Churchill Downs majority owner of Rivers Casino, but regulators asked to review drop in women, minority investors

SPRINGFIELD — Kentucky-based Churchill Downs Inc. completed its $326 million acquisition of a majority stake in Rivers Casino in Des Plaines despite state gambling regulators concerns that the new ownership group does not include enough women and minorities.

The Illinois Gaming Board gave its initial approval of the sale on March 1, pending the execution of final documents to seal the transaction. At the time, board members said they wanted Churchill Downs to make a “good faith effort” to bring in more women and minority investors over the next 90 days so they would comprise up to 10 percent of the ownership interest.

Gaming board officials confirmed this week the transaction was finalized June 4, despite the fact that there had been no stock sales to women and minority investors, something that had been a statutory condition of granting the original license in 2008 to a consortium that included Midwest Gaming and Entertainment LLC, Rush Street Gaming LLC, and a Canadian private equity firm, Clairvest Group Inc.

During a June 13 meeting in Chicago, Illinois Gaming Board Chairman Donald Tracy said that even though the deal had closed, he wanted the board to continue reviewing the transaction and to take up the issue again at the board’s next meeting on Aug. 1.

“And at that board meeting, I hope and expect the board to determine whether or not the … Churchill Downs effort to sell up to 10 percent to statutory investors was a good faith effort or not,” Tracy said.

Tracy made that comment during what turned out to be his final meeting as a member of the board. He has since resigned, and Gov. J.B. Pritzker has accepted his resignation.

But it also came about two weeks after the Illinois General Assembly passed legislation, which Pritzker is expected to sign, authorizing the development of six new land-based casinos in Illinois, along with the legalization of sports wagering.

Rivers Casino is the state’s largest and most profitable riverboat casino. In 2018, according to the Gaming Board’s most recent annual report, it reported gross revenues of $441 million, generating $170 million in revenue for the state, plus another $25 million in revenue for local governments.

History of Rivers Casino

Rivers, however, is actually a successor to one of the state’s original 10 riverboat casinos, Silver Eagle Casino, which was located in East Dubuque on the Mississippi River. It closed in 1997, but its owners, known at the time as HP Inc., retained the license.

In 1999, amid heavy lobbying by HP, Illinois lawmakers passed legislation authorizing the casino to relocate to Cook County. That legislation also required that women and minority shareholders make up at least 20 percent of the ownership interest in the enterprise.

Around that time, HP changed its name to Emerald Casino Inc., which began making plans to develop a new riverboat casino in Rosemont. In fact, Emerald even began construction on the project before the Gaming Board had approved it, which involved bringing in new investors, including some that the Gaming Board alleged had ties to organized crime.

As a result, the Gaming Board revoked Emerald’s license in January 2001, a decision that was later upheld by the Illinois Supreme Court.

Two years later, the General Assembly passed a law authorizing the Gaming Board to reissue a revoked license through a kind of bidding process. Eventually, in December 2008, the board accepted a proposal from Midwest Gaming, in large part because of its plan for bringing in minority and female investors.

Canadian investors

That decision came at the height of the Great Recession.

Neil Bluhm, chairman of Midwest Gaming, told the regulatory board in March that in order to finance the project, his company recruited a Canadian private equity firm, Clairvest Group Inc.

“Clairvest has been a good partner, but they’re a private equity firm,” Bluhm said. “As such, they insisted on having a provision in our partnership agreement that after five years of opening, Clairvest could elect to sell the property, the entire property. Like most private equity firms, they needed to sell at some point to take a profit, show a good (internal rate of return) for its institutional investors. They were not long-term investors like we are.”

Provided photo.

In early 2018, he said, Clairvest announced its plan to sell. But instead of selling the entire casino, Clairvest agreed to allow Churchill Downs to buy its shares. The company is most famous for operating the Kentucky Derby horse race. It also owns the Arlington International Racecourse in Arlington Heights, about 15 miles from Rivers Casino.

That agreement also allowed Churchill Downs to buy additional shares from other investors under the same terms, ensuring that it would end up owning at least 50.1 percent of the casino.

Among those who elected to take the offer, he said, were about half the members of the minority and female investors, known as Casino Investors LLC. Because of that, the minority ownership stake in Rivers Casino was expected to drop from 17 percent to roughly 2.7 percent.

Under the 1999 law, the requirement that women and minorities make up 20 percent of the ownership applied only in granting the initial license. It was not intended, Bluhm said in March, to apply to all transactions involving that license.

At its March 1 meeting, the Gaming Board agreed and approved the transfer, “provided that Churchill Downs Incorporated makes a good faith effort” to sell up to 10 percent of the equity value of the casino to women and minority investors.