Churchill Downs to Launch NJ Online Sportsbook and Casino, PA, MA to Follow

Churchill Downs, Inc. (CHDN) announced two deals on Tuesday with the intention of launching a New Jersey online sportsbook and casino in Q1 2019. CHDN established a partnership with Golden Nugget (Atlantic City), that provides the company with access to an operating license in the Garden State; necessary as New Jersey restricts licenses for online gambling sites to the state’s brick and mortar casinos and CHDN does not maintain a physical presence in the state. The Louisville based racing and gaming company also announced an agreement with SBTech, an online bookmaker and white label operator of sports betting and iGaming platform solutions. SBTech software, which includes a consumer facing site, mobile apps and back-end management systems will enable CHDN to offer and take bets within the state.

Howie Long-Short: While Churchill Downs (CHDN) owns TwinSpires, an online horse betting application, these announcements mark the company’s first foray into online casino gaming and sports betting (hence the need for the SBTech). In addition to New Jersey, CHDN intends on operating an online sportsbook and casino in Pennsylvania and an online sportsbook in Mississippi. The company acquired a land-based casino in PA and 2 more in MS, in anticipation of the SCOTUS decision back in March, so the company will not require a partner (with an operating license) in those states.

New Jersey gamblers are going to have a wide array of mobile apps to select from, as +/- 20 brands are expected to pursue a slice of the online sports betting pie. In addition to the Churchill Downs announcement, Hard Rock online casino and Ocean Resort casino (a Hyatt franchisee, H) have also announced intentions to offer online gaming within the state.

CHDN reported a rise in both net revenue +13% YoY (to $189.3 million) and adjusted EBITDA +36% YOY (to $49.2 million) in Q1 ’18. CEO Bill Carstanjen attributed the growth to strong performance from the company’s casino and TwinSpires businesses. Casino adjusted EBITDA increased $9 million YoY, while TwinSpires’ adjusted EBITDA increased +$3.3 million as the company increased its handle by 20.2%. CHDN shares are up 10% since Monday’s historic announcement, closing on Wednesday (5.16) at $306.40.

Fan Marino: On Saturday afternoon Justify (1/2) will aim for the 2nd leg of the Triple Crown in the 143rd Preakness Stakes (5p EST, NBC). Derby runner-up Good Magic (3/1) will run in the 8 horse field.

Set Your DVR: NBCSN is airing a new documentary entitled “Dark Horses” at 12a EST on Friday evening/Saturday morning. The film tells the story of the 1989 rivalry between Easy Goer and Sunday Silence. For those who aren’t horse racing historians, the 1989 Preakness Stakes (won by Sunday Silence over Easy Goer at the wire) is considered among the greatest horse races ever run on an American track. Here’s a video of the race, it’s a MUST WATCH for hardcore fans.

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SCOTUS Strikes Down PASPA in Historic Ruling, Legalized Sports Betting to Spread Nationwide

Scotus

In a historic announcement, the SCOTUS ruled (6-3) to strike down PASPA; the national law preventing individual states (save Nevada) from offering betting on the outcome of a single sporting event. Justice Samuel Alito wrote, “Congress can regulate sports directly, but if it elects not to do so, each state is free to act on its own. Our job is to interpret the law Congress has enacted and decide whether it is consistent with the Constitution. PASPA is not.” The ruling effectively places the decision to authorize sports betting in the hands of the individual states. Several have already passed legislation (NJ + PA, CT, WV & MS), with upwards of 27 others expected to offer wagering on sporting events within 5 years. It’s important to note that federal law prohibits wagering across state lines, so gamblers will have to be physically located in a state that has passed sports betting regulation to legally place a bet on a game; even with online and mobile betting available elsewhere in the country.

