Call it a trifecta for Churchill Downs. The racetrack and casino operator announced three big pieces of news Thursday: A deal to buy a half-stake in a casino in the Chicago feeder market; higher third-quarter profits; and revenue; and a 7 percent jump in its quarterly dividend.
The news seemed to elate investors. Shares of the Louisville, Kentucky-based Churchill Downs, which owns five racetracks, six casinos and the twinspires.com online betting platform, closed at $270.64 on the Nasdaq, up $21.03 or 8.43 percent.
In a statement following its Wednesday night earnings call, Churchill Downs said it will buy by Clairvest Group Inc.’s stake in Midwest Gaming Holdings LLC for $291 million in cash.
The deal would give Churchill Downs full ownership of Midwest Holdings, the parent of Des Plaines, Illinois-based Rivers Casino Des Plaines, which serves Chicago. Churchill Downs already owned a property in the market, the Arlington Park racetrack in Arlington Heights, Illinois.
Also Wednesday, Churchill Downs said it offered to buy other Midwest Gaming stakes owned by Casino Investors LLC and Rush Street Gaming affiliate High Plaines Gaming LLC. In all, Churchill Downs said it will spend at least $326 million in cash and no more than $500 million total on the deals.
Louisville Business First reported that this is the second deal between Churchill Downs and Rush Street; Churchill Downs bought the Riverwalk Casino and Hotel in Vicksburg, Mississippi, from the group in 2012.
The Illinois Gaming Board must approve the latest deal, which Churchill Downs hopes to close in 2019’s first half. When it closes, Churchill Downs will own at least 50.1 percent of Rivers Casino Des Plaines; Rush Street will own the rest and continue to manage the property.
Rivers Casino Des Plaines, which opened in 2011 near Chicago’s O’Hare International Airport, has a 44,000-square-foot gaming floor with 983 slot machines and 58 table games along with restaurants, entertainment venues and an events center.
In the company’s earnings results conference call, Churchill Downs CEO Bill Carstanjen said the deals will poise his company to capitalize if Illinois regulators approve online and sports betting.
“(We gain) ownership of an asset we believe is well positioned to resist threats from future gaming expansion in the state, if any. An attractive return on our invested capital, which will be immediately accretive to free cash flow and earnings per share, and an excellent competitive position in a casino gaming market we have always valued,” he said.
The U.S. Supreme Court in May struck down a ban that had limited betting on single game sports wagering to Nevada.
Meanwhile, Churchill Downs reported net income of $56.3 million, or $4.12 per diluted share for the three months ended Sept. 30, up from net income of $16.7 million, or $1.08 per share, a year earlier.
Adjusting for nonrecurring items, Churchill Downs earned $21.9 million, or $1.60 per share, for the quarter, up from $13.6 million, or 88 cents per share, a year earlier. The latest result topped the $1.44 per share consensus estimate of analysts polled by Zacks Investment Research.
The results exclude the effect of Churchill Downs’ $990 million sale of Big Fish Games to Aristocrat Technologies in January and a gain from its July deal for a stake in the Ocean Downs harness track and casino in Berlin, Maryland.
Churchill Downs has now topped earnings-per-share forecasts three times in the past four quarters, Zacks said.
Adjusted earnings before interest, taxes, depreciation and amortization, a cash flow measure, rose 6.9 percent to $62.1 million from $58.1 million.
Revenue rose 12.4 percent to $221.4 million from $196.9 million.
Also, Churchill Downs increased its quarterly dividend by 7 percent from a year earlier to $1.63 per outstanding share. The dividend is payable Jan. 4 to shareholders of record Dec. 7.
The company also announced a 3-for-1 stock split and said it would buy back $300 million in shares. The stock split, which will award two shares to accompany every share outstanding will be distributed Jan. 25, 2019, the company said; shares will trade at the split-adjusted price starting Jan. 28.
“Today’s actions reflect our Board of Directors’ confidence in (Churchill Downs’) long-term performance and ability to deliver growth and returns to our investors,” Carstanjen said in a statement detailing the moves.
As it expanded its physical portfolio, Churchill Downs has worked to widen its visual reach. In October, Churchill Downs agreed to deploy more than 70 games from Sweden’s NetEnt AB in New Jersey’s online gaming market. Financial terms weren’t disclosed.
NetEnt supplies digitally distributed gaming systems and online casino-style games. Its titles are themed on the rock band Motorhead, the rock guitarist Jimi Hendrix and the 1995 Robin Williams film “Jumanji.”
Ian Williams, president of Churchill Downs’ interactive unit, told Louisville Business First that Churchill Downs plans to operate in New Jersey’s online gaming market by 2019’s first quarter.
Follow Matthew Crowley on Twitter @copyjockey.
