Churchill Downs (CHDN) Q1 FY26 earnings call: guidance and Q&A

Details on the fee structure for the Preakness IP and longer-term strategy.

The fee structure is a $3 million base fee starting in 2028 (growing 2.5% annually) plus 2% of handle for Black-Eyed Susan and Preakness days. Management views Preakness as an iconic asset with tremendous potential, consistent with their strategy for unique assets like the Derby.

“So the fee structure in Maryland is a 2-part structure. First, a base fee of $3 million that grows at 2.5% every year starting in 2028. ... And then the second portion of the fee is 2% of handle for the Black-Eyed Susan day plus the Preakness day.”

asked by Barry Jonas · answered by William C. Carstanjen

How the Preakness investment fits into CHDN's capital allocation parameters (local monopolies, improving operations) and its long-term evolution.

The investment is consistent with their strategy for iconic, unique assets like the Derby, which cannot be duplicated. Management believes Pimlico and Preakness have elements of this and aims to develop their potential, working with the state.

“So for us, it's entirely consistent with how we look at things like the Derby. In my opinion, the Derby is always what's most special and what's most unique about our company, and it's an asset that can't be duplicated.”

asked by Daniel Politzer · answered by William C. Carstanjen

How success is measured in growing the international customer base for the Derby and goals for the next 5 years.

Success is measured by attendance from overseas markets, leading to sponsorships and partnerships. Viewership is also growing. The focus is on attracting high-end customer participation and encouraging sponsorships, with positive trends seen internationally.

“It starts with attendance. It starts with encouraging more folks in the overseas markets, starting with those that have an attachment or an interest in horse racing to come experience this event. And from that, it builds into sponsors and partnerships.”

asked by Daniel Guglielmo · answered by William C. Carstanjen

Why the Virginia legislation (skill games, casino, iGaming) was vetoed and if this will be a recurring trend.

State legislative processes are busy and involve divergent views. The outcomes in Virginia reflect a healthy democratic process and a conclusion on gaming management for the time being. Management is encouraged by the dialogue and believes their views are respected, seeing Virginia as a stable environment.

“I'm encouraged by some of the dialogue and some of the discussion there that their progression on gaming issues is a positive one from our perspective, and I'm encouraged going forward that there's a forum for discussion, that there's a forum for convergence of views and that our views are respected and heard.”

asked by Chad Beynon · answered by William C. Carstanjen

Has Virginia competitively evolved as expected, and has the strategy adapted to increasing competition?

Virginia has been a strong and encouraging investment. While new competition is a constant in gaming, the company has adapted its strategy. They remain flexible and constantly evaluate what's best, noting that Virginia has been a positive experience despite the 'noise.'

“So always be flexible. I agree with what you said, always evolve your strategy, always be flexible. We've done that in Virginia. What we don't control is the noise and the discussion that happened during any legislative session.”

asked by David Katz · answered by William C. Carstanjen

Thoughts on the incremental 4,000 machines in Kentucky and potential properties for expansion.

Kentucky has been a very positive investment, with properties still growing and not yet at maturity. HRMs as a product continue to improve, and ETGs are viewed positively. Marshall Yards, recently opened, has had an encouraging start. The company will continue innovating and growing into the marketplace.

“So all these properties are still showing real signs of growing into their own skin. They're still -- they haven't reached maturity. They're still growing. HRMs as a product continue to get better.”

asked by Jordan Bender · answered by William C. Carstanjen

Comparison of geopolitical impact on ticket sales this year vs. last year, and update on $15M-$20M incremental EBITDA guidance.

This year, there has been no geopolitical impact on the sales process, unlike last year's tariffs. Management is very confident in the $15 million to $20 million incremental EBITDA growth for the Derby over last year.

“So last year, the geopolitical events, which was really the introduction of tariffs for the first time impacted us. It impacted the sales process when it started. I'm pleased to say that this year, we haven't seen that.”

asked by Brandt Montour · answered by William C. Carstanjen

Initial yields, database growth, competition with Class III casinos, and play shift from slots to tables for ETGs.

Even with just Roulette, ETGs have added new customers and are accretive to GGR. Marketing just started in April. All metrics for floor performance are positive, and the company wishes for more product variety and machines.

“So even introducing just one single ETG product, which is Roulette, even just having a single product, so with lots of runway to go to add other products, we've seen the addition of new customers.”

asked by Jeffrey Stantial · answered by William C. Carstanjen

If unexpected digital expansion occurs, would the company lean into it, and how would they benefit if iGaming happens in Virginia?

While iGaming is considered a 'terrible public policy choice' that states haven't reliably protected consumers with, the company approaches each state with flexible strategies and fallback positions. They aim to make the best out of circumstances and achieve positive improvements for their business environment.

“I don't want to comment on any particular line of business other than to say iGaming is a terrible public policy choice for states. It is not one that any state has figured out reliably to protect the consumers in that state.”

asked by Raymond Bowers · answered by William C. Carstanjen

If the company aims for a typical 80-20 table vs. slots ratio for ETGs and the timeline for such a rollout.

The company will take it one step at a time, evaluating each change based on data and customer feedback. They don't set fixed targets like an 80-20 ratio but respond to what they see on the ground, aiming to be a data-driven organization.

“We're going to take it one step at a time. We're going to evaluate every change we make to our floor, whether it's adding more of a particular type of ETG like roulette or introducing new and different categories of ETGs.”

asked by Joseph Stauff · answered by William C. Carstanjen