Maybe it’s the tortoise beating the hare.
Or maybe it’s finding riches on roads less traveled.
But the biggest long-term winners among casinos stocks are not the glamor names that adorn the Las Vegas Strip or the Cotai section of Macau. They aren’t even the mega regionals like Caesars and PENN Entertainment.
They are slow and steady Boyd Gaming and out-there-in-some-place-called-Kentucky, Churchill Downs.
The story of the past year has been the bounce-back of Macau casino stocks. They are up 50 percent and more from their lows. But longer term, they have been money losers. Wynn’s stock, for example, has doubled in the past year, but is still less than half of its 2014 peak. Las Vegas Sands, MGM, Galaxy, Melco and the Hong Kong subsidiaries of the U.S. giants have similar patterns. Some, like Las Vegas Sands, hit its peak in 2007 at more than twice its current price. How long ago was that? Heck, George W. Bush was president.
And, while the Macau names have offered the wildest roller coaster rides, gamers generally have underperformed over the long term. Indeed, if we use 2014 and the Macau peak as the baseline, almost all gamers have far underperformed the overall market with the S&P 500 having doubled, the Russell 2000 up 50 percent and NASDAQ a six-bagger.
But Boyd and Churchill Downs have outpaced the market. Since then, Boyd has risen by six times and Churchill Downs by nine. Other, smaller regionals have done well, too. Monarch has more than tripled and Full House Resorts quadrupled. But Boyd and Churchill are the champions.
This is not just a history lesson. The pair continue to perform with both near all-time highs.
If you look at their current growth pipelines, be ready to yawn. They’re rather unexciting. No multibillion-dollar palaces in Las Vegas or Macau or the Middle East. No race to out-promise competitors for the privilege of doing business in New York City. They merely have incremental project after incremental project that are exciting only to those who want to make money.
What are their secrets? Certainly, as in any such successes, leadership. Boyd CEO Keith Smith and Churchill Downs CEO Bill Carstanjen have been steeped in, and even epitomize, the culture and heritage of their companies, the former Vegas pioneers Sam and Bill Boyd who knew how to serve customers, and the latter a unique thoroughbred-rich tradition. Their management teams share their stability.
Implicit in knowing who they are is sticking to who they are. Boyd builds properties that serve repeat, middle income customers. Churchill Downs extends its racing heritage by expanding its tracks into historical horse racing emporiums.
A related attribute is prudence. Online sports betting and iGaming might be the best examples. When investors were going ga-ga over money losers like DraftKings and Rush Street Interactive, Boyd and Churchill took less risky paths.
Boyd bought 5 percent of FanDuel, which is otherwise owned by proven online sports betting operator Flutter Entertainment. Boyd then bought Pala Interactive, thus acquiring its own digital platform. Churchill Downs got out of the operator end of the business with Carstanjen saying his job is not to lose money, but it continues to own online licenses and to capitalize on its long-time online horseracing platform, TwinSpires.com.
Thus, both companies have growing, profitable online businesses without the big losses of betting on the come.
Of course, the question for investors isn’t where companies have been, but where they are going. This is where the allure of the Strip, Macau and exotic locales in the Middle East and Far East entice investors, and where the vast potential of digital is compelling to many. Slot machines in rural Kentucky or soggy Louisiana aren’t as sexy.
Boyd and Churchill Downs also face the law of big numbers. The bigger they get, the bigger their growth projects will need to be to move the proverbial needle. And moving the next riverboat ashore or opening the next couple of historical horse racing emporiums might not do the trick.
But the same question has long faced these companies. And it also is true that the bigger they get the bigger the opportunities they can address.
