Churchill Abandons $300M On-Track Hotel Project

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Coady

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The gaming corporation that owns Churchill Downs Racetrack is abandoning plans to build a $300 million hotel and historical horse race (HHR) gaming facility on the first turn of the track.

Instead, Churchill Downs Inc. (CDI) will focus on a three-phase expansion of its Louisville-area properties, with expected completion dates for each project dovetailing with the runnings of the next three GI Kentucky Derbies.

Bill Carstanjen, CDI's chief executive officer, said during a Thursday earnings conference call that he was not at liberty to divulge details about the new projects because the design, due diligence, and cost estimates for them are not yet complete. But he did emphasize that the “the third and most transformative” phase is scheduled to be finished in time for the 150th running of the Derby in 2024.

“We may decide to build a hotel at the racetrack in the future, but now is not the right time,” Carstanjen said. “We think we have excellent alternative projects that offer better returns on our capital over shorter periods, both at the racetrack and at Derby City Gaming.”

CDI had unveiled plans for the on-track hotel with great fanfare in late 2019, stating that, “The development will transform the first turn of the 190-acre facility and provide guests opportunity for never-before imagined Kentucky Derby experiences.”

The hotel project was to include seven stories, a party deck to watch racing, a penthouse banquet room, a ballroom, a VIP lounge, 5,500 new reserved seating options for Derby week, and a 900-machine “state-of-the-art” HHR gaming floor.

Construction started on the hotel in early 2020, but was halted by April when the pandemic hit.

“I don't think it comes as any surprise to people out there, there's a lot more risk in a project like that just because of the disruption of travel and movement around the country,” Carstanjen said during the Apr. 22 call. “We think there are just better projects for us to do, a higher return, [a] lower risk, particularly in the current environment. So, we reordered and reimagined what we want to do.”

Carstanjen repeatedly deferred discussing details when pressed by investors and analysts on the call. He said that he would offer a complete summary of the project's first phase by the time of the next quarterly earnings call, plus a look at some of the plans for 2023-24 phases at that time.

“We are excited about what is to come at Churchill Downs Racetrack over the next three years, but we are not ready to share our detailed plans today,” Carstanjen said. “We are also evaluating options to expand Derby City Gaming. We continue to be very pleased with the growth of this entertainment venue, and believe that an expansion with additional floor capacity and other amenities will enhance the long-term growth of this asset.”

When asked directly if CDI would consider putting HHR machines at the track itself, Carstanjen replied, “We always have the right to put [HHR] facilities at the racetrack. But as the crow flies, the racetrack is within five miles of Derby City Gaming…I'm not discounting that for the future as events unfold. But, we have something in Derby City Gaming that just flat-out works…So our predisposition is to look hard at more investment there.”

CDI is also considering building an annex HHR facility tied to Churchill Downs, which by state regulation must be within 60 miles of the racetrack. Last year, the gaming corporation opened an annex 12 miles away from its property at Turfway Park.

“We believe the market will support a satellite facility that does not materially cannibalize Derby City Gaming,” Carstanjen said.

“We are excited and confident about all of these projects, and view them as likely to deliver strong returns with only modest risk,” Carstanjen said. “This is another irony of the pandemic. We stopped our Louisville projects in light of the uncertainty. But, we have learned so much with the passage of the subsequent time, and we will emerge with projects that we will monetize better and quicker.”

Carstanjen did not address CDI's controversial planned sale of Arlington International Racecourse near Chicago during his prepared remarks, but he was asked about it during the Q&A portion of the call.

“With respect to the Arlington Park land sale, a preliminary bid date has been set, and as those bids come in in the second quarter, we'll evaluate them and figure out next steps,” Carstanjen said.

“The ultimate conclusion of that process is something I can't responsibly predict for you because we'll have to see the nature of the bids,” Carstanjen said. “There is a process. The process is underway…All good on that front. It's just this is what it takes to run a complex process to sell a big piece of land with a lot of value like that one.”

As for whether CDI would seek to transfer its Arlington license to another part of Illinois, he said the corporation would take a wait-and-see approach to determine, “whether there's opportunities to move the racetrack elsewhere in the state as well.”

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