SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT

Exhibit 10.1

SECOND

AMENDED AND RESTATED

EMPLOYMENT AGREEMENT

THIS SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the “Agreement”) is made effective as of October 31, 2006 (the “Effective Date”) by and between PINNACLE ENTERTAINMENT, INC., a Delaware corporation (the “Company”), and DANIEL R. LEE, an individual (“Executive”), with respect to the following facts and circumstances:

RECITALS

The Company and Executive entered into an Employment Agreement effective as of April 10, 2002 (the “Original Agreement”) pursuant to which Executive serves as Chief Executive Officer of the Company and as a member and Chairman of the Company’s Board of Directors. The Original Agreement was amended and restated pursuant to an Amended and Restated Employment Agreement effective as of May 1, 2005. The Company and Executive desire to further amend and restate the Restated Agreement on the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements set forth herein, the parties hereto agree as follows:

ARTICLE 1.

EMPLOYMENT AND TERM

1.1 Employment . The Company agrees to engage Executive in the capacity as Chief Executive Officer of the Company, and Executive hereby accepts such engagement by the Company upon the terms and conditions specified below. The Company further agrees to cause Executive to be elected as a Director and, subject to the provisions of Section 6.3 hereof, Chairman of the Board of Directors, and Executive agrees to serve in such capacities without additional compensation.

1.2 Term . The term of this Agreement shall commence on May 1, 2005, and, unless earlier terminated under Article 6 below, shall continue in force until April 30, 2008, provided that commencing on May 1, 2007 and as of May 1 of each year thereafter (a “Renewal Date”), this Agreement shall automatically renew for additional one-year periods (each, a “Renewal Period”), unless either party gives notice of non-renewal at least 90 days prior to the next Renewal Date. The term of this Agreement, including any Renewal Periods, is referred to as the “Term.”

ARTICLE 2.

DUTIES OF EXECUTIVE

2.1 Duties . Executive shall perform all the duties and obligations generally associated with the positions of Chairman and Chief Executive Officer, subject to the control and supervision of the Board of Directors, and such other executive duties consistent with the foregoing as may be assigned to him from time to time by the Board of Directors of the Company. Executive shall perform the services contemplated herein faithfully, diligently, to the best of his ability and in the best interests of the Company. Executive shall

devote all his business time and efforts to the rendition of such services. Executive shall, at all times perform such services in compliance with, and to the extent of his authority, shall to the best of his ability cause the Company to be in compliance with, any and all laws, rules and regulations applicable to the Company of which Executive is aware. Executive may rely on the Company’s inside counsel and outside lawyers in connection with such matters. Executive shall, at all times during the Term, in all material respects adhere to and obey any and all written internal rules and regulations governing the conduct of the Company’s employees, as established or modified from time to time; provided, however, in the event of any conflict between the provisions of this Agreement and any such rules or regulations, the provisions of this Agreement shall control.

2.2 Location of Services . Executive’s principal place of employment shall be at the Company’s headquarters at such location as Executive and the Board of Directors shall agree upon. Executive understands he will be required to travel to the Company’s various operations as part of his employment.

2.3 Exclusive Service . Except as otherwise expressly provided herein, Executive shall devote his entire business time, attention, energies, skills, learning and best efforts to the business of the Company. Executive may participate in social, civic, charitable, religious, business, educational or professional associations and serve on the boards of directors of companies, including Lynch Interactive, so long as such participation does not materially interfere with the duties and obligations of Executive hereunder. This Section 2.3, however, shall not be construed to prevent Executive from making passive outside investments so long as such investments do not require material time of Executive or otherwise interfere with the performance of Executive’s duties and obligations hereunder. Executive shall not make any investment in an enterprise that competes with the Company without the prior written approval of the Company after full disclosure of the facts and circumstances; provided, however, that this sentence shall not preclude Executive from owning up to one percent (1%) of the securities of a publicly traded entity (a “Permissible Investment”). During the Term, Executive shall not directly or indirectly work for or provide services to or, except as permitted above, own an equity interest in any person, firm or entity engaged in the casino gaming, card club or horse racing business. In this regard, and for purposes of this section only, Executive acknowledges that the gaming industry is national in scope and that accordingly this covenant shall apply throughout the United States.

