09/25/2012 2:22PM

Churchill Downs Inc. sues, seeking buyout of Kentucky Downs interest


Churchill Downs Inc. has filed a lawsuit against Kentucky Downs seeking a court order that would require the track’s majority ownership to buy out Churchill’s 10 percent stake in the track.

In the suit, filed in Jefferson Circuit Court on Sept. 18, Churchill contends that Kentucky Downs is obligated to buy out the 10 percent stake by a request in July to convert a promissory note held by Churchill into equity in the track. According to Churchill, the decision should have allowed Churchill to sell its stake back to the track’s majority owners under “put rights” established in Kentucky Downs’s operating agreement, but the owners refused to honor the right.

“Churchill Downs exercised its put right and fulfilled all requirements of the Kentucky Downs operating agreement in so doing,” Churchill stated in the suit. “An actual and live controversy exists between and among the parties as to the validity of Churchill Downs’ exercise of its put right.”

Churchill purchased a 5 percent stake in Kentucky Downs in 2007 through a loan to the track. It upped its investment to 10 percent earlier this year.

The operating agreement of 2007 states that Churchill had “five units” in the partnership, worth nearly $200,000 for each unit. If the value of the units remained static when Churchill doubled its stake, Churchill’s total investment in Kentucky Downs is worth approximately $2 million.

Kentucky Downs’s majority interest is held by a partnership of Corey Johnsen and Ray Reid. Another 5 percent stake is held by Turfway Park.