Virginia’s highest court has ruled that slot-machine-like “skill games” are not a form of protected speech, and the state’s ban on the devices has gone back into effect. And that’s a positive for Churchill Downs (CHDN), according to Truist Securities analyst Barry Jonas.
Jonas recently cited the presence in the Cavalier State of gray-market slots as a headwind for Churchill Downs. In a Monday investor note, he called the high court’s decision a “meaningful positive” for the company. Indeed, Churchill Downs stock rallied $2.69 a share by midday, reaching $112.62 a share.
Churchill Downs is aiming to ramp up its own slot-like ‘historical horse racing’ machines from an installed Virginia base of 2,750 to 5,000. The presence of 9,000 gray-market devices “could be negatively impacting revenues,” Jonas opined.
“We see the state Supreme Court decision as a big win for the company just months following the Exacta transaction closing,” wrote Jonas. “This ruling comes 4 months after Kentucky issued a similar ban, and speaks to CHDN mgmt’s political savvy.”
Skill-based games, as they are called, were outlawed by the Virginia Legislature in 2020, which forbade their presence in convenience stores, gas stations and bars. The ban was not implemented, due to inaction by then Gov. Ralph Northam (D). A lawsuit by manufacturer Pace-O-Matic, in 2022, further impeded enforcement action by the state.
“Following the Supreme Court’s ruling that the lower-court acted improperly, we believe recourse options for skill-based companies are limited,” forecast Jonas. “While it’s not clear exactly when the ban would be implemented, we think it could occur quickly, and have a relatively immediate benefit to CHDN’s [Virginia] properties,” some of which are within eyeshot of skill-game venues.