Howie Long-Short: A fall ’17 study by Eilers & Krejcik estimated that if sports betting were to be legalized on a nationwide basis, it would generate $7.1 billion annually in new revenue at casinos & racetracks. That figure grows to $16 billion per year, when you count the revenue generated from gaming websites and mobile apps; so, it’s easy to understand the enthusiasm surrounding the announcement. Interestingly, English bookmakers William Hill (WIMHY, +14.39% to $17.73) and Paddy Power Betfair (PDYPY, +12.56% to $55.20) were Monday’s biggest winners; though, Scientific Games Corp. (SGMS, +11.15%), Stars Group, Inc. (TSG, +8.97%), Caesars Entertainment Corporation (CZR, +5.46%), Churchill Downs, Inc. (CHDN, +4.87%), Penn National Gaming (PENN, +4.68%), Boyd Gaming (BYD, +3.06%), Pinnacle Entertainment (PNK, +1.88%) and MGM Resorts International (MGM, +1.64%) all finished up on the day as well.

We’re not surprised that William Hill (WIMHY) had the biggest pop among the companies listed above, as we told you on April 24th that no European gaming company was better positioned to capitalize on legalized sports betting, in the United States, than they are. Back in ’13, the company bought the rights to run the sportsbook (and split profits 50/50) at Monmouth Park (NJ), if ever permitted by law, for $1 million; a remarkably shrewd investment considering the minimal capital investment required and the potential payoff they’ll now realize (+/-$750 million/year in sports betting revenue). The company has since announced plans to add a 2nd $5 million sportsbook on the premises. WIMHY will be the first sports book in NJ to accept bets, with Monmouth Park expecting to open its doors within 2 weeks; though residents in Mississippi, Delaware and West Virginia can all expect to be able to place bets at their local casinos by the first Sunday of the NFL season.

Fan Marino: MLB put out a statement saying the decision would have “profound effects” on the sport, but no one is more bullish on legalized sports betting than Dallas Mavericks owner Mark Cuban. Cuban believes that “everybody who owns a top-four professional sports team just basically saw the value of their team double at least.”

I asked SportsHandle.com Editor-in-Chief Brett Smiley for his thoughts on Cuban’s remarks?

Brett: Cuban’s guesstimate strikes me as a bit of an exaggeration, but there’s wide recognition amongst the leagues and owners that legal sports betting will increase ratings, increase revenue and create more opportunities. Sports bettors are more engaged and for longer periods of time. There will be other opportunities to sell data, partnerships, sponsorships and so forth.

It sounds like an exaggeration to me too, but if $300 billion were to be wagered annually and the leagues got their 1% “integrity fee” on a nationwide level (highly unlikely); they would be splitting $3 billion annually. Divvy up that newfound revenue between +/- 120 pro sports franchises and you’re adding $25 million in profit to each team’s bottom line. The Mavericks only generated $21 million in operating income last season. Sure, that’s a bunch of “ifs”, but once you add in all the other revenue streams that Brett referenced, Cuban may not end up being too far off.

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Kentucky Derby Splits Beer Sponsorship, adds 3 Partners; Replaces Soft Drink Sponsor

Corona Extra

Tomorrow’s 144th running of the Kentucky Derby, presented by Woodford Reserve, falls on Cinco de Mayo (as does the 145th edition) and Corona Extra, Angry Orchard and Budweiser have all signed on to sponsor the day’s celebrations. Combined, the 3 brands will replace Stella Artois as the event’s beer sponsor. Corona Extra will serve as the Official Import Beer of North America’s oldest, continuously-held sporting event; hosting a fiesta in the infield for the 160,000+ in attendance and sponsoring Cinco de Mayo parties across the country. Angry Orchard, the Official Hard Cider of the Derby, plans on using the platform to show their newest innovation; Angry Orchard Rosé. Budweiser acquired the rights to serve as the Official Domestic Beer sponsor and for those wishing to remain sober, Coca-Cola has replaced Pepsi as the event’s Official Soft Drink provider.

