FANTINI’S FINANCE: And They’re Off

Written by

Share on social media

CEOs with both vision and the ability to execute on their vision are rare and valuable. Consider Steve Wynn, who saw the potential of the luxury casino resort, and Sheldon Adelson, who saw how to integrate non-gaming, specifically convention business, into a casino and then nearly single-handedly created modern Macau.

Bill Carstanjen of Churchill Downs may never gain their fame but Churchill Downs shareholders might hold him in the same regard.

When Carstanjen took over as CEO, he replaced Bob Evans, a colorful character who shook the company loose from its almost snobby, clubbish operation basically limited to bluegrass Kentucky. Evans paid something of a price for that among old-timers but he cleared the way for Carstanjen.

Carstanjen has made several transformative achievements: 1) Geographic diversity, 2) seeing the potential of historical horse racing to make his racing company into a gaming company, and 3) not least of all, recognizing the potential of the Kentucky Derby to grow beyond a great horse race and into a global franchise capitalizing on the revolution in media.

The geographic diversity comes in the network of HHR casinos being developed in Kentucky, Virginia and now New Hampshire. The potential to now tap into the huge and wealthy Washington, D.C., and Boston metros through such casinos is enormous.

Add to that the development of electronic table games run on HHR methodology and the properties can add modern amenities to create true resorts in a lucrative model that can be replicated elsewhere.

Then there is the Derby. Building out the Churchill Downs racetrack with new amenities every year is important to the company’s growing profitability.

But Carstanjen is riding a much bigger wave. It is the wave that is washing over the entire sports world, changing NFL football team ownership, for example, from a hobby of locally wealthy individuals into multibillion-dollar investment vehicles.

Simply put, media today is fractured. There’s only one type of scheduled event that captures a huge audience and is happening right this second, and that is the sporting contest. That means the media value of sports events is not only great because of their huge audiences for growing streaming businesses, but is amplified as the only way for advertisers and sponsors to reach such audiences.

The Kentucky Derby is one of those events.

Then there is execution. Churchill’s financial results speak for themselves, and they have come about in part because Carstanjen has focused on execution. And when things didn’t work out, as in online gaming or racino slots in Louisiana, he has been willing to make the tough decisions, cutting bait on online sports betting and winning concessions in Louisiana.

For those interested, it is worth listening to Churchill’s second-quarter conference call, where Carstanjen lays out the company’s growth strategy and commitment to building shareholder value.

Churchill stock is somewhat more expensive than other gaming stocks, selling around 10 or 11 times EBITDA whereas regional U.S. casino stocks sell for seven, eight or nine times.

That valuation may get significantly higher, and on a much larger base.

WELL, THAT DIDN’T TAKE LONG

Last week, we published a short note congratulating now former Deutsche Bank equity gaming analyst Carlo Santarelli for his career there and saying we looked forward to his next stop.

Within days, Gaming & Leisure Properties announced that Santarelli had joined the REIT as senior VP of corporate strategy and investor relations.

Offhand, it looks like a great fit.

GLPI has long been one of our favorite stocks to a great extent for reasons mentioned above. CEO Peter Carlino is one of those people who can combine vision — he saw the potential of a gaming REIT and started the first of what is still only two in existence, VICI Properties being the other — and execution. For proof, look at the steady profit growth and rock-solid finances.

GLPI hasn’t always gotten the respect on Wall Street that it deserves. It and VICI sell at lower valuations than many other REITs that have to endure the travails of, say, downtown office buildings or regional shopping centers. Santarelli talks Wall Street language and should help with that.

He also will bring a fresh perspective to the home-grown company.

QUICKIE QUIZ

Okay, here you go:

The small Pennsylvania town of Wyomissing is most significantly the home of whom?:

  • Gaming & Leisure Properties
  • PENN Entertainment
  • Taylor Swift

If you answered Taylor Swift you’re reading the wrong column, but you are right. Oh, and GLPI and PENN, too.