Churchill Downs Q3 2025 Earnings Report

Churchill Downs EPS Results

• Actual EPS: $1.09
• Consensus EPS: $0.97
• Beat/Miss: Beat by +$0.12
• One Year Ago EPS: $0.97

Churchill Downs Revenue Results

• Actual Revenue: $683.00 million
• Expected Revenue: $671.43 million
• Beat/Miss: Beat by +$11.57 million
• YoY Revenue Growth: +8.70%

Churchill Downs Announcement Details

• Quarter: Q3 2025
• Date: 10/22/2025
• Time: After Market Closes
• Conference Call Date: Thursday, October 23, 2025
• Conference Call Time: 8:00AM ET

Churchill Downs (NASDAQ:CHDN) Incorporated is a gaming, entertainment and racing company headquartered in Louisville, Kentucky. The company owns and operates Churchill Downs Racetrack, home of the Kentucky Derby, as well as other thoroughbred racing venues, casinos, racinos and historical horse racing facilities.

Its operations include live and historical horse racing, casino gaming, video lottery and other gaming activities, hospitality, dining and entertainment. Through its TwinSpires business, Churchill Downs also provides online horse-racing wagering and related digital betting services in jurisdictions where such activities are permitted.

Founded in 1875, Churchill Downs has expanded from its namesake racetrack into a diversified gaming and entertainment company. Its properties and services operate primarily in the United States, including Kentucky and several other states, while its online wagering operations serve customers in eligible regulated markets.

Churchill Downs Q3 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Delivered record net revenue and record adjusted EBITDA in Q3, generated $166 million of free cash flow (up 13% YoY), repurchased >$50 million of stock in the quarter, and approved a 7% dividend increase.
• Positive Sentiment: Announced a new Victory Run ($280–$300 million) premium hospitality project (construction after 2026, open for the 2028 Derby) targeting roughly a 20% unlevered IRR and highlighted a $10 million adjusted EBITDA uplift from the NBC broadcast deal for 2026.
• Positive Sentiment: Continuing rapid HRM and technology expansion — openings/upgrades include Marshall Yards (Q1 2026), Richmond expansion, Roseshire (opened Sept. 29), plus a 90% acquisition of Casino Salem with a planned ~$180–$200 million permanent facility and broader Exacta Technology deployments in third‑party properties.
• Neutral Sentiment: Capital guidance shows elevated project spend (now $200–$240 million in 2025 and $160–$200 million in 2026) while bank covenant net leverage was 4.1x at quarter end and is expected to fall below 4.0x in 2026 as management balances investment, buybacks, and the growing dividend.
• Negative Sentiment: Regulatory and execution risks persist: approvals for electronic table games (ETGs) remain unresolved and enforcement against illegal/“gray” machines (notably in Virginia) is ongoing, creating timing and revenue uncertainty for HRM-related upside.

Presentation

[Operator]

Good day, ladies and gentlemen, and welcome to the Churchill Downs Incorporated 2025 third quarter earnings conference call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question and answer session, and instructions will be given at that time. We ask all question and answer participants to please limit themselves to one question. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Sam Ullrich, Vice President, Investor Relations.

[Sam Ullrich, VP of Investor Relations at Churchill Downs]

Thank you, Andrew. Good morning and welcome to our third quarter 2025 earnings conference call. After the company's prepared remarks, we will open the call for your questions. The company's 2025 third quarter business results were released yesterday afternoon. A copy of this release announcing results and other financial and statistical information about the period to be presented in this conference call, including information required by Regulation G, is available at the section of the company's website titled News, located at churchilldownsincorporated.com, as well as in the website's Investor section. Before we get started, I would like to remind you that some of the statements that we make today may include forward-looking statements. These statements involve a number of risks and uncertainties that could cause actual results to differ materially.

[Sam Ullrich, VP of Investor Relations at Churchill Downs]

All forward-looking statements should be considered in conjunction with the cautionary statements in our earnings release and the risk factors included in our filings with the SEC, specifically the most recent reports on Form 10-Q and Form 10-K. Any forward-looking statements that we make are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in yesterday's earnings press release. The press release and Form 10-Q are available on our website at churchilldownsincorporated.com. Now, I'll turn the call over to our Chief Executive Officer, Mr. Bill Carstanjen.

[Bill Carstanjen, CEO at Churchill Downs]

Thanks, Sam. Good morning, everyone. With me today are several members of our team, including Bill Mudd, our President and Chief Operating Officer, Marcia Dall, our Chief Financial Officer, and Brad Blackwell, our General Counsel. I will share an update on growth plans for our company, including with respect to the Kentucky Derby and our HRM businesses. Marcia will provide insight into our financial results, as well as an update on our capital management strategy. After she finishes, we will take your questions. First, regarding our third quarter results, we delivered overall record net revenue and record adjusted EBITDA in the third quarter. We also delivered record adjusted EBITDA for our live and historical racing segment, as well as our wagering services and solutions segment. We are also very pleased with the performance of our regional gaming properties in the third quarter.

