled to expire

on June 3, 2001. The early buyout of the contract was provided for in the

original seven-year management agreement and, under the agreement, Lakes was

compensated for the management fees the Company would have received had it

managed Grand Casino Avoyelles through the original contract expiration date of

June 3, 2001, discounted to their present value. Included in management fee

income for the year ended December 31, 2000 is approximately $16 million

relating to the early buyout. Lakes was also repaid all amounts owing to it

under its loan agreements with the Tribe. The management contract for Grand

Casino Coushatta expires January 16, 2002. The Coushatta Tribe and Lakes have

agreed on a five-year contract renewal beginning January 17, 2002, subject to

National Indian Gaming Commission ("NIGC") approval. Net distributable profits,

if any, under the new agreement will be determined in accordance with IGRA and

distributed each month 90% to the Coushatta Tribe and 10% to Lakes. There can be

no assurance that the Louisiana management contract will be renewed upon

expiration or approved by the NIGC upon any such renewal. The failure to obtain

approval of the renewed management contract would result in the loss of revenues

to the Company derived from such contract, which would have a material adverse

effect on the Company's results of operations.



33

34

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000, JANUARY 2, 2000, AND JANUARY 3, 1999 -- (CONTINUED)



Management contracts for the two previously managed Minnesota casinos,

Grand Casino Mille Lacs and Grand Casino Hinckley concluded during 1998.



The Coushatta Tribe entered into a tribal-state compact with the State of

Louisiana on September 29, 1992. The compact was approved in November 1992 by

the Secretary of the Interior. The compact expired November 4, 1999 and the

State of Louisiana delivered a written notice of non-renewal. The Governor and

the Tribe agreed on three extensions totaling thirteen months that were approved

by the Department of the Interior. On December 11, 2000, the Tribe and the State

of Louisiana agreed to terms of a new compact. The compact is subject to

approval by the Department of the Interior. There can be no assurances that the

compact will be approved by the Department of the Interior.



USE OF ESTIMATES



The preparation of financial statements in conformity with accounting

principles generally accepted in the United States requires management to make

estimates and assumptions that affect the reported amounts of assets and

liabilities and disclosure of contingent assets and liabilities at the date of

the financial statements and the reported amounts of revenues and expenses

during the reporting period. Ultimate results could differ from those estimates.



YEAR END



The Company has a 52- or 53-week accounting period ending on the Sunday

closest to December 31 of each year. The Company's fiscal years for the periods

shown on the accompanying consolidated statements of earnings ended on December

31, 2000 (2000), January 2, 2000 (1999), and January 3, 1999 (1998). The

activity from the date of the Transaction, December 31, 1998, to January 3, 1999

was not segregated from the full year's results as it was not material.



PRINCIPLES OF CONSOLIDATION



The accompanying audited and consolidated financial statements include the

accounts of Lakes and its wholly-owned and majority-owned subsidiaries.

Investments in unconsolidated affiliates representing between 20% and 50% of

voting interests are accounted for on the equity method. All material

intercompany balances and transactions have been eliminated in consolidation.



Lakes' investments in unconsolidated affiliates include a 50 percent

ownership interest in each of Lakes Cloverdale, LLC, and Lakes Corning, LLC,

joint ventures formed to develop casinos on Indian-owned land in California, a

27 percent ownership interest in Fanball.com, Inc., a start-up internet provider

of fantasy sports services, and a 23 percent ownership interest in Interactive

Learning Group, Inc., a consumer product company. Additionally, as a result of

its spin-off from Grand, Lakes received a 49 percent ownership interest in Trak

21 Development, LLC, a developer of player tracking systems for the casino

industry, and a 27 percent ownership interest in New Horizon Kids Quest, Inc., a

publicly held provider of child care facilities. On December 31, 2000, the

carrying value of the investments in the unconsolidated affiliates of

Fanball.com, Inc., Trak 21 Development, LLC, and Interactive Learning Group,

Inc. were written down to zero.



REVENUE AND EXPENSES



Revenue from the management of Indian-owned casino gaming facilities is

recognized when earned according to the terms of the management contracts.



The operating expenses of the Company include the costs associated with the

management of all gaming operations for which the Company has a management

contract. Such amounts represent the direct cost of providing assistance in the

areas of casino operations, marketing and promotion, customer service,

accounting, legal and other functions.



34

35

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000, JANUARY 2, 2000, AND JANUARY 3, 1999 -- (CONTINUED)



CASH AND CASH EQUIVALENTS



Cash and cash equivalents consist of cash on hand and in banks,

interest-bearing deposits, money market funds and other instruments with

original maturities of three months or less. Restricted cash and cash

equivalents consist primarily of funds deposited as security to support Lakes'

indemnification obligations to Grand under each of the Distribution Agreement

and the Merger Agreement, and funds designated as collateral relating to land

held for development. Cash and cash equivalents are stated at cost which

approximates fair value.



SHORT-TERM INVESTMENTS



Investment securities are classified as available-for-sale and stated at

market value. Unrealized gains and losses, net of income tax effects, are

excluded from income and reported as a component of accumulated other

comprehensive income. Market value is determined by the most recently traded

price of the security at the balance sheet date. Net realized gains or losses

are determined on the specific identification cost method.



PROPERTY AND EQUIPMENT



Property and equipment are stated at cost less accumulated depreciation.

Expenditures for additions, renewals, and improvements are capitalized. Costs of

repairs and maintenance are expensed when incurred. Depreciation and

amortization of property and equipment is computed using the straight-line

method over the following estimated useful lives:



<TABLE>

<S>                                                            <C>

Leasehold improvements......................................     15 years

Furniture and equipment.....................................   3-10 years

</TABLE>



Property and Equipment consist of the following (in thousands):



<TABLE>

<CAPTION>

2000      1999

------    ------

<S>                                                      <C>       <C>

Land..................................................      875     1,234

Leasehold improvements................................      376       376

Furniture and equipment...............................    1,513     1,466

------    ------

2,764     3,076

Less: Accumulated depreciation........................   (1,350)   (1,188)

------    ------

Property and equipment, net...........................    1,414     1,888

======    ======

</TABLE>



The Company periodically evaluates whether events and circumstances have

occurred that may affect the recoverability of the net book value of its

long-lived assets. If such events or circumstances indicate that the carrying

amount of an asset may not be recoverable, the Company estimates the future cash

flows expected to result from the use of the asset. If the sum of the expected

future undiscounted cash flows does not exceed the carrying value of the asset,

the Company will recognize an impairment loss.



LAND HELD FOR DEVELOPMENT



Land held for development consists of amounts related to an approximately

16-acre site in Las Vegas, Nevada, which the Company controls. Lakes formed a

joint venture, Metroplex-Lakes, LLC, to develop the real estate. The joint

venture has a two-year option to buy the majority of the site from Lakes at a

price that approximates Lakes' investment in the property.



35

36

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000, JANUARY 2, 2000, AND JANUARY 3, 1999 -- (CONTINUED)



SECURITIES AVAILABLE FOR SALE



The Company follows the provisions of Statement on Financial Accounting

Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity

Securities" and has classified all of its investments (except restricted cash

reserves) as available for sale, whereby investments are reported at fair value,

with unrealized gains and losses reported as accumulated other comprehensive

earnings (loss), net of income taxes, in the accompanying consolidated

statements of shareholders' equity.



INCOME TAXES



Deferred tax assets and liabilities are recognized for the future tax

consequences attributable to differences between the financial statement

carrying amounts of existing assets and liabilities and their respective tax

bases. Deferred tax assets and liabilities are measured using enacted tax rates

expected to apply to taxable income in the years in which those temporary

differences are expected to be recovered or settled. The Company classifies

deferred tax liabilities and assets into current and non-current amounts based

on the classification of the related assets and liabilities.



INTEREST INCOME



Interest income represents interest on the notes receivable from Indian

tribes and interest on cash, cash equivalents and short-term investments.

Interest on the notes receivable is recorded as earned based on contractual

rates of interest. Interest on cash, cash equivalents and short-term investments

reflects interest income realized from investments in savings and money market

accounts and other short-term liquid investments.



EARNINGS PER SHARE



Earnings per share (EPS) is calculated for the period ended January 3, 1999

based on the exchange of one Lakes share for every four owned Grand shares. For

all periods, basic EPS is calculated by dividing earnings by the weighted

average common shares outstanding. Diluted EPS reflects the potential dilutive

effect of all common stock equivalents outstanding by dividing net income by the

weighted average of all common and dilutive shares outstanding. Stock options

that could potentially dilute earnings per share in the future of 867,268 and

620,969 in 2000 and 1999, respectively, were not included in the computation of

diluted earnings per share because to do so would have been anti-dilutive for

the periods presented.



CONCENTRATIONS OF CREDIT RISK



The financial instruments that subject the Company to concentrations of

credit risk consist principally of accounts and notes receivable. Notes

receivable are due primarily from the Coushatta Tribe of Louisiana and the

Pokagon Band of Potawatomi Indians.



ACCOUNTING PRONOUNCEMENTS



In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS

No. 133, "Accounting for Derivative Instruments and Hedging Activities", which

establishes accounting and reporting standards for derivative instruments and

for hedging activities. Implementation of SFAS 133 is required as of the

beginning of fiscal year 2001 and will not have a material effect on the

Company's financial position or results of operations.



36

37

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000, JANUARY 2, 2000, AND JANUARY 3, 1999 -- (CONTINUED)



RECLASSIFICATIONS



Certain amounts in the 1999 and 1998 consolidated financial statements have

been reclassified to conform to the 2000 presentation. These reclassifications

had no effect on previously reported net earnings or shareholders' equity.



