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Handicapping horseracing
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May 4, 2001: 4:26 p.m. ET
Analyst says stock in the Sport of Kings can survive tough times
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NEW YORK (CNNfn) - If you've still got any cash after betting on the Kentucky Derby this weekend, you might consider putting some of it down on horseracing stocks, a gaming industry analyst said Friday.
William Schmitt, gaming and lodging analyst with CIBC World Markets, said the horseracing industry has held up even in hard economic times.
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William Schmitt
CIBC World Markets gaming analyst | |
"It's mostly discretionary spending for an elderly customer base," Schmitt said. "In the early 90s (when the U.S. was in a recession), the numbers held pretty solid."
Schmitt said there are very few pure horseracing plays, chief among which are Churchill Downs Inc. (CHDN: down $0.05 to $31.00, Research, Estimates) which is hosting Saturday's 127th Kentucky Derby, and Magna Entertainment Corp. (MIEC: unchanged at $5.35, Research, Estimates).
Schmitt said he admired Churchill Downs' strategy of consolidation and brand-building, but he has a "hold" on the stock because he thinks it's fairly valued.
He prefers track operators that offer other forms of gaming, such as slot machines, which help them pay bigger purses to horse owners.
"That's really where we see the growth in the industry, is slots at tracks to shore up (the horseracing) business as well as to bring in additional revenue," Schmitt said.
Schmitt's favorite among these stocks are Penn National Gaming Inc. (PENN: unchanged at $16.50, Research, Estimates) and MTR Gaming Group Inc. (MTNG: Research, Estimates)
Schmitt acknowledged legislative resistance to allowing casino games in race tracks. It's only legal in nine states, though the powerful horseracing lobby could help lift that number in the near future.
Click here to check other horseracing stocks.
Bear Stearns analyst Marc Falcone, in a research report on the horseracing industry, said horse owners have "conflicting viewpoints" about the benefits of gaming machines at the track.
"Some fear the machines will serve as a distraction to the fans and deter them from placing pari-mutuel bets," Falcone said. "And the results of such machines have been mixed."
Still, Falcone said, gaming machines have succeeded in drawing younger players to racetracks. 
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