Historical Racing Provides Churchill Downs Inc. Boost

The historical racing facility at Derby City Gaming in Louisville, Ky., helped drive Churchill Downs Inc. to a successful first quarter in 2019.

Money from those machines will provide a boost to Churchill Downs' spring meet purses, most notably an increase of the Kentucky Derby Presented by Woodford Reserve (G1) purse from $2 million to $3 million. But perhaps most importantly for the state's racing, there will be an $18 million boost to the meet's overnight purses.

In an April 25 conference call with investors and advisers for a first quarter in which Churchill Downs Inc. improved its adjusted earnings 74.6% to $74.6 million, CEO Bill Carstanjen outlined the success of Derby City Gaming, which opened in September and contributed $7.6 million in adjusted earnings in the first quarter.

Carstanjen credited CDI president and COO Bill Mudd with putting in a lot of planning and initial work to help Derby City Gaming to a strong start. He noted efforts by CDI to work with the games' manufacturer to develop compelling games that have been able to compete with the slot machines available at nearby Indiana casinos. Carstanjen believes the facility has more upside.

"I think we're in the early innings of the property. I think over time we can improve our selection of games. I hope over time, perhaps, we can add manufacturers," Carstanjen said. "I think we can understand our facility better, understand our customers better, market to them better, as we learn more about them and learn the true competitive positioning of the product in the marketplace.

"There are still a lot of lessons to be learned with that product in Louisville. There's a lot to the idea that we're expanding the market, not just trying to take share from across the river."

The CDI CEO noted the machines have generated money for purses that will provide a boost to Churchill Downs' racing. Derby City Gaming is located about five miles from the track.

"We are also pleased with the incremental purse contributions that Derby City Gaming is making to Churchill Downs Racetrack, which will help sustain the long-term sustainability of the horse racing industry in Kentucky," Carstanjen said.

The strong start has Churchill looking forward to its larger project to build a harness track near Oak Grove, Ky., that will offer historical racing in the Nashville, Tenn., market. Keeneland is a minority partner on that plan, which will see the historical racing games generate purse money for 12 harness racing dates at the new track and supply purse money for Thoroughbred racing. Carstanjen noted that lessons learned at Derby City Gaming can only help at Oak Grove.

"Just as exciting is what we can take from Derby City Gaming and our Louisville experience and apply down to Oak Grove when we open that property, which is a more significant capital investment—$62 million for Louisville and approximately $200 million for Oak Grove Kentucky," Carstanjen said of the project that will include a track, a hotel, and event center. "So everything we can possibly learn to get better at running that operation, we want to take those lessons and apply them down south."

CDI broke ground on Oak Grove April 9, and Carstanjen said its projected cost was increased $50 million to $200 million to accommodate a higher-than-expected cost of construction and some modifications to support expected consumer demand.

"We are more and more comfortable and confident understanding what we can do with historical racing machines," Carstanjen said. "When we do open down there, we'll be better operationally than we were when we first opened here because we'll take all the lessons we've learned here in Louisville."