2. MANAGEMENT CONTRACTS FOR INDIAN-OWNED CASINOS:



The Company reached an agreement with the Tunica-Biloxi Tribe of Louisiana,

effective March 31, 2000, for the early buyout of the management contract for

Grand Casino Avoyelles. The Tunica-Biloxi Tribe of Louisiana elected to exercise

its option for the early buyout of the contract, which was scheduled to expire

June 3, 2001.



The early buyout of the contract was provided in the original seven-year

management agreement and the Company received full value for all contracted

obligations by the Tunica-Biloxi Tribe of Louisiana. Under the early buyout

agreement, the Company was compensated for the management fees, discounted to

present value, the Company would have received had it managed Grand Casino

Avoyelles through the original contract expiration date. 2000 results include

$19.8 million in revenues from the management contract for Grand Casino

Avoyelles that concluded during 2000. The Company's revenues and earnings will

not include contribution from this operation going forward.



The Company had contracts with the Mille Lacs Band for the management of

two gaming facilities in Onamia and Hinckley, Minnesota. The management contract

for the gaming facility in Onamia expired on April 2, 1998. The Company reached

an agreement with the Mille Lacs Band of Ojibwe, effective December 1, 1998, for

the early buyout of the management contract for the facility in Hinckley. The

Mille Lacs Band elected to exercise its option for the early buyout of the

contract that was scheduled to expire on May 15, 1999. 1998 results include

$36.8 million in revenues from the management contracts for Grand Casino Mille

Lacs and Grand Casino Hinckley that concluded during 1998. The Company's

revenues and earnings will not include contributions from these operations going

forward.



In addition, the Company holds a management contract with the Coushatta

Tribe of Louisiana for a gaming facility in Kinder, Louisiana, that expires on

January 16, 2002. The Coushatta Tribe and Lakes have agreed on a five-year

contract renewal beginning January 17, 2002, subject to NIGC approval. Net

distributable profits, if any, under the new agreement will be determined in

accordance with IGRA and distributed each month 90% to the Coushatta Tribe and

10% to Lakes.



The management contracts govern the relationship between the Company and

the tribes with respect to the construction and management of the casinos. The

construction or remodeling portion of the agreements commenced with the signing

of the respective contracts and continued until the casinos opened for business;

thereafter, the management portion of the respective management contracts

continues for a period of seven years. Under the terms of the contracts, the

Company, as manager of the casino, receives a percentage of the distributable

profits (as defined in the contract) of the operations as a management fee after

payment of certain priority distributions, a cash contingency reserve, and

guaranteed minimum payments to the Tribes. In the event the management contracts

are not renewed upon expiration of their initial term, the Company will be

entitled to payments equal to a percentage of the fair value of certain leased

gaming equipment.



The management contract for the Coushatta Tribe of Louisiana has been

approved by the Bureau of Indian Affairs (BIA). While the Company believes that

all of its management contracts meet all requirements of the Indian Gaming

Regulatory Act of 1988, the BIA or the NIGC may attempt to reduce the terms or

the management fees payable under the management contracts or require other

changes to the contracts.



37

38

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000, JANUARY 2, 2000, AND JANUARY 3, 1999 -- (CONTINUED)



3. NOTES RECEIVABLE:



Notes receivable consist of the following (in thousands):



<TABLE>

<CAPTION>

DECEMBER 31, 2000   JANUARY 2, 2000

-----------------   ---------------

<S>                                                            <C>                 <C>

Notes from the Pokagon Band of Potawatomi Indians with

variable interest rates, (not to exceed 10%), (10% at

December 31, 2000), receivable in 60 monthly installments

subsequent to commencement date...........................       $ 21,918           $  2,035

Notes from the Coushatta Tribe with variable interest rates

(10.5% at December 31, 2000), receivable in 84 monthly

installments through January 2002.........................         12,227             22,484

Notes from the Tunica-Biloxi Tribe repaid in 2000...........             --              6,196

Notes from the Shingle Springs Band of Miwok Indians with

variable interest rates (11.5% at December 31, 2000),

receivable in 12 monthly installments subsequent to

commencement date.........................................          5,554              1,559

Notes from the Jamul Indian Village with variable interest

rates (11.5% at December 31, 2000), receivable in 12

monthly installments subsequent to commencement date......          3,372                859

Notes from ViatiCare Financial Services, LLC, with variable

interest rates (13.5% at December 31, 2000)...............          3,740                 --

Other.......................................................          5,205              2,295

--------           --------

Total notes receivable....................................         52,016             35,428

Less -- current installments of notes receivable............        (16,679)           (15,406)

--------           --------

Notes receivable, less current installments...............       $ 35,337           $ 20,022

========           ========

</TABLE>



The notes receivable are generally advances made to Indian Tribes for the

development of gaming properties managed by the Company. The repayment terms are

specific to each tribe and are largely dependent upon the operating performance

of each gaming property. Repayments of the aforementioned notes receivable are

required to be made only if distributable profits are available from the

operation of the related casinos. Repayments are also the subject of certain

distribution priorities specified in the management contracts. In addition,

repayment of the notes receivable and the manager's fees under the management

contracts are subordinated to certain other financial obligations of the

respective tribes. Through December 31, 2000, no amounts have been withheld

under these provisions.



Management periodically evaluates the recoverability of such notes

receivable based on the current and projected operating results of the

underlying facility and historical collection experience. No impairment losses

on such notes receivable have been recognized through December 31, 2000.



The Company believes the costs and complexities of assembling the relevant

facts and comparables needed to appraise the fair market values of these notes

based on estimates of net present value of discounted cash flows or using other

valuation techniques are excessive and the process exceedingly time consuming.

It further believes that the determined results would not reasonably differ from

the carrying values, which are believed to be reasonable estimates of fair

market value based on past experience with similar receivables.



38

39

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000, JANUARY 2, 2000, AND JANUARY 3, 1999 -- (CONTINUED)



4. INCOME TAXES:



The provisions for income taxes attributable to earnings for 2000, 1999,

and 1998 consisted of the following (in thousands):



<TABLE>

<CAPTION>

YEARS ENDED

---------------------------------

2000         1999         1998

-------    -----------    -------

<S>                                                           <C>        <C>            <C>

Current:

Federal.................................................    $17,602      $17,649      $14,482

State...................................................      4,793        4,692        2,369

-------      -------      -------

22,395       22,341       16,851

Deferred..................................................     (9,480)        (276)      (1,040)

-------      -------      -------

$12,915      $22,065      $15,811

=======      =======      =======

</TABLE>



Reconciliations of the statutory federal income tax rate to the Company's

actual rate based on earnings before income taxes for 2000, 1999, and 1998 are

summarized as follows:



<TABLE>

<CAPTION>

YEARS ENDED

---------------------

2000    1999    1998

----    ----    -----

<S>                                                             <C>     <C>     <C>

Statutory federal tax rate..................................    35.0%   35.0%    35.0%

State income taxes, net of federal income tax benefit.......     6.0     6.0      2.0

Valuation allowance increases (decreases) on Stratosphere

losses and write-down.....................................      --      --    (22.5)

Other, net..................................................     4.0     2.4      6.0

----    ----    -----

45.0%   43.4%    20.5%

====    ====    =====

</TABLE>



The Company's deferred income tax liabilities and assets are as follows (in

thousands):



<TABLE>

<CAPTION>

2000       1999       1998

-------    -------    -------

<S>                                                             <C>        <C>        <C>

Current deferred tax asset:

Accruals, reserves and other..............................    $13,674    $ 6,301    $ 7,370

=======    =======    =======

Non-current deferred taxes:

Unrealized investment losses (gains)......................      2,670      1,815       (114)

Capitalized interest......................................     (1,737)    (1,737)    (1,483)

Development cost amortization.............................        (35)      (784)      (960)

Other.....................................................        423        (80)      (176)

-------    -------    -------

Net non-current deferred tax asset (liability)..............    $ 1,321    $  (786)   $(2,733)

=======    =======    =======

</TABLE>



A deferred tax asset was recorded in 1996 when the Company set up a reserve

allowance due to uncertainty related to the collectibility of a note receivable

from Stratosphere. A full valuation allowance was created for the deferred tax

asset and no income tax benefit was recognized at that time. Upon writing off

the receivable and realizing the tax deduction in 1998, the Company reversed the

deferred tax asset valuation allowance resulting in the recognition of a $17.3

million income tax benefit. Under the terms of its tax sharing agreement with

Grand, any further tax benefits relating to capital losses resulting from the

Company's write-off of its investment in Stratosphere will be shared equally by

Lakes and Park Place up to a benefit of approximately $12.0 million to Lakes.



39

40

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000, JANUARY 2, 2000, AND JANUARY 3, 1999 -- (CONTINUED)



5. LONG-TERM DEBT:



The Company has three notes payable with third parties. The first is

collateralized by certificates of deposit, with $1.0 million outstanding at

December 31, 2000 and January 2, 2000. Interest is compounded and paid on a

quarterly basis at 10%. The principal and any unpaid interest are due December

22, 2002. The second is collateralized by property with $0.5 million outstanding

at December 31, 2000 and January 2, 2000. Interest is compounded and paid on a

quarterly basis at 8.5%. The principal and any unpaid interest are due November

5, 2001. The third is collateralized by property with $0.4 million outstanding

at December 31, 2000. Interest is compounded and paid on a quarterly basis at

8.5%. The principal and any unpaid interest are due October 9, 2002.



6. STOCK OPTIONS:



Grand had a Stock Option and Compensation Plan and a Director Stock Option

Plan whereby incentive and nonqualified stock options and other awards to

acquire shares of Grand's common stock were granted to officers, directors, and

employees.



