What Churchill Downs Gets for Its $85 Million Preakness Purchase

LOUISVILLE – One of the more interesting news items to drop last week was the announcement by Churchill Downs Incorporated that it would acquire the intellectual property rights to the Preakness Stakes from 1/ST Racing for $85 million.

That news, like Rich Strike in the 2022 Kentucky Derby, came out of nowhere. It also prompted speculation as to what it might mean for the second jewel of thoroughbred racing’s Triple Crown and its future at the currently under redevelopment Pimlico Race Course in Baltimore. So much so that The Maryland Jockey Club issued its own statement hours later, reiterating it is the entity responsible for putting on the Preakness. TMJC also made it clear that it handles the media rights and licensing for the race.

So, what exactly did Churchill Downs get for its $85 million? Essentially, the IP is the name itself and the name of the Black-Eyed Susan Stakes, the race for 3-year-old fillies run on the Friday before the Preakness.

Two years ago, the Maryland General Assembly passed a law approving the $400 million overhaul of Pimlico. That law led to a master agreement where the state received the Baltimore track from 1/ST, and starting next year, the state, through the TMJC, will operate the new Pimlico and officially take control of the race. The agreement gave the IP rights to 1/ST, previously known as The Stronach Group.

How Much Will Preakness Rights Bring?

On a call with stock analysts Thursday to go over Churchill’s first quarter earnings, CEO Bill Carstanjen provided some additional insight into the transaction. Once the deal closes, which is expected to happen after the May 16 race, Churchill will officially own the IP, and starting next year, the Louisville-based gaming company will receive a $3 million base fee plus 2% of the handle generated on the two days of racing.

The base fee will grow by 2.5% annually. The combined handle for the two days of racing last year topped $138.5 million. Assuming a 10% increase in handle each year, which is not a given for a variety of factors, when you add the base fee revenue with the handle share, Churchill Downs would get its $85 million back by 2036.

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Churchill Downs CEO Says Company’s Willing to Help

No business spends $85 million so it can get it back in 10 years, especially not one as shrewd as Churchill Downs, and Carstanjen has made it clear the company is more than willing to work with Maryland racing stakeholders on enhancing the Preakness.

“We have a lot of expertise,” Carstanjen told Gambling Insider on Saturday after the post position draw for this Saturday’s Kentucky Derby. . “We have three hundred people who can work with Pimlico with experience in design, construction, sponsorships, licensing and marketing. We have lots of resources… but it’s up to the decision makers of the state of Maryland to decide how best to run the race.”

Carstanjen has been CEO since August 2014. Under his watch, Churchill Downs has grown significantly, thanks to a combination of acquisitions, large-scale investments at existing properties (such as the flagship track in Louisville) and the rise of historical horse racing in Kentucky and other states.

In the first quarter of this year, Churchill Downs reported record net revenue of $663 million, with net income reaching $83 million and an adjusted EBITDA of $257 million. Going back a decade, the first quarter of 2016 saw Churchill generate $288.4 million in net revenue, $2.8 million in net income, and $52.8 million in adjusted EBITDA.

Kentucky Derby Week Now Bigger at Churchill

Churchill Downs has also worked to promote the Derby as a week-long racing festival. Besides the Derby and Friday’s Kentucky Oaks, both of which draw crowds of more than 100,000, the track has created theme days for the cards leading up to the biggest weekend, by handle, for horse racing. This year, Churchill added Sunday races, giving the track seven days of racing. There is also 502’s Day, the annual Tuesday card dedicated to local tie-ins (502 is Louisville’s area code); Winsday for Wednesday’s racing, and Thurby.

Under Carstanjen’s watch, those race days have taken off. Last year, 502’s Day drew 25,764 fans and $7.8 million in all-sources wagering (compared to 8,670 and $4 million in 2015). Wednesday’s card has also attracted more than 25,000 fans in each of the last two years, and the handle has grown from $5 million in 2015 to $11.8 million last year.

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The biggest jump, though, has been on Thursdays. Last year, more than 53,000 came to the track that day, with wagering surpassing $22 million. In 2015, 30,647 attended, and the handle was $9.3 million.

Typically, Pimlico has run races on the weekend before the Preakness, with Monday through Wednesday dark before racing resumes Thursday. Last year, Pimlico’s nine-race card on the Thursday before the Preakness generated just $2.4 million in handle. So, the opportunity is there for Churchill Downs  if, as Carstanjen said, Maryland officials are willing to take the company up on its offer.

Oak View Group to Manage Pimlico

Two weeks before the Churchill-1/ST announcement, The Maryland Jockey Club announced a partnership of its own with Oak View Group. That deal gives OVG, which manages such venues as UBS Arena at Belmont Park in New York, Rupp Arena in Lexington, Ky., and Climate Pledge Arena in Seattle. The company also manages Baltimore’s CFG Bank Arena.

The arrangement calls for OVG to generate new sponsorship revenue for Pimlico and the Preakness and also create year-round entertainment opportunities at the track.

“As we continue investing in the future of this historic venue, OVG’s ability to connect world-class brands with one of sport’s most celebrated events will help elevate the fan experience and ensure the Preakness remains a premier destination for fans and partners alike,” TMJC President and General Manager Bill Knauf said in a statement.

We’re still more than a year away from when TMJC takes over the Preakness, so we’re likely to learn more about how these entities will work together to bolster the Triple Crown race in the months ahead. That will include understanding how much Maryland officials will let Churchill get involved.

As one prominent racing expert told me over the weekend, Maryland officials should jump at the chance, given how Churchill has grown its own property in recent years.

Preakness May Move Back to Grow

One way Churchill Downs may be able to help is by working with Maryland officials to move the Preakness back a week. Sports Business Journal reported a couple weeks ago that the second leg could move back a week as it negotiates a new television deal that would start with next year’s race.

The current two-week gap between the Kentucky Derby and Preakness has been in place for 70 years, with 2020 the exception. However, in recent years some owners and trainers have been hesitant to run their horses on just two weeks rest. Sovereignty, last year’s Derby winner, did not go to Pimlico, with his connections priming him for the Belmont that took place five weeks after his victory at Churchill Downs. Rich Strike’s owners did the same in 2022.

The Derby winner skipping the Preakness usually reduces the interest in the second leg as there’s no chance for a Triple Crown winner. In addition, most of the other Derby horses tend to bypass the Preakness, which may also weaken the field. While the Derby typically runs with a full 20 horse field – it’s the only U.S. race that’s not capped at 14 – the Preakness has had less than 10 entries in each of its last four runnings. The last full field of 14 ran in 2011.

Small field lead to smaller handles.

Traditionalists may bemoan adjusting a schedule that has been in place for decades, but modern race horses do not race nearly as often as horses from previous generations. The prep races for the Kentucky Derby run a month apart, so adding time between the Triple Crown jewels makes sense.

If that happens, it will also help Churchill get a better return on its $85 million investment.