Carstanjen Q&A: Churchill Downs CEO is bullish on racing

Louisville, Ky.

Last month marked 10 years since Bill Carstanjen was promoted from chief operating officer to CEO of Churchill Downs Inc.

In the past decade, the value of CDI stock has risen nine-fold, and annual corporate revenue has soared north of $2.6 billion. The company has widened its casino and on-line gaming footprints, pioneering historic horse-racing machines as a means to boost race purses. It bought Turfway Park and Ellis Park in Kentucky and Colonial Downs in Virginia. Four months ago Kentucky Derby day handle reached a record $320 million at the company’s namesake track where spectator areas continue to be expanded.

Flatter: How interview with CDI CEO comes to be.

The 10 years also have been marked by the challenges of COVID, the controversial closing of Arlington Park, the medication disqualification of 2021 Derby winner Medina Spirit and the ensuing suspension of Hall of Fame trainer Bob Baffert, the advent of the Horseracing Integrity and Safety Act and a spate of horse deaths in and around the 2023 Derby.

Carstanjen, 56, a lawyer by trade who has been a CDI executive since 2005, talked about many of these topics in a 45-minute conversation this week at Churchill Downs headquarters.

Among the highlights in the first half of the interview:

Declaring the company to be bullish on racing, Carstanjen said, “Nobody over the last 20 years has invested more in horse racing in the United States than Churchill Downs.”

Disputing any belief that CDI had moved its casino interests ahead of racing, he said, “You can’t hive us up into parts. Racing is the ethos. It’s the crown jewel of the company. It’s from where we’ve started.”

On the controversial 2021 closing of Arlington Park, Carstanjen said, “When we find ourselves in an environment where we just don’t have a friendly or understanding or supportive government or regulatory infrastructure, bad things can happen.”

Looking down the road at further development of the Churchill Downs racetrack, he said, “You’ll see us over the next number of years make investments in the infield, because it’s all about giving them a great experience.”

Time ran out before challenges like computer-assisted wagering and the foal-crop decline could be addressed, so those will have to wait for another day.

The entire unedited interview is on the current episode of Horse Racing Nation’s Ron Flatter Racing Pod. The first half is transcribed here. The written version of part 2, including a discussion of HISA and Baffert, will be posted Sunday.

Photos: Churchill Downs Inc.

Bill Carstanjen, first of all, congratulations on 10 years and a little bit as CEO of Churchill Downs Inc.

Thanks. It’s been a wild and fun ride so far, so it’s an honor to be here. It’s an honor to have this opportunity, and it still feels so fresh and new. So lots more to come I hope.

Well, I will say this. I was on Tony Kornheiser’s show during Kentucky Derby week. He was asking, “How did this guy Bill Carstanjen get to be so powerful?” And I said let me offer this. When he took over as CEO, the stock price for Churchill Downs Inc. was $15.66. Move it forward to, as we’re recording now on Sept. 9, $140.17. I’m not even counting two stock splits in there, but that’s nearly nine times the money. And I suggested you could wear a T-shirt with the bar graph under a sport coat. And any critics, and I’ve been a critic at times of Churchill Downs, you know that. You could just open that coat and go, “Check this out” Is that a fair statement to say that you could do that?

I don’t ever think about think about it that way. I’m fortunate to be a part of a great team here with great people, and this is a great company. As exciting as it’s been over the last 10 years to have some success, stock price and otherwise, all I’m thinking about is what we need to do today to build our company and what the future holds for us if we’re smart about it. As you sit here today in our Churchill offices, no one around here is allowed to rest on their laurels from the past. It’s all about what we do going forward, but I think it does give the team a lot of confidence and a sense of comfort knowing that they play for a team that’s demonstrated that they can get it done on the field.

If I dare to continue using stock analysis here or at least the terminology for it, racing is not exactly a bull market. Across the country, across the world, it’s not a bull market. So why has the stock risen as much as it has, and how do you fly in the face of what really is a bear market for racing in general?

