Churchill Downs‘ stock reacted adversely to a cautious 4Q19 revenue report, as investors worried about the impact of coronavirus on the running of the Kentucky Derby, slated for May 2. JP Morgan analyst 
Joseph Greff, although one of those staying neutral on CHDN, tried to wax reassuringly: “We note that heading into the event, the majority of the Derby’s revenue/EBITDA is already baked (premium tickets/PSLs, sponsorships, media rights, etc.), so as long as the event takes place (it has run for the past 145 consecutive years), we believe the impact of COVID-19 on CHDN should be limited.” He added that “CHDN is seen as a good place to be amidst current market volatility (strong balance sheet, stable cash flow/trophy asset, and limited exposure to COVID-19, as of now).”
Such optimism did not prevent Greff from taking a wait-and-see attitude on Churchill Downs projects that are not expected to see fruition for another two years. These include a ‘historical racing’ project at its titular property, two horse-track projects and expansion of Rivers Casino Des 
Plaines, which should also benefit from a lower tax rate on Illinois table games. Nor is Greff ascribing any cash flow to a casino in Waukegan (like we said, ‘wait and see’). The $25 million Turfway Park ‘historical racing’ parlor is nominally temporary, although it may be made permanent, while the nature of expansion at Rivers is ‘TBD,’ although 669 more gaming positions are expected to be part of it. Churchill Downs will learn its Waukegan fate in October. “Management likes the profitability of its retail sports books, and while digital will be far bigger market … competing there is expensive, and CHDN would like to see how things play out before getting overly aggressive or seeking an additional media partner.”
HRM performance at Derby City was described as “encouraging” and about to become more so as Scientific Games delivers historical-racing cabinets this quarter. The property is licensed for 3,000 HRMs and currently has 1,000 in its slot parlor and another 1,000 in the hotel. CHDN is putting $200 million into Oak Grove construction, expecting to have 1,300 HRMs in play by September, along with a small hotel. At present, casino gambling is driving cash-flow growth, followed by Internet gambling and HRMs. The one fly in the ointment was sports betting, which Churchill Downs is having trouble monetizing.
* The British Columbia Government & Service Employees’ Union, largest in B.C., says casinos aren’t doing enough to protect their workers from exposure to criminal elements. “Published reports and 
communication with BCGEU members suggest that criminal activity has been a known problem in B.C. casinos since the late 1990s,” union prexy Stephanie Smith told a government inquiry into money laundering. “Some have dealt with harassment and intimidation from known criminals … casino management has turned a blind eye to these issues, or in some cases even enabled them, in order to maintain and grow their business.” Between government-owned and private-sector operations, British Columbia is home to 36 casinos.
Smith called for increased funding for regulation and improved whistleblower protections. Money laundering is believed to be a runaway problem in B.C., where $7.5 billion was washed through casinos in 2018 alone. Criminals are also ‘cleaning’ their money through real-estate investments. This seems to be a problem that is far from a solution.
* According to VitalVegas, our friends in the executive suite at Caesars Entertainment have a lovely parting gift for us: Increased ‘resort fees’ at four Las Vegas Strip properties (Harrah’s Las Vegas, Flamingo, Bally’s, The Linq). The levies have been ratcheted up to $37/night plus tax, which brings the lump sum to $41.95 (unless you’re a Diamond or Seven Stars member). This fresh insult goes into effect March 3.
On Caesars’ southern flank, Scottsdale to be precise, suddenly ubiquitous chef Giada de Laurentiis is unveiling a pair of new restaurants at non-gaming Caesars Republic Scottsdale, her fourth and fifth Caesars footholds. Fast-food Pronto by Giada sort of 
speaks for itself, while Luna by Giada will be of a format very familiar (including the see-through kitchen) from Giada at The Cromwell. GdL said Scottsdale reminds her of southern Italy and is very convenient to her home in Los Angeles. Of Luna, she added there would a local twist on signature dishes like lemon spaghetti: “There’s a lot of different ingredients that you find here in Arizona that you don’t find in California or even Baltimore, so we want to try somehow incorporate them … I love the idea of doing it in a hotel that doesn’t have any gambling, I presently don’t have that, and I have a lot of young kids that follow and are fans. So as a female and as a mother, it’s important.” We wonder how that played with the Eldorado Resorts party-poopers.
Jottings: William Hill outperformed profit expectations but don’t pop the champagne corks. The company expects an upcoming ban on use of credit cards at United Kingdom slot machines to shave as much as $13 million off upcoming profits. CEO Ulrik Bengtsson still expects to break even this year, largely thanks to greater geographical diversification 
… Although coronavirus tax relief for Macao casino operators has been discussed, nobody has formally applied for relief yet. Chief Executive Ho Iat Seng expects the health crisis to result in a budget deficit for his city. Luckily, the disease has largely given Macao a pass. In the meantime, JP Morgan analysts predict players may stay away for another eight months. That would swing an expected 5% year/year gain to a 24% loss … Virginia legislators are at an impasse over casinos, or rather, how they would be taxed. The House wants a sliding scale of 15% to 28%, while the Senate seeks a more-punitive 27%-4o%, in addition to tripling the $5 million license fee sought by the lower house. The dueling bills now head to conference committee.