[Bill Carstanjen, CEO at Churchill Downs]

Their results reflect consistent strength from our high-end and rated guests, along with nice growth from our unrated players across the majority of our markets. Now let's talk about our plans for the company, both near-term and long-term. First, regarding our plans for Derby Week and Churchill Downs Racetrack. During our last earnings call, I discussed the five key growth catalysts for the Derby that will power the growth of Churchill Downs Racetrack in 2026 and beyond. The first is ticketing revenue, driven by premium experiences during Derby Week. The demand for the Kentucky Derby and for Derby Week tickets is continuing to grow as we deliver new and unique customer experiences. We will also realize further incremental ticketing revenue from the investments we have made over the last number of years. One example of this is the Starting Gate Pavilion and Courtyard.

[Bill Carstanjen, CEO at Churchill Downs]

We significantly improved this area this past year, and the guest feedback has been overwhelmingly positive. As a reminder, this project transformed 10,000 bleacher seats into a combination of approximately 8,500 premium stadium and trackside box seats. We also significantly improved the amenities for these guests, as well as for an additional 2,800 people seated in existing surrounding sections, who are now able to access the hospitality options of the newly renovated area. We believe that ticketing revenue from the Starting Gate Pavilion and Courtyard and from other recent investments, as well as general price increases, will provide meaningful adjusted EBITDA growth for Derby Week going forward. The second driver of long-term growth for Derby Week is our broadcast rights. As I discussed on our last earnings call, our NBC deal will deliver a $10 million increase in adjusted EBITDA for 2026.

[Bill Carstanjen, CEO at Churchill Downs]

We also announced that NBC will, for the first time, broadcast the Kentucky Oaks race in 2026 during prime time on Friday night, May 1st. We believe this will amplify awareness, engagement, and wagering for both the Kentucky Oaks race and for the Kentucky Derby the next day on Saturday, May 2nd. The third driver of long-term growth is wagering. We continue to attract the best horses from around the world and are benefiting from the Derby's expanding cultural relevance, both domestically and internationally. We believe the increasing availability of online sports wagering across the U.S. is very much a positive development for wagering on the Kentucky Derby and races across Derby Week. The huge customer base delivered by the online platforms gives us the opportunity to reach more potential bettors and fans than ever before.

[Bill Carstanjen, CEO at Churchill Downs]

Also of note, our twinspires.com platform has continued to post strong growth in unique users during this period of rapid sports wagering expansion, and these players are remaining active and engaged long after the Derby. Internationally, we recently announced the expansion of the European and Middle Eastern Road to the Kentucky Derby by adding three new points races in Dubai and Saudi Arabia. There are now 10 races across five countries that comprise this series, allowing for up to two horses to qualify for the Kentucky Derby. This strengthens the quality and intrigue of the international pathway to the Derby and extends our brand further into two of the sport's most dynamic and high-profile markets, with Dubai and Saudi Arabia.

[Bill Carstanjen, CEO at Churchill Downs]

We are very excited to deepen our engagement with owners, trainers, sponsors, and fans across these regions, which we believe will generate long-term benefits for Churchill Downs Racetrack and enhance the global reach of the Kentucky Derby. The fourth driver is sponsorships and licensing. Sponsors are increasingly recognizing the value of our expanding national and global footprint, driven by growth in onsite attendance, television and digital audiences, social media engagement, and other strategic initiatives. The heightened visibility is attracting interest from some of the most well-respected brands, and we remain focused on broadening and strengthening our sponsorship portfolio in the years ahead. Finally, the fifth driver is selective renovations and expansions through capital investment. As discussed on our last earnings call, we are on track to complete the renovations of two of our most prestigious and exclusive areas, the Finish Line Suites and The Mansion, for the 2026 Kentucky Derby.

[Bill Carstanjen, CEO at Churchill Downs]

We announced last evening that we are planning to invest $280 million-$300 million to build a new structure called Victory Run, just past the finish line between the Sky Terrace and the first turn section, an area we refer to internally as the Gap and the Smile. Victory Run will be a fantastic location and will offer tremendous views of the horses and the pageantry of the event. This new venue will replace existing uncovered ground-level box seats and dated dining areas with new premium hospitality offerings, including private suites and a combination of indoor and outdoor dining and covered box seats. Construction will begin following the 2026 Kentucky Derby, with Victory Run completed in time for the 2028 Derby.