Upon the consummation of the Distribution, the holders of outstanding Grand

stock options received one new option to purchase one share of Lakes common

stock for each four options previously held, and one new option to purchase one

share of Park Place common stock for each option previously held. The exercise

price of the new options was apportioned between Lakes and Park Place to

preserve option value as it existed on December 31, 1998 as measured by the

difference between the option exercise price and the fair market value of Grand

on that date. This value was calculated by reference to the closing price of

Lakes on January 4, 1999 and the closing price of Grand on December 31, 1998.

Additionally, Lakes has a 1998 Stock Option and Compensation Plan and a 1998

Director Stock Option Plan which are approved to grant up to an aggregate of 2.5

million shares and .2 million shares, respectively, of incentive and

non-qualified stock options to officers, directors, and employees.



Information with respect to the stock option plans is summarized as

follows:



<TABLE>

<CAPTION>

NUMBER OF COMMON SHARES

------------------------------------------

LAKES

OPTIONS     AVAILABLE     OPTION PRICE

OUTSTANDING   FOR GRANT    RANGE PER SHARE

-----------   ----------   ---------------

<S>                                                      <C>           <C>          <C>

Balance at January 3, 1999............................    1,054,846            --   $(3.13 - 33.11)

Additional Shares Authorized..........................           --     2,700,000               --

Granted...............................................    1,845,000    (1,845,000)   (8.38 - 10.81)

Canceled..............................................     (527,526)      527,526    (7.42 - 33.11)

Exercised.............................................      (52,467)           --    (3.13 - 11.34)

---------    ----------   --------------

Balance at January 2, 2000............................    2,319,853     1,382,526   $(7.42 - 17.72)

Granted...............................................      105,500      (105,500)   (7.88 -  8.88)

Canceled..............................................      (85,080)       85,080    (8.33 - 16.10)

Exercised.............................................       (9,555)           --    (8.33 -  8.33)

---------    ----------   --------------

Balance at December 31, 2000..........................    2,330,718     1,362,106   $(7.42 - 17.72)

=========    ==========   ==============

Exercisable at December 31, 2000......................    1,118,818                 $(7.42 - 17.72)

=========                 ==============

</TABLE>



40

41

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000, JANUARY 2, 2000, AND JANUARY 3, 1999 -- (CONTINUED)



The Company accounts for these plans under APB Opinion No. 25, under which

no compensation cost has been recognized. Had compensation cost for these plans

been determined consistent with SFAS No. 123, the Company's net earnings (loss)

would have been as follows (in thousands):



<TABLE>

<CAPTION>

2000      1999      1998

-------   -------   -------

<S>                                                            <C>       <C>       <C>

Net earnings (loss):

As reported...............................................   $15,677   $28,827   $61,180

Pro forma.................................................    15,644    28,431    59,694

Net earnings (loss) per share:

As reported -- Basic......................................   $  1.47   $  2.72   $  5.80

Pro forma -- Basic........................................      1.47      2.68      5.66

As reported -- Diluted....................................      1.47      2.67      5.71

Pro forma -- Diluted......................................      1.47      2.64      5.57

</TABLE>



The SFAS No. 123 method of accounting has not been applied to options

granted prior to January 1, 1995, thus the resulting pro forma compensation cost

may not be representative of that to be expected in future years. The fair value

of each award under the option plans is estimated on the date of grant using the

Black-Scholes option-pricing model. The exercise value of the options issued in

2000 range from $7.88 per share to $8.88 per share and the exercise value of the

options issued in 1999 range from $8.38 per share to $10.81 per share. The

following assumptions were used to estimate the fair value of options:



<TABLE>

<CAPTION>

2000          1999          1998

----------    ----------    ----------

<S>                                                     <C>           <C>           <C>

Risk-free interest rate.............................    6.45-6.92%    5.20-6.50%    4.83-5.85%

Expected life.......................................      10 years      10 years      10 years

Expected volatility.................................     .453-.538     .452-.485     .487-.509

Expected dividend yield.............................            --            --            --

</TABLE>



7. EMPLOYEE RETIREMENT PLAN:



Grand had a section 401(k) employee savings plan for all full-time

employees which upon consummation of the Distribution became Lakes' plan. The

savings plan allows participants to defer, on a pretax basis, a portion of their

salary and accumulate tax-deferred earnings as a retirement fund. Eligibility is

based on years of service and minimum age requirements. Contributions are

invested, at the direction of the employee, in one or more available funds.

Lakes matches employee contributions up to a maximum of 4% of participating

employees' gross wages. The Company contributed $.09 million, $.03 million, and

$.03 million during 2000, 1999, and 1998, respectively. Company contributions

are vested over a period of five years.



8. COMMITMENTS AND CONTINGENCIES:



LEASES



The Company leases certain property and equipment under non-cancelable

operating leases. Rent expense, under non-cancelable operating leases, exclusive

of real estate taxes, insurance, and maintenance expense was $.8 million, $1.3

million, and $0.2 million for 2000, 1999 and 1998, respectively. Future minimum



41

42

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000, JANUARY 2, 2000, AND JANUARY 3, 1999 -- (CONTINUED)



lease payments, excluding contingent rentals, due under non-cancelable operating

leases as of December 31, 2000 are as follows (in thousands):



<TABLE>

<CAPTION>

OPERATING LEASES

<S>                                                          <C>

2001.......................................................        2,978

2002.......................................................        3,108

2003.......................................................        3,176

2004.......................................................        3,246

2005.......................................................        3,318

Thereafter.................................................       40,862

-------

$56,688

=======

</TABLE>



PURCHASE OPTIONS



The Company has an option to purchase the Travelodge property in Las Vegas,

Nevada for the purchase price of $30 million on October 31, 2017 and an option

to purchase the Cable property in Las Vegas, Nevada for the purchase price of

$39.1 million anytime prior to January 2, 2003.



LOAN GUARANTY AGREEMENTS



On May 1, 1997, the Company entered into a guaranty agreement related to a

loan agreement entered into by the Coushatta Tribe of Louisiana in the amount of

$25.0 million, for the purpose of constructing a hotel and acquiring additional

casino equipment. The guaranty will remain in effect until the loan is paid. The

loan term is approximately five years. As of December 31, 2000 and January 2,

2000, the amounts outstanding were $13.0 million and $19.3 million,

respectively.



INDEMNIFICATION AGREEMENT



As a part of the Transaction, the Company has agreed to indemnify Grand

against all costs, expenses and liabilities incurred in connection with or

arising out of certain pending and threatened claims and legal proceedings to

which Grand and certain of its subsidiaries are likely to be parties. The

Company's indemnification obligations include the obligation to provide the

defense of all claims made in proceedings against Grand and to pay all related

settlements and judgments.



As security to support Lakes' indemnification obligations to Grand under

each of the Grand Distribution Agreement and the Park Place Merger Agreement,

and as a condition to the consummation of the Merger, Lakes has agreed to

deposit, in trust for the benefit of Grand, as a wholly owned subsidiary of Park

Place, an aggregate of $30 million, to cover various commitments and

contingencies related to or arising out of, Grand's non-Mississippi business and

assets (including by way of example, but not limitation, tribal loan guarantees,

real property lease guarantees for Lakes' subsidiaries and director and

executive officer indemnity obligations) consisting of four annual installments

of $7.5 million, during the four-year period subsequent to the Effective Date of

the Transaction. Any surplus proceeds remaining after all the secured

obligations are indefeasibly paid in full and discharged shall be paid over to

Lakes. Lakes made the first deposit of $7.5 million on December 31, 1999 and in

July, 2000, Lakes deposited $18 million in an escrow account in partial

satisfaction of the indemnification obligation. Such amounts are included as

restricted cash on the accompanying balance sheets as of December 31, 2000 and

January 2, 2000.



As part of the indemnification agreement, Lakes has agreed that it will not

declare or pay any dividends, make any distribution of Lakes' equity interests,

or otherwise purchase, redeem, defease or retire for value any equity interests

in Lakes without the written consent of Park Place.



42

43

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000, JANUARY 2, 2000, AND JANUARY 3, 1999 -- (CONTINUED)



The following summaries describe certain known legal proceedings to which

Grand is a party which Lakes has assumed, or with respect to which Lakes has

agreed to indemnify Grand, in connection with the Distribution.



STRATOSPHERE SHAREHOLDERS LITIGATION -- FEDERAL COURT



In August 1996, a complaint was filed in the U.S. District Court for the

District of Nevada -- Michael Ceasar, et al v. Stratosphere Corporation, et

al -- against Stratosphere and others, including Grand. The complaint was filed

as a class action, and sought relief on behalf of Stratosphere shareholders who

purchased their stock between December 19, 1995 and July 22, 1996. The complaint

included allegations of misrepresentations, federal securities law violations

and various state law claims.



In August through October 1996, several other nearly identical complaints

were filed by various plaintiffs in the U.S. District Court for the District of

Nevada.



The defendants in the actions submitted motions requesting that all of the

actions be consolidated. Those motions were granted in January 1997, and the

consolidated action is entitled In re: Stratosphere Corporation Securities

Litigation -- Master File No. CV-S-96-00708 PMP (RLH).



In February 1997, the plaintiffs filed a consolidated and amended complaint

naming various defendants, including Grand and certain current and former

officers and directors of Grand. The amended complaint includes claims under

federal securities laws and Nevada laws based on acts alleged to have occurred

between December 19, 1995 and July 22, 1996.



The Court has recently signed a scheduling order, which cuts off fact

discovery as of April 30, 2000 and expert discovery as of September 30, 2000.

