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Churchill Downs Further Diversifies, Acquires Casino

Posted on September 15th, 2010

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One of the leaders of the horseracing industry, Churchill Downs Incorporated, has found another source of revenues. Finding alternate sources of income has been a preoccupation for businesses primarily engaged in horseracing, as they are currently experiencing a prolonged period of downturns caused by a number of factors. The economic recession is also not helping as most patrons do not have expendable income to spend on race track betting anymore. Moreover, competition from other entertainment sources, especially casino gambling, has left horseracing in a downward spiral. Thus, companies involved in the horseracing industry are gearing to diversify by looking into other industries to survive.

With Churchill Downs Incorporated, owning a casino is something they have ventured into. The company has just signed a purchase agreement to have under its fold the Harlow’s Casino Resort and Hotel. The hotel, located in Greenville, MS, gave the transaction’s value at an approximate $138 million. The terms and conditions of the agreement state that the purchase price should be paid by Churchill Downs in cash. This stipulation is expected to be fulfilled by CDI through the available cash that the company has on hand and by its revolving credit facility. Furthermore, the transaction is also subject to finalization once the company that originally owns the casino already has in its possession all the regulatory approvals required, including a gaming license that CDI needs to secure from the gaming commission in Mississippi, aside from the other closing conditions that are customary. The finalization of the transaction is expected to finally happen in the next three to six months.

The construction of Harlow’s started in 2006. In November of 2007, the casino was finally opened. The current owners of the casino, which is therefore the selling party to Churchill Downs are affiliates of two private investment groups, Levine Leichtman Capital Partners, Inc. and Oak Hill Advisors, L.P. The other party to the ownership is Jess M. Ravich, a private investor. The location of the casino resort and hotel is on the base of the U.S. Highway 82 Bridge, which was only opened last August of this year and costs $336 million. The facility stands on leased land which approximately measures 69 acres, and is adjacent to the Mississippi River. Among the facilities in the casino resort and hotel is, of course, the casino, which spans 33,000 square foot. Among the facilities in the casino are 23 table games, a poker room and 841 Class III slot machines. Others included in the complex are a hotel which is attached to the casino, showcases 105 rooms and has five levels, an entertainment center which can seat approximately 2,600 people and three dining areas that are separate from each other.

The casino resort, for 12 months starting from August 1, 2009 to July 31, 2010 recorded revenue totaling to $50.4 million. This figure is already deducted of free play and gaming taxes collected by the state. The acquisition by CDI of the casino is expected to be accretive of the company’s per share reported earnings in the twelve months after the transaction is closed, which will amount to, at most $0.31 for each share.The president and Chief executive Officer of CDI, Robert L. Evans, said that the acquisition of Harlow’s is just the start of his company’s diversification strategy which will encompass its units in racing, gaming and online business. He adds, “The key determinants of our decision to acquire Harlow’s were further strategic business and geographic diversification, the appeal of Mississippi as a business and gaming location, an attractive valuation, multiple paths to future growth, and the performance of Harlow’s outstanding team of approximately 400 employees who we look forward to welcoming to the Churchill Downs family.”

CDI has its headquarters in Louisville, KY. Its primary business in horseracing tracks is showcased by its four Thoroughbred racing facilities which have achieved international reputation: Churchill Downs Race Track in Kentucky, Arlington Park in Illinois, Calder Casino and Race Course in Florida and Fair Grounds Race Course & Slots in Louisiana. Among the four facilties, only the ones in Florida and Louisiana have so far diversified as to introduced slots and gambling operations in their sites. In these racetracks, the most prestigious races such as the Kentucky Derby and Arlington Million are also being hosted by the company.