Howie Long-Short: Louisville based Brown-Forman Corp. (BF.B) took over title sponsorship of the “most exciting 2 minutes in sports” from Yum Brands (YUM) and is using the exposure to market their Woodford Reserve bourbon; the key ingredient in a mint julep (the event’s signature drink). On March 7th, BF.B released its fiscal Q3 ’18 financials; a strong report that reflected net sales growth +9% YoY (to $878 million), with operating income up +11% YoY (to $304 million). The company’s American whiskey brands, Old Forester and Woodford Reserve, each contributed double-digit underlying net sales gains during the quarter (ended on January 31st). BF.B’s Q3 ‘18 results are comparable to net sales (+9% YoY to $2.5 billion) and operating income growth (+15% YoY to $894 million) over the first 9 months of the company’s fiscal ‘18 year. BF.B’s share price is up 42% over the last 12 mo., but has remained relatively flat YTD (-2%).

Constellation Brands (STZ) owns 100+ brands within its portfolio, including Corona Extra. In March, the company reported fiscal FY18 results that included “EPS growth of almost 30%”; the “5th consecutive year (that the company) achieved industry leading EPS growth of more than 20%.” Corona brand sales contributed to the growth, +4% YoY to 138 million cases.

Angry Orchard is a subsidiary of the Boston Beer Company, best known for brewing Sam Adams. Trading under the symbol SAM, the company reported Q1 ’18 earnings on April 25th. Net revenue rose +17.8% (to $28.8 million) as shipment volume increased 15%. CEO Jim Koch noted that the company had seen a “significant improvement in Angry Orchard trends”. SAM hopes that its new Angry Orchard Rosé product can draw clientele from the beer and wine categories.

As for Churchill Downs, Inc. (CHDN), in March the company announced it would be acquiring casinos in Pennsylvania and Mississippi, as it prepares to capitalize on legalized sports betting. Both PA & MS have passed sports betting legislation that would change their laws, should the SCOTUS strike down PAPSA. CHDN also owns brick and mortar casinos in Illinois, Kentucky and Louisiana, 3 other states actively working towards sports betting legalization. Following release of the news, shares climbed to a 52-week high ($268.20). They’ve only continued to rise.

The company reported Q1 ’18 financials on April 28th, including a rise in both net revenue +13% YoY (to $189.3 million) and adjusted EBITDA +36% YOY (to $49.2 million). CEO Bill Carstanjen attributed the growth to strong performance from the company’s casino and TwinSpires businesses. Casino adjusted EBITDA increased $9 million YoY, while TwinSpires’ adjusted EBITDA increased +$3.3 million as the company increased its handle to 20.2%; a significantly higher take than the balance of the thoroughbred industry (14%). CHDN shares are up 64% over the last 12 months (S&P +/-10%) and 17% since April 13th, currently sitting at $274.85 (Thurs. close).

It’s worth noting that JP Morgan recently assigned a $1.8 million valuation to the Kentucky Derby, roughly 48% of CHDN’s $3.74 billion market cap.

Fan Marino: 19 million people are expected to tune in on television for tomorrow’s race and Louisville icon Rick Pitino is likely to be one of them, despite co-owning a horse (Coach Rocks) running in the Kentucky Oaks. When fired by the University of Louisville in November, Pitino vowed to never return to the state. He’s since softened his stance, but in early April leveled an ultimatum stating he wouldn’t return to Churchill Downs unless both David Grissom (University Chairman) and John Schnatter (Papa John’s, Vice Chairman), “retire from the University Board of Trustees”. Of course, Grissom and Schnatter are the guys who fired Pitino when college basketball’s pay-to-play scandal broke. I admire Pitino’s pettiness, but fail to see how his absence hurts Grissom/Schnatter; it certainly seems as if Pitino is cutting off his nose to spite his face.

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Churchill Downs Partners with Old Forester, Introduces 1st “Thurby” Cocktail

Old Forester

Churchill Downs has partnered with Old Forester to create a race-day cocktail for Thurby, the Thursday before the Kentucky Derby (i.e. today). The Old Forester Perfect Old Fashioned will rival Churchill Downs’ other signature race-day mixed drinks, the mint julep and Lily; featured at the Kentucky Derby and Kentucky Oaks, respectively. A simplified version of the Louisville favorite will be served to race fans throughout the day; but, is limited to just Thursday’s event.

