Churchill Downs Inc. expects its racetracks and historic horseracing (HHR) locations in Kentucky to benefit from the legalization of sports betting, with CEO Bill Carstanjen planning to introduce kiosks at tracks and HHR facilities, as well as the ability to offer online wagering through a deal with FanDuel, later in the year.
“We will be permitted to have up to nine retail locations and up to eight online sports-betting licenses that we can potentially monetize,” Carstanjen told analysts on Thursday (April 27). “Each of our racetracks and Historic Horseracing facilities already have a sports bar that will be enhanced with sports-betting kiosks.”
Kentucky's sports wagering law goes into effect 90 days after the end of the 2023 legislative session, which is July 29. The Kentucky Horse Racing Commission (KHRC) would then have six months to develop and approve rules regulating sports betting in the state.
“We will look to go live in our retail locations once regulators have promulgated all of the required regulations and operational standards,” Carstanjen said. “Currently, we expect this will happen in the second half of 2023.”
Carstanjen told analysts during a first-quarter earnings conference call that Churchill Downs believed retail sportsbooks will help drive additional traffic to its properties, and will further grow its HHR business across Kentucky.
With respect to online wagering, Carstanjen said that Churchill Downs has entered into a contract with Flutter-owned FanDuel to give the group market access to Kentucky in exchange for a revenue stream. He said Churchill Downs also expects to enter into other market-access agreements in the near future.
A FanDuel spokesman declined Thursday to comment beyond what Carstanjen told analysts.
“It will be a nice bonus,” Carstanjen said of sports betting in Kentucky. “It is not material to the scale of the company or anything like that. It will help each of the (HHR) properties.”
During Thursday’s call, Carstanjen also noted that HHR is a key focus over the next five to ten years for Churchill Downs as it seeks to expand its footprint in the business.
“We have developed high growth, high margin investments in this segment with excellent return on capital,” he said. “We will seek to build on that track record in Kentucky, Virginia, New Hampshire, Louisiana and perhaps beyond.”
For the first quarter, net revenue from HHR and live racing increased $128.6m, due to a $97.7m increase attributable to the Virginia properties acquired in the $2.75bn deal for Peninsula Pacific Entertainment (P2E).
The acquisition included all P2E’s assets and operations in Virginia including Colonial Downs racetrack, HHR locations and licenses, as well as assets in New York and Sioux City, Iowa. The first quarter marked the first full quarter for the company with those assets under management.
Carstanjen said Churchill Downs is working with manufacturers, including through its pending $250m acquisition of Exacta Systems, to upgrade HHR machines. Exacta provides technology and a gaming library for HHR machines with IGT, Light & Wonder and other manufacturers.
“Exacta helps us… to make this product as competitive as we can with Class III [casino-style slot machines], but we are not there yet,” he said.
Carstanjen also expressed his appreciation to lawmakers and Kentucky Democratic Governor Andy Beshear for banning unregulated grey-market games that play like slot machines. Beshear signed the ban on March 16, which was quickly followed by machine manufacturers filing a lawsuit to block the ban.
If opponents are unsuccessful in getting a Franklin County Circuit Court judge to block the ban, the machines, which proponents call “skill games”, will become illegal on July 1 and any businesses operating a machine could face a $25,000 fine.
“So this was a circumstance where these machines were multiplying rapidly and had gained an unfortunate foothold in the state,” Carstanjen said.
“They were unauthorized, they were untaxed, they were unregulated, they were not fully understood, because there was no reporting on them. But it was the collective view of many, including us, including the legislature, that they were really harming and multiplying across the state. So the state has taken steps through legislation to ban them.”
Carstanjen said he does not know the exact number of grey-market games in Kentucky, but their removal was likely to have a positive impact on legal authorized gaming at tracks and HHR facilities.
“These were terrible for our industry,” he told analysts. “They were unauthorized, unregulated and unmanaged by the state, and that’s dangerous for a product like gaming. So, we’re happy to see them go.”