By T. D. Thornton
An earnings conference call with investors Thursday morning underscored that Churchill Downs, Inc. (CDI), intends to sell Arlington International Racecourse near Chicago for “non-horse racing” purposes.
The gaming corporation with six Thoroughbred tracks in its portfolio also announced Feb. 25 that the previously halted reconstruction project at Turfway Park has resumed now that a Kentucky bill to legally redefine historical horse race [HHR] gaming has been signed into law.
But pandemic-delayed flagship property plans for a hotel, HHR facility, and track amenities expansion at Churchill Downs itself all remain on hold.
Bill Carstanjen, CDI's chief executive officer, said that the corporation will “revisit” and “reimagine” whether or not it wants to follow through with that Louisville project at its previously announced price tag of $300 million.
Those items were the Thoroughbred track-specific topics covered in Thursday's conference call. Per usual, the prepared remarks by CDI officials skewed heavily toward finances and gaming-specific initiatives, with a strong emphasis on CDI's desire to achieve corporate profitability.
Carstanjen said that “what we need to do for our company is demonstrate a very quick pathway to profitability. [That means] don't chase [market] share, and don't chase size–chase profitability. So everything we do in this company is built on a short time frame and a conservative time frame on when we think we can demonstrate profitability. And that'll be our model designed to keep us in the game long-term.”
Carstanjen kept his comments brief and in general when discussing Arlington being put up for sale for redevelopment. That announcement was made on Tuesday, but it was a decision that had been feared for several years by the racing community in light of CDI's ownership interest in one competing Chicago-area casino and plans to bid on a second, and potentially more lucrative, casino license in that region.
“We announced this week that we have initiated the sales process for the Arlington Park racetrack land,” Carstanjen said. “We will conduct racing in 2021 at the track while moving forward with the transaction to sell this highly desirable land for other non-horse racing, mixed-use options.
“It is our intention to work constructively with state and local authorities to find a solution to continue Thoroughbred operations in Illinois, and we look forward to further constructive dialogue as we explore alternatives,” Carstanjen said. “I am optimistic that state and local authorities are interested in finding a path forward with us.”
The news on CDI's two Thoroughbred properties in Kentucky came across as a split decision for racetrackers. The greenlighting of the Turfway build signaled welcome news that the torn-down grandstand and clubhouse won't linger in an unfinished state. But Carstanjen's hints at possibly scaling back the Churchill project came across as cryptic, with few specific details divulged.
“We have already restarted the construction process for our Turfway Park racing and [HHR] facility and are targeting a grand opening for the summer of 2022,” Carstanjen said. He added that CDI anticipated spending $145 million to finish the project, which CDI halted back in October when the legal status of HHR in Kentucky was unclear.
The Churchill construction pause is not new. It's been halted since April, just after the onset of the pandemic, when Carstanjen said in another CDI earnings call that the $300-million project would be on hold “until after we have completed” the 2021 GI Kentucky Derby.
On Thursday, Carstanjen gave the first update since October on that paused project, and it contained the new twist that it might not be built to the specifications that were originally outlined when CDI budgeted $300 million for it in October 2019.
“Before suspending activity when the pandemic hit, we had completed all of the underground utilities and a handful of site-prep projects,” Carstanjen said. “We spent approximately $15 million of the $300 million of capital that we had approved for this project. We are finalizing our revised plans that we believe will be just as impactful…. We believe that we can and should do the project more cost-effectively as we reimagine each of the three elements of the overall project–the hotel, and [HHR] facility, and expanded permanent seating and hospitality.”
Carstanjen continued, “There is really a fourth element to consider as well, which is the potential future expansion of Derby City Gaming. This facility has really performed well since opening…”
At a later point, when corporate investors were allowed to ask questions, Carstanjen was reluctant to directly answer to what extent a potential satellite outbuild of the Derby City Gaming HHR facility in Louisville might have on the overall Churchill Downs project.
“Derby City Gaming has just become this juggernaut,” Carstanjen said. “And we have to make sure we maximize that and make it everything that it can be. So watching its performance over the last year has really been, you know, fairly stunning. And we want to make sure that that property is everything in and of itself that it's supposed to be before we rush forward with an idea of what else we should do at the racetrack.”
Another corporate investor wanted to know additional details, like what factors CDI would be paying the most attention to as it reconsiders the Churchill Downs project.
Carstanjen again declined to provide specifics. But he did note that the impact of the COVID-19 pandemic on the hotel industry was one issue that CDI would be examining.
“There's not a lot more that we can say on today's call, because we're not ready to say it,” Carstanjen said. “But some of the factors we're looking at really go to the robustness of the [HHR] product and how best to deploy, here in Louisville; what the best hospitality offering is at the racetrack itself [and] how to think about the hotel with some of the disruption that we've seen in the hotel industry across the United States over the last 12 months. Those are all things we're looking at, and we have a really good handle around those things. We're just not ready right now on this call to get into them.”
As for the May 1 Derby, Carstanjen said ticketing plans are coming into focus but remain fluid because of COVID-19.
“We are currently planning to sell our seated areas at approximately 40 to 50% capacity, and may offer some amount of general admissions tickets when we are a little closer to the date,” Carstanjen said. “We may adjust our ticketing plans as we see further improvement in the circumstances surrounding the pandemic.”