Churchill Downs' $180M Salem Redevelopment: A Tactical Bet on New Hampshire's Future

Churchill Downs is making a clear tactical bet on New Hampshire's future, and it starts with a fundamental pivot. The company is transforming its modest, charitable gaming venue into a major integrated entertainment destination. This isn't a minor upgrade; it's a complete repositioning, scaling the facility from 19,000 square-feet to a sprawling 160,000-square-foot facility across three floors. The project, now officially named Rockingham Grand Casino, is a deliberate move to capture broader consumer spending beyond traditional gaming.

The scale of the transformation is significant. The new venue will feature 825 historical racing machines, 32 table games, and a 900-seat live entertainment venue, alongside multiple dining concepts. This setup is designed to attract both local patrons and visitors from the greater Boston region, positioning it as a key anchor for The Mall at Rockingham Park, the state's largest shopping mall. The strategic shift is underscored by the project's approval timeline: the company received approval from the Salem Planning Board for its development plan in December, clearing a major regulatory hurdle.

The first major capital outlay for this vision came in July 2025, when Churchill Downs announced definitive agreements to acquire 90% of the outstanding equity interests of Casino Salem for $180 million. This acquisition laid the groundwork for the redevelopment. The company has since budgeted $180 million to $200 million for the full build-out, with a planned opening in mid-2027. This is a long-term play, but the clear strategic intent is to convert a small, niche asset into a large-scale entertainment hub that can drive revenue and brand presence in a new market.

Financial Mechanics: Capital, Timing, and Earnings Impact

The numbers behind the Salem redevelopment tell a clear story of a major, long-term capital commitment. Churchill Downs has budgeted $180 million to $200 million for the full build-out of Rockingham Grand Casino. This is a substantial outlay, representing a significant portion of the company's recent cash-generating power. To put that in perspective, the company's gaming segment generated all-time record Adjusted EBITDA of $450.9 million for the entire second quarter of 2025. The project's total cost is therefore roughly equivalent to the gaming segment's quarterly profit.

The timing of this investment is critical. The company plans to open the new venue in mid-2027. That means over a year of capital expenditure and operational costs will be incurred before the facility begins generating any revenue. This creates a clear earnings drag in the near term, as the $180-$200 million will be spent on construction and development while the old, smaller Casino Salem continues to operate at its current, lower scale. The company is essentially paying for a future asset with today's cash flow.

This capital-intensive bet comes against a backdrop of modest pressure in its core gaming business. In that same second quarter of 2025, the company's gaming revenue declined 3% year-over-year. While the overall net revenue grew, the gaming segment's top line showed a slight contraction. The Salem project, therefore, is a strategic pivot to reverse that trend, but it requires a heavy upfront investment to do so. The financial mechanics are straightforward: a large, multi-year capital outlay is being made to build a new revenue stream, creating a temporary strain on cash flow and earnings while the asset is under construction.

Competitive and Regulatory Landscape in New Hampshire

The competitive setup for Rockingham Grand is a dual challenge: capturing share from New Hampshire's existing casinos while also competing for visitors from the lucrative Boston market. The project's scale is a direct response to this. By expanding from 19,000 to 160,000 square feet, it aims to become a dominant local destination, directly competing with the state's other gaming venues for resident spend. Its positioning as a key tenant of The Mall at Rockingham Park, the largest shopping mall in New Hampshire, gives it a major advantage in foot traffic and visibility.

At the same time, the company is targeting a broader audience. The facility is explicitly designed to attract guests from the greater Boston area. This creates a competitive dynamic with other regional entertainment hubs, but also leverages a major demographic. The key will be execution: can the integrated offering of 825 machines, 32 table games, and a 900-seat entertainment venue draw enough out-of-town visitors to justify the investment?

A critical regulatory constraint shapes the entire venture. As a charitable gaming facility, Rockingham Grand must operate under New Hampshire's specific rules. This likely means a focus on historical racing and a requirement to channel profits to charitable causes, which could limit the scope of its offerings compared to commercial casinos in neighboring states. The company's stated mission to contribute to New Hampshire's charitable organizations is not just PR; it's a core operational requirement that will influence everything from game selection to marketing.

The proximity to Tuscan Village adds a layer of complexity. This mixed-use development, featuring dining, entertainment, retail shopping, residential areas, hotels, and commercial office space, is a direct competitor for consumer dollars and attention. Yet, it also presents a partnership opportunity. The developers of Tuscan Village are also Churchill Downs' partners in the project. This creates a potential for cross-promotion and integrated marketing, turning a competitive threat into a potential synergy. The success of Rockingham Grand may well depend on how effectively it can collaborate with its neighbor to create a true destination, rather than just another standalone casino.

Valuation and Near-Term Catalysts

The Salem redevelopment is the catalyst that could finally close the valuation gap. The stock trades at $114.44, which implies a significant discount to a narrative intrinsic value of $134.75-a gap of roughly 34%. That discount hinges entirely on the successful execution of this very project and others like it. If the vision for Rockingham Grand fails to materialize, the market's skepticism is fully justified. If it succeeds, the stock has a clear path to re-rate.

The key near-term catalyst is the company's Q4 2025 earnings call scheduled for February 26, 2026. Management must provide clarity on capital allocation priorities. Investors will be watching for confirmation that the $180-$200 million budget is secure and that funding for the project won't come at the expense of other growth initiatives or shareholder returns. Any ambiguity here could reinforce the discount.

The primary risk is execution and timing. The project is a multi-year capital outlay with a planned opening in mid-2027. Any delay or cost overrun would extend the earnings drag and further erode investor confidence. The company's stated mission to contribute to New Hampshire's charitable organizations is a core operational requirement that could also influence project scope and timing. The success of this venture is a high-stakes test of management's ability to deliver on a transformative, long-term bet.