Last week Churchill Downs posted perfectly good 4Q19 numbers but Wall Street wasn’t buying it. CHDN shares slumped 14%. That prompted some weekend damage control from JP Morgan, which bumped its rating up from “neutral” to “overweight,” and sent analyst Daniel Politzer out to 
reassure the markets that fears of a coronavirus-impaired (or worse, canceled) Kentucky Derby were “overblown.” He urged investors to look to the CHDN balance sheet for “calm in the storm.” (We can’t think of the last time a banking house interceded in this fashion on behalf of a company it covered.) Penned Politzer, “While we are not calling a bottom in CHDN here, nor can we say with strong confidence that the Derby will take place on May 2nd as scheduled, we believe the stock’s 14% decline in the past two trading days (24% off its recent high) … provides an attractive risk/reward.”
He added, “With its stable/growing cash flow profile, strong balance sheet, and trophy asset in the Kentucky Derby, CHDN is an increasingly compelling place for investors to hide out during the current wave of market volatility.” Politzer called Derby cancellation “unlikely,” noting that it has run without interruption for 145 years, “a timeframe over which a lot has happened in the US (multiple world wars, Great Depression, various pandemics, etc.” Also, with $400 million local economic impact at stake, Louisville powers that be would “at worst case” work with the track to re-set the Run for the Roses at a later date.
Politzer further enumerates several major events prior to the Derby which have been unruffled by coronavirus, including The Masters, March Madness, the Coachella festival, the Boston Marathon and—to bring it 
home to Las Vegas—the NFL draft. But with $118 million of Churchill Downs’ cash flow—one-quarter of the year—tied into the Derby, it’s not like there isn’t a great deal at stake. Politzer breaks down the possibilities as follows: 40% the Derby is run with minimal financial disruption; 30% there is “a minor decline in attendance”; 25% the Derby is rescheduled; 5% it is canceled outright. Politzer furthermore pointed to Churchill Downs’ varied revenue streams, both large (Rivers Casino Des Plaines) and moderate (‘historical racing’ machines in Kentucky), as well as a strong land bank and relative lack of leverage. Sounds good to us.
There’s been no whisper of coronavirus in Kentucky but other gambling-enabled states are not so fortunate. Two cases have been reported in Rhode Island and two fatalities in Washington State. (Make that five.) The federal government, meanwhile, seems primarily concerned with blowing sunshine up Wall Street’s ass. In another less-than-reassuring pronouncement, Donald Trump said “healthy individuals should be able to fully recover.” The unhealthy among us (and Baby Boomers) are screwed, it would appear. The best news we have for you is that new cases in China are tapering off, good to hear if you have a casino in Macao.
So where does this leave Las Vegas? Relatively unaffected, we are happy to report. Conventions are not being canceled and tourism was strong through the end of January. Attendance for the National Association of Broadcasters show has actually increased. Must-happen CONEXPO-CON/AGG is set to begin in a week. “It is readily apparent that the impact is 
likely to be felt on a more global scale than was perhaps previously envisaged,” Global Data‘s Nick Wyatt told the Las Vegas Review-Journal, before whining a bit. “Incessant media coverage of the issues is also impacting traveler confidence. These actions restrict people’s ability and willingness to travel and this is obviously creating significant headwinds for the industry.” (Damn that pesky news media!) Caesars Entertainment reports no impact, per CEO Anthony Rodio (pictured), and Southwest Airlines has not canceled any flights into Sin City. Practically everyone else says they are “monitoring” the situation, which sounds like a euphemism for feeling helpless to do anything. Kudos to Caesars for being forthright. The rest of Big Gaming (except for Wynn Resorts) ran and hid when the R-J came calling. The only ripples are some Chinese conventioneer cancellations—a small tranche of customers—and shortages of sanitary supplies, much as is happening in the rest of the country.
Jottings: The Caesars/Eldorado Resorts takeover could leave some Caesars Southern Indiana workers out in the contractual cold … In a move reminiscent of what the United Kingdom has done, Spain is mulling cutting back gambling ads on TV to the graveyard shift. Exceptions would 
be made for commercials during sporting events and “real-money contests that are technically not gambling.” Live betting odds would be banned outright, as would “large” sponsorship signs in stadiums … Muckleshoot Casino Auburn has postponed the opening of its hotel until 2022 … William Hill subsidiary Mr Green has been fined almost $4 million for slipshod controls against problem gambling. Reports the BBC, “It failed to freeze the account of a customer who won [$63,846.35] and gambled it away before depositing thousands more,” just one of a number of “systematic failings.” The fine will go to programs that treat disordered gamblers.
