After years of insisting that slot machines and table games were key to the survival of Arlington Park, owner Churchill Downs Inc. unexpectedly announced Wednesday that it will not seek a casino license, a decision carrying ominous implications for the racetrack's future.
The company promised horse racing would continue at the storied Arlington Heights facility through at least 2021, but it also stated other options for its future are under consideration, including moving its racing license elsewhere.
Churchill Downs CEO Bill Carstanjen blamed state law requiring the track to dedicate a portion of casino game earnings to racing purses, something not required of other gambling venues.
"Notwithstanding our steadfast commitment to the Illinois thoroughbred racing industry and despite the good faith intentions of everyone involved in the passage of the Illinois Gaming Act, the economic terms under which Arlington would be granted a casino gaming license do not provide an acceptable financial return and we cannot reasonably proceed," Carstanjen said in a statement released by the company Wednesday.
"The Chicagoland market has seen a significant proliferation of video gaming terminals over the last several years and now faces the potential introduction of five new gaming facilities as well as increased gaming positions at existing casinos and video gaming outlets," he said. "Arlington would enter this market with an effective tax rate that would be approximately 17.5 percent to 20 percent higher than the existing Chicagoland casinos due to contributions to the thoroughbred purse account."
While the announcement stunned many in the state's horse racing community, an industry analyst predicted such a move last month. Speaking to the Las Vegas Advisor blog last month, J.P. Morgan's vice president for equity research, Daniel Politzer, said Churchill Downs might sell its 336 acres at Arlington Park and focus on gambling interests elsewhere, including Rivers Casino in Des Plaines.
Arlington Heights Mayor Tom Hayes said he interprets the announcement as a corporate decision about Churchill Downs' unwillingness to compete with Rivers.
Although casino gambling was long seen as a way to rescue the struggling horse racing industry in Illinois, Hayes believes the landscape changed when Churchill Downs took majority ownership of Rivers. He sees the possibility of the two operations supporting one another.
"I'm a glass-half-full kind of guy," Hayes said. "I'm looking at it as a positive. I'm hoping that we're going to have Arlington International Racecourse in town for another hundred years."
Putting a decidedly less positive spin on the news, the Illinois Thoroughbred Horsemen's Association issued a scathing rebuke of Churchill Downs after Wednesday's announcement.
"We are stunned and profoundly disappointed by Churchill Downs' decision not to pursue supplemental gaming at Arlington Park in order to do its part to grow jobs and economic opportunity for thousands of Illinois men and women both at the track and throughout the state's agribusiness community," a statement from the association reads.
The organization notes that Arlington Park for more than a decade pitched casino gambling as a means to boost revenue at the track and improve purses. Now that the state is willing to allow it, the statement reads, Churchill Downs has "astoundingly" declined to seek a casino license.
"The company evidently plans to instead abandon its commitment to racing in Illinois and focus solely on its stake in the Rivers Casino and potentially other Illinois casinos not yet developed," the statement continues. "Churchill has snubbed not only the working men and women of thoroughbred horse racing whose collective livelihood depends on live racing, but also all of the elected officials it has so intensely lobbied over the last decade."
Democratic state Rep. Mark Walker of Arlington Heights also was surprised by Churchill's decision.
"It remains to be seen how well Chicago rolls out its casino, if it does. I think it's risky for Churchill," Walker said. "I don't know whether this is some kind of negotiating tactic. It doesn't seem to be, but we'll see. I love Arlington Park. I want to see it succeed."
State Sen. Terry Link, a longtime proponent of gambling expansion in Illinois, sees Churchill Downs' announcement as a straightforward business decision based on profitability and its bottom line rather than a veiled request for a legislative change. No request for a change came up when he spoke with the company's chairman a few weeks ago, Link said.
He believes there's still time for Churchill Downs to change its mind.
"I don't think they've closed the door on having a casino there in the near future," Link said. "As someone who's been trying to pass this bill for over 20 years, nothing is ever final."
Churchill Downs will apply for a sports betting license at Arlington Park while exploring longer-term alternatives with legislative and community stakeholders, Carstanjen said.
While the company recently announced expansion plans at Rivers Casino in Des Plaines, of which it owns 61%, the outlook for growing gambling at Arlington Park is in stark contrast, Carstanjen said.
"This disadvantage in a hypercompetitive gaming market, coupled with substantial licensing and reconciliation fees and new, unviable horse racing requirements in the Illinois Gaming Act, makes construction of a casino at Arlington financially untenable," he said. "It is with a heavy heart that we conclude that we can't make this work."
Similar complaints have surfaced surrounding a proposed casino in Chicago. Financing for a Chicago project is "not feasible" because of an "onerous" tax structure imposed by the state, a consultant hired by the Illinois Gaming Board has concluded, according to a Chicago Sun-Times report this month.
Churchill Downs and Rivers also recently announced plans to seek a state license to operate a casino in Waukegan.
While Arlington Park won't seek a casino license, Hawthorne Racecourse in Stickney and Fairmount Park in downstate Collinsville have applied for a license, Illinois Gaming Board spokesman Gene O'Shea said.