Business Overview

Churchill Downs Incorporated (NASDAQ:CHDN) has been creating extraordinary entertainment experiences for over 150 years, starting with its most iconic and enduring asset, the Kentucky Derby. Headquartered in Louisville, Kentucky, the company has expanded through the acquisition, development, and operation of live and historical racing entertainment venues, the growth of its online wagering businesses, and the acquisition, development, and operation of regional casino gaming properties.

History and Evolution

The company's history can be traced back to 1875 when thoroughbred racing first began at Churchill Downs Racetrack. Over the decades, the Kentucky Derby has become much more than just a horse race - it is a testament to the enduring spirit of American sportsmanship, celebration, and the lasting power of traditions. As the longest continuously held annual sporting event in the U.S., the Kentucky Derby has become inseparable from the place, Churchill Downs Racetrack, and the company's challenge is to innovate and evolve this historic and unique venue to exceed the ever-changing expectations of its guests.

Churchill Downs Incorporated was officially organized as a Kentucky corporation in 1928, formalizing its operations around the Churchill Downs Racetrack. In 2002, the company made a strategic move by transferring the title of the Churchill Downs Racetrack facility to the City of Louisville, Kentucky, and entering into a 30-year lease for the facility. This arrangement was part of the financing strategy for improvements to the racetrack, demonstrating the company's commitment to maintaining and enhancing its flagship asset.

Throughout its history, CHDN has faced various challenges, including the need to adapt to changing consumer preferences and technological advancements. The company has consistently responded by making significant investments in its properties and operations. For instance, the Paddock Project, completed prior to the 150th Kentucky Derby in 2024, was a major undertaking that transformed key areas of Churchill Downs Racetrack, enhancing the guest experience and reinforcing the venue's status as a premier entertainment destination.

CHDN has also successfully navigated the complex and evolving regulatory environment for its live and historical racing, wagering services and solutions, and gaming operations. The company has maintained close relationships with state legislatures and gaming authorities to ensure compliance with applicable laws and regulations in the jurisdictions where it operates. This proactive approach has enabled CHDN to capitalize on growth opportunities, such as the legalization of historical horse racing machines in Kentucky and the expansion of its Virginia HRM properties following the 2022 acquisition of Colonial Downs Racetrack.

Financial Performance

In 2024, Churchill Downs Incorporated delivered record financial results, with net revenue increasing 11% to $2.73 billion and adjusted EBITDA growing 13% to $1.16 billion compared to the prior year. This strong performance was driven by the company's diversified portfolio of businesses, highlighted by a record Kentucky Derby week and significant growth in its Virginia historical racing machine (HRM) operations.

The company's Virginia HRM venues contributed 20% of its nearly $1.2 billion in adjusted EBITDA in 2024. This growth was fueled by the opening of The Rose Gaming Resort in Northern Virginia in late 2024, which the company estimates has a potential customer base four times larger than several of its other key HRM properties in Virginia and Kentucky. While it typically takes time for new HRM facilities in large media markets to attract and retain customers, the company is investing significantly in marketing across Northern Virginia and is seeing progress each week.

In Kentucky, Churchill Downs Incorporated opened its new Owensboro HRM venue in February 2025, on time and below budget. The company also began work on the Marshall Yards HRM venue in Calvert City, Kentucky, which is expected to open in the first quarter of 2026. These investments in Kentucky, combined with the continued growth of its existing HRM properties, such as Derby City Gaming and Turfway Park, have driven strong financial results.

Kentucky Derby Expansion

At Churchill Downs Racetrack, the company recently announced a multi-year series of capital projects that will enhance and expand the Kentucky Derby experience. These transformational projects, collectively the largest expansion and renovation in the 150-year history of the company, will create world-class premium hospitality for Kentucky Derby guests. The projects include the Skye Reconstruction and Expansion, the Conservatory Project, and the Infield General Admission Project. These investments, along with the completion of the Starting Gate Courtyard and Pavilion project for the 2025 Kentucky Derby, are expected to drive continued growth in the company's flagship asset.

