Arlington’s future in doubt as owners pass on casino expansion, threaten to move track

The corporate owners of Arlington International Racecourse announced Wednesday they won’t apply for newly authorized state licenses for slot machines and casino table games, putting the fate of the struggling 91-year-old suburban racetrack in limbo and leaving industry advocates in shock.

Churchill Downs Inc. CEO Bill Carstanjen said high taxes and a “hyper-competitive” Illinois gambling market make it “untenable” for the corporation to invest in the additional gaming positions that have long been viewed as a financial lifeline for Illinois’ floundering horse-racing industry.

Instead, the corporate gambling giant — which also controls Rivers Casino in Des Plaines and wants to open a gambling den in Waukegan — will apply for a sports-betting license “while longer-term alternatives are explored” — including moving the storied racetrack from Arlington Heights to another Illinois locale.

That’s the ultimate betrayal to the Illinois Thoroughbred Horsemen’s Association, which said Churchill Downs has “snubbed” thousands of workers right after a long-sought legislative win.

Gov. J.B. Pritzker called it “a significant reversal” on the legislation he shepherded, which he says “allows the racing industry to flourish.”

And former Gov. Jim Edgar, who championed horse racing both in and out of office, said Churchill Downs should sell the track to someone else.

“Churchill is a business, and I think it’s pretty obvious they’re in the casino business,” Edgar told the Chicago Sun-Times. “They own a big chunk of the casino down the road [in Des Plaines], and they’d rather do that.”

Arlington will host races in 2020 and 2021 — but after that, all bets are off.

“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 responsibly proceed,” Carstanjen said in a statement.

He cited high licensing fees and competition from the thousands of video gambling terminals spreading across the Chicago area, plus up to six new casinos authorized under Illinois’ sweeping new gambling expansion. He also said the effective tax rate for a potential Arlington racino would be up to 20% higher than competitors due to the racetrack’s required contributions to a state fund for thoroughbred purses.

“It is with a heavy heart that we conclude that we can’t make this work,” Carstanjen said.

Churchill Downs’ announcement caught horse-racing advocates off guard.

“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 Illinois Thoroughbred Horsemen’s Association said.

“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. 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.”

The association said Churchill Downs should have to forfeit “the enormous financial advantages it enjoys by virtue of its now-annulled commitment to Illinois racing,” including millions of dollars in property tax breaks and a potential sports-betting license — which won’t help racing purses, they said.

Illinois’ two other existing racetracks, Hawthorne in Stickney and Fairmount Park in western Illinois, have both applied for casino licenses, according to the Illinois Gaming Board. Hawthorne general manager Tim Carey is also part of the lone group vying for a newly authorized racino in Chicago’s south suburbs.

During an Aug. 1 investors call, Carstanjen played coy on whether Churchill Downs would apply for the 1,200 gaming positions that are allowed to racetracks under the new law, saying the “timing and full scope of the plan are still being sorted out.”

Churchill Downs has already said it will add the 800 newly allotted positions to Rivers in Des Plaines, expanding the state’s highest-grossing casino to 2,000 positions. And it’s among six groups vying for the Waukegan casino license.

The company notified the federal Securities and Exchange Commission of its “strategic update” in a Wednesday disclosure.

The announcement could be a grab for leverage in a bid to tweak racino license terms with lawmakers during the fall veto session in Springfield.

The company now says it “will continue to work with legislative and community stakeholders, as well as Arlington’s customers, employees and horsemen to find a solution that takes into account the many constituents across the State of Illinois who depend on horse racing for their livelihoods.

“All options will be considered, including moving the racing license to another community in the Chicagoland area or elsewhere in the state,” a company statement said.

Photo courtesy Arlington International Racecourse

But an in-state move wouldn’t significantly alter the corporation’s tax burden. Money from the expansion is earmarked for Pritzker’s $45 billion capital plan.

“This represents a significant reversal from the years and years of race track owners seeking additional ways to generate revenue to keep their operations working,” the governor’s office said in a statement. “In fact, the gaming legislation provides several opportunities for significant additional revenues, including table games and slots. Just as importantly, the legislation allows the racing industry to flourish instead of facing more years of decline. Just to be clear: actions taken around gaming will be done to benefit the people of Illinois, not solely for the bottom line of individual operators.”

In March, Churchill Downs acquired a majority stake in Rivers Casino in Des Plaines — a 25-minute drive from Arlington — fueling speculation it could sell the racetrack.

State Sen. Terry Link, D-Vernon Hills, said he doesn’t think the racetrack owner is trying to get the upper hand for fall veto session negotiations.

“I think they’re keeping their powder dry to get something in the future, but they’re sticking to sports betting for now,” said Link, a longtime pro-gambling force in Springfield. “I think they’re all in on this Waukegan [casino] bid, and they’ve already got Rivers. They’re looking at whether doing something there too is just hurting themselves.”

Link said he briefly spoke to Carstanjen at the Arlington Million event Aug. 10, and told the CEO he hoped Churchill Downs would move forward with a racino while pursuing the Waukegan license. Carstanjen didn’t reveal their plan, but Link said he’s “not totally surprised” by Wednesday’s announcement.

“All these developers want more. If we would’ve said no taxes, they probably still would’ve asked for more,” Link said. “And in a true business world, I don’t blame them. But if we keep on giving this away, why are we even doing it?”

And the senator said he’s not concerned about developers’ cries of burdensome taxes, with Churchill Downs’ complaints following a consultant’s report that an “onerous” tax structure will prevent a Chicago casino from ever getting financed.

“I guarantee Chicago will have a casino. I don’t know if Arlington will ever have one, but I have a funny feeling they’ll address it in the future,” Link said.

Move threatened before

It’s not the first time Arlington management has threatened drastic action.

After riverboat casinos were introduced to the Illinois gambling market in 1991, Arlington owner Richard L. Duchossois threatened several times to shut down the racetrack unless lawmakers eased their burden in the heavily regulated industry.

Duchossois eventually did shut down the track in 1997, in a yearlong holdout that resulted in millions in tax breaks to Arlington. Churchill Downs acquired a controlling interest in 2000.

Edgar, a Republican who wrangled with the Duchossois family during his two terms in the 1990s, said Churchill Downs’ decision is bad for the industry and all of Illinois.

“The state has put a lot of money into Arlington over the years since they rebuilt [after a fire in 1985]. We had our differences, but Dick [Duchossois] always cared about racing,” said Edgar, a horse-racing supporter and owner of several horses that race in Indiana.

“I wish Churchill would sell the track to somebody else if they don’t want to be in the horse-racing business, but they don’t want to take a chance on competition to the casino,” Edgar said. “It hurts not only horsemen, but the whole state and the revenue coming in for infrastructure.”