Analyst impressed by Churchill Downs’s Virginia presence

September 30, 2023 9:03 PM
Photo: Churchill Downs/Urban One
  • David McKee, CDC Gaming Reports
September 30, 2023 9:03 PM
  • David McKee, CDC Gaming Reports

Truist Securities analyst Barry Jonas went on a company-guided bus tour of Churchill Downs’s current and future Virginia assets. He came away “feeling incrementally positive.”

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Jonas was accompanied by Churchill Downs CFO Marcia Dall, vice presidents Phil Fourbis and Jack Sours, and Director of Investor Relations Kaitlin Buzzetto. They toured Colonial Downs, Rosie’s Richmond, and the in-progress Rosie’s Dumfries, and discussed the proposed CHDN/Urban One casino project in Richmond, the subject of a November 7 plebiscite.

Churchill Downs now holds a 50 percent stake in the Urban One-branded casino project, which is slated to contain 1,800 slot machines, 100 table games, and a sportsbook. Both Churchill Downs and Urban One have poured at least $8 million into swaying voters, whom Jonas characterized as “narrowly defiant” two years ago when they gave Urban One a thumbs down. He considers victory “more likely” this fall, given Churchill Downs’s political experience and “a broader campaign audience.”

In the interest of conserving capital, Churchill Downs will skip opening a temporary casino, if victorious, and proceed straight to construction of the permanent facility. Beyond the first phase, expansions will be financed out of cash flow. These would include additional hotel rooms, a concert hall, and 15 bars and restaurants.

A source of vexation for the company is black-market slots or “skill-based games,” which number over 9,000 in the Cavalier State, “with many visible near CHDN’s properties.” They’ve been illegal since 2021, but enforcement of the law and extirpation of the devices have been stayed by ongoing litigation. Reported Jonas, “Management continues to work diligently to help mitigate the impact of these gray machines.”

A lesser concern was the economy. “There were some macro pressures beginning to show up in the data, with inflation and higher interest rates beginning to take their toll on customers.” However, Churchill Downs execs believe their product to be inflation-proof, as “a dollar provides the same quality gaming entertainment as it did last year and could provide a superior value proposition to consumers seeking entertainment alternatives.”

Also, CHDN bosses observed that “one month does not make a trend,” adding that a drop in interest rates in the latter stages of this year could bring everything back to normal.

Jonas was positively struck by Rosie’s Richmond, a 700-slot facility for historical horse racing (HRM) devices. Touring it on Wednesday afternoon, he observed that it “seemed fairly busy” for that time and day, remarking that it “had more diversity in gaming content than we expected, with the slot floors refreshed over the last year.”

Represented on the gaming floor were devices from both International Game Technology and Light & Wonder. Once Churchill Downs complete its absorption of Exacta, Jonas expects to see the latter’s devices show up on Rosie’s floors.

Rosie’s Dumfries will be an even more expansive project, with 1,150 HRMs in the first $400 million phase and room for 650 more. A 102-room hotel will augment the Washington, D.C.-area slot parlor.

Jonas was also shown CHDN’s Colonial Downs racetrack, “which has different levels of amenities and experiences available at a variety of price points.” One such price point was the $7,500 tab for luxury suites during events like the Arlington Million. The track is complemented by an HRM parlor with 575 machines, “with titles comparable to Richmond and the same level of improvements expected.”

To the south, Churchill Downs is experiencing competitive pressures in the Portsmouth area. Rivers Portsmouth is impinging upon Rosie’s Hampton. However, CHDN leadership “expects that the competition will normalize over the next few months as the Rivers Portsmouth pares back aggressive marketing and customer acquisition following its ramp.”

However, additional competition is coming in the form of the Pamunkey Tribe’s HeadWaters Casino in Norfolk, albeit “still a few years away at best.” Should the competitive atmosphere worsen, management comforted itself with the fact it would be able to reallocate HRMs among its various properties.

Except for its tiny (37-HRM) Collinsville parlor, Churchill Downs isn’t adversely affected by such other Virginia casinos as Caesars Danville and Hard Rock Bristol.