The parties have submitted preliminary pretrial statements, which may be amended

after the completion of discovery.



In February 1997, various defendants, including Grand and Grand's officers

and directors named as defendants, submitted motions to dismiss the amended

complaint. Those motions were made on various grounds, including Grand's claim

that the amended complaint failed to state a valid cause of action against Grand

and Grand's officers and directors.



In May 1997, the court dismissed the amended complaint. The dismissal order

did not allow the plaintiffs to further amend their complaint in an attempt to

state a valid cause of action.



In June 1997, the plaintiffs asked the court to reconsider its dismissal

order, and to allow the plaintiffs to submit a second amended complaint in an

attempt to state a valid cause of action. In July 1997, the court allowed the

plaintiffs to submit a second amended complaint.



In August 1997, the plaintiffs filed a second amended complaint. In

September 1997, certain of the defendants, including Grand and Grand's officers

and directors named as defendants, submitted a motion to dismiss the second

amended complaint. The motion was based on various grounds, including Grand's

claim that the second amended complaint failed to state a valid cause of action

against Grand and Grand's officers and directors.



In April 1998, the Court granted Grand's motion to dismiss, in part, and

denied the motion in part. Thus, the plaintiffs are pursuing the claims in the

second amended complaint that survived the motion to dismiss.



In June 1998, certain of the defendants, including Grand and Grand's

officers and directors named as defendants, submitted a motion for summary

judgment seeking an order that such defendants are entitled to judgment as a

matter of law. In December 1998, the plaintiffs completed fact discovery related

to the issues raised by the summary judgment motion. Expert discovery was

completed in March of 1999. All papers relating to this matter were filed on

June 1, 1999.



43

44

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000, JANUARY 2, 2000, AND JANUARY 3, 1999 -- (CONTINUED)



On October 6, 1999, the District Court entered its Order, granting in part

and denying in part, defendants' Motion for Summary Judgment and Summary

Adjudication. The Court dismissed all allegations in reference to (1) Phase II

funding levels; (2) "over-allotments uses", as stated in the December 19, 1995

Prospectus; (3) the purpose and use of the Grand Casino Completion Guaranty, as

stated in the June 6, 1996 Press Statement; (4) the vague expressions of general

optimism (issued within the December 19, 1995 Prospectus, the 10-Q and 10-K

Filings, press releases and other public statements) referred to in this Order;

(5) the adoption of statements in securities analysts reports; (6) the alleged

utterance of misleading statements before the Nevada Gaming Commission; and (7)

the temporary diversion of Phase II proceeds to fund Phase I. The remaining

claims relate to the accuracy of defendants' budgetary estimates issued in

Stratosphere's December 1995 Prospectus and SEC 10-Q and 10-K Reports. The Court

concluded that there were triable issues as to whether defendants misstated

anticipated construction costs or omitted to disclose material cost overruns.



The Court added the Company as an additional defendant because of its

indemnity obligation and stipulation. Park Place has opposed being added to the

litigation and plaintiffs' motion to add Park Place as a defendant is pending.



The parties have reached a settlement covering the Stratosphere

shareholders litigation. A stipulation of settlement was approved by the Court

on December 4, 2000. The Stratosphere state and federal settlement was for $9

million, inclusive of all plaintiffs fees and costs. A conditional judgment was

entered and no distribution of the settlement will occur until the Minnesota

federal litigation is also dismissed.



STRATOSPHERE SHAREHOLDERS LITIGATION -- NEVADA STATE COURT



In August 1996, a complaint was filed in the District Court for Clark

County, Nevada -- Victor M. Opitz, et al v. Robert E. Stupak, et al -- Case No.

A363019 -- against various defendants, including Grand. The complaint seeks

relief on behalf of Stratosphere Corporation shareholders who purchased stock

between December 19, 1995 and July 22, 1996. The complaint alleges

misrepresentations, state securities law violations and other state claims.



Grand and certain defendants submitted motions to dismiss or stay the state

court action pending resolution of the federal court action described above. The

court has stayed further proceedings pending the resolution of In re:

Stratosphere Securities Litigation.



As described under "Stratosphere Shareholder Litigation -- Federal Court"

above, the parties have reached a $9 million settlement covering the

Stratosphere shareholders litigation in federal and state courts. The state

court litigation will be dismissed with prejudice.



GRAND CASINOS, INC. SHAREHOLDERS LITIGATION



In September and October 1996, two actions were filed by Grand shareholders

in the U.S. District Court for the District of Minnesota against Grand and

certain of Grand's current and former directors and officers. The complaints

allege misrepresentations, federal securities law violations and other claims in

connection with the Stratosphere project.



The actions have been consolidated as In re: Grand Casinos, Inc. Securities

Litigation -- Master File No. 4-96-890 -- and the plaintiffs filed a

consolidated complaint. The defendants submitted a motion to dismiss the

consolidated complaint, based in part on Grand's claim that the consolidated

complaint failed to properly state a cause of action. The consolidated complaint

sought class action treatment for a class comprising all persons (other than the

defendants) who purchased Grand common stock during the period from December 19,

1995 through July 19, 1996.



In December 1997, the court granted Grand's motion to dismiss in part, and

denied the motion in part. Thus, the plaintiffs are pursuing the claims in the

consolidated complaint that survived Grand's motion to dismiss. Discovery in the

action has begun.



44

45

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000, JANUARY 2, 2000, AND JANUARY 3, 1999 -- (CONTINUED)



The defendants have submitted a motion for summary judgment seeking an

order that the defendants are entitled to judgment as a matter of law. In

December 1998, the plaintiffs completed fact discovery related to the issues

raised by the summary judgement motion. Expert discovery was completed in March

of 1999.



The parties have completed follow-up discovery pertaining to the summary

judgment motion. The court heard the motion on September 2, 1999. On March 28,

2000, the Court granted the motion in part and denied the motion in part. The

Court dismissed with prejudice, all claims against the defendants as to the

members of the putative class who did not purchase Grand common stock during the

period from December 19, 1995 through June 6, 1996 inclusive.



In early February 1999, the plaintiffs filed a motion for leave to amend

the complaint in this action to include, as defendants in the case, both the

Company and Park Place. The motion for leave to amend the complaint has been

granted and Lakes has filed its answer.



On June 19, 2000, the Company announced that a settlement agreement had

been reached regarding the litigation. The agreement called for the Company to

pay $9 million to the Grand shareholders for full and final settlement of all

claims covering the original class period. The settlement agreement is subject

to final approval by the US District Court for the District of Minnesota. The $9

million was placed into an escrow account by Lakes on behalf of the recipients

in July 2000.



SLOT MACHINE LITIGATION



In April 1994, William H. Poulos brought an action in the U.S. District

Court for the Middle District of Florida, Orlando Division -- William H. Poulos,

et al v. Caesars World, Inc. et al -- Case No. 39-478-CIV-ORL-22 -- in which

various parties (including Grand) alleged to operate casinos or be slot machine

manufacturers were named as defendants. The plaintiff sought to have the action

certified as a class action.



A subsequently filed Action -- William Ahearn, et al v. Caesars World, Inc.

et al -- Case No. 94-532-CIV-ORL-22 -- made similar allegations and was

consolidated with the Poulos action.



Both actions included claims under the federal Racketeering-Influenced and

Corrupt Organizations Act and under state law, and sought compensatory and

punitive damages. The plaintiffs claimed that the defendants are involved in a

scheme to induce people to play electronic video poker and slot machines based

on false beliefs regarding how such machines operate and the extent to which a

player is likely to win on any given play.



In December 1994, the consolidated actions were transferred to the U.S.

District Court for the District of Nevada.



In September 1995, Larry Schreier brought an action in the U.S. District

Court for the District of Nevada -- Larry Schreier, et al v. Caesars World, Inc.

et al -- Case No. CV-95-00923-DWH(RJJ). The plaintiffs' allegations in the

Schreier action were similar to those made by the plaintiffs in the Poulos and

Ahearn actions, except that Schreier claimed to represent a more precisely

defined class of plaintiffs than Poulos or Ahearn.



In December 1996, the court ordered the Poulos, Ahearn and Schreier actions

consolidated under the title William H. Poulos, et al v. Caesars World, Inc., et

al -- Case No. CV-S-94-11236-DAE(RJJ) -- (Base File), and required the

plaintiffs to file a consolidated and amended complaint. In February 1997, the

plaintiffs filed a consolidated and amended complaint.



In March 1997, various defendants (including Grand) filed motions to

dismiss or stay the consolidated action until the plaintiffs submitted their

claims to gaming authorities and those authorities considered the claims

submitted by the plaintiffs.



45

46

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000, JANUARY 2, 2000, AND JANUARY 3, 1999 -- (CONTINUED)



In December 1997, the court denied all of the motions submitted by the

defendants, and ordered the plaintiffs to file a new consolidated and amended

complaint. That complaint has been filed. Grand has filed its answer to the new

complaint. The plaintiffs have filed a motion seeking an order certifying the

action as a class action. Grand and certain of the defendants have opposed the

motion. The Court has not ruled on the motion.



STANDBY EQUITY COMMITMENT LITIGATION



In September 1997, the Stratosphere Trustee under the indenture pursuant to

which Stratosphere issued its first mortgage notes filed a complaint in the U.S.

District Court for the District of Nevada -- IBJ Schroeder Bank & Trust Company,

Inc. v. Grand Casinos, Inc. -- File No. CV-S-97-01252-DWH (RJJ) -- naming Grand

as defendant.



The complaint alleges that Grand failed to perform under the Standby Equity

Commitment entered into between Stratosphere and Grand in connection with

Stratosphere's issuance of such first mortgage notes in March 1995. The

complaint seeks an order compelling specific performance of what the Trustee

claims are Grand's obligations under the Standby Equity Commitment.