You don’t have to trek to Louisville today to sample CHDN’s version of the classic cocktail. Simply mix a 2 oz. of Old Forester 100 Proof Bourbon with .5 oz. of Old Forester Perfect Old Fashioned and serve it over ice. Just don’t forget to garnish your cocktail with an orange peel!

Howie Long-Short: On April 28th, Churchill Downs Incorporated (CHDN) reported Q1 ’18 financials; net revenue grew 13% YoY (to $189.3 million) with adjusted EBITDA up 36% YOY (to $49.2 million). CEO Bill Carstanjen attributed the growth to strong performance from the company’s casino and TwinSpires businesses. Casino adjusted EBITDA increased $9 million YoY, while TwinSpires’ adjusted EBITDA increased $3.3 million; as the company increased its handle to 20.2%, a significantly higher take than the balance of the thoroughbred industry (14%). CHDN shares are up 17% since April 13th, currently sitting at $274.80; just below their all-time high ($277.15).

Old Forester is a subsidiary of the Brown-Foreman (BF.B) Corporation, a publicly traded spirits and wine business; and component of the S&P 500. On March 7th, the company released its fiscal Q3 ’18 financials; a strong report that reflected net sales growth of +9% YoY (to $878 million), with operating income up +11% YoY (to $304 million). The company’s American whiskey brands, Old Forester and Woodford Reserve, each contributed double-digit underlying net sales gains during the quarter that ended on January 31st. BF.B’s Q318 results are comparable to net sales (+9% YoY to $2.5 billion) and operating income growth (+15% YoY to $894 million) over the first 9 months of the company’s fiscal 2018 year. The share price is up 42% over the last 12 mo., but has remained relatively flat YTD (-2%).

Fan Marino: The 144th running of the Kentucky Derby will take place on Saturday. Justify (3-1), Mendelssohn (5-1) and Magnum Moon (6-1) are the morning-line favorites in the field of 20. Justify, trained by Bob Baffert, will start from the No. 7 post. Should he win, he would break the “Opollo Curse”; becoming the first horse since 1882 to win the Derby (3-year olds) after not racing at all, as a 2-year old. Magnum Moon, trained by Todd Pletcher, is the only other horse in the race who can accomplish that feat; undefeated in 2018, he’ll start from the No. 16 post.

Fun Fact: Did you know that the University of Arizona has among the world’s most renowned Race Track Industry Programs? Established in 1973, the program offers 2 paths; business (race track management, regulation) and equine management (racing & breeding). Baffert and Pletcher are both proud graduates of the program.

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Churchill Downs Preparing for Legalized Sports Betting, Closes at 52-Week High

Churchill.jpeg

Churchill Downs, Inc. (CHDN) has announced it will be acquiring casinos in Pennsylvania and Mississippi, as it prepares to capitalize on legalized sports betting. The company will buy the Presque Isle Downs & Casino in Erie, PA (for $178.9 million) and the Lady Luck Casino (for $50.6 million) in Vicksburg, MS, from current owner, Eldorado Resorts (ERI). Both PA & MS have passed sports betting legislation that would change their laws, should the SCOTUS strike down PAPSA. CHDN also owns brick and mortar casinos in Illinois, Kentucky and Louisiana, 3 other states actively working towards sports betting legalization.

Howie Long-Short: Churchill Downs released Q4 ’17 financials on February 28th. Q4 ’17 adjusted EBITDA was +23% YOY (to $37.6 million) on net revenue that rose 11% YOY (to $179.8 million). Changes to the recent U.S. tax code added $57.7 million to Q4 net income. CHDN shares are up 4.5% since the company issued their Q4 earnings report, closing at a 52-week high on Tuesday ($268.20).