[Bill Carstanjen, CEO at Churchill Downs]

During the 2027 Derby, Derby 153, we plan to offer an interim upgraded seating experience in this area, featuring temporary covered stadium seating and enhanced amenities to ensure guests enjoy a premium experience even during the year of partially completed construction. We remain committed to strategically investing in our flagship asset over the long term to enhance the guest experience during Derby Week and to broaden our appeal to new audiences. These investments have delivered and will continue to deliver adjusted EBITDA growth with outstanding returns for our investors for years to come. Churchill Downs Racetrack and the Kentucky Derby remain the crown jewel of our company. These five growth catalysts provide a strong foundation for a vibrant and successful future for the Kentucky Derby and our company. Next, turning to our HRM progress, first in Kentucky.

[Bill Carstanjen, CEO at Churchill Downs]

We are on track to open our eighth HRM entertainment venue in Calvert City during the first quarter of 2026, on time and on budget. This will be an important addition to our portfolio of entertainment properties in the Commonwealth. With a population of 300,000 people within a 60-mi drive, our Calvert City site is conveniently located near the intersection of two interstates, providing easy access for customers from several surrounding cities in southwestern Kentucky. This venue will be branded Marshall Yards Racing and Gaming, inspired by the railroad industry that shaped the surrounding communities. Marshall Yards will feature 250 HRMs and a music stage that will host a wide variety of live entertainment, attracting customers to this special property. Turning to Virginia. As expected, The Rose continued to show great progress during the third quarter. The Rose gaming revenues grew meaningfully, and we are rapidly building our customer database.

[Bill Carstanjen, CEO at Churchill Downs]

We were also pleased to see continued growth in weekday gaming revenue, driven by increased visitation frequency through our data-driven marketing. As we approach the one-year anniversary of the opening, we are making excellent progress in laying the foundation for long-term growth at The Rose. In central Virginia, we completed the expansion project at our Richmond HRM venue. We renovated an unused space to expand our gaming floor in May of this year and completed the remaining phase of this project in August, which added 450 incremental HRMs to the property. We also opened the Roseshire Gaming Parlor in Henrico County on September 29, ahead of schedule and below budget. This upscale entertainment venue features 175 games and other gaming-related amenities. It's off to a fantastic start. We currently have 4,875 HRMs deployed in Virginia. Virginia has proven to be a great investment and business environment for us.

[Bill Carstanjen, CEO at Churchill Downs]

As the exclusive operator of thoroughbred racing and HRMs, we are building strong relationships with key constituents in both the horse racing and agricultural industries. We will continue to pursue opportunities to expand our footprint and grow the number of HRMs in this dynamic market. Turning to New Hampshire, we completed the acquisition of a 90% interest in the Casino Salem project, located at the mall at Rockingham Park in Salem, New Hampshire, near the Massachusetts border at Exit 2 on Interstate 93. This is a highly attractive market with approximately 800,000 adults within a 20-mi radius and over 4.9 million people in the broader Boston MSA. More than 100,000 vehicles pass the property daily on I-93. Currently, we are operating a temporary facility with 100 HRMs and 13 table games.

[Bill Carstanjen, CEO at Churchill Downs]

Design work for the permanent venue is nearly complete, and we expect the facility to have approximately 900 HRMs, 30 table games, three food and beverage venues, a signature center bar, and a large live entertainment venue. We will seek local permits and approvals for the final design, after which construction of the permanent venue will begin. We will provide more details on timing on our next earnings call, but expect to open the facility in 2027. We plan to invest approximately $180 million-$200 million to develop this state-of-the-art gaming and entertainment destination. In the near term, we anticipate continuing to operate our Chasers Poker Room in Salem, and we have retained the rights to the associated HRM license. We will evaluate and pursue viable alternative uses for the second HRM license in New Hampshire in the future. Turning to Exacta.

[Bill Carstanjen, CEO at Churchill Downs]

Our Exacta business has grown through the expansion of our HRM operations in Kentucky and Virginia, as well as through our third-party relationships in Kentucky, New Hampshire, and Wyoming. Exacta Technology is supporting our temporary facility in Salem, New Hampshire, and will be utilized in the permanent Casino Salem facility when it opens. We anticipate that a new third-party HRM property in Wichita, Kansas, will open in December of this year with a significant portion of the gaming floor utilizing our technology. We are excited to support the expansion of HRMs into this new market. We have also made excellent progress towards gaining approval to deploy HRM-based electronic table games. We are working to gain the necessary approvals from appropriate state authorities and expect to have more to share in the near term.