The Stratosphere Trustee filed the complaint in its alleged capacity as a

third party beneficiary under the Standby Equity Commitment. Pursuant to the

Second Amended Plan, a new limited liability company (the "Stratosphere LLC")

was formed to pursue certain alleged claims and causes of action that

Stratosphere and other parties may have against numerous third parties,

including Grand and/or officers and/or directors of Grand. The Stratosphere LLC

has been substituted for IBJ Schroeder Bank & Trust Company, Inc. in this

proceeding.



In October of 1999, portions of the Motions for Summary Judgment by both

parties were denied in part. The Court subsequently denied Grand's request for

expedited appellate court review as to the portions of the Motions that were

denied. Thereafter, the parties jointly sought the Court's consideration of a

subsequent summary judgment motion. During the August 30, 2000 scheduled

pretrial conference call, the Court and the parties agreed to try the action

upon an amended joint pretrial order and a series of post-trial briefs.

Post-trial briefing concluded on December 12, 2000 and oral argument was held

January 22, 2001. During oral argument, the Court asked both parties to submit

findings of fact and conclusions of law within three weeks. The Court did not

indicate its decision.



STRATOSPHERE PREFERENCE ACTION



In April 1998, Stratosphere served on Grand and Grand Media & Electronics

Distributing, Inc., a wholly owned subsidiary of Grand ("Grand Media"), a

complaint in the Stratosphere bankruptcy case seeking recovery of certain

amounts paid by Stratosphere to (i) Grand as management fees and for costs and

expenses under a management agreement between Stratosphere and Grand, and (ii)

Grand Media for electronic equipment purchased by Stratosphere from Grand Media.



Stratosphere claims in its complaint that such amounts are recoverable by

Stratosphere as preferential payments under bankruptcy law.



In May 1998, Grand responded to Stratosphere's complaint. That response

denies that Stratosphere is entitled to recover the amounts described in the

complaint. The matter is pending.



OTHER LITIGATION



The Company has recorded a reserve assessment related to various of the

above items. The reserve is reflected as a litigation and claims accrual on the

accompanying consolidated balance sheet as of December 31, 2000.



46

47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000, JANUARY 2, 2000, AND JANUARY 3, 1999 -- (CONTINUED)



Grand and Lakes are involved in various other inquiries, administrative

proceedings, and litigation relating to contracts and other matters arising in

the normal course of business. While any proceeding or litigation has an element

of uncertainty, management currently believes that the final outcome of these

matters is not likely to have a material adverse effect upon Grand's or the

Company's consolidated financial position or results of operations.



9. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED):



Year ended December 31, 2000 (in thousands, except per share amounts):



<TABLE>

<CAPTION>

FIRST     SECOND      THIRD     FOURTH

QUARTER    QUARTER    QUARTER    QUARTER

-------    -------    -------    -------

<S>                                                   <C>        <C>        <C>        <C>

Net revenues......................................    $31,053    $10,655    $10,684    $ 6,652

Earnings from operations..........................     27,078      7,580      7,708      4,743

Net earnings (loss)...............................     16,115     (5,311)     4,976       (103)

Earnings (loss) per share:

Basic...........................................    $  1.52    $  (.50)   $   .47    $  (.02)

Diluted.........................................       1.52       (.50)       .46       (.01)

</TABLE>



Year ended January 2, 2000 (in thousands, except per share amounts):



<TABLE>

<CAPTION>

FIRST     SECOND      THIRD     FOURTH

QUARTER    QUARTER    QUARTER    QUARTER

-------    -------    -------    -------

<S>                                                   <C>        <C>        <C>        <C>

Net revenues......................................    $15,109    $14,892    $14,440    $10,275

Earnings from operations..........................     12,923     11,521     13,111      7,495

Net Earnings......................................      8,562      8,622      7,440      4,203

Earnings per share:

Basic...........................................    $   .81    $   .81    $   .70    $   .40

Diluted.........................................    $   .80    $   .80    $   .68    $   .39

</TABLE>



10. SUBSEQUENT EVENTS (UNAUDITED):



On January 10, 2001, the Company exercised its call option to purchase the

Shark Club property in Las Vegas, Nevada for $10.1 million. Lakes, through its'

joint venture Metroplex-Lakes, LLC, plans to develop an upscale retail,

commercial, hotel and entertainment complex on this site, and adjoining Lakes

property, surrounding the corner of Harmon Avenue and Las Vegas Boulevard (the

"Strip") in Las Vegas, Nevada.



On February 8, 2001, the Company announced its intention to discontinue

involvement in the casino development planned by the Paskenta Band of Nomlaki

Indians in California.



ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND

FINANCIAL DISCLOSURE



None.



47

48



PART III



ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT



Information in response to this item is incorporated herein by reference to

our definitive proxy statement to be filed pursuant to Regulation 14A within 120

days after the end of the fiscal year covered by this 10-K.



ITEM 11.  EXECUTIVE COMPENSATION



Information in response to this item is incorporated herein by reference to

our definitive proxy statement to be filed pursuant to Regulation 14A within 120

days after the end of the fiscal year covered by this 10-K.



ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT



Information in response to this item is incorporated herein by reference to

our definitive proxy statement to be filed pursuant to Regulation 14A within 120

days after the end of the fiscal year covered by this 10-K.



ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



Information in response to this item is incorporated herein by reference to

our definitive proxy statement to be filed pursuant to Regulation 14A within 120

days after the end of the fiscal year covered by this 10-K.



48

49



PART IV



ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K



(a)(1) Consolidated Financial Statements:



<TABLE>

<CAPTION>

PAGE

----

<S>                                                            <C>



Report of Independent Public Accountants....................    27



Consolidated Balance Sheets as of December 31, 2000 and

January 2, 2000...........................................    28



Consolidated Statements of Earnings for the fiscal years

ended December 31, 2000, January 2, 2000 and January 3,

1999......................................................    29



Consolidated Statements of Comprehensive Earnings for the

fiscal years ended December 31, 2000, January 2, 2000 and

January 3, 1999...........................................    30



Consolidated Statements of Shareholders' Equity for the

fiscal years ended December 31, 2000, January 2, 2000 and

January 3, 1999...........................................    31



Consolidated Statements of Cash Flows for the fiscal years

ended December 31, 2000, January 2, 2000 and January 3,

1999......................................................    32



Notes to Consolidated Financial Statements..................    33

</TABLE>



(a)(2) None.



(a)(3)



<TABLE>

<CAPTION>

EXHIBITS    DESCRIPTION

- --------    -----------

<C>         <S>



2.1      Agreement and Plan of Merger by and among Hilton, Park Place

Entertainment Corporation, Gaming Acquisition Corporation,

Lakes Gaming, Inc. and Grand dated as of June 30, 1998.

(Incorporated herein by reference to Exhibit 2.2 to Lakes'

Form 10 Registration Statement as filed with the Securities

and Exchange Commission (the "Commission") on October 23,

1998.) (the "Lakes Form 10")



3.1      Articles of Incorporation of Lakes Gaming, Inc.

(Incorporated herein by reference to Exhibit 3.1 to the

Lakes Form 10.)



3.2      By-laws of Lakes Gaming, Inc. (Incorporated herein by

reference to Exhibit 3.2 to the Lakes Form 10.)



10.1      Distribution Agreement by and between Grand Casinos, Inc.

and Lakes Gaming, Inc., dated as of December 31, 1998.

(Incorporated herein by reference to Exhibit 10.1 to Lakes'

Form 8-K dated January 8, 1999.)



10.2      Employee Benefits and Other Employment Matters Allocation

Agreement by and between Grand Casinos, Inc. and Lakes

Gaming, Inc., dated as of December 31, 1998. (Incorporated

herein by reference to Exhibit 10.2 to Lakes' Form 8-K dated

January 8, 1999.)



10.3      Intellectual Property License Agreement by and between Grand

Casinos, Inc. and Lakes Gaming, Inc., dated as of December

31, 1998. (Incorporated herein by reference to Exhibit 10.5

to Lakes' Form 8-K dated January 8, 1999.)



10.4      Tax Allocation and Indemnity Agreement by and between Grand

Casinos, Inc. and Lakes Gaming, Inc., dated as of December

31, 1998. (Incorporated herein by reference to Exhibit 10.3

to Lakes' Form 8-K dated January 8, 1999.)

</TABLE>



49

50



<TABLE>

<CAPTION>

EXHIBITS    DESCRIPTION

- --------    -----------

<C>         <S>

10.5      Tax Escrow Agreement by and among Grand Casinos, Inc., Lakes

Gaming, Inc., and First Union National Bank as Escrow Agent,

dated as of December 31, 1998. (Incorporated herein by

reference to Exhibit 10.4 to Lakes' Form 8-K dated January

8, 1999.)



10.6      Insurance Receivable Agreement by and between Grand Casinos,

Inc. and Lakes Gaming, Inc., dated as of December 31, 1998.

(Incorporated herein by reference to Exhibit 10.6 to Lakes'

Form 8-K dated January 8, 1999.)



10.7      Trust Agreement dated as of December 31, 1998 entered into

by and among Lakes Gaming, Inc., Grand Casinos, Inc. and

First Union National Bank, as Trustee. (Incorporated herein

by reference to Exhibit 10.7 to Lakes' Form 10-K dated March

26, 1999).



10.8      Pledge and Security Agreement dated as of December 31, 1998

entered into by and among Lakes Gaming, Inc., as Debtor and

First Union National Bank (the "Trustee") pursuant to the

Trust Agreement executed in favor of Grand Casinos, Inc.