I think horse racing is a microcosm or an example of American business in general. You always have naysayers. You always have people pointing out the negatives. But we found lots of opportunities to grow our company in horse racing. Of course, we’ve also diversified, and we’ve been successful doing that, but nobody over the last 20 years has invested more in horse racing in the United States than Churchill Downs, and we’ve been smart to do that. We’ve found ways to make it work for us and to find growth. Within the larger narrative of negative trends here and there in the industry or things that aren’t as good as they were in the past, within that larger trend that people talk about or that larger narrative, there’s been lots of opportunities to grow. There’s been lots of people that have made money in horse racing that have grown their businesses in horse racing. You can’t listen to all the voices out there, and you have to look at what’s on your plate, what you’re having for dinner that night, and you have to find ways to make it work. So as a company, we have. Let’s just remember that the biggest event in American horse racing, maybe even the world, is the Kentucky Derby, and that’s never been healthier. That’s never been stronger. That’s never been healthier. Every possible metric you can look at with respect to that event is all moving in the right direction. Don’t forget about the pockets of positivity. Don’t forget about the good things that are going on. People shouldn’t forget that it’s a great game. Maybe it’s not like it was across the board in the ’60s or ’70s in a world where you didn’t have lotteries, where you didn’t have brick-and-mortar casinos, where you didn’t have online sports wagering. Those prior periods, those prior eras, horse racing really had a monopoly on gaming. But you fast forward to now, to today, and it’s a much more complicated dynamic, and there is a lot of competition. That doesn’t mean that our game has declined in terms of the level of fun and entertainment it can deliver, but it’s a much more complex, complicated world, and we got to work harder to make the opportunities pan out for us.

You mentioned casinos, and Churchill certainly has gotten in the casino business. Is it a bigger casino company now than a racing company?

I don’t think so. I think you can’t hive us up into parts. Racing is the ethos. It’s the crown jewel of the company. It’s from where we’ve started. A lot of the opportunities that we’ve had in gaming come from the fact that we’re in horse racing, so I don’t like to chop it up like that. The fact is racing is incredibly important to our company. It’s something that all our top executives are personally passionate about in addition to it being the business that it is for our company. It’s one big stew that tastes pretty good, and it isn’t right or fair to think of us as an online company or a casino company or solely a racing company. We’re a company whose crown jewel is horse racing, but we’ve used that to grow, and we’ve used that to build new skills. Ironically, a lot of those skills all tie together and all tie back. If you look at historical racing machines, if you look at Twin Spires and the technology for (advanced-deposit wagering) , all of those things stem from horse racing, and our passion and knowledge of horse racing are really what led us to develop those opportunities.

HHR (historic horse racing) just seems like now it’s the biggest, juiciest apple on the tree, and it happens to be the lowest branch in a lot of ways. I mean, is the success of HHR beyond your expectations?

I have pretty high expectations.

Yes.

I don’t know if that’s a fair measurement. I’d say that I’ve been thrilled by how that’s developed. I’ve been thrilled by how our company has embraced it, how our company has owned it and put everything they could into making it better and believed in it as an opportunity. I think it has a lot more to offer. I think it’s done wonderful things for the state of horse racing in Kentucky. I think it’s doing similar things in Virginia. I think it’s a real tool in the toolbox for us to grow the industry, to grow the sport and to grow our company. It’s pretty exciting, and it’s still very, very fresh, and it’s opened a lot of doors. As much as I don’t ever like to admit something’s exceeded expectations, maybe it has in this case. Our team has come up with lots of innovations that I’ve been proud to see them come up with and made our company better.

Are you worried it could be a fad, though, that it could hit a peak and then start to peter out?

I think business is always changing, so there’ll come a point where HRMs (historic-racing machines) need to continue to innovate, to grow, to open up new doors for us, to lead to new things, and that’s American business. Nothing stays the same. Nothing delivers consistent growth forever. You constantly have to be ready to innovate and change with the times. That said, I think where we are on the runway, on the ramp-up with HRMs, we’re still a long way from seeing the horizon there. It’s still a long way to the horizon for us, but eventually, nobody should be resting on their laurels. We have to be constantly thinking about what are we doing in five years? What are we doing in 10? As long as we’re planning for that and thinking about that and modifying that expectation based on what we experience today or tomorrow, we’ll be fine.

The flip side of all this, you closed Arlington Park. Churchill also had its hands at one time or another on Hollywood Park and on Calder, and all three of those tracks are closed. You also have Ellis Park, which has an ancient infrastructure about it. How do you look at that arc and weigh that against the statement that Churchill Downs is certainly invested in racing.

