It’s off to the races, as Churchill Downs announces its $2.5 billion acquisition of Peninsula Pacific Entertainment. The deal expands the geographical footprint of Churchill Downs entertainment empire and is expected to close later this year — unless it is derailed by the Department of Justice’s antitrust enforcers.
Most famous for its annual Kentucky Derby horse race, Churchill Downs is a multifaceted “industry-leading racing, online wagering and gaming entertainment company.” According to the companies’ joint press release, Churchill Downs already owns “three pari-mutuel gaming entertainment venues with approximately 3,050 historical racing machines in Kentucky,” as well as TwinSpires, “one of the largest and most profitable online wagering platforms for horse racing, sports and iGaming in the U.S.” Further, the company is already a “leader in brick-and-mortar casino gaming in nine states with approximately 11,000 slot machines and video lottery terminals and 200 table games.”
Acquiring Peninsula Pacific adds a variety of assets to Churchill Downs’s portfolio. Peninsula Pacific’s holdings include venues ranging from several horse racing venues across Virginia to the sprawling del Lago Resort & Casino New York, as well as other entertainment assets.
Structured as an all-cash asset purchase, the agreement includes a no shop provision, which have become commonplace (appearing in 94.87 of M&A transactions over the past 12 months), prohibiting Peninsula Pacific from soliciting offers from competing acquirers. As with most deals, the documents explain that the transaction is contingent upon “the receipt of regulatory approvals on terms desired or anticipated” – and that can be a crucial stumbling block in today’s regulator environment.
Since taking office mere, President Biden has blamed rising prices on industry consolidation and called for far more muscular antitrust policies – the likes of which have not been seen in four decades. Toward this end, the Administration has appointed enforcement-minded individuals to head the Federal Trade Commission and the Justice Department’s Antitrust Division. They have challenged other deals across industries, ranging from UnitedHealth Group’s $13 billion acquisition of Change Healthcare, Inc. to NVIDIA Corporation’s scuttled $40 billion acquisition of Arm Limited.
Churchill Downs has been accused of antitrust violations in the past: last May, the Illinois Thoroughbred Horsemen’s Association called upon regulators to investigate whether the company committed anticompetitive violations “when it took a series of steps to preclude casino gaming and diminish pari-mutuel wagering at a site in close proximity to its Rivers Casino in Des Plaines, Ill.” According to the Association, Churchill Downs purchased the casino that was 12 miles away from its own, only to shut it down and remove it as a competitor.
Churchill Downs has also faced a federal suit from Racing Hall of Fame horse trainer Bob Baffert, claiming that the company has sought maliciously to destroy his career. In a scandal that rocked the racing world, one of Baffert’s top horses, Medina Spirit, was stripped of his victory at the 2021 Kentucky Derby. Churchill denounced the lawsuit, stating, “His claims are meritless and consistent with his pattern of failed drug tests, denials, excuses and attempts to blame others and identify loopholes in order to avoid taking responsibility for his actions.”
According to Matterhorn’s comprehensive M&A database, which harnesses AI to track current and historical deals, Churchill Downs was advised by law firm Sidley Austin LLP and financial advisor Macquarie Capital. Peninsula Pacific Entertainment was advised by law firm Latham & Watkins LLP and financial advisor Credit Suisse.