ARTICLE 3.

COMPENSATION

3.1 Salary . In consideration for Executive’s services hereunder, the Company shall pay Executive an annual salary, effective as of May 1, 2005 at the rate of not less than $875,000 per year during each of the years of the Term, payable in accordance with the

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Company’s regular payroll schedule from time to time (less any deductions required for Social Security, state, federal and local withholding taxes, and any other authorized or mandated similar withholdings). The annual salary shall be reviewed by the Compensation Committee of the Board (the “Committee”) no less frequently than annually and may be increased (but not decreased) at the discretion of the Board. If Executive’s annual salary is increased, the increased amount shall not be reduced for the remainder of the Term.

3.2 Bonus . Executive shall be entitled to earn bonuses with respect to each year of the Term during which Executive is employed under this Agreement up to one hundred fifty percent (150%) of Executive’s annual salary with a targeted bonus of seventy-five percent (75%) of Executive’s annual salary for such year based upon meeting performance targets with respect to the Company’s earnings before interest, taxes, depreciation and amortization that shall be established annually by the Committee in consultation with Executive. Any such bonus earned by Executive shall be paid annually within ninety (90) days after the conclusion of the Company’s fiscal year and certification by the Committee that the targets have been met, except for any portion of the bonus which is subject to required deferral by the Company and except for any portion of the bonus which Executive shall elect to defer. Bonuses relative to partial years shall be prorated based on Executive’s target bonus, except as otherwise provided herein. It is the contemplation of the parties that the setting of the targets and goals and the payment of bonuses will be done in such a manner as to qualify such bonuses as “performance based” compensation under § 162(m) of the Internal Revenue Code. Executive may also receive special bonuses in additional to his annual bonus eligibility at the discretion of the Board.

3.3 Stock Options . As an additional element of compensation to Executive, in consideration of the services to be rendered hereunder, on May 3, 2005 (the “Option Grant Date”) the Company granted to Executive an option to purchase 600,000 shares of the Company’s common stock which has an exercise price equal to the fair market value of such stock on the Option Grant Date and a term of ten (10) years. Such option was granted under the Company’s Stock Option Plans (the “Plans”) and shall constitute incentive stock options under the Internal Revenue Code of 1986, as amended (the “Code”) to the maximum extent possible. The remaining options shall be non-qualified options under the Code. The terms and conditions of such option shall be governed by a stock option agreement reflecting such grant. Such option shall vest in five (5) equal annual installments beginning on the first anniversary of the Option Grant Date and shall be subject to accelerated vesting as provided in Sections 6.5.2 and 6.5.3. In addition, before the 2008 Renewal Date and at appropriate times thereafter (no less frequently then within forty (40) months of the prior review), the Committee shall review Executive’s long-term compensation and, in consultation with Executive, shall consider granting additional stock options and/or other long term incentive compensation to Executive.

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ARTICLE 4.

EXECUTIVE BENEFITS

4.1 Vacation . In accordance with the general policies of the Company applicable generally to other senior executives of the Company pursuant to the Company’s personnel policies from time to time, Executive shall be entitled to not less than four weeks vacation each calendar year, without reduction in compensation

4.2 The Company Employee Benefits . Executive shall receive all group insurance and pension plan benefits and any other benefits on the same basis as they are available generally to other senior executives of the Company under the Company personnel policies in effect from time to time.

4.3 Benefits . Executive shall receive all other such fringe benefits as the Company may offer to other senior executives of the Company generally under the Company personnel policies in effect from time to time, such as health and disability insurance coverage and paid sick leave. In the event that the Company’s group health plan does not cover the annual physical examination of Executive and Executive’s wife, or any pregnancy of Executive’s wife, the Company shall bear the cost of such examinations or the medical costs of such pregnancy.

