Churchill Downs Inc. has reached an agreement to purchase a majority share in Rivers Casino in Des Plaines, Illinois, located about 20 miles from its Arlington Park racetrack in Arlington Heights. According to the terms of the complicated deal involving several partners within Midwest Gaming Holdings, owners of Rivers Casino, Churchill Downs would purchase an ownership stake in Midwest Gaming for at least $326 million, capped at $500 million. Midwest is an affiliate of Rush Street Gaming, which would jointly control Rivers Casino with Churchill Downs. Rush Street
would continue to oversee day-to-day operations. The transaction, which requires numerous approvals, is expected to close in the first quarter of 2019, officials said.
Rush Street spokesman Dennis Culloton said, “It’s essentially just replacing one great partner with another great partner. Nothing changes for the employees, the governance, the day-to-day operations. Everything keeps going and, hopefully, keeps going as well as it has since the casino opened in 2011.”
Churchill Chief Executive Officer Bill Carstanjen said, “This property is the crown jewel of Illinois gaming and one of the country’s premier casinos. This is an amazing opportunity for CDI. 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.”
According to Illinois Gaming Board records, Rivers Casino is the highest-grossing of Illinois’ 10 riverboat casinos. In 2017 it posted gross receipts of $433.5 million; the second largest casino, Elgin Grand Victoria, posted $168.8 million. Total gross receipts from all Illinois casinos was $1.41 billion in 2017. Rivers Casino Des Plaines, located near Chicago’s O’Hare International Airport, has a 44,000 square foot gaming floor with 983 slot machines and 58 table games, plus restaurants, entertainment venues and an events center.
Illinois Thoroughbred Horsemen’s Association Executive Director David McCaffrey said, “I can make a case for the acquisition being very good for racing in Illinois, and I can make a case for it being bad. Would you rather have 50.1 percent of two casinos that are 20 miles apart, or 50.1 percent of one casino. The bull case would say, ‘Giddyup, give me two.’ But I can see the bear case as well. Right now we’re just in a wait-and-see position.”
Churchill officials have not discussed their plans for Rivers and Arlington, but McCaffery said he hopes Churchill will support legislation allowing a casino at Arlington. In the past, Churchill has joined with horsemen to lobby in support of casino gambling at Arlington, but Rivers Casino has fought against it. With Churchill owning Arlington, the issue has become more complex.
In a phone call with analysts, Carstanjen said the acquisition will put Churchill in “an excellent competitive position in a casino gaming market we have always valued as we work with the Illinois legislature and executive branch to determine the future of our Arlington Park racetrack. Certainly, that’s a jurisdiction where we’ve watched our horseracing business decline over time in Illinois despite the presence of an absolutely fantastic team and extremely supportive local community. But the structure of Illinois racing has not been advantageous versus other states, and, because of that, Illinois racing in general has suffered.”
Carstanjen added, “Arlington Park does not have slots or table games or any kind of clear access to additional products. And it was important for us to make sure that we could continue to participate in the Illinois market over time. We’ll continue to evaluate what’s best for Arlington Park and what’s best for Churchill Downs in the long term. But certainly it was important for us to have a long-term presence in Illinois where we thought we have access to new products, like iGaming, sports betting, etc., that might become available over time. And certainly Arlington Park is not in those businesses.”
Carstanjen said Churchill Downs recently opened sports books in Mississippi at the Riverwalk Casino and Hotel in Vicksburg and Harlow’s Casino Resort and Spa in Greenville. Both were instantly profitable, he said, adding sports betting technology being tested in the smaller Mississippi markets will be useful to Churchill when it’s allowed at larger operations like Rivers.
Churchill Downs acquired Arlington Park in 2000 in a deal with owner Richard Duchossois, 97, who remains chairman of the track. Billionaire real estate investor Neil Bluhm is lead partner in Rivers Casino, which opened in 2011. Along with Arlington Park, Churchill owns and operates five racetracks and six casinos, including its flagship racetrack in Louisville, Fair Grounds in New Orleans and Calder Race Course in Miami. Calder’s racing operations are currently being leased to a competitor, the Stronach Group, which operates it as Gulfstream Park West. Churchill also operates the twinspires.com online betting platform.
On the same day Churchill announced the Rivers Casino acquisition, its board approved a 3-for-1 stock split and a new $300 million stock repurchase. Churchill officials said the stock split will give each existing shareholder as of January 11, 2019, two additional shares of stock for each one held.
Churchill also reported third-quarter net income of $56.3 million on revenue of $221.3 million, a 12.4 percent increase over $196.9 million in
third quarter 2017. Adjusted earnings before interest, taxes, depreciation and amortization rose 6.9 percent to $62.1 million from $58.1 million. Churchill also increased its quarterly dividend by 7 percent from third quarter 2017 to $1.63 per outstanding share.
“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.
