Churchill Downs Inc. positioned to capitalize on sports betting ruling

IMG_6254It’s Preakness Stakes week, but the buzz in racing emanates from a building about 50 miles south of Pimlico Race Course — the U.S. Supreme Court. The decision this week effectively legalizing sports betting if a state chooses to allow it has the racing industry agog. Reactions from observers range from counting the millions in revenue it could bring racing to picking out caskets for racetracks that will be killed because of it. Both scenarios and everything in between are possible.

Whether racing profits from the decision, Louisville-based Churchill Downs Inc. appears well positioned to make an aggressive play in this new gambling opportunity, even if it’s never seen by its flagship Churchill Downs Racetrack. What follows is a quick analysis of the states where Churchill could enter the sports betting market based on its holdings and properties it is acquiring.

First, three overarching thoughts.

Clearly, Wall Street is expecting that Churchill will attempt to make a big play. The day after the ruling, Churchill stock traded north of $300 a share for the first time in the company’s history on the NASDAQ. It  closed at $297.70. The volume of shares traded that day — almost 200,000 — nearly was twice the average. This is a stock that five years ago was worth about $80 a share and, at the bottom of the recession in March 2009, sold for $23.63.

Second, for CDI, this appears to be a casino play more than a racetrack play (though Churchill probably would take either).

CEO Bill Carstanjen, according to a transcript of an April 26 quarterly call with analysts, said, the company likes “states that we believe may ultimately grant access to online gaming and even potentially to sports betting to their brick and mortar casino license holders, should either form of alternative gaming become legal in the relevant jurisdiction.”

In the question-and-answer segment, Carstanjen said, “sports wagering would be something that we would be very interested in and that we would look to pursue licenses” subject to tax structures and regulatory restrictions.

Third, inasmuch as this plays out online, CDI has a well-established pari-mutuel betting platform with The caveat would be that how the online piece plays out state by state is even harder to predict than the hard-to-guess brick-and-mortar piece.

On to the states, in the rough order where Churchill may most likely benefit, based on the company’s properties.

Mississippi — The Magnolia State might be the first for Churchill since it has properties there and a law is in place. Mississippi law allows casinos to operate sports betting operations, subject to yet-to-be-completed state regulations. Churchill owns the Riverwalk Casino in Vicksburg and the Harlow’s Casino resort in Greenville. It is in the process of buying the Lady Luck Casino, also in Vicksburg.

Pennsylvania — Once Churchill’s acquisition of Presque Isle Downs & Casino in Erie is complete, a state law already is in place for casinos to have sports betting subject to regulations being written.

New York — Like Mississippi and Pennsylvania, New York already has a law in place to allow sports betting, but that law currently limits it to four locations — none of which is a Churchill property. Changes to that law are being discussed. CDI has a 25 percent investment in Saratoga Casino Holdings, which has a Saratoga Springs racino in New York.

Florida — Churchill has leased the racing side of its Miami Gardens track to The Stronach Group, but CDI owns and operates the accompanying Calder Casino. Efforts to pass a sports betting law will be forthcoming.

Louisiana — Churchill owns Fair Grounds Race Course and Slots in New Orleans. Louisiana has legalized many forms of gambling, but a legislative committee just rejected a bill to allow sports betting.

Ohio — CDI has a 50-percent stake in Miami Valley Gaming and Racing LLC, in Lebanon. Not impossible, but nothing seems imminent.

Maryland — Churchill has an effective 62.5 percent stake in The Casino at Ocean Downs, which it purchased in January 2017. Maryland allows casinos, but a constitutional amendment to allow sports betting died in the state Assembly after passing one chamber.

Illinois — Home of Arlington International Racecourse (aka Arlington Park), but nothing in Illinois comes easy for CDI. As a Chicago Sun-Times columnist said, “As always, though, the biggest obstacle to legalized sports betting in Illinois won’t be gambling opponents so much as gambling industry competitors.”

Kentucky — CDI’s flagship Churchill Downs Racetrack, the home of the Kentucky Derby and Kentucky Oaks, already is seeing much discussion about sports betting in Kentucky. A prediction will not be made here, but it’s safe to say that the same religious, geographic and horse industry pressures seen in the casino debate will be present in a sports betting debate.

Colorado — Churchill has a 25 percent stake in Saratoga Casino Black Hawk. If sports betting were to happen in Colorado, it’s still early in the process if there’d be any interest at all.

Maine — Churchill owns the Oxford Casino in the town of the same name. Reports from media there say no legislation to allow sports betting is expected soon.


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