Churchill Downs currently planning to limit 2021 Kentucky Derby attendance to as much 50 percent of capacity

Churchill Downs is planning to run next year’s Kentucky Derby on its traditional date on the first Saturday of May, but the track is currently limiting ticket sales to 40 percent to 50 percent of reserved-seating capacity due to the COVID-19 pandemic, the company’s chief executive said Thursday.

Bill Carstanjen, Churchill’s CEO, said on a conference call to discuss the company’s third-quarter earnings that the company’s plans for Derby ticketing could change depending on the course of the pandemic over the next several months. But for now, the company will not make general admission tickets available and will restrict reserved seating sales until “we can again model the future with more certainty.”

Churchill made the decision to move the Kentucky Derby this year from May 2 to Sept. 5 in the spring, when most businesses were operating under severe disruptions due to the onset of the pandemic. The race this year was held spectator-free, costing the company tens of millions of dollars in revenue from ticketing and concessions. In addition, handle on the race was less than half of last year’s record.

Carstanjen also said on the conference call that the company has delayed the rebuilding of Turfway Park in Northern Kentucky due to a recent ruling by the Kentucky Supreme Court that invalidated a type of gambling machine at use at racetracks throughout the state. Although Carstanjen said that the ruling did not specifically apply to the machines at use at Churchill’s tracks, he said that the construction at Turfway will be delayed “until the Kentucky legislature has an opportunity to review the decision in early 2021.”

The legislature will reconvene Jan. 3. Leaders of the state legislature and Gov. Andy Beshear have both been critical of the impact of the Supreme Court ruling, but neither has laid out any specific plans to address the decision. The machines provide tens of millions of dollars each year to their operators, and subsidies from the machines have led to a doubling of purses at Kentucky tracks over the past decade.

The machines are so profitable, according to Carstanjen, that a casino Churchill opened at its Trackside training center two years ago has already recouped its entire investment cost.

Carstanjen also said that the company has delayed the start of building a hotel and casino space at its flagship track in Louisville due to the ruling. He added that the delay also was related to the pandemic.

Churchill’s third-quarter earnings showed that the pandemic is having a negative impact on its casino operations, but its racing operations were up substantially in the third quarter due to the rescheduling of the Derby and the migration of horse race betting to account-wagering companies. Churchill operates a leading account-wagering company called Twinspires.

Revenue from Churchill Downs in the quarter more than doubled to $68 million this year, up from $32 million last year, when the company did not have the benefit of the Derby. Revenue from Churchill’s online wagering business was up 77 percent in the quarter, from $70.4 million to $126.4 million, the company said. Handle through Twinspires in the third quarter jumped from $368.7 million last year to $622.4 million this year, according to the company.

During the COVID-19 pandemic, most racetracks have not allowed spectators on-site, so gamblers have had to use account-wagering operations to make the vast bulk of their wagers. Total handle on horse races at U.S. tracks was up 12.7 percent in the third quarter of this year, despite a 10 percent decline in the number of races held.

The migration of wagering to online operations has become a cause of concern for some horsemen and their advocates, who note that online bets return far less in revenue to racetracks than wagers made on-site or at bricks-and-mortar offtrack betting locations. Marcia Dall, the company’s chief financial officer, said on the conference call that the operating margins for Twinspires were 30 percent in the quarter.

Both Dall and Carstanjen said that they believed that many of the customers who have migrated to online wagering during the pandemic are likely to continue to use account-wagering operations in the future, even as offtrack betting sites open up as states begin to relax restrictions related to the pandemic (despite a resurgence of positive tests in many states across the United States).

“The customers tend to be very sticky to the product,” Carstanjen said. “They hang around and do most of their betting online.”

Carstanjen said that Twinspires had “doubled” the number of active players using Twinspires in the third quarter.

Overall, Churchill had net income of $43.2 million in the third quarter of 2020, up from $14.8 million in the third quarter of last year. Net revenue for the quarter was $337.8 million, up from $306.3 million in the third quarter of last year, according to the company’s financial documents.

Churchill’s casinos had net revenue of $134.9 million in the quarter, down 24.5 percent from casino revenue of $178.6 million in the third quarter of last year. Many casinos have had to shut down for a portion of the year, and those casinos that have opened have had to pare their operations back in order to comply with health protocols.