Churchill Downs buying Mississippi casino

Churchill Downs is dealing itself into the casino business.

The Louisville racetrack company announced Monday it is buying a Mississippi casino for $138 million in a cash deal.

The purchase would give Churchill a foot in a burgeoning gambling market and its first casino without any racetrack presence. Mississippi has no live horse racing, but it is the third-largest gambling market behind Nevada and New Jersey.

Churchill is buying Harlow's Casino Resort and Hotel in Greenville, which has a 33,000-square-foot gambling floor with 841 slot machines, 23 table games and a poker room, a 105-room attached hotel, a 2,600-square-foot entertainment center, and three dining areas.

The casino, next to a new bridge over the Mississippi River linking the region to Arkansas near the Louisiana border, opened in 2007.

In the 12 months that ended July 31, before the bridge opened, the casino recorded $50.4 million in revenue (after Mississippi gambling taxes and free plays given to customers).

Churchill has long stressed diversification and has unsuccessfully pursued expanded gambling in Kentucky. In addition to Churchill Downs, the company owns Fair Grounds in New Orleans, Arlington Park near Chicago and Calder Race Course near Miami. Fair Grounds and Calder both have casinos.

The pari-mutuel gambling market has dropped more than $2 billion in the past two years, with wagering on U.S. races in 2009 off more than 16 percent from wagering in 2007.

So Churchill has turned to other forms of revenue: account wagering (purchasing in November for $127 million), entertainment (this year the Louisville track lost $5 million on its HullabaLOU music festival, but it is trying again next year) and casinos.

This shift away from horses has opened the track to political attack, with opponents of expanded gambling criticizing Churchill as now more casino than racetrack.

Churchill officials would not comment on what proportion of the company's revenue might be generated by alternative forms of gambling post-purchase.

In its annual report, Churchill reported net revenue for 2009 of almost $440 million, with $282 million from pari-mutuel betting, $61 million from other forms of gambling and $96 million in other operating revenue.

But the non-racetrack revenue will definitely be growing. Churchill opened its Calder casino right before this year's Super Bowl, so the 2009 numbers reflect less than a year's revenue.

Churchill, whose NASDAQ listing is CHDN, said in the news release that it expects the Mississippi casino to generate 27 cents to 31 cents a share after the transaction closes. The deal is expected to close in three to six months, after Churchill secures a Mississippi gambling license.

"With the acquisition of Harlow's, we continue our diversification strategy across our racing, gaming and online business units," Churchill president and CEO Bob Evans said in a statement. "The key determinants of our decision to acquire Harlow's were further strategic business and geographic diversification, the appeal of Mississippi as a business and gaming location, an attractive valuation, multiple paths to future growth, and the performance of Harlow's outstanding team of approximately 400 employees who we look forward to welcoming to the Churchill Downs family."

Churchill is buying the casino from affiliates of the private investment groups Levine Leichtman Capital Partners Inc. and Oak Hill Advisors, and private investor Jess M. Ravich, according to the release. According to Levine Leichtman's Web site, the company is an investor in the restaurant chains Beef O'Brady's, CiCi's Pizza, Quiznos and Wetzel's Pretzels.