Churchill Downs is going all-in on sports betting, planning to leverage its (soon-to-be) access to the Pennsylvania and Mississippi markets, plus its 
relationship with the Golden Nugget in Atlantic City. However, the sky-high tax rate (34%) in Pennsylvania may translate into less-favorable odds at Presque Isle Downs, which is not such a great deal for consumers. While Churchill Downs will own the sports books, it is outsourcing the technology and odds making to European firm SBTech. Churchill Downs is also going against the prevailing wind in preferring to own its own casinos rather than sell them to a REIT. “The company places a higher value on being protected on the downside if/when a slowdown comes than the one-time capital infusion from monetizing real estate; we note the company is not capital constrained with net leverage in the low 2x range,” wrote JP Morgan‘s Daniel Politzer.
He added that the company “targets smaller acquisitions in geographies where it’s comfortable with the competitive and regulatory landscape.” Churchill Downs “also looks for properties that generate the bulk of profits from gaming, and is less interested in larger, integrated resort-type properties.” Casino gambling is, of course, nixed in Kentucky, but the company is planning to open three “historical racing” (i.e., VLT) parlors in Louisville, Corbin and Oak Grove. Churchill Downs looks like a real anomaly in the gaming world: a small-cap operator that prefers to stay that way.
* Gaming revenues in Ohio were flat this month, which belies some swings and roundabouts at individual properties. Hard Rock Rocksino 
slipped 5% but still held onto the #1 spot with $20 million. More concerning is Jack Cleveland, tumbling 10.5% to $15.5 million. Some of Dan Gilbert‘s customers appear to be spurning it for Jack Thistledown, up 5% to $11 million. Hollywood Toledo and Hollywood Columbus were flat, with $17.5 million and $18.5 million respectively. Jack Cincinnati was prone, too, taking in $17 million. The real winner was Eldorado Resorts‘ Scioto Downs, up 9.5% to $15 million.
Other racinos mostly posted small gains, as in Belterra Park‘s 2% to $7 million. Miami Valley Gaming, site of a recent American Gaming Association summit meeting, rose 4.5% to $13.5 million. Penn National Gaming had a flat but lucrative month at Mahoning Valley Gaming ($298/win/slot/day), raising $9.5 million. Hollywood Dayton did almost as well, grossing $9 million for a 3% uptick. As for Gilbert, the question may not be why he’s doing so well at Thistledown but how could he have a hammerlock on downtown Cleveland and screw it up so badly?
* MGM China is showing some ankle at the Macao government, saying it would be “happy” with a two-year extension of its casino concession, which is a polite way of saying ‘please negotiate with us.’ As MGM China CEO Grant Bowie put it, “We continue to work with the government, and 
are hopeful that we would have a positive outcome with an extension of our concession.” The MGM sub concession will expire in two years, as will that of parent concessionaire Sociedade de Jogos de Macau. There isn’t any good reason to think the concession won’t be renewed (except perhaps as retaliation for trade wars), as MGM has done everything to deserve an extension, unlike torpid SJM, whose Grand Lisboa extension is dragging into 2019. Besides, it will take longer than two years for MGM to make its money back on $3.4 billion MGM Cotai. (I should say so.)
In other MGM Chinese affairs, Bowie was on hand for the opening of Bellagio Shanghai, a non-gaming hotel. That’s not the only lack of similarity. The high-end hotel has but 162 rooms and suites (and no dancing fountains of which we’re aware). The company’s reversion to Bellagio as its go-to brand reflects not only its high brand equity but also the failure of Aria, its designated successor, to resonate with the public. Anyway, we wish the new venture well.
In bad news for Macanese casino operators, China is instituting another crackdown on the use of Union Pay cards to subvert limitation on the amount of cash that can be taken into Macao. Authorities began by removing Union Pay terminals from several pawn shops, although with approximately 200 pawnshops in Macao that’s a drop in the bucket. As JP Morgan analyst D.S. Kim put it, “The impact on gaming demand is difficult to estimate, but it can’t be good in our view as it could at least be a modest negative on player psychology if not their abilities to source funds.”
