Capital projects: Capex plans will focus on the $76m expansion of the Derby City Gaming facility and three major racetrack projects to be completed in the next three years: the Homestretch Club, the Turn 1 Experience (costing $135m in total) and the Paddock Area redesign (uncosted). CEO Bill Carstanjen said the group will aim to generate EBITDA multiples of five to eight times on the investments and the projects fit into the company’s “sweet spot” with regard to building timeline, completion and EBITDA returns.
SPAC and spin: Asked why the company hadn’t considered a joint venture or SPAC listing to develop its interactive business, Carstanjen said it already has a highly successful and profitable digital asset in Twin Spires and “SPACs or spin offs” weren’t relevant right now for CDI.
“We want to build a great business with the right DNA and because we’ve built Twin Spires maybe we look at it more long term,” Carstanjen added. “We have to do what works for us, investors have confidence and we want to build over time to maximize value.”
Analysts at Macquarie were positive on CDI and pointed to the Kentucky Derby being run with just ~50% capacity and CDI’s strong handling of capital projects, which “will provide a runway of organic growth opportunities over the long term.”
Conversion power: The customer acquisition power of Twin Spires would be apparent once the horse racing and Bet America apps are rolled out across many states. “You’ll see the power of that,” Carstanjen said, adding that as the NFL season approached the group would remain “a little opaque” as to how it would execute its acquisition strategy. “Costs will consume some of our operational improvements, but we’re not acquiring customers unless we have a plan to be profitable over the long term.”
Derby day: Asked why the group hadn’t included historical racing machines (HRMs) at its racetrack, Carstanjen said it carefully considered the options when the pandemic hit and saw that “Derby City is even more of a juggernaut than we thought.” The company plans for new high end hotels and hospitality at the track were put on hold and the group focused on what works and “for the HRMs this was at Derby City.” Churchill Downs enjoyed strong margins (up 10% on AEBITDA) in Q2 and Carstanjen said there was no pressure to “restore amenities” and other measures that would put pressure on margins. Echoing other executives’ recent comments, he said they were sustainable.
