Churchill Downs Inc. is putting all its money on what it knows best: horse races and betting on horse races.
Last week, the owner of the Kentucky Derby announced funding for a redevelopment project that will debut for the 150th running of the Run for the Roses in 2024, which follows a decision earlier this year to get out of the market for online sports betting.
The new project is the final stage of a roughly $330 million, three-phase renovation that encompasses the homestretch, the first turn and now, the paddock. “I think that the paddock redesign is something they’ve talked about doing that they finally gave a budget,” Daniel Politzer, an analyst with Wells Fargo who follows betting and entertainment stocks, told Sportico. The estimated cost of the final phase is expected to be around $200 million. “This is a continuation of the updates they have done to Churchill Downs racetrack, which is their trophy. It’s part of Americana; there’s a long history to it. This racetrack has been around for over 100 years, there’s a lot of history to it, and they’re building it to last forever.”
The investment in the physical space coincides with a decision to focus on horses away from the track as well. During the company’s last investor call in February, CEO Bill Carstanjen announced that the TwinSpires betting service would exit the online sports betting and iGaming space over the next six months. The decision came after the company’s 2021 earnings report showed a loss of $31.9 million on online sports betting.
“The online space requires a level of scale and financial commitment that they were just not willing to make,” Katz said. “If you look at all the other larger mobile operators in the U.S., they’re putting some big losses in advance of capitalizing on the opportunity. And it is a good opportunity, but it isn’t for everyone.”
Politzer said brick-and-mortar gaming is closer to the company’s core. “They are focusing on historical racing machines, which is another form of brick-and-mortar casino gaming, and they have a plethora of projects on the horizon for the paddock,” he said.
Horse racing has been Churchill Downs Inc.’s main business since 1875. Besides Churchill Downs, the Louisville-based company owns a handful racetracks and casinos around the country, although it sold its Arlington Park property in Illinois to the Chicago Bears for $197.2 million in 2021. “They lost a little bit of money over the 22 years that they owned it,” said David Katz, an analyst with Jefferies who follows Churchill Downs stock. “They could have put slot machines at the track, but they didn’t feel like the tax rate was right and that the value proposition was there. Selling the land clearly had more immediate value for them.”
Better to focus on the money-makers. The work at Churchill Downs started with a $45 million renovation of the Homestretch Club that added a grand staircase, 100-foot-long bar, terraced outdoor seating and 200-person lounge. While it downsized the number of grandstand seats by nearly 2,000, it added more than 3,000 new all-inclusive seats and 2,610 upgraded club seats and private VIP lounges, and opened in time for this year’s race.
For next year, the Turn 1 changes will add 3,700 reserved seats, permanent under-cover stadium seating as well as a climate-controlled hospitality venue and two concourses. And in 2023, the paddock renovation will create 3,612 new premium reserved seats and 3,250 new standing-room-only tickets along with several club spaces that include dining areas, Chef’s table amenities and reserved viewing areas.
Churchill Downs Inc. also announced a $76 million expansion to their Derby City Gaming casino in Louisville, which will include a 123-room hotel. The project will also add 200 additional gaming positions and entertainment options to the facility.