(the "Secured Party"). (Incorporated herein by reference to

Exhibit 10.8 to Lakes' Form 10-K dated March 26, 1999.)



10.9      Lakes Gaming, Inc. 1998 Stock Option and Compensation Plan.

(Incorporated herein by reference to Annex G to the Joint

Proxy Statement/Prospectus of Hilton Hotels Corporation and

Grand dated and filed with the Commission on October 14,

1998 (the "Joint Proxy Statement") which is attached to the

Lakes Form 10 as Annex A.)*



10.10      Lakes Gaming, Inc. 1998 Director Stock Option Plan.

(Incorporated herein by reference to Annex H to the Joint

Proxy Statement/Prospectus of Hilton Hotels Corporation and

Grand dated and filed with the Commission on October 14,

1998 (the "Joint Proxy Statement") which is attached to the

Lakes Form 10 as Annex A.)*



10.11      Amended and Restated Management & Construction Agreement,

Loan Agreement, Promissory Note, and Security Agreement

between the Coushatta Tribe of Louisiana and Grand Casinos

of Louisiana, Inc. -- Coushatta, dated February 25, 1992.

(Incorporated herein by reference to Exhibit 10CC to Grand's

Registration Statement on Form S-1, as amended, File No.

33-42281.)



10.12      Lease Agreement, dated as of June 17, 1996, by and between

Brooks Family Trust and Nevada Brooks Cook as Landlord and

Cloobeck Enterprises and Grand Casinos Nevada I, Inc. as

Tenants. (Incorporated herein by reference to Exhibit 10.76

to Grand's Report on Form 10-K for the fiscal year ended

December 28, 1997.)



10.13      First Amendment to Ground Lease, dated November 25, 1997, by

and between MacGregor Income Properties West I, Inc. and

Grand Casinos Nevada I, Inc. (Incorporated herein by

reference to Exhibit 10.77 to Grand's Report on Form 10-K

for the fiscal year ended December 28, 1997.)



10.14      Ground Lease, dated July 31, 1996, by and between MacGregor

Income Properties West I, Inc. and Cloobeck Enterprises.

(Incorporated herein by reference to Exhibit 10.78 to

Grand's Report on form 10-K or the fiscal year ended

December 28, 1997.)



10.15      Indemnification Agreement, dated as of December 31, 1997, by

and between Grand Casinos, Inc. and Lyle Berman.

(Incorporated herein by reference to Exhibit 10.79 to

Grand's Report on Form 10-K for the fiscal year ended

December 28, 1997.)



10.16      Carlson Center Office Lease by and between Carlson Real

Estate Company, a Minnesota Limited Partnership, as Landlord

and Grand Casinos, Inc. as Tenant, dated February 1, 1996,

as Amended by that First Amendment to Lease dated August 23,

1996. (Incorporated herein by reference to Exhibit 10.32 to

the Lakes Form 10.)

</TABLE>



50

51



<TABLE>

<CAPTION>

EXHIBITS    DESCRIPTION

- --------    -----------

<C>         <S>

10.17      Sublease entered into effective as of the 30th day of

December 1998, between Grand Casinos, Inc., a Minnesota

Corporation ("Sublessor"), and Lakes Gaming, Inc., a

Minnesota Corporation ("Sublessee"). (Incorporated herein by

reference to Exhibit 10.29 to Lakes' Form 10-K dated March

26, 1999.)



10.18      Release and Assumption Agreement dated as of December 31,

1998, among Hibernia National Bank, the Coushatta Tribe of

Louisiana, the Coushatta Tribe of Louisiana Building

Authority, Grand Casinos of Louisiana, Inc. -- Coushatta,

Grand Casinos, Inc., Lakes Gaming, Inc., a Minnesota

corporation and a subsidiary of Grand and Grand Casinos of

Louisiana, LLC -- Coushatta, a Minnesota limited liability

company and a subsidiary of Lakes. (Incorporated herein by

reference to Exhibit 10.1 to Lakes' Report on Form 10-Q for

the quarter ended April 4, 1999.)



10.19      Commercial Guaranty Agreement made and entered into

effective as of February 15, 1999, by Lakes Gaming, Inc., a

Minnesota corporation and Grand Casinos of Louisiana, LLC --

Coushatta, a Minnesota limited liability company in favor of

Hibernia National Bank, guaranteeing the Indebtedness (as

defined) of the Coushatta Tribe of Louisiana and the

Coushatta Tribe of Louisiana Building Authority.

(Incorporated herein by reference to Exhibit 10.2 to Lakes'

Report on Form 10-Q for the quarter ended April 4, 1999.)



10.20      Subordination Agreement Granted by Lakes Gaming, Inc., a

Minnesota corporation, in favor of Hibernia National Bank

entered into as of February 15, 1999. (Incorporated herein

by reference to Exhibit 10.3 to Lakes' Report on Form 10-Q

for the quarter ended April 4, 1999.)



10.21      Subordination Agreement Granted by Grand Casinos of

Louisiana, LLC, a Minnesota limited liability company in

favor of Hibernia National Bank entered into as of February

15, 1999. (Incorporated herein by reference to Exhibit 10.4

to Lakes' Report on Form 10-Q for the quarter ended April 4,

1999.)



10.22      Dominion Account Agreement dated as of May 1, 1997 between

the Coushatta Tribe of Louisiana, a federally recognized

Indian tribe, the Coushatta Tribe of Louisiana Building

Authority, an instrumentality of the Coushatta Tribe, Grand

Casinos of Louisiana, Inc. -- Coushatta, a Minnesota

corporation, Grand Casinos, Inc., a Minnesota corporation,

the Cottonport Bank, a bank chartered under the laws of the

State of Louisiana, and Hibernia National Bank, a national

banking association. (Incorporated herein by reference to

Exhibit 10.5 to Lakes' Report on Form 10-Q for the quarter

ended April 4, 1999.)



10.23      Subordination Agreement Granted by Lakes Gaming, Inc., a

Minnesota corporation, in favor of Hibernia National Bank

entered into as of February 15, 1999. (Incorporated herein

by reference to Exhibit 10.6 to Lakes' Report on Form 10-Q

for the quarter ended April 4, 1999.)



10.24      Subordination Agreement granted by Grand Casinos of

Louisiana, LLC -- Coushatta, a Minnesota limited liability

company, in favor of Hibernia National Bank entered into as

of February 15, 1999. (Incorporated herein by reference to

Exhibit 10.7 to Lakes' Report on Form 10-Q for the quarter

ended April 4, 1999.)



10.25      Dominion Account Agreement, dated effective as of December

17, 1997, between the Coushatta Tribe of Louisiana, a

federally recognized Indian Tribe, Grand Casinos of

Louisiana, Inc. -- Coushatta, a Minnesota corporation, Grand

Casinos, Inc. a Minnesota corporation, the Cottonport Bank,

a bank chartered under the laws of the State of Louisiana,

and Hibernia National Bank, a national banking association.

(Incorporated herein by reference to Exhibit 10.8 to Lakes'

Report on Form 10-Q for the quarter ended April 4, 1999.)



10.26      Intercreditor Agreement dated as of February 4, 1998,

between Hibernia National Bank and Grand Casinos of

Louisiana, Inc. -- Coushatta and Grand Casinos, Inc.

(Incorporated herein by reference to Exhibit 10.9 to Lakes'

Report on Form 10-Q for the quarter ended April 4, 1999.)

</TABLE>



51

52



<TABLE>

<CAPTION>

EXHIBITS    DESCRIPTION

- --------    -----------

<C>         <S>

10.27      Counterpart Signature Page, dated as of February 15, 1999,

to that certain Intercreditor Agreement dated as of February

4, 1998 (the First Intercreditor Agreement), by and among

Hibernia National Bank, Grand Casinos, Inc. and Grand

Casinos of Louisiana, Inc. -- Coushatta; entered into

pursuant to Section 2 of that certain Release and Assumption

Agreement dated as of December 31, 1998, by and among the

Hibernia National Bank, Grand Casinos, Inc., Grand Casinos

of Louisiana, Inc. -- Coushatta, the Coushatta Tribe of

Louisiana, the Coushatta Tribe of Louisiana Building

Authority, Lakes Gaming, Inc. and Grand Casinos of

Louisiana, LLC -- Coushatta. (Incorporated herein by

reference to Exhibit 10.10 to Lakes' Report on Form 10-Q for

the quarter ended April 4, 1999.)



10.28      Subordination Agreement granted by Lakes Gaming, Inc., a

Minnesota Corporation, in favor of Hibernia National Bank

entered into as of February 15, 1999. (Incorporated herein

by reference to Exhibit 10.11 to Lakes' Report on Form 10-Q

for the quarter ended April 4, 1999.)



10.29      Subordination Agreement granted by Grand Casinos of

Louisiana, LLC -- Coushatta, a Minnesota Limited Liability

Company, in favor of Hibernia National Bank entered into as

of February 15, 1999. (Incorporated herein by reference to

Exhibit 10.12 to Lakes' Report on Form 10-Q for the quarter

ended April 4, 1999.)



10.30      Dominion Account Agreement, dated effective as of December

18, 1998, between the Coushatta Tribe of Louisiana, a

federally recognized Indian tribe, Grand Casinos of

Louisiana, LLC -- Coushatta, a Minnesota limited liability

company, Lakes Gaming, Inc., a Minnesota corporation, the

Cottonport Bank, a bank chartered under the laws of the

State of Louisiana, and Hibernia National Bank, a national

banking association. (Incorporated herein by reference to

Exhibit 10.13 to Lakes' Report on Form 10-Q for the quarter

ended April 4, 1999.)



