Churchill Downs continues to grow as a casino operator, cutting a deal with Eldorado Resorts to buy Presque Isle Downs in Erie, Pennsylvania, and Lady Luck Vicksburg Casino in Mississippi for $229.5 million. That’s an above-average valuation for gaming assets but 
JP Morgan analyst Daniel Politzer took a favorable view of the transaction in an investor note. It should be observed that Churchill Downs is paying separately for each asset, spending 10X cash flow — a very liberal multiple — to get into Pennsylvania but only 6X EBITDA (below industry average) for Vicksburg. As Politzer wrote, Lady Luck “does not really move the needle on EBITDA.” Calling the deal “fair and strategic,” Politzer wrote that “the transaction provides an infusion of cash that could accelerate the company’s next transaction, while also limiting ERI’s exposure to less favorable gaming markets/properties where it sees limited opportunities for incremental EBITDA. We also do not view ERI as leaving much on the table, given that CHDN expects to generate ~$1m in synergies across both properties.”
Politzer called the high cash-flow multiple for Presque Isle Downs “fair given the current backdrop of gaming expansion in Pennsylvania … We do not believe Pennsylvania is a market ERI views favorably.” He also thinks this might be a prelude to Eldorado extricating itself from its management contract at puny Lady Luck Nemacolin. The transaction, which is expected to close sometime after September, takes Eldorado out of the mini-casino race but probably won’t finalize in time for Churchill Downs to get into it.
* Lower visitation (down 3%) may be to blame for the Las Vegas Strip‘s poor showing in January gaming revenues. Hotel rooms cleaned up (so to speak) with rates rising 10% to 
an average of $180/night, at 85% occupancy. Displacement of conventions like International Market Center from January to February drove a 17% decline in convention-related attendance. And since Consumer Electronics Show was an all-weekday event, that hurt all-important weekend numbers. A diminished hotel-room inventory (2,181 fewer rooms) may have helped the numbers, however. “For 2018, we think the LV Strip can generate ~2% [revenue per available room growth and low-single-digit visitation growth,” predicted JP Morgan analyst Joseph Greff. As to the diminution of tourism, it seems mostly to have stemmed from California and other drive-in markets (down 5%), not international travelers, as fliers were up by 3%. Got all that?
