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Analysts at JMP have described Historical Horse Racing (HHR) revenue growth as the “under-appreciated story within gaming”.

HHR revenue has increased at a 67% compound annual growth rate to $1.4bn over the last five years, said JMP.

Previously termed Instant Racing, HHR is a machine-based electronic game that allows users to place bets on replays of horse races.

The analysts highlighted Churchill Downs Incorporated’s (CDI) domination of the market, with approximately 60% of US market share in 2023.

Of the 48 HHR facilities in the US, 28 are run by CDI. The business is active in this space in Virginia, Kentucky and Louisiana.

The second largest player in this space, JMP said, is ECL Entertainment, with five locations across Kentucky and New Hampshire.

Industry growth is still in early stages, and CDI’s exposure to the market is under-appreciated and not reflected in its valuation, they argued.

CDI completed the $250m acquisition of HHR provider Exacta in August 2023, marking the company’s entrance to the B2B space in this area.

JMP said: “We believe growth will remain well above historical GDP-type growth for traditional casinos in the long-term stemming from investment… and organic growth initiatives/opportunities.”

The firm added that it believed investors have baked in a low bar for the earnings potential of HHR, a high-growth market with a deep foothold.

Minnesota HHR legalisation efforts

HHR is currently legal in some capacity in seven states, most recently Minnesota.

The Minnesota Racing Commission’s 1 April decision to legalise the activity proved immediately controversial, with one state legislator labelling the terminals a “euphemism for slot machines”.

Rep. Zack Stephenson introduced a bill on Monday (8 April) to the House Commerce Committee that would ban the activity.

JMP further outlined what the drivers of HHR growth would be over the coming years.

The analysts argued capacity improvements are possible in Virginia. In Richmond, for example, they highlighted this could lead to $70m-$150m generated in additional EBITDA.

Synergies relating to the Exacta acquisition should also benefit CDI in the medium-term, they argued.

There also could be opportunities to add electronic table games to HRR properties, JMP said.

The analysts wrote: “The company will build out the end-to-end suite of products located in a traditional casino, which we estimate to be $150m of incremental B2C EBITDA in Virginia and Kentucky if approved.”

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