Fan Marino: While Presque Isle Downs & Casino is among the lowest revenue generating casinos in Pennsylvania, it’s a significant acquisition for CHDN; PA recently legalized online gambling and the law passed covers mobile wagering on sporting events (assuming permitted by federal law). While land based casinos are profitable, it’s mobile sports betting that really has CHDN excited. TwinSpires, the company’s online horse betting platform, accounted for $256.7 million in ’17 revenue (+15% YOY). One can safely assume the company will look to turn their database of users betting on the ponies, into mainstream sports gamblers.

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WSJ: Just 7 Ways to Publicly Invest in Sports, JWS: Not the Case

wsj-wallstreetjournal

The WSJ published a recent story asserting there are few ways to directly invest in sports, a notion we dispute. The article deemed just 7 publicly traded equities to be sports-related and based their conclusion, that fans are better off watching and playing sports than investing in them, on the performance of 2 exchange traded funds; one of which (FANZ) has beat the S&P since its July ’17 inception, which would seem to counter to their argument. The article cites Matt Hougan, the CEO of Inside ETFs, and his belief that most of the economic value within sports (ownership and player contracts) “comes in private transactions”, to support the author’s thesis; but fails to pay consideration to the revenue streams that support those contracts (and generate ownership profits). It’s worth noting that JohnWallStreet follows over 100 sports-related equities.

Howie Long-Short: Sports teams generate revenue from 4 sources; broadcast rights, ticket sales, sponsorships and merchandising. Several publicly traded equities use a similar business model; Churchill Downs (CHDN), International Speedway (ISCA), Dover Motorsports (DVD) and Speedway Motorsports (TRK), and thus should also be included on the list. Others, like Acushnet Holdings Corp. (GOLF) and Callaway Golf Company (ELY), are undeniably directly tied to sports; and no one would claim your basket was unfocused if companies like Nike (NKE), Lululemon (LULU) and Fitbit (FIT) were to be included. Oh, and don’t forget Activision Blizzard’s (ATVI) new esports league (Overwatch); their inaugural season starts today.

Fan Marino: The story names the New York Knicks, New York Rangers (MSG), Atlanta Braves (BATRK), Manchester United (MANU) and Borussia Dortmund (BORUF) as the teams you can purchase equity in. The Toronto Blue Jays, Toronto Maple Leafs (RCI), Juventus F.C. (JVTSF), A.S. Roma (ASRAF) and SS Lazio (BIT: SSL) are also all publicly traded.

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Churchill Downs Sells Big Fish Gaming for $990 Million

Churchill Downs Inc. (CHDN) has agreed to sell its mobile gaming subsidiary, Big Fish Games, to Aristocrat Technologies for $990 million (ROI of 14%); with the transaction scheduled to close in Q1 ‘18. The sale will enable the company to refocus its efforts on growing the Kentucky Derby, expanding its casino segment, TwinsSpires.com (and other forms of real money gaming) and maximizing thoroughbred racing operations. CHDN held the gaming company for just over 3 years, having acquired Big Fish in 2014 for $885 million. While Big FishGames operated on slimmer margins than the balance of CHDN assets, it still comprised 37% of company revenue and 20% of profits; shareholders must be concerned about how the company plans to replace that business.

Howie Long-Short: Aristocrat Technologies is a subsidiary of Aristocrat Leisure Limited (OTC: ARLUF), a publicly traded gaming company that operates in more than 90 countries. The acquisition makes Aristocrat the 2nd largest social casino publisher globally (far behind Playtika). In Q2 ’17, Playtika controlled 26.1% of the total market (expected to grow to $19 billion by ’22); with ARLUF and CHDN combining for just12.2% combined.

Fan Marino: Yum Brands (YUM) has pulled out as the title sponsor of the Kentucky Derby. The Louisville based Brown-Forman Corp. (BF.B) will take over as the event’s highest profile sponsor in 2018; using the exposure to promote its Woodford Reserve bourbon. Terms of the deal were not disclosed, but it’s estimated that YUM paid $1 million/year under the terms of the agreement signed in 2006. The mint julep is the traditional beverage of the Kentucky Derby. If you’ve never had one, here is a recipe (using Woodford Reserve, of course).

