Churchill Downs Scraps Trackside Hotel, Considers Annex to Compete with Caesars

Posted on: April 22, 2021, 11:22h. 

Last updated on: June 23, 2021, 01:33h.

Churchill Downs Inc. has pulled the plug on the plan to build a hotel at its historic namesake track. However, company officials are still looking to expand in the Louisville-based gaming company’s hometown.

Churchill Downs
Essential Quality, the likely favorite for the May 1 Kentucky Derby, works out on the Churchill Downs track Thursday. On Thursday, company officials also announced they would not build a hotel at the iconic track. However, they may look to invest elsewhere in the Louisville area. (Image: Churchill Downs/Coady Photography)

Company officials first floated the idea of a trackside hotel nearly two years ago as part of a $300 million expansion. However, company officials hit the pause button a year ago, as the COVID-19 pandemic significantly affected the hospitality industry.

CEO Bill Carstanjen told analysts on Churchill Downs’ quarterly report call Thursday that the company used the pause to re-evaluate a number of different factors, including the region’s hotel occupancy and room rates.

We may decide to build a hotel at the racetrack in the future, but now is not the right time,” he said. “We think we have excellent alternative projects that offer better returns on our capital over shorter periods, both at the racetrack and Derby City Gaming.”

Churchill Downs’ plans for the track involve a series of three upgrades over the next three years. That would culminate in 2024 with what would be the 150th running of the Kentucky Derby.

Each project would be ready in time for the Kentucky Derby, and the 2024 project would be the “most transformative,” Carstanjen said. He added that further details will be revealed in upcoming quarterly calls.

Churchill Downs Units Post Record Quarters

From a financial standpoint, one of the company’s biggest successes came from Derby City Gaming, its historical horse racing (HHR) venue that’s located about 5 miles from the track.

HHR machines have the look and feel of slot machines at casinos. However, where Class II slots use electronic bingo to determine winners and class III slots use random number generators, HHR machines use previously run races to determine winners.

In its first-quarter results, which Churchill Downs released after the markets closed Wednesday, it noted that Derby City Gaming’s net revenue for the first quarter was $32.9 million. Not only was that up nearly 53 percent from the first quarter last year, it also was a record performance for the facility that opened less than three years ago. That record came during a quarter where capacity was limited to 60 percent by COVID protocols.

Carstanjen told analysts that the company is weighing options to build additional gaming space at Derby City, to the point officials are getting construction estimates.

Other bright spots for Churchill Downs included TwinSpires, its online wagering platform, and its casino gaming operations. Both also produced record results to start the year.

TwinSpires horse racing division generated net revenues of $93.1 million. That’s an increase of 39 percent from the same quarter last year. Meanwhile, Churchill Downs casinos generated an adjusted EBITDA of $82.4 million, up 72 percent from the first quarter of 2020.

Company-wide, Churchill Downs reported net revenue of $324.3 million for the quarter, an increase of 28 percent. Net income rose sharply from the year prior. Officials reported $36.1 million for the most recent quarter, compared to a net loss of $23.4 million from the same period last year. Quarterly EBIDTA doubled from the year prior at $110.6 million.

Next Move Downtown Louisville?

Carstanjen also gave clear signs the company may expand its footprint elsewhere in the city, meaning Churchill Downs may look to build a satellite HHR parlor.

Under Kentucky racing regulations, Churchill Downs can also build a satellite facility within 60 miles of the track. Well within that range, as Carstanjen noted, is downtown Louisville.

The satellite facility could be used to help steer people away from Caesars Southern Indiana. That full-fledged casino is about a 15-minute drive from downtown Louisville.

The purpose behind the annex would be to maximize Churchill Downs’ return on investment in Louisville, and not take away from what Carstanjen called a proven product in Derby City Gaming.

We have a lot of analytics on where our customers come from,” he explained. “Where do we see ZIP Codes in the metropolitan area that we don’t draw from that we think maybe go across the river. We have done a ton of work to figure out where are the strong spots for Derby City gaming, where are the weak spots, and where do the conventioneers who come to the city go. Do they go across the river? Do they go to Derby City Gaming?”

HHR is an option because state lawmakers passed legislation to give the Kentucky Horse Racing Commission (KHRC) the ability to legalize and regulate HHR. That was needed after the state’s Supreme Court issued an opinion that determined the KHRC did not have the authority to approve new types of pari-mutuel wagering.