Earnings above expectations

Churchill Downs reports record $582M revenue in Q2 driven by successful 148th Kentucky Derby

Reading time 3:19 min

Gaming company and horse racing giant Churchill Downs Incorporated has reported its business results for the second quarter of the year. For the period, CDI posted record net revenues of $582.5 million, up from $515.1 million in Q2 2021; and a record net income of $339.3 million, more than triple the $108.3 million in the comparable quarter last year. Momentum was driven by the Kentucky Derby at Churchill Downs Racetrack.

During the quarter, the company’s live and historical racing segment delivered record revenue and Adjusted EBITDA, with the latter up 67% compared to Q2 2021. Additionally, the company posted an overall record Adjusted EBITDA of $291.2 million. The second quarter also saw CDI run the 148th edition of its emblematic Kentucky Derby, with record Derby Week all-sources handle for Churchill Downs Racetrack and record Derby Week Adjusted EBITDA.

On a per-share basis, the Louisville-based company said it had a net income of $8.79. Earnings, adjusted for non-recurring gains, were $3.90 per share, with the results topping Wall Street expectations. The average estimate of five analysts surveyed by Zacks Investment Research was for earnings of $3.83 per share, according to Associated Press.

Highlights of the period included the debut of the new Homestretch Club at Churchill Downs Racetrack, a new luxurious venue and premium dining space located behind homestretch seating. But the company also managed to utilize the quarter to close on sales, including that of 115.7 acres of excess land near Calder Casino for $291 million.

The company’s betting segment TwinSpires delivered Adjusted EBITDA of $33.9 million, up 38% against Q2 2021, while net revenue for the brand decreased by $4.1 million in part due to a $2.2 million decrease from sports and casino. This was driven by the decision to exit the direct online sports and casino business in Q1 of this year, keeping TwinSpires and its sportsbooks in casinos. 

But TwinSpires’ horse racing segment was also down, by $1.9 million. Net revenue here decreased as a higher portion of patrons returned to wagering at brick-and-mortar facilities instead of wagering online. Thus, TwinSpires’ Adjusted EBITDA increase of $9.3 responded mostly to a $10.8 million increase from sports and casinos due to decreased marketing.

All in all, the overall second-quarter net revenue increase primarily responded to the Kentucky Derby. Without the capacity restrictions that were in place in 2021, the event delivered a $69.3 million increase at Churchill Downs Racetrack.

But increases were also seen at a slate of Kentucky venues. These include an $8.5 million growth at Oak Grove Racing, Gaming and Hotel; and a $4.3 million increase from Derby City Gaming. Newport Racing & Gaming was up $2.9 million; while Turfway Park posted a modest $0.4 million increase.

The company’s historical racing machine (HRM) segment, in which it has a large presence, benefited from the elimination of capacity restrictions at properties, and overall posted continued growth in the businesses. The company operates approximately 3,050 HRMs in Kentucky.

In contrast, gaming saw a net revenue decrease of $1.5 million due to drops at the Harlow’s and Riverwalk casinos “as a result of the current economic conditions, competitive pressures, and a mask mandate at Harlow’s that was discontinued in early June.” This was partially offset by a $4.8 increase at Oxford Casino due to the lifting of restrictions; and a $2.1 million increase at Fair Grounds.

Looking forward, the company provided an update on its purchase agreement to acquire substantially all of the assets of Peninsula Pacific Entertainment (P2E), a move first announced in February, for total consideration of $2.5 billion.

The deal contemplates the acquisition of a number of properties, including Colonial Downs Racetrack in New Kent, Virginia; six historical racing entertainment venues across Virginia; del Lago Resort & Casino in Waterloo, New York; and the operations of Hard Rock Hotel & Casino in Sioux City, Iowa.

CDI has now obtained the acquisition of ownership interest approval for the Virginia properties from the state’s Racing Commission. The transaction remains dependent on customary closing conditions, including approvals from the New York State Gaming Commission, and from Iowa commissioners. The company still targets closure before the end of 2022.

But CDI is also acquiring other properties, including Chasers Poker Room in Salem, New Hampshire, which was announced in March. The company plans to develop an expanded charitable gaming facility in Salem to accommodate historical racing machines. 

CDI expects the total investment in Salem, inclusive of the Chasers purchase price, to be approximately $150 million. The transaction is expected to close in the third quarter of 2022, a press release explains.

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