Churchill Downs selling mobile gaming company for almost $1B

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CHURCHILL DOWNS ADDS EUROPEAN ROAD TO KENTUCKY DERBY; LOOKING TO STIMULATE INTERNATIONAL INTEREST

Churchill Downs (CHDN) is making changes to its “Road to the Kentucky Derby” Championship Series; adding a path to the race for European horses, as it looks to stimulate international interest in the 2018 race presented by Yum! Brands (YUM). The “European Road to the Kentucky Derby” will consist of 7 races, with the horse accruing the most points winning an invitation to the race. Last year, CHDN introduced a path for dirt racing horses based in Japan, to participate in the fastest 2 minutes in sports.

Howie Long-Short: Horse racing is one of 4 sports that can be legally gambled on in Japan and as of 2016, that includes on foreign races. In 2015, the country waged $22.5 billion on the ponies and CHDN wants some of that juice. Expanding the Japanese series is only going to get that audience more invested in May’s run to roses.

Fan Marino: Don’t expect a horse that races on foreign soil to win America’s greatest race. It’s been 46 years since Canonero II (Venezuela) won the Kentucky Derby.

Churchill Downs Adds European Path to Derby

CHURCHILL DOWNS TO OFFER GAMBLERS A NEW WAY TO LOSE

Churchill Downs Inc. (CHDN) is building an 85,000 sf, $60 million facility, to host historical race wagering by the fall of 2018. Historical race wagering; or instant racing, is similar to slot machines and models games after previously run races. The company will start with 600 machines, and if successful, could look to add similar facilities to its portfolio in the future.

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Churchill Downs CEO sheds more light on $60M gaming facility, Derby’s huge TV showing

Howie Long-Short: What is this, CHDN’s attempt to hedge in case PETA ever gets horse racing banned, like Shamu? Biff Tannen is delivering me a horse racing almanac as we speak. Retirement, here we come.

David Price/Earnings: Sounds like this could be quite profitable down the stretch, if marketed right.

Fan Marino: How big of a degenerate does one have to be, to gamble on a horse race that’s already been completed? Asking for a friend.

TRK, DVD & CHDN Q2 EARNINGS RECAP

Speedway Motorsports (TRK), Dover Motorsports (DVD) & Churchill Downs (CHDN) have reported earnings for the quarter ending July 30th.  Below is a recap of each company’s earnings report:

Speedway Motorsports (TRK):

Reported increase in both revenue and net income for Q2 ’17, from same time last year (up to $.68/share from $.62/share). YTD revenue and income figures are also up from 2016.

  • Good News: Track rentals & ancillary broadcast rights generating more revenue. Attendance & fan interest is trending upward.
  • Bad News: Certain admission revenues are down. Management believes underemployment and the absence of a fiscally strong middle class are hurting numbers.

speedway-motorsports-inc-logo

Speedway Motorsports boosts revenue, income

Dover Motorsports (DVD):

Reported slight increase in revenue and net income for Q2 ’17, from same time last year. Reported earnings of $.14/share remained the same.

  • Good News: Increase in broadcasting revenue.
  • Bad News: Lower admissions revenue for Dover NASCAR weekend.

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Dover Motorsports, Inc. Reports Results for the Second Quarter of 2017

Churchill Downs Incorporated (CHDN):

Reported a 3% increase in revenue and 12% increase in net income for Q2 ’17, from same time last year. Reported earnings of $4.81/share, a 17% increase YOY, and $.30 higher than analyst predictions.

  • Good News: Increase in racing revenues from a strong Kentucky Derby week. Equity investments and organic growth lead to increase in casino revenues.
  • Bad News: Gaming company Big Fish Games saw net revenues decrease by $12.6 million.

churchill-logo-v2_1Churchill Downs Incorporated Reports 2017 Second Quarter Results

Howie Long-Short: I’m skeptical when companies are still blaming the economy/underemployment in 2017.

Fan Marino: Never been a NASCAR guy. Just can’t get excited by someone driving in circles…even if it is really fast.