By T. D. Thornton
Bill Carstanjen, the chief executive officer of Churchill Downs, Inc. (CDI), said during a quarterly conference call with investors Feb. 24 that after only a brief foray into online sports betting, the gaming corporation plans to phase out operating in that sector by mid-2022.
“When the U.S. Supreme Court overturned the federal ban on sports betting in May of 2018, we had high hopes for the potential to build a profitable business in this space,” Carstanjen said. “Our initial strategy was to leverage a variable cost technology model and be disciplined in our marketing spend with a focus on bottom-line profitability as states legalized online sports wagering and iGaming.
“We have profitable retail sports books in four of our casinos,” Carstanjen said. “However, the online sports betting and online casino space is highly competitive with an ever-increasing number of participants that the states have licensed. Many are pursuing maximum market share in every state with limited regard for short-term or potentially even long-term profitability.
“Because we do not see for us a path in which this business model delivers predictable and acceptable margins for at least several years, if ever, we have decided to exit the business-to-customer online sports betting and iGaming space over the next six months…
“We are always committed to building long-term value for our shareholders. And consistent with this commitment, when we see that an investment is not progressing as we had planned, we will redeploy the resources and capital to other growth projects or return the capital to our shareholders,” Carstanjen said. “We have proven with our past decisions that we are willing to walk away from businesses where we do not see a secure enough path to consistent profitable growth with an acceptable return for our shareholders.”
The Thoroughbred industry is painfully aware of the gaming corporation's previous decisions to abandon aspects of its business. Under CDI's stewardship, horse racing has ceased over the past decade at Hollywood Park in California and Calder Race Course in Florida. A sale is in currently the works to turn historic Arlington International Racecourse near Chicago into a football stadium.
CDI currently owns four active Thoroughbred tracks (Churchill Downs, Turfway Park, Fair Grounds and Presque Isle Downs). Because of its recent history of shuttering racetracks, an announcement by CDI earlier this week that it intended to acquire Colonial Downs and its Virginia gaming properties drew widespread social media chatter among racing industry participants and fans, with skepticism and concerns for Colonial's future far outnumbering comments that considered the deal to be a positive one for the sport.
“This isn't the result we wanted when we started [online sports betting] back in late 2018, but it is the prudent next step forward for our company,” Carstanjen said. “We remain absolutely committed and excited about TwinSpires Horse Racing as its top line, bottom line, and margins continue to demonstrate that this is a special online business with a sustainable, scalable and unique business model that delivers profitable growth today just as it has since we started the business well over a decade ago.”
At a later point in the call when investment analysis were permitted to ask questions, Carstanjen responded this way to one query about the decision to exit online sports betting:
“[G]ambling ultimately is a margin-driven business, and you have to set up your teams and you have to set up your processes to guarantee that you can drive margins. We can do that with TwinSpires Horse Racing, but we just don't see that for us in the broader online segment. So, we'll keep watching that business over time. We'll watch the others that are in it. And we'll see where the future takes that space.”
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