CDI ‘Strongly Positioned,’ but $300M Expansion Delayed

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Coady

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In a first-quarter earnings conference call on Thursday, Bill Carstanjen, the chief executive officer of Churchill Downs, Inc. (CDI), said he was “more than cautiously optimistic” that the Sep. 5 GI Kentucky Derby will proceed as rescheduled, ideally with spectators allowed to attend by adhering to whatever form of COVID-19 social distancing is appropriate at that time.

As part of a broader scope of fiscal progress reports, Carstanjen also gave updates on construction projects at the gaming firm’s two Thoroughbred racetrack properties in Kentucky, where work is both ongoing and delayed, depending on the nature of the projects. The most notable revelation is that the $300 million build-out at Churchill Downs is now on hold.

Excerpts of Carstanjen’s updates that relate to Thoroughbred racing follow, sourced from a transcript of the call posted on the financial website Seeking Alpha (read the full version here).

On the Derby:
“Sept. 5 is still four months away. A lot can happen in our country and I expect that it will. [Yet] I’m fairly optimistic. I’m more than cautiously optimistic. I am optimistic that we’ll find a way through this. But again, I can’t sit on calls like this and address every potential hypothetical or give you a crystal ball and say that things will be great in the country…We’re still going to have protocols. We’re still going to have differences. There’s still going to be social distancing issues.”

On the financial shape of CDI as it relates to the pandemic:
“With our exceptional balance sheet and careful focus on managing cash expenses, we were strongly positioned to weather this period and we’ll emerge a more efficient and focused company with a strong roster of growth opportunities. As a result of the closure of our gaming properties, we have significantly reduced our maintenance and growth project capital expenditures for 2020. We have eliminated nearly all maintenance expenditures except for mandatory items until our properties are reopened. Regarding growth project capital, we have elected to continue investing where it makes sense and stop where the timelines to completion are far out, the bulk of the expense has largely not yet been incurred, or, in the case of hotel developments, we need to revisit assumptions regarding the occupancy rates and travel patterns going forward.”

On the expansion at Churchill Downs:
“We have decided to delay further build-out of the hotel and historical racing machine facility at Churchill Downs racetrack until we have better visibility into the full impact of the COVID-19 pandemic on the regional economy and until after we have completed these next two Derbies, which will now be run in fairly rapid succession this September and then next May. We remain extremely committed to investing in the build-out of Churchill Downs racetrack. However, we feel it is prudent at this time to pause this investment until we have greater clarity on timing for a return to economic stability.”

On the Turfway Park rebuild and satellite facility construction:
“We will build [the simulcast and historical horse race gaming facility] at Newport Extension in an existing shopping center and we hope to open in the fourth quarter of 2020. The revenue generated from this facility will support the purses for future live race meets a Turfway Park…While we are proceeding with the Newport Extension, we will continue with the initial stages of our main Turfway Park historical racing machine facility. Right now, we are demolishing the existing grandstand and we’ll replace the current artificial racing surface with a new state-of-the-art artificial surface called Tapeta. We have placed a temporary hold on the continued architectural design phase of the new grandstand and historical racing machine facility while we complete this initial work. We are not surrendering much time from the completion date…. We can pause on the design work without losing much time, so we have. As the state opens up and we complete the tear-down of the existing grandstand and the installation of the new racing surface, we expect we are likely to pursue the next phase with all deliberate speed.”

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