[Bill Carstanjen, CEO at Churchill Downs]

HRMs and the related Exacta Technology represent a high-growth, high-margin investment that delivers strong returns for our shareholders. We will continue to focus on developing these businesses. In summary, the third quarter was very strong for us with record financial results. We have a portfolio of unique and high-performing assets that collectively provide multiple catalysts for growth and free cash flow generation for years to come. We believe the Kentucky Derby will deliver outstanding growth in 2026 and beyond, as will our recent investments in HRM properties and the related Exacta Technology. We will also continue to identify and execute high-quality growth initiatives. Our strategic decisions, disciplined capital allocation, strong balance sheet, and diversified portfolio position us to drive sustainable long-term growth in adjusted EBITDA and free cash flow. We remain focused on delivering superior returns for our shareholders.

[Bill Carstanjen, CEO at Churchill Downs]

With that, I'll turn the call over to Marcia, and then we will take your questions. Marcia.

[Marcia Dall, CFO at Churchill Downs]

Thanks, Bill, and good morning, everyone. I'll start with a few insights into our financial results and then provide an update on capital management. First, regarding third quarter results. As Bill shared, we delivered record net revenue and record adjusted EBITDA for the third quarter. Our live and historical racing segment had record net revenue and record adjusted EBITDA for the third quarter. This segment grew revenue by 21% and grew adjusted EBITDA by 25% compared to the prior year quarter. This is the 21st consecutive quarter of record growth in revenue and adjusted EBITDA compared to the prior year quarter for this segment. All of our Kentucky HRM properties contributed to this strong performance. Our Louisville and Northern Kentucky teams contributed double-digit growth in adjusted EBITDA compared to the prior year quarter.

[Marcia Dall, CFO at Churchill Downs]

This double-digit growth was the result of strong execution on the top line, as well as from a cost perspective. We are building a strong customer base for our Owensboro, Kentucky HRM venue in Western Kentucky, and our team in southwestern Kentucky is continuing to successfully penetrate the Nashville market. This will be the fifth consecutive year of strong growth for our Oak Grove HRM venue. Our margins for our Kentucky HRM properties were very strong for the third quarter, collectively increasing over three points compared to the prior year quarter from the continued growth and optimization of these properties. In Virginia, The Rose had a strong quarter with GTR per unit per day increasing every month of the third quarter when adjusted for calendar differences between the months. Our Richmond HRM venue in central Virginia has completed the expansion of the property, adding 450 incremental HRMs.

[Marcia Dall, CFO at Churchill Downs]

The new HRMs and gaming floor expansion has been well received by our guests. We are also very pleased with the initial results from our new Henrico County venue. Our southern and western Virginia results reflect the comparison to a strong third quarter in 2024, as well as the impact of increased competition for our Vinton and Hampton properties. Overall, we generated a combined 51% margin during the quarter for our same store of Virginia HRM properties. This margin is best-in-class, and we believe these margins are sustainable given the continued scaling of our northern and central Virginia properties. Turning to our Wagering Services and Solutions segment, this segment delivered record third-quarter adjusted EBITDA driven by the continued growth of our Exacta business. Exacta benefits from the growth of our Kentucky and Virginia HRM properties, as well as our third-party customers.

[Marcia Dall, CFO at Churchill Downs]

Last, regarding our Gaming segment, our wholly owned regional gaming properties performed relatively well in the third quarter. Excluding the impact of removing HRMs from our Louisiana operations, our adjusted EBITDA for our wholly owned gaming properties increased over $3 million, and margins were up 1.1 points compared to the prior year quarter. These increases are a result of both top-line growth and effective cost management. Regional gaming consumer behavior was relatively consistent on a sequential basis. We saw continued strength from our rated players with increased visitation and spend per trip from our highest-end rated players in our database. We also saw unrated player trends improve compared to the prior year quarter and on a sequential basis. Turning to capital management, we generated $166 million, or $2.34 per share of free cash flow in the third quarter, primarily from the strong cash flow generated from our businesses.

[Marcia Dall, CFO at Churchill Downs]

Free cash flow per share is up 13% from the prior year quarter as we continue to realize the benefit of recent capital investments and the impact of share repurchases. Our free cash flow yield, based on our trailing 12 months' results, is approximately 10%. We spent $53 million in maintenance capital through the first nine months of the year. We now expect to spend $75million-$85 million in maintenance capital in 2025. We spent $172 million in project capital through the first nine months of the year. We now expect to spend $200 million-$240 million on project capital in 2025. For 2026, we are now projecting our project capital to be between $160 million-$200 million.

[Marcia Dall, CFO at Churchill Downs]

This reflects the 2026 expected project capital for The Mansion, Finish Line Suites, and Victory Run projects for Churchill Downs Racetrack and the Casino Salem project in New Hampshire that Bill discussed. Turning to share repurchases, we repurchased over $50 million of our stock in the third quarter under our share repurchase program. Regarding our dividend, our Board of Directors approved a 7% increase in our dividend, which will be paid out on January 6, 2026 to shareholders of record on December 5, 2025. This is the 15th consecutive year of increased dividends per share for our company. As a reminder, because of the federal tax bill that was signed on July 4th, we will see an improvement in our free cash flow from favorable cash taxes. The new tax revisions include making the 21% business tax rate and 100% bonus depreciation rule permanent.

