09/13/2010 8:54AM

Churchill agrees to buy Mississippi casino

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Churchill Downs Inc., the publicly traded owner of four racetracks, has reached an agreement to buy a Mississippi hotel and casino for $138 million, in a deal that could land the company its first non-racing property, Churchill announced Monday morning.

With the acquisition, which is subject to approvals by regulators and contingent on the company obtaining a Mississippi casino license, Churchill Downs will move a step further away from the racing industry, at a time when it is attempting to diversify its balance sheet and prepare for and capitalize on the possibility of racing losing its exclusive right to take bets over the Internet and telephone.

Although Churchill operates a casino at its Fair Grounds racetrack in New Orleans and at its Calder Race Course in Florida, the Harlow Casino Resort in Hotel in Greenville, Miss., will be the company's first gambling property not tied directly to a racetrack. The casino, which opened in November 2007, has 841 slot machines, 23 table games, and a poker room, plus a 105-room hotel and 2,600-seat "entertainment center," Churchill said in a release on Monday morning. Revenue for the casino was $50.4 million in the previous fiscal year, according to Churchill.

Citing the continual erosion of racing's market share and its recent declines in handle, Churchill's chief executive, Robert Evans, has stressed that the company needs new sources of non-racing revenue to remain stable and to grow. Over the past few years, Churchill has focused those efforts on the launch and acquisition of horserace account-wagering operations, which could be converted to full-scale gambling platforms if federal laws restricting internet gambling are eased. The company has also lobbied aggressively for casino gambling at its tracks in Louisville and Illinois.

"With the acquisition of Harlow's, we continue our diversification strategy across our racing, gaming, and on-line business units," Evans said in a release.

Churchill will purchase the casino with cash and proceeds from its revolving credit facility, the company said. The casino is currently owned by a partnership of private investors.

According to Churchill's second-quarter financial statements, the company had $81.6 million in cash at the end of June. It had $128.4 million in long-term debt.

In branching out to a stand-alone casino operation, Churchill is following in the steps of Penn National Gaming Inc., which a decade ago owned and operated two small-market Thoroughbred tracks, in West Virginia and Pennsylvania. Throughout the past 10 years, however, the company has used debt and revenues from slot machines to acquire or build a number of casino properties, and it has become one of the largest casino operators in the U.S.