Virginia Court Ruling Bolsters Churchill Downs

Virginia Supreme Court Rules Skill Games Illegal, Benefiting Churchill Downs (NASDAQ: CHDN)

Virginia skill gaming terminals slot machines
A person plays a “Queen of Virginia” skill gaming machine inside a Richmond restaurant. Virginia’s Supreme Court ruled against the devices, potentially benefiting Churchill Downs in the process. (Image: Richmond Times-Dispatch)

Recently, Virginia’s Supreme Court made the decision that skill games are not protected by the First Amendment and are therefore illegal in the state. Churchill Downs (NASDAQ: CHDN) stands to gain from this ruling, according to Truist Securities analyst Barry Jonas.

“We see the state Supreme Court decision as a big win for the company just months following the Exacta transaction closing,” wrote Jonas. “This ruling comes 4 months after Kentucky issued a similar ban, and speaks to CHDN management’s political savvy.”

Churchill Downs currently operates 2,750 historical horse racing machines (HRMs) in Virginia and hopes to increase that number to 5,000. The ban on 9,000 skill game machines operating in Virginia would have limited Churchill’s revenue potential in HRMs,” explained Jonas.

Virginia Key for Churchill Downs’ Growth

Virginia’s Supreme Court ruling to reinstate the ban on skill games is crucial for Churchill Downs’ expansion plans in the state.

Virginia presents significant growth opportunities for Churchill Downs, beyond its well-known association with horse racing. The company has a 50% stake in a Richmond casino project and an increasing number of HHR venues in the state. The proposed gaming venue is expected to offer 1,800 slot machines, 100 table games, and a sportsbook.

Churchill Downs already operates seven Rosie’s 777 Gaming Emporiums in Virginia and plans to add the Rose Gaming Resort in Dumfries.

“Following the Supreme Court’s ruling that the lower court acted improperly, we believe options for skill-based companies are limited,” added Jonas. “While the implementation timeline for the ban is unclear, we anticipate it could occur quickly and provide relatively immediate benefits to CHDN’s properties in Virginia.”

Analysts Positive on Churchill Downs

Largely driven by its prospects in Virginia, Churchill Downs remains a preferred choice among gaming equities on Wall Street. Although the stock has seen modest gains of 6.60% year-to-date, analysts are bullish on its future.

“The company has earmarked approximately $1.1 billion for development spending over the next 18 months, aiming to increase the portfolio of slots/historical racing machines by 21%, table games by 9%, and rooms by 25% by 2025,” said Capital One Securities analyst Dan Guglielmo.

Guglielmo initiated coverage of Churchill Downs with an “overweight” rating and set a price target of $144, implying a potential upside of 27.7% from the stock’s October 16 closing price.

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