[Marcia Dall, CFO at Churchill Downs]

The federal tax bill also reinstates a 30% of EBITDA-based interest deduction limitation. The additional interest deductions, combined with 100% bonus depreciation, will reduce our cash taxes and increase our free cash flow this year and in future years. We estimate that the impact of lower cash tax payments will be $50 million-$60 million in both 2025 and 2026. At the end of the third quarter, our bank covenant net leverage was 4.1x. We expect our bank covenant net leverage to remain at this level at the end of the year, and then we'll be below 4x in 2026. We are proud of the record performance our team achieved in the third quarter. We are well positioned for sustainable long-term growth, supported by our unique portfolio of high-performing assets, disciplined capital management, and our strong balance sheet. We remain committed to creating long-term shareholder value.

[Marcia Dall, CFO at Churchill Downs]

With that, I'll turn the call back over to Bill so that he can open the call for questions. Bill?

[Bill Carstanjen, CEO at Churchill Downs]

Thank you, Marcia. Andrew, I think we're ready to take questions.

[Operator]

Certainly. To ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. One moment while we compile the Q&A roster. Our first question comes from the line of Barry Jonas with Truist Securities.

[Barry Jonas, Managing Director and Senior Gaming Equity Analyst at Truist Securities]

Hey, guys. Good morning. Congrats on the quarter and the announcement of Victory Run. Can you talk more about your ROI targets for Victory Run, how and when you think you'll hit them, and maybe if there are any lessons learned you can apply from the Starting Gate Pavilion introduction at Derby 151? Thank you.

[Bill Carstanjen, CEO at Churchill Downs]

Sure, happy to do that. Barry, and good morning. We target a 20% unlevered IRR. That's what we shoot for. We shoot for that, really focused on year three. It takes time in this business to introduce the new asset, get trial, and then get word of mouth. It's a three-year window that we focus on.

[Operator]

Thank you. Our next question comes from the line of David Katz with Jefferies LLC.

[David Katz, Managing Director and Equity Research Analyst at Jefferies]

Hi. Good morning, everybody. Thanks for taking my question. I appreciate it. I wanted to ask about ETGs. From not putting words in anybody's mouth, from my own work, my sense is that Kentucky might be closer in than some of the other markets that you have. Generally speaking, have you done any sort of penciling, Marcia and team, around what the prospective opportunity could be, whether it's in Kentucky or in any of the other markets in terms of lift, maybe based on learnings from other markets that have gone into ETGs before and after? Thanks.

[Bill Carstanjen, CEO at Churchill Downs]

Thanks, David. Good morning. ETGs, electronic table games, that's an important frontier for us with HRMs. Our facilities across Virginia, Kentucky, New Hampshire, they don't have the benefit of offering table games, which is something, of course, a class of customers really want. Electronic table games in states like Virginia and Kentucky represents an important opportunity for us. It's a technology journey, and it's also a regulatory journey. It's one we have been focused on for a while. I don't have any news to announce today, and I hinted at that in our comments, but it's a material focus. It's something we think can be really important, and it levels us up in terms of having a comparable suite of offerings for customers compared to traditional class-three facilities.

[Bill Carstanjen, CEO at Churchill Downs]

I can't give you and can't responsibly give you predictions on what it'll do, and it also depends on the regulatory framework that's finally approved. I can assure you that we take it extremely seriously and think it's an important opportunity for us, and we're going to focus on it until we can get it done.

[Operator]

Thank you. Our next question comes from the line of Chad Beynon with Macquarie.

[Chad Beynon, Managing Director and Senior Analyst at Macquarie]

Hi. Good morning. Thanks for taking my question and congrats on the announcement on Victory Run. I wanted to ask about just capital allocation. Year-to-date, and including the dividend, it looks like about $400 million will be spent on share repurchase and the dividend. With the updated CapEx for the next couple of years, Marcia and team, how are you thinking about leverage and the balance between share repurchase and the money that'll be spent on the projects? Thank you.

[Marcia Dall, CFO at Churchill Downs]

Thanks, Chad. Good morning. As you know, we're very disciplined in our capital management. We have made a commitment to have our leverage come below 4x next year, and we will execute that through that. That being said, we are very thoughtful about and strategic about buying shares back when it's appropriate, and we will continue to balance. We have a very good forecasting model that allows us to balance our capital investments with the dividend that we grow at 7% per year, along with other share repurchases throughout the year.

