For the first time in Churchill Downs' history, there will be no races at their famous Churchill Downs Racetrack following a string of 12 horse deaths in 30 days. Instead, the remainder of its Spring Meet will be moved to Ellis Park in Henderson, Kentucky. Commenting on the "unprecedented" move, Wells Fargo said that while “bad PR,” the decision will have limited near-term financial impact. Voicing a similar opinion, Jefferies calls the events “tragic,” but unlikely to impact earnings.
UNUSUAL NUMBER OF HORSE INJURIES: Churchill Downs announced it will suspend racing operations at Churchill Downs Racetrack beginning June 7, through the remainder of the Spring Meet, scheduled to run to July 3. Live racing at Churchill Downs will be conducted as scheduled the weekend of Saturday, June 3 and Sunday, June 4. The remainder of the race meet will be relocated to Ellis Park Racing & Gaming in Henderson, Kentucky, beginning on Saturday, June 10. "Churchill Downs Racetrack has seen an unusual number of horse injuries over the previous month resulting in 12 equine fatalities. Following a thorough internal review and concurrent investigations conducted by the Kentucky Horse Racing Commission and Horseracing Integrity and Safety Authority, no single factor has been identified as a potential cause and no discernable pattern has been detected to link the fatalities.
Diagnostics testing of the racetrack by experts have not raised concerns and the experts have concluded that the surface is consistent with prior measurements from Churchill Downs in past years. Even though the investigations and expert reports have indicated no surface issues, in an abundance of caution, and in alignment with a recommendation from HISA, CDI has elected to relocate the meet in order to conduct a top-to-bottom review of all safety and surface protocols and integrity measures in collaboration and consultation with nationwide experts," the company said in a statement.
LIMITED FINANCIAL IMPACT: Wells Fargo kept an Overweight rating on Churchill Downs and a price target of $155 on the shares after the company announced it is suspending racing operations at its Churchill Downs Racetrack following 12 horses dying there in the past month. Churchill is doing the right thing and the near-term financial impact is likely limited, with the biggest concern being reputational damage to the company and the sport, the firm said in a research note. While the timing of the late Friday press release "was not ideal," the firm thinks this was likely Churchill Downs "reacting to a fluid situation" where the relocation of races to Ellis Park had just been communicated to the horsemen and would have soon become public anyway. While "bad PR," the firm thinks the near-term financial impact will be limited. Churchill did not file an 8-K along with the news, which typically coincides with some expectation for a material financial impact, the firm added.
Also commenting on the news, Jefferies highlighted that Churchill Downs announced that it has relocated the remainder of the Spring Meet post this weekend to Ellis Park in order to review, along with a range of other local and national industry authorities, its surface and other protocols following a recent number of horse injuries. The firm does not expect a "material economic impact" to earnings given the concentration of earnings from the Kentucky Derby, which has already completed. The events are "tragic and unfortunate," but unlikely to impact Jefferies’ thesis on the shares, pending any capital consumption that may be required as a conclusion of the review. The firm has a Buy rating on Churchill Downs.
PRICE ACTION: In Monday afternoon trading, shares of Churchill Downs have dropped over 4% to $136.32.