4.4 Indemnification . Executive shall have the benefit of indemnification to the fullest extent permitted by applicable law, which indemnification shall continue after the termination of this Agreement for such period as may be necessary to continue to indemnify Executive for his acts during the term hereof and shall be covered by the Company’s directors and officers indemnity trust. In addition, the Company shall cause Executive to be covered by the current policies of directors and officers’ liability insurance covering directors and officers of the Company, copies of which have been provided to Executive, in accordance with their terms, to the maximum extent of the coverage available for any director or officer of the Company. The Company shall use commercially reasonable efforts to cause the current policies of directors and officers liability insurance covering directors and officers of the Company to be maintained throughout the term of Executive’s employment with the Company and for such period thereafter as may be necessary to continue to cover acts of Executive during the term of his employment (provided that the Company may substitute therefor, or allow to be substituted therefor, policies of at least the same coverage and amounts containing terms and conditions which are, in the aggregate, no less advantageous to the insured in any material respect). In the event of any merger or other acquisition of the Company, the Company shall no later than immediately prior to consummation of such transaction purchase the longest applicable “tail” coverage available under the directors and officers liability insurance in effect at the time of such merger or acquisition.

ARTICLE 5.

REIMBURSEMENT FOR EXPENSES

5.1 Executive shall be reimbursed by the Company for all ordinary and necessary expenses incurred by Executive in the performance of his duties or otherwise in furtherance of the business of the Company in accordance with the policies of the Company in effect from time to time. Executive shall keep accurate and complete records of all such expenses, including but not limited to, proof of payment and purpose. Executive shall account fully for all such expenses to the Company.

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ARTICLE 6.

TERMINATION

6.1 Termination for Cause . Without limiting the generality of Section 6.2, the Company shall have the right to terminate Executive’s employment, without further obligation or liability to Executive, upon the occurrence of any one or more of the following events, which events shall be deemed termination for cause (“Cause”).

6.1.1 Failure to Perform Duties . If Executive neglects to perform the material duties of his employment under this Agreement in a professional and businesslike manner, other than due to his disability (except due to substance or alcohol abuse), after having received written notice specifying such failure to perform and a reasonable opportunity to perform.

6.1.2 Willful Breach . If Executive willfully commits a material breach of this Agreement and fails to cure such breach within thirty (30) days of written notice thereof or a material willful breach of his fiduciary duty to the Company.

6.1.3 Wrongful Acts . If Executive is convicted of a felony involving acts of moral turpitude or commits fraud, misrepresentation, embezzlement or other acts of material misconduct against the Company (including violating or condoning the violation of any material rules or regulations of gaming authorities which could have a material adverse effect on the Company) that would make the continuance of his employment by the Company materially detrimental to the Company.

6.1.4 Disability . If Executive is physically or mentally disabled from the performance of a major portion of his duties for a continuous period of 180 days or greater, which determination shall be made in the reasonable exercise of the Company’s judgment, provided, however, if Executive’s disability is the result of a serious health condition as defined by the federal Family and Medical Leave Act (or its Nevada equivalent) (“FMLA”), Executive’s employment shall not be terminated due to such disability at any time during or after any period of FMLA-qualified leave except as permitted by FMLA. If there should be a dispute between the Company and Executive as to Executive’s physical or mental disability for purposes of this Agreement, the question shall be settled by the opinion of an impartial reputable physician or psychiatrist agreed upon by the parties or their representatives, or if the parties cannot agree within ten days after a request for designation of such party, then a physician or psychiatrist designed by the Clark County Medical Association. The certification of such physician or psychiatrist as to the questioned dispute shall be final and binding upon the parties hereto.