10.31      Second Intercreditor Agreement dated as of December 18,

1998, between Hibernia National Bank, Grand Casinos of

Louisiana, Inc. -- Coushatta and Grand Casinos, Inc.

(Incorporated herein by reference to Exhibit 10.14 to Lakes'

Report on Form 10-Q for the quarter ended April 4, 1999.)



10.32      Counterpart Signature Page, dated as of February 15, 1999,

to that certain Second Intercreditor Agreement dated as of

December 18, 1998 (the Second Intercreditor Agreement), by

and among Hibernia National Bank, Grand Casinos, Inc. and

Grand Casinos of Louisiana, Inc. -- Coushatta; entered into

pursuant to Section 2 of that certain Release and Assumption

Agreement dated as of December 31, 1998, by and among the

Hibernia National Bank, Grand Casinos, Inc., Grand Casinos

of Louisiana, Inc. -- Coushatta, the Coushatta Tribe of

Louisiana, the Coushatta Tribe of Louisiana Building

Authority, Lakes Gaming, Inc. and Grand Casinos of

Louisiana, LLC -- Coushatta. (Incorporated herein by

reference to Exhibit 10.15 to Lakes' Report on Form 10-Q for

the quarter ended April 4, 1999.)



10.33      Non-competition Agreement made and entered into as of

December 31, 1998, by and between Lyle Berman and Park Place

Entertainment Corporation (f/k/a Gaming Co., Inc.) a

Delaware corporation. (Incorporated herein by reference to

Exhibit 10.21 to Lakes' Report on Form 10-Q for the quarter

ended April 4, 1999.)



10.34      Subscription Agreement and Investment Letter by and among

Lakes Gaming, Inc., a Minnesota corporation (the

"Subscriber") and Fanball.com, Inc., a Minnesota corporation

(the "Company") dated as of June 15, 1999. (Incorporated

herein by reference to Exhibit 10.1 to Lakes' Report on Form

10-Q for the quarter ended October 3, 1999.)



10.35      Stock Purchase Agreement dated as of June 15, 1999 between

Lakes Gaming, Inc. (the "Buyer") and Richard Kallio (the

"Seller"). (Incorporated herein by reference to Exhibit 10.2

to Lakes' Report on Form 10-Q for the quarter ended October

3, 1999.)

</TABLE>



52

53



<TABLE>

<CAPTION>

EXHIBITS    DESCRIPTION

- --------    -----------

<C>         <S>

10.36      Subscription Agreement and Investment Letter by and among

Lakes Gaming, Inc. a Minnesota corporation (the

"Subscriber") and Interactive Learning Group, Inc., a

Minnesota corporation (the "Company") dated as of June 25,

1999. (Incorporated herein by reference to Exhibit 10.3 to

Lakes' Report on Form 10-Q for the quarter ended October 3,

1999.)



10.37      Mutual Termination Agreement by and Among the Registrant,

Rainforest Cafe, Inc. and RFC Acquisition Co. dated as of

January 24, 2000. (Incorporated herein by reference to

Exhibit 10.1 to Lakes' Report on Form 8-K dated as of

January 25, 2000.)



10.38      Development Agreement dated as of the 8th day of July, 1999

by and between the Pokagon Band of Potawatomi Indians and

Lakes Gaming, Inc., a Minnesota corporation. (Incorporated

herein by reference to Exhibit 10.61 to Lakes' Report on

Form 10-K for the fiscal year ended January 2, 2000.)



10.39      Management Agreement dated as of July 8, 1999, by and

between the Pokagon Band of Potawatomi Indians and Lakes

Gaming, Inc., a Minnesota corporation. (Incorporated herein

by reference to Exhibit 10.62 to Lakes' Report on Form 10-K

for the fiscal year ended January 2, 2000.)



10.40      Promissory Note (the "Lakes Note") dated as of July 8, 1999

by and among the Pokagon Band of Potawatomi Indians and

Lakes Gaming, Inc., a Minnesota corporation. (Incorporated

herein by reference to Exhibit 10.63 to Lakes' Report on

Form 10-K for the fiscal year ended January 2, 2000.)



10.41      Non-Gaming Land Acquisition Line of Credit Agreement dated

as of the 8th day of July, 1999, by and between the Pokagon

Band of Potawatomi Indians and Lakes Gaming, Inc., a

Minnesota corporation. (Incorporated herein by reference to

Exhibit 10.64 to Lakes' Report on Form 10-K for the fiscal

year ended January 2, 2000.)



10.42      Promissory Note (the "Transition Loan Note") dated as of

July 8, 1999 by and among the Pokagon Band of Potawatomi

Indians and Lakes Gaming, Inc., a Minnesota corporation.

(Incorporated herein by reference to Exhibit 10.65 to Lakes'

Report on Form 10-K for the fiscal year ended January 2,

2000.)



10.43      Account Control Agreement dated as of July 8, 1999 by and

among the Pokagon Band of Potawatomi Indians and Lakes

Gaming, Inc., a Minnesota corporation. (Incorporated herein

by reference to Exhibit 10.66 to Lakes' Report on Form 10-K

for the fiscal year ended January 2, 2000.)



10.44      Pledge and Security Agreement dated as of July 8, 1999 by

and among the Pokagon Band of Potawatomi Indians and Lakes

Gaming, Inc., a Minnesota corporation. (Incorporated herein

by reference to Exhibit 10.67 to Lakes' Report on Form 10-K

for the fiscal year ended January 2, 2000.)



10.45      Memorandum of Agreement Regarding Gaming Development and

Management Agreements dated as of the 15th day of February,

2000 by and between the Jamul Indian Village and Lakes

KAR -- California, LLC, a Delaware limited liability

company. (Incorporated herein by reference to Exhibit 10.68

to Lakes' Report on Form 10-K for the fiscal year ended

January 2, 2000.)



10.46      Operating Agreement of Lakes Kean Argovitz

Resorts -- California, LLC dated as of the 25th day of May,

1999 by and between Lakes Jamul, Inc. and Kean Argovitz

Resorts -- Jamul, LLC. (Incorporated herein by reference to

Exhibit 10.69 to Lakes' Report on Form 10-K for the fiscal

year ended January 2, 2000.)

</TABLE>



53

54



<TABLE>

<CAPTION>

EXHIBITS    DESCRIPTION

- --------    -----------

<C>         <S>

10.47      Promissory Note dated as of the 15th day of February, 2000

by and among the Jamul Indian Village and Lakes

KAR -- California, LLC, a Delaware limited liability

company. (Incorporated herein by reference to Exhibit 10.70

to Lakes' Report on Form 10-K for the fiscal year ended

January 2, 2000.)



10.48      Security Agreement dated as of the 25th day of May, 1999 by

and between Lakes Jamul, Inc., a Minnesota corporation and

Lakes Kean Argovitz Resorts -- California, LLC, a Delaware

limited liability company. (Incorporated herein by reference

to Exhibit 10.71 to Lakes' Report on Form 10-K for the

fiscal year ended January 2, 2000.)



10.49      Management Agreement between the Shingle Springs Band of

Miwok Indians and Kean Argovitz Resorts -- Shingle Springs,

LLC, dated as of the 11th day of June, 1999. (Incorporated

herein by reference to Exhibit 10.72 to Lakes' Report on

Form 10-K for the fiscal year ended January 2, 2000.)



10.50      Development Agreement between the Shingle Springs Band of

Miwok Indians and Kean Argovitz Resorts -- Shingle Springs,

LLC, dated as of the 11th day of June, 1999. (Incorporated

herein by reference to Exhibit 10.73 to Lakes' Report on

Form 10-K for the fiscal year ended January 2, 2000.)



10.51      Management Agreement dated as of the 29th day of July, 1999

by and among Lakes Shingle Springs, Inc., a Minnesota

corporation and Lakes KAR -- Shingle Springs, LLC, a

Delaware limited liability company. (Incorporated herein by

reference to Exhibit 10.74 to Lakes' Report on Form 10-K for

the fiscal year ended January 2, 2000.)



10.52      Operating Agreement of Lakes KAR -- Shingle Springs, LLC

dated as of the 29th day of July, 1999 by Lakes Shingle

Springs, Inc. and Kean Argovitz Resorts -- Shingle Springs,

LLC. (Incorporated herein by reference to Exhibit 10.75 to

Lakes' Report on Form 10-K for the fiscal year ended January

2, 2000.)



10.53      Assignment and Assumption Agreement between Kean Argovitz

Resorts -- Shingle Springs, LLC, a Nevada limited liability

company, and Lakes KAR -- Shingle Springs, LLC, a Delaware

limited liability company, dated as of the 11th day of June,

1999. (Incorporated herein by reference to Exhibit 10.76 to

Lakes' Report on Form 10-K for the fiscal year ended January

2, 2000.)



10.54      Assignment and Assumption Agreement and Consent to

Assignment and Assumption, by and between Lakes Gaming,

Inc., a Minnesota corporation, and Kean Argovitz

Resorts -- Shingle Springs, LLC, a Nevada limited liability

company, dated as of the 11th day of June, 1999.

(Incorporated herein by reference to Exhibit 10.77 to Lakes'

Report on Form 10-K for the fiscal year ended January 2,

2000.)



10.55      Security Agreement dated as of the 29th day of July, 1999,

by and between Lakes Shingle Springs, Inc., a Minnesota

corporation, and Lakes KAR -- Shingle Springs, LLC, a

Delaware limited liability company. (Incorporated herein by

reference to Exhibit 10.78 to Lakes' Report on Form 10-K for

the fiscal year ended January 2, 2000.)



