Churchill Downs to exit online casino and sports betting business; posts record $1.6B net revenue in 2021

Gaming company and horse racing giant Churchill Downs Inc. is exiting the online casino and sports betting businesses, Chief Executive Officer William Carstanjen told investors in a conference call on Thursday. The Kentucky Derby operator, however, will still maintain its web-based horse betting operations.

“The online sports betting and online casino space is highly competitive with an ever-increasing number of participants that the states have licensed,” Carstanjen said, according to Bloomberg. “Many are pursuing maximum market share in every state with limited regard for short-term or potentially even long-term profitability.”

CDI’s departure from the sports gaming vertical will happen over the next six months, according to company officials. The business will still maintain retail sportsbook operations in its casinos and try to sell market-access rights to other operators where appropriate.

For some time now, the rumor that CDI wanted to sell its sports and iGaming operations grew bigger. In December, Bloomberg reported the company was exploring deals for its sportsbook product, “working with an adviser” to solicit potential interest in the wagering platform. At the time, it was said TwinSpires could fetch about $1.5 billion in a transaction.The company’s decision to exit the sports betting market comes amid industry and analysts' preoccupation over the profitability of the segment. In an effort to capture a larger market share, companies have launched expensive marketing campaigns and began offering generous -and costly- sign-up offers and free bets.

Media speculation had previously signaled that Wynn Resorts was also looking to sell its Wynn Interactive division -operator of the WynnBet app- in a “fire sale” amid stiff taxes and costly promotions. 

Earlier this week, Caesars said it would be cutting its sportsbook ad spending; and on Thursday, Bally’s Corp. CEO Lee Fenton said he wanted to avoid “continued irrational spending” on sports betting.

Financial update

Churchill Downs’ announcement that it is pulling out of the sports gaming race comes amid a record net revenue for 2021 of $1.6 billion, up 52% over the prior year. Net income for last past year was $249.1 million, compared to a net loss of $81.9 million in 2020; while CDI also delivered a record 2021 Adjusted EBITDA of $627 million, up 119%.

CDI claims it had a “strong operating performance” from its various business segments, including a successful 147th Kentucky Oaks and Derby, leading to strong sponsorship revenue and margins; and record net revenue and Adjusted EBITDA in its Derby City Gaming property. Oak Grove Racing, Gaming & Hotel posted “strong growth” in net revenue in its first full year.

Churchill Downs’ gaming segment delivered a record $411.9 million of Adjusted EBITDA, a 138% increase compared to 2020, despite certain restrictions still in place at its properties during last year. Wholly-owned casinos delivered record margins of 37% in 2021, up 11.1% from 2020 and 7.8% from 2019.

Kentucky Derby, 2020

More importantly, 2021 results also were up from pre-pandemic 2019, with a net revenue increase of $136.4 million due to higher handle in horse racing, and a $29.2 million increase from sports and casino, driven by expansion in additional states, as well as marketing activities. Adjusted EBITDA for the year increased by $8.7 million from 2019.

Earlier this week, Churchill Downs announced it has entered a definitive agreement to acquire nearly all of the assets of casino and hospitality business Peninsula Pacific Entertainment (P2E) for a total consideration of $2.5 billion.

The transaction is set to expand the geographic footprint of CDI’s live and historical racing entertainment venues and significantly increase the scale of the business. The company will acquire all of P2E’s assets in Virginia and New York, including Colonial Downs Racetrack and Rosie’s Gaming Emporium, plus operations of Hard Rock Sioux City Casino in Iowa.