6.1.5 Failure To Be Licensed . If Executive fails to be licensed in all jurisdictions in which the Company or its subsidiaries has gaming facilities within the date required by any jurisdiction, or if any of such licenses shall be revoked or suspended at any time during the Term, then the Company may by written notice to Executive terminate the Agreement for Cause. Executive agrees to promptly submit to the licensing requirements of all jurisdictions in which the Company or its subsidiaries does business. The Company shall bear all expenses incurred in connection with such licenses.

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6.2 Termination Without Cause . Notwithstanding anything to the contrary herein, the Company shall have the right to terminate Executive’s employment under this Agreement at any time without Cause by giving notice of such termination to Executive. Failure by the Company to extend the Term for any Renewal Period shall not be a termination of this Agreement without cause.

6.3 Termination by Executive for Good Reason . Executive may terminate his employment under this Agreement on thirty (30) days prior notice to the Company for good reason (“Good Reason”). For purposes of this Agreement, “Good Reason” shall mean and be limited to (a) a material breach of this Agreement by the Company (including without limitation any material reduction in the authority or duties of Executive (other than cessation of his being Chairman of the Board due to the requirements of any state regulation or applicable rules or regulations of the SEC or any Exchange on which the Company’s stock is listed or admitted for trading), or any relocation of his or its principal place of business outside the greater Las Vegas metropolitan area (without Executive’s consent) and the failure of the Company to remedy such breach within thirty (30) days after written notice (or as soon thereafter as practicable so long as it commences effectuation of such remedy within such time period and diligently pursues such remedy to completion as soon as practicable); or (b) a change of control with respect to the Company (a “Change of Control”). For purposes of this Agreement, a “Change of Control” shall mean:

1. The acquisition by any individual, entity or group (within the meaning of Section 13(d)((3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the ‘Exchange Act”) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then-outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that, for purposes of this clause 1., the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company; (ii) any acquisition by the Company; (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any subsidiary; or (iv) any acquisition by any corporation pursuant to a transaction that complies with clauses 3(A), 3(B) and 3(C) below.

2. Individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board.

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3. Consummation of a reorganization, merger, consolidation or a sale or other disposition of all or substantially all of the assets of the Company (each a “Business Combination”), in each case, unless following such Business Combination, (A) all or substantially all of the individuals and entities that were the beneficial owners of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including without limitation a corporation that, as a result of such transaction, owns the Company or all or substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Company Common Stock and the Outstanding company Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation, except to the extent that such ownership existed prior to the Business Combination, and (C) at least a majority of the members of the Board of Directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination; or

4. Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.

6.4 Effectiveness on Notice . Any termination under this Section 6 shall be effective upon receipt of notice by Executive or the Company, as the case may be, of such termination or upon such other later date as may be provided herein or specified by the Company or Executive in the notice (the “Termination Date”), except as otherwise provided in this Section 6.

6.5 Effect of Termination .

6.5.1 Payment of Salary and Expenses Upon Termination . If this Agreement is terminated, all benefits provided to Executive by the Company hereunder shall thereupon cease and the Company shall pay or cause to be paid to Executive all accrued but unpaid salary and vacation benefits. In addition, promptly upon submission by Executive of his unpaid expenses incurred prior to the Termination Date and owing to Executive pursuant to Article 5, reimbursement for such expenses shall be made. If the Agreement is terminated for “Cause,” Executive shall not be entitled to receive any payments other than as specified in this Section 6.5.1 and other any benefit plan or policy of the Company, and provided that Executive may exercise any vested options.

6.5.2 Termination Due to Death or Disability . If the Company terminates Executive due to death or disability, the following shall apply:

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6.5.3 Termination Without Cause or Termination by Executive for Good Reason More than Six (6) Months Prior to or After Twenty-Four (24) Months Following a Change of Control . If the Company terminates Executive without Cause or Executive terminates for Good Reason more than six months prior to or after twenty-four months following a Change of Control, the following shall apply: