Bloomberg reported last week that Churchill Downs, Inc. is exploring the sale of its TwinSpires advance-deposit wagering business for $1.5 billion, although the company has not made a definitive decision on whether it would sell at all.  Further, the sale would be for the TwinSpires horse-betting platform only and would exclude its sports betting and online casino platforms. 

TwinSpires racing handle increased in the third quarter of 2021 by 31% over the same quarter in 2019 (pre-pandemic) and active users were up by 23%.

Currently, Churchill Downs, Inc. has online sportsbooks in Arizona, Colorado, Indiana, Michigan, New Jersey, Pennsylvania, and Tennessee.  Its retail sports books operate in Arizona, Colorado, Indiana, Mississippi, and Pennsylvania.  And TwinSpires online casinos are located in Michigan, New Jersey, and Pennsylvania. 

When a publicly traded company sells or spin-offs a subsidiary to shareholders, it is usually for one of two reasons.  First, the subsidiary does not fit within the mission of the parent company and the money it brings in a sale can be more profitably deployed elsewhere.  Or, second, the subsidiary as a stand-alone operation would command a higher price-to-earnings multiple than its parent company does. Kohl’s, for example, is under pressure from activist investors to sell or spin off its e-commerce business because it has a much better growth rate than Kohl’s retail stores.

American companies are increasingly selling off or spinning off subsidiaries to enhance shareholder value. General Electric, for instance, is splitting into three separate firms.

The view here is that the main reason Churchill Downs, Inc. is looking into the TwinSpires sale is that the parent company’s strategy is to continue to evolve into a brick-and-mortar casino and online casino/sports betting operation and move away from its historical emphasis on horse racing (similar to the strategic route taken by Penn National Gaming).  Churchill Downs’ 2021 sale of Arlington Park racetrack in Chicago is the most recent case in point.  Churchill Downs, Inc. will undoubtedly hold onto the crown jewel of American racing, the lucrative Kentucky Derby, and likely its racetracks that are part of a casino.

Proceeds of $1.5 billion from the sale of the TwinSpires horse racing business could be used for a variety of purposes, such as to pay down debt and strengthen the balance sheet, to invest in casino-related high-growth segments like sports betting, to increase shareholder dividends, and to buy back Churchill Downs stock.

(Disclosure: I am a Churchill Downs, Inc. shareholder. As such, my preference would be for the company to retain TwinSpires racing, as it is an integral part of horse racing and potentially synergistic with sports betting.)

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