Churchill Downs Hits Record Profits but Debt and Betting Struggles Raise Red Flags

Churchill Downs Incorporated: Riding High, But Can It Keep the Pace?

From Record-Breaking Profits to Looming Challenges

Churchill Downs Incorporated closed 2024 with record-breaking financial results, reinforcing its position as a dominant force in the gaming and racing industry. The company’s revenue surged to $2.7 billion (+11% YoY), and its net income grew to $426.8 million (+2% YoY). Adjusted EBITDA reached an all-time high of $1.2 billion, reflecting a 13% increase. However, beyond the headline numbers, CDI faces competitive pressures, regulatory uncertainties, and shifts in consumer behavior that could impact its trajectory in 2025.

Financial Performance: Growth That Demands Scrutiny

Q4 2024 Performance:
Net Revenue: $624.2M (+11% YoY)
Net Income: $71.7M (+24% YoY)
Adjusted EBITDA: $236.6M (+8% YoY)
Full-Year 2024 Performance:
Net Revenue: $2.7B (+11% YoY)
Net Income: $426.8M (+2% YoY)
Adjusted EBITDA: $1.2B (+13% YoY)
Dividend Increase: 7% growth in annual cash dividend per share
Share Buybacks: $65.3M repurchased
Leverage: Net bank leverage at 4.0x

CDI expanded aggressively in 2024, opening the Terre Haute Casino Resort in April, The Rose Gaming Resort in November, and Owensboro Racing & Gaming in February 2025. The company also hosted a record-breaking 150th Kentucky Derby, contributing significantly to its revenue growth. However, despite these achievements, some key segments are showing signs of softness.

Winners and Losers: Breaking Down CDI’s Business Segments

1. Live and Historical Racing: The Crown Jewel of Growth

Q4 Revenue: $275.5M (+$40.2M YoY)
Q4 EBITDA: $101.6M (+$12.7M YoY)
Growth Drivers: Kentucky Derby revenue boost, The Rose Gaming Resort, and expansion of Historical Racing Machines in Virginia and Kentucky.
Challenges: Rising government expenses in Virginia and operational costs at Churchill Downs Racetrack.

2. Wagering Services & Solutions: The Achilles’ Heel?

Q4 Revenue: $108.0M (-$2.6M YoY)
Q4 EBITDA: $37.3M (+$2.4M YoY)
Declines: Weakness in sports betting, continued softness in TwinSpires Horse Racing.
Growth: Expansion of Exacta betting business in Virginia.

CDI’s sports betting revenue fell by $3.5M in Q4, a sign of market share erosion or weak competitive positioning. Although full-year sports betting revenue grew by $2M, this segment remains a laggard.

3. Gaming: Profitable but Facing Headwinds

Q4 Revenue: $257.5M (+$27.3M YoY)
Q4 EBITDA: $120.1M (+$6.7M YoY)
Growth: Terre Haute Casino Resort contributed $30.3M in revenue.
Declines: Softness at Rivers Des Plaines, rising labor costs, and increasing competition in regional gaming.

Excluding Terre Haute, CDI’s core gaming revenue declined by $15.6M YoY, raising concerns about market saturation and cost pressures in regional gaming.

4. Corporate & Miscellaneous: A Costly Burden?

Q4 Revenue: $2.1M (+$1.9M YoY)
Q4 EBITDA: -$22.4M (-$4.3M YoY)
Concerns: Increased corporate compensation and administrative costs.

The Fine Print: Risks That Could Derail CDI’s Growth

1. Is CDI Over-Leveraging on HRM Expansion?

CDI has aggressively expanded its **Historical Racing Machine ** venues in Kentucky and Virginia, which have become a critical revenue driver. However, increased regulatory scrutiny and tax contributions could impact future profitability.

2. Rising Debt: A Time Bomb Waiting to Explode?

Total Debt: $3.08B (+$5M YoY)
Interest Expenses: Increased by $21.4M YoY
Stock Buybacks: $186M repurchased while taking on new debt

CDI’s rising leverage and interest expenses pose a potential long-term risk, especially in a high-rate environment.

3. TwinSpires: Is This Business Model Still Viable?

Q4 handle fell from $439.1M to $400M
Full-year handle dropped from $1.99B to $1.94B

Market access issues and race schedule shifts have negatively impacted TwinSpires Horse Racing, a crucial component of CDI’s digital wagering platform.

4. Temporary Boosts or a Sustainable Model?

$5.1M in non-recurring insurance recoveries in Q4
Transaction & legal expense adjustments lowered operational costs

These temporary benefits may not be sustainable into 2025.

Investor Checklist: Bullish or Bearish on CDI?

Reasons to Stay Bullish:

Strong Revenue Growth: Live Racing and HRMs continue to drive expansion.
Shareholder-Friendly Moves: Dividend increases and share buybacks reflect management confidence.
Operational Efficiencies: Adjusted EBITDA growth suggests margin improvements despite cost pressures.

Reasons to Be Cautious:

Sports Betting & TwinSpires Weakness: CDI needs to reposition its digital wagering strategy.
Regional Gaming Pressures: Increased competition and cost inflation may erode margins.
Debt & Rising Interest Costs: Long-term financial sustainability needs close monitoring.

What’s Next? The Key Questions for 2025

Will CDI further expand HRM operations, or is saturation approaching?
How will CDI address its struggling sports betting segment?
Will regional gaming competition continue to pressure margins?
Can the company sustain its strong capital return strategy amid rising debt?

CDI remains a cash-generating powerhouse, but growth in key segments like wagering and gaming is not guaranteed. While the company has effectively diversified its revenue streams, it must navigate rising costs, regulatory uncertainties, and evolving consumer preferences to maintain its winning streak.