The Kentucky Derby means much more to Churchill Downs Inc. than just the two most exciting minutes in sports.
The 150th Run for the Roses, happening Saturday, marks a milestone for the company. After two years of construction, the company is going to showcase its $200 million paddock renovations, its most transformative change at the track. But even though the bourbon drinks and fancy hats probably will be as strong and eye-catching as the new setting, live horse racing is increasingly a minor part of Churchill Downs’ business.
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The company, named for the famed racetrack where the Derby takes place, has increasingly focused in recent years on sports betting, online horse wagering and historical horse racing machines, where anonymized races are rerun to meet the betting fervor of casino customers.
While the company no longer breaks out revenue figures for the Derby—and company representatives declined to comment for this story—the Kentucky Derby is probably 5% or less of Churchill Downs Inc.’s ($CHDN) $2.46 billion in annual revenue. This is based on a disclosure in its 2020 annual report that the running of the Derby without fans due to the pandemic resulted in a decrease of $121.8 million in revenue from in-person attendance to the Derby week races and other related events.
The longest continuously running sporting event in the U.S. is a television ratings bonanza for its publicly traded parent. But for all the attention the Kentucky Derby gets, Churchill Downs is just a small player in the American racing field. The 285 or so races it holds each year at its four racetracks in Kentucky, along with one each in Pennsylvania and Louisiana, are less than 1% of the 32,000 live races held across the country annually. It’s also a notable decline from the number of races the company used to run: A decade ago it regularly ran more than 400. In the mid-1990s, Churchill Downs had 565 days of racing at its properties, according to its 1996 annual report (the number of races held each day wasn’t disclosed).
Betting has always been a part of horse racing, of course, but, based on its business trajectory, Churchill Downs seems to prefer that someone else manage the ponies. As the company has de-emphasized live race operations, it has moved heavily into casinos, broad sports betting and historical racing parlors. It now owns 30 casinos and historical racing facilities from Maine to Florida and west to Sioux City, Iowa. It owned six a decade ago, excluding off-track-betting parlors.
The company’s total gambling revenue has more than tripled since 2013, to nearly $1 billion in 2023, excluding historical racing. Live and historical racing, which the company reports as a consolidated figure, was $1.09 billion last year, with 80% of that likely from historical races, based on earlier years when live racing was disclosed as its own item by the company and was shown to be in gradual decline.
Still, Churchill Downs the racetrack is important—it’s a “trophy asset,” says Jefferies equity analyst David Katz. It’s also the company’s smallest division in terms of its contribution to profitability, according to his estimates. The racetrack probably contributed $120.9 million in earnings before interest, taxes, depreciation and amortization (EBITDA, a measure of core business health), while online gambling business TwinSpires contributed $126.6 million, with casinos and other gambling efforts contributing $837.2 million.
The company reported financial results for the first quarter on Friday. The company beat forecasts, with revenue of $591 million, over 4% above estimates. The live and historical racing revenue increased by 15% and adjusted EBITDA by 23% compared to the first quarter of 2023, attributed to increased revenue from Kentucky’s historical racing machines and Virginia properties.
The company appears committed to racing at Churchill Downs for a long time to come. The newly expanded and refurbished racetrack and facilities will probably see a quarter of a million spectators through its turnstiles for the Derby and the Kentucky Oaks, a race for fillies running Friday.
“When you think about our company, always remember, we have the special asset called the Kentucky Derby,” CEO William Carstanjen said in a February call with analysts. “And while it’s 150 years old and is the oldest continuously run sporting event in the United States, in our mind, it’s still a young, young property with a lot of opportunities. So that’s a component of our growth story going forward.”
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