I think that’s a really fair question. I would start by saying we’re not magicians. Making any gambling product in the country work, whether it be casinos or online or horse racing, involves a relationship and a partnership with the regulatory authorities and the government. When we find ourselves in an environment where we just don’t have a friendly or understanding or supportive government or regulatory infrastructure, bad things can happen. You take Illinois. That is an extremely troubled regulatory infrastructure, an extremely complicated legislative picture, and we’re not magicians. We couldn’t find a way to make that work, and we did our very best over a long period of time and may have stuck with it longer than we should have, but that’s an example of don’t expect miracles. We are competent, responsible, passionate businesspeople, and we tried very, very hard. But there are environments in this country where it’s hard to make racing work when the laws and the regulatory framework don’t change with the times. Illinois is an example of that for us. I don’t think there was any ill will or malintent, but the world really changed since the racing laws had been written. With the expense profile in the jurisdiction and the level of competition from not only casinos but video-lottery terminal routes, it was just hard to make that work economically. Every year the costs were going up, but the income flowing in was going down. I can’t speak as much to Hollywood Park, because I was not in the company when that deal was signed 20 years ago, so I wasn’t involved with the thinking at that point. It’s one of the hardest and most difficult times of my career, and that is I was the decision maker for Arlington Park. I did have to lead that analysis, and it’s one I probably got to a few years later than I should have, because we were trying so hard to find a way to make it work in that state. That is always going to be one of my favorite tracks and the first racetrack I ever visited as a fan. It was a personal disappointment, and a real disappointment to Mr. (Richard) Duchossois, in many ways the patriarch over the last 25 years in our company, but we tried everything we could to make it work, and others might find and have a similar experience in other jurisdictions in our country. If there isn’t going to be a healthy, evolving, clear-eyed partnership between legislative, regulatory and business interests, you’re going to see bad things happen.

Is it a fair criticism, then, when folks in Illinois who had their heart and soul at Arlington say, “Churchill wanted to have gaming available to make Arlington Park go.” When it finally happened, it said, “No, we’re not going to make it go.”

Not a fair criticism, because we did not support that gaming bill. That gaming bill was an evolution of a process over several years, and starting with a few years prior to its eventual passage, we were saying very clearly and very loudly in the legislative process this bill doesn’t work economically, and we are not supportive of it. As time went past they decided to ignore that input from us and pass it, but we were very consistent to what we’ve said the whole time that that bill didn’t work economically. I would point out, Ron, that no gaming facility has been built at a racetrack under that model, and it’s been a number of years now. That’s not to say it won’t happen in the future, perhaps if interest rates go down a bunch more, but for all the happy talk, for all the high-fiving and happy talk, nobody’s built a gaming facility under that racetrack model.

What’s the plan for Ellis?

Ellis, the plan is invest, invest, invest. Owensboro (Ky.) is going to open up in the first quarter of next year. That will provide ...

A casino, right?

The HRM facility, the HHR facility. It’s not technically a casino, but it’s got our HRM machines in there.

Sure.

That will generate a new pool of purse money that will fuel the purses there. Our intent is to make it a meat-and-potato, healthy, summertime racetrack that will keep Midwestern horsemen, whether they’re stabled in Kentucky or in one of the states nearby, happy and healthy with an opportunity to run for high purses in the Midwest. It’s about investing in that racing product, first and foremost, because it’s part of our circuit, and it’s an important part of our circuit.

Do you see rebuilding the grandstand at some point?

That’s not what the people want.

Really?

We do surveys down there in the market, and not every racetrack is supposed to be the Taj Mahal. The people in Henderson (Ky.) and in the surrounding community, the overwhelming feedback we get from them is, “Yeah, we’d like to see a new paint job. We’d like to see some touch-ups here and there, but we like this place. This is our place.” We’re not going to rebuild the grandstand, because our fans don’t want us to. They like what they have. That doesn’t mean we won’t continue to invest in it. Some of its infrastructural investment. We’ve had trouble with the water supply there and some things like that, but the grandstand itself, we’ll do touch-ups. We’ll do improvements, but we’re not going to change it, because the overwhelming feedback we get from people is that’s their place. They like it. Keep it clean. Keep it fresh. Keep it nice. But don’t try to build Churchill Downs there, because that’s not what they want.

Kind of like Fenway Park.

Yeah, it’s tradition. I don’t know how much time you’ve spent there, Ron.

A little bit.

There’s a real culture there.