[Operator]

Thank you. Our next question comes from the line of Daniel Guglielmo with Capital One Securities.

[Daniel Guglielmo, Consumer Equity Research Analyst at Capital One Securities]

Hi, everyone. Thank you for taking my question. The brick-and-mortar property portfolio is wholly owned across both the live and historical and gaming segments. Outside of not having to pay rent, what are some of the incremental mid-to-long-term benefits of owning the properties outright? Do you think the market is giving you enough credit for the full ownership piece right now?

[Bill Carstanjen, CEO at Churchill Downs]

Thanks for the question, Dan. Our philosophy for our gaming assets has been to own the real estate. Other companies have chosen other philosophies, and they can explain their philosophies. For us, we've been focused on growing these businesses, stabilizing these businesses, and running them as best as we can. Owning your own real estate gives you a sense of stability and a sense of predictability that's made sense for our company. The philosophies around why different companies do it the way they do it is up for the other companies to explain. For us, I don't think we get credit for it fully in our stock. It's been occasionally a source of discussion on these calls and a source of discussion with other investors. Fundamentally, we've structured a very stable, consistently performing, well-executed strategy around regional gaming in particular.

[Bill Carstanjen, CEO at Churchill Downs]

Hopefully, the market recognizes that because our track record is clear and our future is also fairly predictable and clear as well.

[Operator]

Thank you. Our next question comes from the line of Daniel Politzer with JPMorgan.

[Daniel Politzer, Executive Director of Equity Research at JPMorgan]

Hey, good morning, everyone. Thanks for taking my question. Bill, Marcia, I was wondering, kind of broad strokes, if you could just touch on the M&A environment here. I mean, obviously, we've seen some transactions lately. You guys obviously participated with Casino Salem. I mean, as you look broadly and think about inbounds and outbounds, how would you describe the level of activity or interest? It just seems like there's been a little bit of a pickup externally. Thanks.

[Bill Carstanjen, CEO at Churchill Downs]

Yeah, certainly, we've seen that pickup. There have been a couple of announcements in the brick-and-mortar space recently over the last month or so and even over the last week. That's always encouraging. Now, those were OpCos, PropCos, as I think about the ones that come to mind, and we're, of course, HoldCos. I think it's nice to see some clarity in the market so the investor community and the markets in general get a sense of the value of properties. We watch those markets closely. You know, as a company in the space, you've seen over the long term, we're both an opportunistic acquirer and we're also a seller when opportunities afford themselves. We're always a flexible participant in the market, and we like to pay attention to the trends and the activities we see. Everything is relevant and interesting to us.

[Bill Carstanjen, CEO at Churchill Downs]

I would say in general, you are seeing a pickup in activity over the very recent term.

[Operator]

Thank you. Our next question comes from the line of Ben Chaiken with Mizuho.

[Ben Chaiken, Managing Director and Senior Equity Analyst at Mizuho]

Hey, good morning. Thanks for taking my question. Maybe just a follow-up there. Obviously, in New Hampshire, you acquired 90% interest in Salem. Talk to us about the M&A environment specifically in this region. Is this an area we could see more activity, or is this more of a one-off for some reason?

[Bill Carstanjen, CEO at Churchill Downs]

Talking specifically about New Hampshire, we entered New Hampshire originally through our Chasers license in Salem. We believe very strongly in that market, and a second license was created. The parties came together, and that was an opportunity that just made a lot of sense for us based on the work and our understanding of that market. Generally, in the state of New Hampshire, I like the model in New Hampshire with HRMs, and I certainly like the demographics there. There's not a philosophy per se for that particular region. We look at every region. We look at demographics. We look at pricing. We look at the technology that's at play, and we make a determination based on that.

[Bill Carstanjen, CEO at Churchill Downs]

New Hampshire is a story of us investing in the Salem market and then seeing an opportunity to double down on a market that we really believe is going to be a long-term positive development for us.

[Operator]

Thank you. Our next question comes from the line of Jeff Stantial with Stifel.

[Jeff Stantial, Managing Director of Equity Research at Stifel]

Hey, good morning, everyone. Thanks for taking our question. I wanted to ask a bit more of a high-level strategic question on the Derby. Bill, just as you look at the track as it's built up currently, I'm curious just to get your updated thoughts on what inning you think you're in with respect to some of these, you know, call it more substantial projects such as the first turn or the Victory Run. As a corollary to that, do you think the current product is diversified enough where it covers the full consumer lifecycle, or is there still some opportunity left to bridge jumps in ticket price, such as going from infield to premium seated, things like that? Thanks.