10.56      Promissory Note dated as of the 29th day of July, 1999, by

and among Kean Argovitz Resorts -- Shingle Springs, LLC, a

Nevada limited liability company, and Lakes Shingle Springs,

Inc., a Minnesota corporation. (Incorporated herein by

reference to Exhibit 10.79 to Lakes' Report on Form 10-K for

the fiscal year ended January 2, 2000.)



10.57      Pledge Agreement dated as of the 29th day of July, 1999, by

and between Kean Argovitz Resorts -- Shingle Springs, LLC, a

Nevada limited liability company and Lakes Shingle Springs,

Inc., a Minnesota corporation. (Incorporated herein by

reference to Exhibit 10.80 to Lakes' Report on Form 10-K for

the fiscal year ended January 2, 2000.)

</TABLE>



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<TABLE>

<CAPTION>

EXHIBITS    DESCRIPTION

- --------    -----------

<C>         <S>

10.58      Joint Contribution Agreement by and between Grand Casinos

Nevada I, Inc., Metroplex, LLC, Lakes Gaming, Inc., and

Metroplex-Lakes, LLC dated as of April 25, 2000.

(Incorporated herein by reference to Exhibit 10.1 to Lakes'

Report on Form 10-Q for the quarter ended July 2, 2000.)



10.59      Member Control Agreement of Metroplex-Lakes, LLC, by and

between Grand Casinos Nevada I, Inc., Metroplex, LLC, and

Metroplex-Lakes, LLC dated as of April 25, 2000.

(Incorporated herein by reference to Exhibit 10.2 to Lakes'

Report on Form 10-Q for the quarter ended July 2, 2000.)



10.60      Real Estate Option Agreement by and between Grand Casinos

Nevada I, Inc., Metroplex-Lakes, LLC, and Metroplex, LLC

dated as of April 25, 2000. (Incorporated herein by

reference to Exhibit 10.3 to Lakes' Report on Form 10-Q for

the quarter ended July 2, 2000.)



10.61      Amended and Restated Option Agreement by and between Martin

J. Cable and Olga B. Cable, as Trustees of the Cable Family

Trust and Grand Casinos Nevada I, Inc. dated as of June 1,

2000. (Incorporated herein by reference to Exhibit 10.4 to

Lakes' Report on Form 10-Q for the quarter ended July 2,

2000.)



10.62      Acquisition and Participation Agreement, dated as of August

7, 2000, by and between MRD Gaming, LLC, a Nevada limited

liability company, and Lakes Gaming and Resorts, LLC, a

Minnesota limited liability company. (Incorporated herein by

reference to Exhibit 10.1 to Lakes' Report on Form 10-Q for

the quarter ended October 1, 2000.)



10.63      First Amendment to Acquisition and Participation Agreement,

dated as of October 12, 2000, by and between MRD Gaming,

LLC, a Nevada limited liability company, and Lakes Gaming

and Resorts, LLC, a Minnesota limited liability company.

(Incorporated herein by reference to Exhibit 10.2 to Lakes'

Report on Form 10-Q for the quarter ended October 1, 2000.)



10.64      Member Control Agreement of Pacific Coast Gaming -- Corning,

LLC. (Incorporated herein by reference to Exhibit 10.3 to

Lakes' Report on Form 10-Q for the quarter ended October 1,

2000.)



10.65      Member Control Agreement of Pacific Coast Gaming -- Santa

Rosa, LLC. (Incorporated herein by reference to Exhibit 10.4

to Lakes' Report on Form 10-Q for the quarter ended October

1, 2000.)



10.66      Promissory Note, dated as of October 12, 2000, by and

between Pacific Coast Gaming -- Corning, LLC, a Minnesota

limited liability company, and Lakes Corning, LLC, a

Minnesota limited liability company. (Incorporated herein by

reference to Exhibit 10.5 to Lakes' Report on Form 10-Q for

the quarter ended October 1, 2000.)



10.67      Promissory Note, dated as of October 12, 2000, by and

between Pacific Coast Gaming -- Santa Rosa, LLC, a Minnesota

limited liability company, and Lakes Cloverdale, LLC, a

Minnesota limited liability company. (Incorporated herein by

reference to Exhibit 10.6 to Lakes' Report on Form 10-Q for

the quarter ended October 1, 2000.)



10.68      Assignment and Assumption Agreement, dated as of October 16,

2000, by and among Great Lakes of Michigan, LLC, a Minnesota

limited liability company, Lakes Gaming, Inc., a Minnesota

corporation, and Pokagon Band of Potawatomi Indians.

(Incorporated herein by reference to Exhibit 10.7 to Lakes'

Report on Form 10-Q for the quarter ended October 1, 2000.)



10.69      First Amended and Restated Development Agreement, dated as

of October 16, 2000, by and between the Pokagon Band of

Potawatomi Indians and Great Lakes Gaming of Michigan, LLC,

a Minnesota limited liability company (f/k/a Great Lakes of

Michigan, LLC). (Incorporated herein by reference to Exhibit

10.8 to Lakes' Report on Form 10-Q for the quarter ended

October 1, 2000.)

</TABLE>



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<TABLE>

<CAPTION>

EXHIBITS    DESCRIPTION

- --------    -----------

<C>         <S>

10.70      First Amended and Restated Management Agreement, dated as of

October 16, 2000, by and between the Pokagon Band of

Potawatomi Indians and Great Lakes Gaming of Michigan, LLC,

a Minnesota limited liability company (f/k/a Great Lakes of

Michigan, LLC). (Incorporated herein by reference to Exhibit

10.9 to Lakes' Report on Form 10-Q for the quarter ended

October 1, 2000.)



10.71      First Amended and Restated Lakes Note, dated as of October

16, 2000, by and between the Pokagon Band of Potawatomi

Indians and Great Lakes of Michigan, LLC, a Minnesota

limited liability company. (Incorporated herein by reference

to Exhibit 10.10 to Lakes' Report on Form 10-Q for the

quarter ended October 1, 2000.)



10.72      First Amended and Restated Non-Gaming Land Acquisition Line

of Credit, dated as of October 16, 2000, by and between the

Pokagon Band of Potawatomi Indians and Great Lakes of

Michigan, LLC, a Minnesota limited liability company.

(Incorporated herein by reference to Exhibit 10.11 to Lakes'

Report on Form 10-Q for the quarter ended October 1, 2000.)



10.73      Amended and Restated Transition Loan Note, dated as of

October 16, 2000, by and between the Pokagon Band of

Potawatomi Indians and Great Lakes of Michigan, LLC, a

Minnesota limited liability company. (Incorporated herein by

reference to Exhibit 10.12 to Lakes' Report on Form 10-Q for

the quarter ended October 1, 2000.)



10.74      Amendment to Account Control Agreement, dated as of October

16, 2000, by and among Great Lakes of Michigan, LLC, a

Minnesota limited liability company, Lakes Gaming, Inc., a

Minnesota corporation, the Pokagon Band of Potawatomi

Indians, and Firstar Bank, N.A. f/k/a Firstar Bank of

Minnesota, N.A. (Incorporated herein by reference to Exhibit

10.13 to Lakes' Report on Form 10-Q for the quarter ended

October 1, 2000.)



10.75      Unlimited Guaranty, dated as of October 16, 2000, from Lakes

Gaming, Inc., a Minnesota corporation, and Great Lakes of

Michigan, LLC, a Minnesota limited liability company, to the

Pokagon Band of Potawatomi Indians. (Incorporated herein by

reference to Exhibit 10.14 to Lakes' Report on Form 10-Q for

the quarter ended October 1, 2000.)



10.76      Amendment to Pledge and Security Agreement, dated as of

October 16, 2000, by and among the Great Lakes of Michigan,

LLC, a Minnesota limited liability company, Lakes Gaming,

Inc., a Minnesota corporation, and the Pokagon Band of

Potawatomi Indians. (Incorporated herein by reference to

Exhibit 10.15 to Lakes' Report on Form 10-Q for the quarter

ended October 1, 2000.)



21      Subsidiaries of the Company.



23      Consent of Independent Public Accountants Dated January 26,

2001.

</TABLE>



- ---------------



* Management Compensatory Plan or Arrangement



(b) Reports on Form 8-K.



(i)     A Form 8-K, Item 5. Other Events, was filed on October 24, 2000



56

57



SIGNATURES



In accordance with Section 13 or 15(d) of the Exchange Act, the registrant

caused this report to be signed on its behalf by the undersigned, thereunto duly

authorized.



LAKES GAMING, INC.

Registrant



By: /s/ LYLE BERMAN

------------------------------------

Name: Lyle Berman

Title: Chairman of the Board and

Chief Executive Officer

Dated as of March 28, 2001



In accordance with the Exchange Act, this report has been signed below by

the following persons on behalf of the registrant and in the capacities

indicated as of March 28, 2001.



<TABLE>

<CAPTION>

NAME                                               TITLE

----                                               -----

<C>                                            <S>

/s/ LYLE BERMAN                 Chairman of the Board and Chief Executive Officer

- ---------------------------------------------  (Principal Executive Officer)

Lyle Berman



/s/ TIMOTHY J. COPE               Chief Financial Officer and Director

- ---------------------------------------------  (Principal Financial and Accounting Officer)

Timothy J. Cope



/s/ MORRIS GOLDFARB               Director

- ---------------------------------------------

Morris Goldfarb



/s/ RONALD KRAMER                Director

- ---------------------------------------------

Ronald Kramer



/s/ NEIL I. SELL                 Director

- ---------------------------------------------

Neil I. Sell



/s/ JOEL N. WALLER                Director

- ---------------------------------------------

Joel N. Waller

</TABLE>



57