Yeah.

There’s a real feel to that place. There’s a real vibe to it. And we’ve asked. We’ve done surveys, and the feedback we get is, “We like it. This is our place. This fits for us, and make some improvements here and there.” Ultimately, I think a lot of times in American business, if you just listen to what your customers, your actual customers tell you, you can learn a lot. You can surprise your customers in a positive way, but when they tell you what they want, don’t surprise them. Give them what they want.

Kind of a county-fair feel.

A bit, yeah. A bit. That part of the country just feels like it. In Kentucky we sit on the border of the Midwest and the South, but Ellis Park to me feels very Midwest, feels very county fair, comfortable, and they just want to see investment, and they just want to see economic activity, and they just want to have a place to entertain their family and friends on the weekends. What do we think our challenge there is? We just want to make that as good a racetrack with as healthy as purses as we can make it to fit in with the overall Kentucky circuit. Whether it’s our track or Keeneland or Kentucky Downs, we think of it as a state circuit, and we want horsemen from Kentucky and the surrounding region to always have an opportunity to race in Kentucky, if they want it.

Let me take you right back here to Churchill Downs, the racetrack, with all the improvements that have gone on there, most visibly recently the big new paddock, the ongoing construction now for the grandstand area closer to the finish line, etc. We know about what I like to call the big racing condominiums up there by the top of the stretch. But how big can you go? How big do you want it to be? I didn’t even mention the first turn, big grandstand there. But how big is big, and how big is too big? Because at some point, I guess you have got to deal with maintaining infrastructure for seats that aren’t going to get used most of the year.

I wouldn’t want to get too philosophical about it, because the fact is despite the event being 150 years old, I think in a lot of ways we’re still defining what it is. There’s just so much opportunity to continue to grow it. When we think about the overall number of people there, we want everybody to have a great experience. Our team is not motivated to set attendance records. We’re not trying to pack them in like sardines into the infield. You’ll see us over the next number of years make investments in the infield, because it’s all about giving them a great experience. We want them to have a great, memorable, bucket-list experience, not set some sort of selfish corporate goal of stuffing them in there like sardines. We’re not motivated, and we don’t think it’s the right thing to do to jam as many people in there as possible. It’s all about creating great experiences. When it comes to both the infield and the front side, I think if you if you flew a drone over it, you’d see lots of places where we can make improvements or build something where there’s nothing currently. I think there’s more to come, but it’s always one step at a time. There’s a discipline that’s imposed on us by the fact that every first Saturday in May, we’ve got to be ready to go, and being ready to go means giving people a bucket-list experience. Many of our guests, not the majority for sure, but many of our guests are coming one time. Maybe we can talk them into coming again, but it’s a bucket list, and it’s their first time, and they’ve got to have a great experience. They’ve got to have an experience that’s worthy of being their bucket-list experience. So we’ve got to be ready every first Saturday in May on that, and that means when we plan our projects and we plan our investments, we have to do so recognizing that whether we’re done with the project or not, we got to get everything cleaned up and ready to go so we can deliver a really unique experience. That imposes a discipline on us that I think is helpful, because we always learn so much every year that we can then plow back in. We can plow those learnings back into the projects we’re finishing or the projects we’re planning for the future. The event is so healthy, it is so strong right now, that we’re not thinking about the end of projects. This is a period in our history where all systems are go, and we’ve got to make these investments and grow the events. Again it’s not about bringing lots of lots more bodies. It’s about differentiating and experiences that we offer so that we can better meet the expectations of customers out there.

What’s the infield going to look like?

We haven’t really announced that yet, but I think, I think stay tuned. ... We’re not ready to announce what these projects are, but I feel comfortable in telling you that we’re hard at work on these. We think that if you look at what we’ve done at Churchill, we’ve made a lot of investment on the front side of the racetrack, and there’s a lot of opportunity in the infield for our fans as well. Stay tuned. There will be more to come there, but I feel very confident and comfortable in saying that’s an area where we want to see development, and we want to see that in the short term.

I was just going to ask, how soon might we see that?

(Laughs) Even that I’m not allowed to tell you. I have to be careful about that, because when you’re ready, you announce it. I am giving you a hint, though, so I am sort of dangling the carrot out there to people should stay tuned and pay attention. But soon. Soon.

OK.

The most I can say is soon you’ll see us talk about this publicly.