[Bill Carstanjen, CEO at Churchill Downs]

Thank you for that question, Jeff. I like the baseball analogy. It's World Series time, so that's a very timely analogy. In that theme, what inning are we in? When it comes to the Derby, it's a very old event. It's been around for 151 years, but I think we're in the third inning. I think there's so much opportunity with that. It's a very dynamic, evolving event as we develop it and as the country changes and as we see themes moving towards experiential customer spend. I think the future is very bright for the Derby, and there's a lot more to come. I think it's important to have a breadth of offering for the Derby, and a lot of that is still yet to come. When we look at Victory Run, that's a very, very, very attractive part of the track. It's just past the finish line.

[Bill Carstanjen, CEO at Churchill Downs]

It has a great view of the stretch as the horses sort of thunder towards the finish line. It has seats there, but it's a tired old section that hasn't seen capital investment in a long time. It was a perfect opportunity to really upgrade that and meet the modern expectations of our consumers. We get that feedback from them every single year on what they're looking for. They want more suites. They want more covered boxes. They want higher amenities. That's what they're looking for, and this is an area where we can do that. There are other areas around the track where that also is in the cards for the future.

[Bill Carstanjen, CEO at Churchill Downs]

I think you'll see us be active on a small to medium scale constantly, but the next big project is the one we talked about today, which is Victory Run, and we need to get that done and get that digested before we talk about some of the other big projects that come next. I would say about Victory Run, it increases the capacity of the track, seating capacity by about 2%. It's a 20% increase in that section, and that's a really important section. We're always very careful about layering in capacity because it's not really about the number of seats. It's about the quality of experience and the segmentation of the experiences that we offer. This fits in with a plan and a philosophy that you've seen us execute over time, and it's the right next step.

[Operator]

Thank you. Our next question comes from the line of Brandt Montour with Barclays Bank PLC.

[Brandt Montour, Director and Equity Research Analyst at Barclays]

Good morning, everybody. Thanks for taking my question. I wanted to ask about The Rose, obviously a nice ramp you're seeing there. I think you're now within your long-term win per unit per day targets. I guess the question would be how to think about the margin ramp from here and into next year. I apologize for the near-term question, but any sort of concerns around the sort of government shutdown that's going on in D.C. and the like, that would be helpful too as well. Thank you.

[Bill Carstanjen, CEO at Churchill Downs]

Brandt, thanks for the question. Yeah, we're thrilled with the progression of The Rose. We still think we have a long way to go, and we think as we progress and as our win per unit goes up, you should see improving margins. Right now, we're still heavily investing in marketing as we try to drive awareness in a very big, large, complex MSA. You mentioned also what's going on in that market. We don't really see or feel in a way that we can tell the impact of some of the government shutdown discussions or whatnot. It's such a huge area. It's 6.5 million people, and we've not even been open in a year. We're just growing through it.

[Bill Carstanjen, CEO at Churchill Downs]

I think it's such a huge market with great demographics, both from the population level and from the income level, that we're just in a process of growing into our size. Some of the noise going on is just not something that we can discern as we currently grow. Yeah, we're really happy with how that's progressing. We're really happy with the quarter-to-quarter growth, and as our team settles into the pace, we think there's more good things to come there. It would be our expectation that you'll continue to see improving performance on margins and things like that as we drive better awareness and better performance per machine.

[Operator]

Thank you. Our next question comes from the line of Shaun Kelley with BofA Securities.

[Shaun Kelley, Managing Director and Senior Research Analyst at Bank of America]

Hi, good morning, everyone. Thanks for taking my question. Just wondering if you guys have thought at all about or could give us some of your kind of emerging thoughts on the whole emerging landscape of prediction markets. This is a fairly disruptive force that's happening out there in the online sphere. I'm thinking about the potential implications specifically for the Derby. You've obviously, through the pari-mutuel approach and then through the content control, have generally had very strong sort of ability to control what's going out there in the betting sphere for the Derby. This kind of new world seems to do particularly well when we're talking about really large tentpole events. The Derby, in our eyes, from a sporting perspective, is definitely one of those. Just wanted to get your thoughts.

[Shaun Kelley, Managing Director and Senior Research Analyst at Bank of America]

I know it's an early subject, but if you had any and have any of those operators potentially approached you about sponsorship or anything else. Thanks.

[Bill Carstanjen, CEO at Churchill Downs]

Sure. Thanks, Shaun. Let me start by saying that wagering on horse racing in the U.S. is actually governed under an umbrella federal law called the Interstate Horse Racing Act. That's very different than sports wagering that you see across all of the states, which is a state-by-state sort of balkanized state law construct. Our construct is fundamentally different than all the other sports wagering activity you see in the U.S. We are governed by a specific dedicated federal law about how wagering works on horse racing. That makes us quite different. The requirements under that law are very clear about what it takes in order to take a wager on a horse race. You have to have a contract with the content provider, that's us. You have to have a contract with our horsemen, etc. Our philosophy on the prediction markets is we will approach them.

