Churchill Downs, Caesars, and MGM have reported second-quarter earnings. The results are not bad, but neither are they exciting. The analysts have one perspective and the corporations another. Those are the usual narratives during earnings season. But this quarter it is different. It is hard to put my finger on it, but there is something in the air that was not there last quarter or last year.
Churchill Downs reported revenue that was up five percent, net income 11 percent, and EBITDA six percent. Good results, better than the analysts had forecasted. Still, it appears the corporate sees some flaws. Churchill has lots of moving parts: horse racing, historic horse racing machines in Virginia and Kentucky, casinos, racinos in 14 states, and United Tote. This quarter, Churchill gave updates on racing, racing machines, and United Tote. It also announced a potential sale of Presque Isle Downs in Pennsylvania. Not a singular event, in an 8-K filling, the company said it had completed an extensive operational review of its properties. Sales will be explored for eight other properties, including Presque Downs nine. Nine out of 30 is a significant percentage of the corporation’s portfolio. It is not selling, but it is restructuring and focusing on a different kind of operation — smaller, less debt, and a more secure cashflow, like Rosie’s in Virginia. There are eight Rosie’s with 2,700 historic racing machines.
Caesars reported revenue was up three percent, while the other measures were down. Particularly in Las Vegas, Ceasars had a challenging quarter. It had better luck in the regional markets. Up or down, the company is not upset; it has an exit strategy. And no operational revenue is required. Tilman Fertitta and Fertitta Entertainment are in the wings with a brightly colored lifebelt. Fertitta has offered $17 billion for Caesars.
MGM also reported its earnings, recording increases in revenue and net income, but a decline in EBITDA. MGM had more luck in Las Vegas than Caesars, but less luck in the regional markets. The future for MGM is less clear than for Caesars, but it does have a potential buyer. Barry Diller has proposed an $18 billion buyout of the company. It is unclear whether MGM or Caesars put out sales feelers first or the offers were unsolicited.
Other corporations have reported second-quarter results without suggesting an interest in throwing in the towel. Las Vegas Sands had a weak quarter, but its assets are all in Asia, so there is no implication for the gaming industry here. Boyd also reported a weak quarter, but the analysts thought rather than sell any assets that Boyd might be in a position to buy in the wake of the Caesars and MGM transactions. Monarch’s second quarter was like its other quarters: solid growth in revenue and profit and unlike its competitors, no debt. That last statement attracts the analysts.
For years, analysts and investors have been encouraging Monarch to acquire more properties. This quarter the company said it was carefully examining possibilities. And there will be lots of possibilities. If the Caesars and MGM sales take place, both buyers will be forced to sell some properties to appease regulators in some jurisdictions; added to the Churchill Downs properties, as many as 20 might be in play. That will create opportunities for interested buyers. However, one suspects it will not include top-tier top-performing properties. Monarch will be a very conservative buyer; the company has high standards and is debt averse. Boyd has over $2 billion in debt now, so it too will have to be cautious.
Who are the potential buyers? That is a difficult question. Wynn and Sands are as careful as Monarch, Bally’s, Penn, and Boyd. Hard Rock and Cordish might be in the mix, but they have full plates. Some second-tier corporations could be interested, but financing will be an issue. In general, the gaming industry has become one of mega corporations with mega debt. And we cannot forget the real estate investment trusts; few deals in gaming are down without them. When Caesars and MGM are out of the equation, not many corporations have the ability to make major transactions. The situation is complicated and may require novel solutions.
The second half of 2026 is shaping up to be one of those points in history where changes take place. Churchill, Caesars, and MGM are in part the cause of the complications of this moment in gaming. They were created during a wild-west go-go expansion of gaming in the latter part of the 20th and early 21st centuries. That is not to suggest those corporations did not do proper due diligence and adequately assess the financial potential of purchases. It was simply a more aggressive growth time than today.
Two factors underlie this apparent tipping point. The first is the expansion of gaming from Nevada into the rest of the country that began in 1978 and is nearly complete. There are very few opportunities for underserved locations. That might have been true in 2020 or nearly true, but COVID masked most issues. The recovery period was one of profitability and an opportunity to restructure operations to fit current conditions. The industry did well for several years, but that period has passed. Today, the industry is saturated. It is facing new types of competition and many of the properties are old and poorly maintained. That is especially true in high-tax jurisdictions.
In this new era, buyers are going to be looking for value. They will want good markets with limited competition and a stable tax and regulatory environment. One more thing, and this is just a guess, they might want to buy the real estate and building as well as the operational cashflow. Anything come to mind? Probably not. It may feel like the time to sell, but is it the time to buy?
