Kentucky Derby owner Churchill Downs doubles up on horse racing

Churchill Downwho owns the Kentucky Derby, is changing its strategy when it comes to sports betting.

The company is doubling down on horse racing betting and moving away from online sports betting and iGaming digital casino games, CEO Bill Carstanjen told CNBC.

“We saw an environment for our company where we didn’t see positive margins on the horizon. So we changed the strategy we are focused on managing our horse racing business,” Carstanjen tells CNBC.

Following a Supreme Court decision in 2018 which allowed states to legalize sports betting, Churchill Downs entered the crowded and competitive field. Carstanjen said the company found that online sports betting profit margins are unattractive. Expenses too high, according to the CEO, especially the huge costs for the technical infrastructure and the costs of attracting and retaining players. Other sports betting companies they are facing similar problems.

Churchill Downs, which is behind the twins racing app, is looking for potential partners for its iGaming content and customer database, Carstanjen said.

“Our approach is to be able to partner with those long-term winners who are willing to spend hundreds of millions of dollars to build that business unprofitable in the short to medium term,” he said.

Carstanjen said betting on online horse racing has been a great deal for his company, with margins of around 30% historically. “We remain absolutely committed and excited about TwinSpires Horse Racing as the front line, bottom line and edge to continue to demonstrate that this is a special online business with a sustainable, scalable and unique business model,” he said during the recent call on profits of the company.

Zandon during morning training for the Kentucky Derby at Churchill Downs on May 04, 2022 in Louisville, Kentucky.

Andy Lyons | Getty Images

However, the pandemic has caused severe disruption to the horse racing industry, aggravating the recent declines. This year’s “Run for the Roses” will be the first regular Derby with a full-fledged crowd since 2019. Carstanjen said they expect record results for the Derby based on advance sales of reserve tickets.

This year’s derby, scheduled for Saturday, is expected to break records in the total amount wagered, also known as the handle, as long as the weather remains dry. Rainy weather often means horses get scratched from the race and bets are refunded.

The Churchill Downs boss also shared his international growth strategy with CNBC, aided in part by a Japanese horse, Crown Pride, which runs in this year’s Derby.

Traditionally, Japanese laws prevent locals from betting on the Derby, but this year bets are allowed because a purebred Japanese horse runs.

“The horse racing business in Japan is huge. It’s about three times bigger than it is in the US,” says Carstanjen.

He said connecting with horse racing communities internationally helps Churchill Downs create new revenue streams through gambling, ticket sales, sponsorships and content offerings.

“It’s just building a specific connection with our race and our brand and giving them access to participate in our event,” said the CEO.