[Bill Carstanjen, CEO at Churchill Downs]

We will explain to them the legal construct under which activity on our sport happens. Wagering activity on our sport happens. We'll explain both the civil and criminal elements of the Interstate Horse Racing Act and why compliance with it is so clear. We'll take it from there. We do not have a deal with any predictive market companies to take wagers on our product. We are not in discussions to do that at this time, but we do plan on approaching them and explaining to them the legal construct under which wagering happens on our product. This is not a question like some of these other sports between state law and federal regulations. We have federal law that governs how we operate.

[Bill Carstanjen, CEO at Churchill Downs]

Certainly, to the extent people act counter to having a deal with us and act counter to the Interstate Horse Racing Act, we'll pursue all our rights and remedies under the Interstate Horse Racing Act. For us, I think we're different than the other sports. I think we're different than the other players in the online wagering game. That's a serious subject. It's one we take very seriously, and it's one that we've talked a lot. For us, it's always a matter of communication and making sure that the players out there on the field understand how this sport works so they can contrast it and understand it compared to the others.

[Operator]

Thank you. Our next question comes from the line of Joe Stauff with Susquehanna.

[Joe Stauff, Senior Equity Research Analyst at Susquehanna]

Good morning, Bill, Marcia. Question on Virginia, if I could. Sorry to repeat the question as maybe I have in the past, but I wanted to ask again, really on the process of shutting down illegal machines, you know, kind of where that is. Bill, you've described it as a bit of a whack-a-mole process. Has that changed? Do you think it's affecting some of your assets within Virginia, at least, you know, in a modestly negative manner today? Just trying to understand essentially the opportunity and the tailwind of closing down those machines over time and how strong it is, etc.

[Bill Carstanjen, CEO at Churchill Downs]

Sure, Joe. Happy to take that question. We hadn't talked about that yet today. I almost use the term gray games, but these aren't gray games. These games are illegal. The legislature has spoken and the court has spoken, but there are constant issues of enforcement and also constant variations of games that manufacturers try to introduce to try to distinguish themselves from the very clear law of how this works. It is a bit of a whack-a-mole. There's been a lot of progress in the state. This isn't binary. It isn't black or white in the sense that there is always going to be an element of enforcement necessary because of the shenanigans some of these manufacturers try to engage in to introduce machines. Generally, there has been pretty strong enforcement. It's very clear from the Attorney General. It's very clear from the legislature.

[Bill Carstanjen, CEO at Churchill Downs]

There's always enforcement issues that will happen, especially when manufacturers may try to muddy the water with games that are different in some way. I think that's a process that goes on. It's sort of a slow burn indefinitely. Yeah, there's still gray games out there. We don't think they're really material at this point. The enforcement has been pretty good, but they are out there, and it requires constant vigilance and constant communication with law enforcement and constant willingness to engage with the courts. It's just part of the environment in that state and in others. We're going to grow through that. We are growing through that. We are building our business through that. That's just part of that process that we keep our eye on that and keep pushing on that.

[Bill Carstanjen, CEO at Churchill Downs]

I would say over the most current quarter, it hasn't been a big driver or a big concern. We feel like we have it mostly in a good place.

[Operator]

Thank you. I'll now turn the call back over to CEO Bill Carstanjen for any closing remarks.

[Bill Carstanjen, CEO at Churchill Downs]

Thanks for your time this morning, everybody. For our investors, thank you for your trust in us. We won't let you down. We're proud of the team. We think we had a strong quarter, and we think we have more good things to come. We'll keep doing what we're doing. Again, thanks for your confidence and trust in us. We look forward to talking to you next year, actually, next quarter as well. Thank you.

[Operator]

Ladies and gentlemen, thank you for participating. This does conclude today's program, and you may now disconnect.

Participants

Executives

• Sam Ullrich, VP of Investor Relations
• Bill Carstanjen, CEO
• Marcia Dall, CFO

Analysts

• Barry Jonas, Managing Director and Senior Gaming Equity Analyst at Truist Securities
• David Katz, Managing Director and Equity Research Analyst at Jefferies
• Chad Beynon, Managing Director and Senior Analyst at Macquarie
• Daniel Guglielmo, Consumer Equity Research Analyst at Capital One Securities
• Daniel Politzer, Executive Director of Equity Research at JPMorgan
• Ben Chaiken, Managing Director and Senior Equity Analyst at Mizuho
• Jeff Stantial, Managing Director of Equity Research at Stifel
• Brandt Montour, Director and Equity Research Analyst at Barclays
• Shaun Kelley, Managing Director and Senior Research Analyst at Bank of America
• Joe Stauff, Senior Equity Research Analyst at Susquehanna