Analysis: For Churchill Downs, Derby City Gaming brings casino money
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LOUISVILLE, Ky. (WDRB) – Derby City Gaming is not a casino, but you'd be hard-pressed to tell the difference -- whether looking at the slots-like gaming machines or the money generated for its parent company, Churchill Downs.
In fact, the Louisville facility, which offers about 1,000 “historical horse racing” machines, generated more revenue in the April-June quarter than any of the eight actual casinos that Churchill Downs operates in other states, according to Churchill Downs’ quarterly results released Wednesday.
That’s despite lacking actual slot machines, table games, sports betting and other casino features that aren’t legal in Kentucky.
It’s the first time since Derby City Gaming debuted in 2018 that the Poplar Level Road venue was Churchill Downs’ top-grossing property on a quarterly basis, according to a WDRB News analysis of regulatory filings.
The results help explain why the company unveiled a $76 million plan Wednesday to build a five-story hotel on the Poplar Level Road site, an amenity meant to broaden Derby City Gaming’s market and keep its most frequent gamblers playing longer.
“Derby City Gaming is even more of a juggernaut than we ever thought,” Churchill Downs CEO Bill Carstanjen said on the company’s earnings call Thursday. “And generally, in business, it doesn’t have to be complicated: When you have something working well, invest more.”
Jordan Bender, an analyst following Churchill Downs for investment bank Macquarie Group, said Derby City Gaming’s growth highlights the “untapped market” for gambling in the Louisville area.
“What Derby City Gaming has been able to do is capture that part of the market where there is significant population in Louisville -- people don’t have to drive from downtown over the river anymore. The gaming’s really staying in the state,” he said.
Bender added that sophisticated machine-makers like IGT and Aristocrat have introduced historical racing products in the last few years, making the games more alluring to consumers.
The industry has boomed in Kentucky the last decade, generating profits for the state’s racetracks and bolstering the traditional horse industry with money for racing purses.
In a state where casino gambling isn’t legal, the slots-like machines are predicated on the idea that the people playing them are really betting on horse races that have already happened and that are invisible to the gambler.
When a 2020 court ruling cast doubt on the legality of the machines, Kentucky lawmakers were forced to go on-record with a vote to formally endorse them in February, a measure which divided the legislature’s majority Republican caucuses.
Critics say Kentucky has essentially allowed casino activity without receiving the commensurate state tax revenue. Churchill Downs and the state’s other racetracks pledged earlier this year to assist lawmakers in coming up with a new way to tax the activity.
With the legal cloud lifted, Churchill Downs plans to add up to 400 machines to Derby City Gaming along with the hotel expansion.
The company has also opened historical racing facilities near its Turfway Park in northern Kentucky and on the southern Kentucky border at Oak Grove, a location meant to capture the Nashville market.
Oak Grove generated $25.6 million in net revenue in the April-June quarter, outpacing four of Churchill Downs’ eight casinos.
And Churchill Downs is contemplating a fourth casino-like venue, which executives have hinted will be in downtown Louisville, drawing from tourists and convention-goers.
“We think now is a great time to invest in our hometown, and that it will be a win-win for our community and Churchill Downs,” Carstanjen said.
