Churchill Downs Incorporated has disclosed its intention to withdraw from the B2C online sports betting and gaming space over the course of the next six months.
The operator states that the decision has been made as it does not see a path that the business model delivers predictable and acceptable margins “for at least several years”.
This comes as the group reflects that it “had high hopes for the potential to build a profitable business in the space” upon the overturning of PASPA in 2018.
“We are always committed to building long-term value for our shareholders and consistent with this commitment when we see that an investment is not progressing as we had planned, we will redeploy the resources and capital to other growth projects or return the capital to our shareholders,” William Carstanjen, CDI CEO and Director, explained in the group’s latest earnings call.
“We have proven with our past decisions that we are willing to walk away from businesses where we do not see a secure enough path to consistent profitable growth with an acceptable return for our shareholders.
Adding: “When the US Supreme Court overturned the federal ban on sports betting in May of 2018, we had high hopes for the potential to build a profitable business in this space.
“Our initial strategy was to leverage a variable cost technology model and be disciplined in our marketing spend with a focus on bottom line profitability as states legalised online sports wagering and igaming.
“We have profitable retail sportsbooks in four of our casinos. However, the online sports betting and online casino space is highly competitive with an ever-increasing number of participants that the states have licensed.
“Many are pursuing maximum market share in every state with limited regard for short-term or potentially even long-term profitability.”
The casino entertainment operator says it will switch focus to retail sports betting operations “where we are profitable,” and will look to monetise market access rights to other participants, where appropriate.
Furthermore, CDI also asserts that it remains “absolutely committed and excited” about its TwinSpires horse racing top line, bottom line and margins, calling it a “special online business”.
“This isn’t the result we wanted when we started this business back in late 2018, but it is the prudent next step forward for our company,” Carstanjen noted.
However, much excitement is expressed at the group’s $2.48bn Peninsula Pacific Entertainment, which was announced earlier the week.
This will see CDI purchase Colonial Downs Racetrack and its existing six historical racing entertainment venues in Virginia, the del Lago Resort & Casino in Waterloo, New York, the operations of the Hard Rock Hotel and Casino in Sioux City, Iowa, and rights related to the revived development efforts with Urban One to develop One Casino + Resort, a $565m destination casino in Richmond, Virginia.
“Overall, we believe this is a very unique set of assets that expands our geographic footprint and provides significant additional scale to our company in the coming years at a very attractive multiple,” Carstanjen added.
“We are also thrilled to have the operating teams in all three jurisdictions join the Churchill team. We expect to close the transaction by the end of 2022, subject to necessary approvals.”