BetKentucky 1-on-1 With Churchill Downs Inc. CEO Bill Carstanjen

BetKentucky 1-on-1 With Churchill Downs Inc. CEO Bill Carstanjen
Fact Checked by Nate Hamilton

When it comes to gaming in Kentucky, there’s one dominant operator. Churchill Downs Inc. controls four of the state’s nine racing licenses, but that’s just one facet of the company’s operations. The Louisville-based company’s five gaming halls and tracks also account for about 60% of the state’s nearly 7,000 slot-like historical horse racing machines. 

That share is set to grow as Churchill Downs plans to open new facilities in Louisville and Owensboro in the near future. But the company best known for the Kentucky Derby at its namesake track also has gaming interests beyond the Bluegrass State. Churchill Downs owns or operates casinos, tracks, or other gaming venues in a dozen other states, and its TwinSpires is the nation’s top online racing wagering platform in terms of handle.

CEO Bill Carstanjen spoke with after his keynote at last week’s Global Gaming Expo in Las Vegas. The following are excerpts from that conversation that have been edited for clarity and conciseness.

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Kentucky Sports Betting

The Bluegrass State legalized Kentucky sports betting just last month, with brick-and-mortar sportsbooks opening on Sept. 7 at the state’s racetracks. Churchill Downs has sportsbooks and kiosks at its four tracks – Churchill Downs, Ellis Park, Oak Grove and Turfway Park – and Derby City Gaming in Louisville and Newport Racing and Gaming, its HHR gaming halls in the state. 

Online wagering started three weeks later, and Churchill tracks have partnered with FanDuel Kentucky sportsbook, Fanatics and Barstool Sportsbook, which is expected to become ESPN BET sometime next month.

BKY: Retail sports betting has been live in Kentucky for a month now. What have you seen at Churchill and your other properties? Have you seen a bump in horse racing traffic as well because of it?

BC: “Sports wagering in Kentucky is what Kentuckians wanted, and we were proud to help lobby and push so that it can be delivered across the state. When it comes to the retail presence that we have, it’s been good… I can’t say that we’ve seen an impact on wagering on the horses, but I also would say that it’s way too early to reach that conclusion. Let’s wait and see when we get into the spring and we’re running the Churchill spring meet when Churchill Downs racetrack itself isn’t under massive construction like it is now.

“I guess if I were going to go beyond your question and point out an individual A-plus performance, I’d say Derby City Gaming has been extremely strong for sports wagering, but part of that might be the fact that Churchill Downs is under massive renovation right now.”

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Historical Horse Racing

HHR plays a major role in Churchill Downs’ profitability. Through the first six months of the year, the company’s HHR facilities in Kentucky, New Hampshire, and Virginia have accounted for $382.4 million of the company’s $1.33 billion in net revenue. That’s more than what Churchill Downs generated from its live and simulcast racing operations, $262.9 million, over the same period.

However, Churchill Downs’s connection to HHR goes beyond just offering the games. Earlier this year, it completed the purchase of Exacta Systems, which provides the technical platform for game developers. While HHR has been limited to slot-like machines, Exacta announced earlier this year that it’s partnering with Interblock to develop electronic table games powered by HHR. However, regulators and lawmakers in Kentucky have not expressed any interest in authorizing such games.

BKY: Where would you see these (HHR table) games operating? Do you see them potentially operating in Kentucky, and do you think HHR gaming halls need table games?

BC: “First, I think the most important point is any games that get introduced, whether they be a roulette-style game or any of the current games that we have on the floor, absolutely has to meet the standards of the state and be in compliance with state law, and everybody in the legislature and in the regulatory body needs to be comfortable.

“So, there is work not only within our company but within other companies as well to try to take the HRM random number generator construct and find other applications for it with other traditional games like roulette within. Not only are we trying to solve that Rubik’s Cube, but other companies are as well. And when that cube gets solved, and we bring that solution to whether it be Virginia or New Hampshire or Kentucky, we’ll sit down with the regulators and try to explain to them and show it to them.

“So, I don’t blame any initial reaction that might be out there, but they haven’t seen the product yet. The product hasn’t been built. It hasn’t been fully designed and baked. It’s not ready yet. But over time, I think everybody will have an open mind, and we’ll all sit down together and make sure it’s right. It might be right for some states and not others. There are slight variations between HRM rules across the different states.”

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Online Sports Betting in Kentucky

TwinSpires Kentucky is another very lucrative division within Churchill Downs, having generated $232.2 million in net revenue for the first half of the year. During his G2E keynote, Carstanjen described TwinSpires as a “unicorn” since it’s a profitable online company, and while there may be a lot of interest in it, he made it clear that the company has big plans for TwinSpires and has no plans to sell it off.

But do those plans include a return to online sports betting? About a year-and-a-half ago, Carstanjen announced TwinSpires, which was a licensed online sports betting operator in seven states and a licensed iGaming operator also in three of those, would pull out of those markets. He cited the exorbitant promotional spending by other operators in hopes of acquiring market share as the main reason for the decision. 

Because of that spending, company leaders did not see a way to generate expected profits for the next few years. TwinSpires online sports betting remains active in Arizona for now, and Churchill operates retail sportsbooks at its casinos in Iowa, Louisiana, Maryland, Mississippi and New York.

BK: Do you ever see a chance that TwinSpires may go back into online sports betting when the spending calms down? Do you think there would be an opportunity to get back in and acquire someone?

BC: “One of the things I’m most proud of in my career at Churchill Downs has been the development of people and capabilities. So clearly, with respect to this specific application, sports wagering, we clearly know how to do this. We clearly have the expertise in our company to do it. We’ve just elected to not pursue it because we didn’t think it was the best use of our time and resources. And we didn’t believe it would generate the best return for our efforts. Over time, if that changes, then we could potentially change our prior decision on that front. But right now, it’s still pretty frothy, and the big players are making the investments and the commitments that they feel they need to make to win long-term. And that’s not the best return for our company.”

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Steve is an accomplished, award-winning reporter with more than 20 years of experience covering gaming, sports, politics and business. He has written for the Associated Press, Reuters, The Louisville Courier Journal, The Center Square and numerous other publications. Based in Louisville, Ky., Steve has covered the expansion of sports betting in the U.S. and other gaming matters.

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