Churchill Downs Inc (CHDN)

A. Company Overview

Churchill Downs Incorporated (CDI) has established a legacy of providing extraordinary entertainment experiences for nearly 150 years, with its most iconic event being the Kentucky Derby. This annual thoroughbred horse race, first held in 1875, is the longest continuously held annual sporting event in the United States and serves as the inaugural race for the prestigious Triple Crown series. The company is headquartered in Louisville, Kentucky, and has expanded its portfolio through various avenues, including live and historical racing entertainment venues, online wagering via TwinSpires, and regional casino gaming properties.

B. Business Segments

CDI strategically organizes its operations into three reportable segments: Live and Historical Racing, TwinSpires, and Gaming. Each segment represents a significant revenue stream and operational focus for the company.

Live and Historical Racing

The Live and Historical Racing segment primarily encompasses revenues and expenses related to live and historical pari-mutuel racing at Churchill Downs Racetrack and CDI's historical racing properties located in Kentucky, Virginia, and New Hampshire. Revenue is generated through commissions from pari-mutuel wagering, simulcast fees from other wagering sites, and various racing event-related services, such as admissions and personal seat licenses.

Churchill Downs Racetrack

The flagship Churchill Downs Racetrack in Louisville covers 175 acres and features a one-mile dirt track, a 7/8-mile turf track, and state-of-the-art facilities. The racetrack hosts an impressive array of amenities, including one of the largest 4K video boards globally, permanent lighting for night racing, a saddling paddock, and a stable that can accommodate up to 1,400 horses. As part of a long-term improvement plan initiated in 2021, multi-million dollar investments have been made to enhance guest experiences, including the modernized Homestretch Club and the First Turn Experience.

Historical Racing Properties

CDI operates several historical racing venues across various states:

• Derby City Gaming & Hotel: Located near the Churchill Downs Racetrack, this facility underwent an expansion in 2023 to include a hotel and entertainment options.
• Oak Grove Racing & Gaming: Situated in Kentucky, this facility features a harness racing track and a hotel in addition to its historical racing machines.
• Turfway Park Racing & Gaming: Located near Cincinnati, Ohio, it consists of a thoroughbred racetrack combined with historical racing entertainment.
• Ellis Park: Acquired in 2022, this thoroughbred racetrack operates several live race days annually and features simulcast facilities.

Each venue aims to enhance guest engagement through improved amenities and entertainment offerings.

TwinSpires

The TwinSpires segment is centered around CDI's pari-mutuel wagering operations, which include online platforms for horse racing and sports betting. Known as one of the leading legal online wagering platforms in the U.S., TwinSpires offers services through TwinSpires.com and BetAmerica.com. This segment not only facilitates wagering but also provides technology solutions for advance deposit wagering (ADW) and serves as a retail sports betting operator in licensed jurisdictions.

Advance Deposit Wagering (ADW)

TwinSpires operates as a multi-jurisdictional simulcasting and interactive wagering hub, offering live streaming, race replays, and comprehensive handicapping information. The platform accepts wagers through various means including mobile applications and websites, serving customers across multiple states.

Sports Betting

With the lifting of federal restrictions on sports wagering, CDI has expanded into the sports betting arena, forging strategic partnerships to enable betting on various sporting events both online and through retail locations.

Gaming

The Gaming segment of CDI encompasses casinos and associated racetracks, generating revenue from slot machines, table games, video lottery terminals (VLTs), and hospitality services. This segment focuses on optimizing gaming licenses across multiple jurisdictions to maximize revenue generation.

Wholly Owned Properties

CDI owns several properties, including:

• Calder Casino: Located in Miami Gardens, Florida, with entertainment and dining facilities.
• Terre Haute Casino Resort: Set for completion in 2024, this extensive gaming venue in Indiana is expected to house numerous gaming positions along with hospitality services.

Equity Investments

The company has equity stakes in several gaming and entertainment venues across states like Illinois and Ohio, which contribute to its overall revenue stream.

C. Competitive Landscape

The gaming and entertainment industry in which CDI operates is marked by intense competition. Key competitors offer a diverse range of entertainment options, from casinos to spectator sports. CDI's operations face challenges from traditional gaming establishments, state-sponsored lotteries, and emerging betting platforms. With legalized gaming accelerating in many states post-2018, CDI continues to adapt and innovate to maintain its market position across all segments.

D. Regulatory Environment

CDI operates within a highly regulated industry where compliance with federal, state, and local regulations is paramount. The ownership and management of racing and gaming facilities require adherence to laws governing gaming operations. Each jurisdiction varies in its regulatory landscape, impacting operations such as pari-mutuel wagering and casino gameplay.

Licensing and Suitability

Gaming laws necessitate rigorous licensing for CDI and its subsidiaries, with thorough background checks to ensure the integrity of management and operators. Any changes to gaming laws or the regulatory environment could significantly impact CDI's operational efficacy.