Churchill Downs Inc., the parent company of the world-famous Kentucky racetrack, has announced that it is withdrawing from a deal to purchase a Mississippi casino. The company announced Monday that it would terminate its agreement to purchase Lady Luck Casino in Vicksburg.
Per the arrangement, Churchill Downs will pay a $5 million termination fee to Lady Luck’s current owner, Eldorado Resorts, Inc. However, Churchill Downs also reiterated its commitment to purchase Pennsylvania casino Presque Isle Downs from Eldorado.
The termination occurred due to a request from the Federal Trade Commission for additional information and documents concerning Lady Luck. The two parties in the deal decided that the time and money to respond to that request would be too high for the deal to proceed.
Churchill Downs and Eldorado have created a new deal
In the original deal, Churchill Downs had agreed to purchase both casinos for $229.5 million. Now that Lady Luck is no longer under consideration, the two companies have fashioned a new agreement to proceed.
Churchill Downs will now purchase Presque Isle Downs for $178.9 million. Interestingly, the company will also pay $100,000 to assume operational control of Pennsylvania’s Lady Luck Casino Nemacolin.
The two companies will now submit the amended agreement to the FTC. Their hope is to close the amended proposal by Q4 2018.
The potential for sports betting overhangs the new agreement
Churchill’s withdrawal from only part of the deal likely springs from the sports betting potential present in the market. Like many gaming companies, Churchill is scrambling to assemble assets (or more accurately, licenses) in states that have legalized or will legalize sports betting soon.
So, the retention of its interest in Presque Isle Downs means that Churchill will gain a foothold in Pennsylvania’s nascent sports betting market. Even though no casino, including Presque Isle, has applied for a sports betting license yet, it is inevitable that sportsbooks will appear in Pennsylvania soon.
Now, Mississippi has also legalized sports betting. Its casinos are waiting for the gaming commission to finalize regulations before they can begin accepting wagers.
However, that day is coming soon, too. Churchill Downs would likely want to gain a share of that market, but it may have decided to stand pat because of its existing ownership of Riverwalk Casino, which is also in Vicksburg.
Lady Luck’s finances are probably suspect
Whatever the case may be, Eldorado is not holding any grudges against Churchill Downs for the terminated deal. However, the company is now faced with finding another sale partner to take on the property.
Back in February 2018, Eldorado CEO Gary Carano told BusinessWire,
“Our agreements to divest Presque Isle and Lady Luck Vicksburg are consistent with our strategy to maximize returns from our portfolio of regional gaming assets through investments in new properties as well as opportunistic divestitures. The sale price represents an attractive multiple of these properties’ trailing twelve months cash flows.”
If we take him at his word, it may reveal that Lady Luck Vicksburg is not in good shape financially. The sale price for the Mississippi property was a meager $50.6 million.
If the sale had gone through, Eldorado would have realized a loss of nearly $30 million. In 2010, the company purchased the then-Rainbow Casino for $80 million from Bally Technologies.
Most successful companies don’t volunteer for taking a nearly 38 percent loss on a major investment…unless they’re cutting their losses. The fact that Eldorado was willing to do so means that there may be bigger problems in Vicksburg than a lost sale.