Wagering Services and Solutions

In the company's Wagering Services and Solutions segment, the Exacta business, which the company acquired in 2023, has been a significant contributor to growth. Exacta is a leading provider of central determinant system technology in HRMs across the country, and the acquisition has enabled Churchill Downs Incorporated to realize substantial synergies related to its HRM operations.

Gaming Segment

The company's Gaming segment also delivered strong results in 2024, with adjusted EBITDA growing 4% primarily driven by the performance of the new Terre Haute Casino Resort in Indiana, which opened in April 2024. While the company's existing regional gaming properties faced some consumer softness and increased competition, they held up relatively well, with the company's 2024 same-store, wholly-owned casino margins, excluding insurance proceeds and racing, down only 1.4 points compared to 2023.

Segment Performance

Churchill Downs Incorporated operates through three reportable segments: Live and Historical Racing, Wagering Services and Solutions, and Gaming.

The Live and Historical Racing segment includes live and historical pari-mutuel racing related revenue and expenses at Churchill Downs Racetrack and the company's historical racing properties in Kentucky, Virginia, and New Hampshire. In 2024, the Kentucky Derby generated all-time record all-sources handle and all-time record Derby Week Adjusted EBITDA, with nearly 157,000 fans attending the event in person.

The Wagering Services and Solutions segment includes the revenue and expenses for the company's online horse racing wagering business TwinSpires, its sports betting business, United Tote, and Exacta. TwinSpires is one of the largest and most profitable legal online horse racing wagering platforms in the U.S.

The Gaming segment includes revenue and expenses for the company's wholly owned casino properties and associated racetrack facilities which support the casino licenses. Key properties in this segment include Calder Casino in Florida, Terre Haute Casino Resort in Indiana, Hard Rock Hotel and Casino in Iowa, and del Lago Resort and Casino in New York, among others.

In 2024, the Live and Historical Racing segment saw a 20.9% increase in Adjusted EBITDA, the Wagering Services and Solutions segment Adjusted EBITDA increased 25.4%, and the Gaming segment Adjusted EBITDA increased 3.7%.

Liquidity and Capital Allocation

Throughout 2024, Churchill Downs Incorporated maintained a strong financial position, generating $688 million, or $9.22 per share, in free cash flow, up nearly 33% per share over the prior year. The company expects its bank covenant net leverage to decrease below the four times range over the coming year and then decline further in 2026 as its investments in the Kentucky Derby and HRM venues in Kentucky and Virginia continue to ramp up.

As of December 31, 2024, the company had a debt-to-equity ratio of 4.54, cash and cash equivalents of $175.5 million, and $814.9 million available under its $1.2 billion revolving credit facility. The company's current ratio and quick ratio both stood at 0.56.

For 2025, Churchill Downs Incorporated plans to spend $350-400 million in project capital, which includes the recently announced Kentucky Derby projects as well as other ongoing projects like the Owensboro HRM venue, the expansion of the Richmond HRM venue, and the construction of the Marshall Yards HRM venue.

Future Outlook

The company's consistent execution and prudent capital allocation have positioned it well to continue delivering long-term shareholder value. With a diversified portfolio of assets, a strong balance sheet, and a track record of successful innovation and growth, Churchill Downs Incorporated appears poised to capitalize on the opportunities ahead.

For 2025, CHDN expects continued strong growth from their investments, including in the Kentucky Derby and their HRM opportunities in Virginia and Kentucky. The company is undertaking a series of transformational projects at Churchill Downs Racetrack, including the Sky Terrace renovation and expansion, the Conservatory project, and the Infield General Admission project. These projects are expected to be completed by the 2028 Kentucky Derby and are anticipated to drive significant growth in the company's flagship asset.

The gaming industry has experienced steady growth, with a compound annual growth rate of approximately 5-7% over the past several years. CHDN has been able to capitalize on this industry growth through strategic acquisitions and investments in its live and historical racing, online wagering, and regional casino businesses. With its strong financial performance, ongoing capital projects, and favorable industry trends, Churchill Downs Incorporated is well-positioned for continued success in the coming years.