Churchill Downs Incorporated (CHDN) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Churchill Downs Incorporated Kentucky Derby Update Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Nick Zangari, Vice President, Treasury and Investor Relations.

Thank you, Chris. Good morning and welcome to our Kentucky Derby Update Conference Call. After the company's prepared remarks, we will open the call for your questions. Before we get started, I would like to remind you that some of the statements that we make today may include forward-looking statements. These statements involve a number of risks and uncertainties that could cause actual results to differ materially. All forward-looking statements should be considered in conjunction with the cautionary statements in our updated press release and the risk factors included in our filings with the SEC, specifically the most recent report on Form 10-K. Any forward-looking statements that we make are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. And now I'll turn the call over to our Chief Executive Officer, Mr. Bill Carstanjen.

Thanks, Nick. Good morning, everyone. With me today are several members of our team, including Bill Mudd, our President and Chief Operating Officer; Kevin Flanery, the President of Churchill Downs Racetrack; Marcia Dall, our Chief Financial Officer; and Brad Blackwell, our General Counsel. On the call today, we are going to discuss the timing of the running of the 146th Kentucky Derby. But first, I'd like to start by saying that our hearts are with those who have been affected by the coronavirus. This pandemic is a stark reminder that the health and safety of our families and communities always comes first. I'd also be remiss without saying a special thank you to the team members at all of our CDI properties. I am not unique in noting that the past few weeks delivered some of the most unexpected and challenging circumstances I have seen in my career. The only highlight in these difficult times has been the opportunity to witness the character and competence of the individuals and collective teams who make up who we are across our properties. I want to extend my gratitude and deepest respect to them for their dedication to our guests and commitment to our company during this unprecedented time. Throughout the rapid development of the coronavirus pandemic, our first priority has been how to best protect the safety and health of our guests, team members and community. As the situation evolves, we steadily made all necessary operational adjustments to provide the safest experience and environment across our properties. The most recent developments have led us to make some very difficult, but we believe necessary decisions. We are fortunate to have great partnerships during these challenging times with the Governor of Kentucky, Andy Beshear, the City of Louisville, NBC and so many others. For the second time in the 145-year history of the Kentucky Derby, the first time being at the end of World War II, we will move the date of the Derby. We sincerely regret any inconvenience this creates for our outstanding fans, whom I'm sure will understand that there is no doubt that this must be done. Our team is united in our commitment to holding the very best Kentucky Derby ever and certainly the most unique in any of our lifetimes. While we are always respectful of the time-honored traditions of the Kentucky Derby, our company's true legacy is one of resilience, the embracing of change and unshakable resolve [Audio Gap] 146th Kentucky Derby on September 5, 2020, just as our company has held the Kentucky Derby in every single year since 1875. The 146th running of the Kentucky Oaks will take place the day before on Friday, September 4, 2020. These dates are contingent upon final approval from the Kentucky Horse Racing Commission, who has been very cooperative during this process. We expect to receive their approval at their next meeting, which is scheduled for this Thursday, March 19. We believe that moving our iconic event to Labor Day weekend this year will enable our country to have time to contain the spread of the coronavirus. This will also provide our guests more time to reschedule their travel and hotel arrangements, so that they can attend. We've worked with NBC, our broadcast partner, to select September 5, the Labor Day weekend, based on the limited number of other sporting events being held that weekend and based on the availability of lodging in the Louisville area to accommodate visitors to the Derby. Again, a huge thanks to NBC, who has been just a great and patient partner throughout. The impact of the Derby extends well beyond the historic racetrack of Churchill Downs and is an important time for the city of Louisville and the Commonwealth of Kentucky. We are still finalizing the many details for Derby week beyond the Kentucky Derby itself, and we'll be working with our community partners to support potential timing changes for their events as well during this rescheduling effort. With respect to Derby points, we expect to add new road to the Derby races shortly. We will take existing stake races around the country and incorporate them into our point system. We will work with other prominent partner tracks that operate throughout the summer and determine the various paths to the starting gate at the Derby that enable the horses in the best form to compete. Current points already earned will still count towards the first Saturday in September, but details on races we will add are yet to be finalized. This will be fun and give the fans more time to learn about and evaluate this year's crop of 3-year-old Thoroughbreds. For the latest information on Derby Week, the Spring Meet and details on ticketing as well as other relevant information regarding this change, I encourage you to visit kentuckyderby.com/updates. None of this has or will be simple. However, we believe that we can create a special opportunity that will help us all look forward to the times when these uncertainties are behind us, and we can return to our familiar traditions. These difficult decisions are not unique to the Kentucky Derby. Yesterday, we shared a press release regarding the current status of our various casino properties and the measures taken to prevent the spread of the pandemic virus. You can visit that update at churchilldownsincorporated.com. To close, we will constantly update our website and answer your calls, as we plan towards September 5. We've moved past the fact we are changing a time-honored date that hasn't been touched in 75 years. Had to be done, we own it, and we'll make it a really special day. We are excited also that NBC is in talks to move the Preakness and Belmont Stakes to September and early October, respectfully. We hope the parties can reach a final agreement. It will make for a really unique Triple Crown season and a perfect setup for this year's Breeders' Cup. Now I'd like to open the call for any questions from reporters. Thank you.

[Operator Instructions] And our first question comes from the line of Chris Otts -- apologies. My next question comes from the line of Matt Hegarty with Daily Racing Form.

Hey, guys, can you hear me?

Hear you fine, Matt.

Okay. Great. What communications so far have you had with the other Triple Crown hosts? And how amenable are they to a schedule that looks like the traditional spacing of the 3 Triple Crown races?

We gave them a heads-up as we got close to finalizing an arrangement with the NBC -- with our NBC partners. They were receptive. They have their own questions. I know they're talking to NBC now. Certainly, there is time in the calendar that NBC can make available. So it could be a pretty similar spacing that we normally have between Triple Crown races, 2 weeks to the Preakness, 3 weeks from the Preakness to the Belmont. So it's all possible. They just have to work it out together, and I hope they do.

And our next question comes from the line of Byron King with BloodHorse.

Bill, I was hoping you could expand a little bit on the various other races. The press release mentioned that other Derby Week races other than the Oaks and the Derby have not yet been determined. But if you could expand a little bit on those various races, such as the Old Forester and other major races that are key components for a lot of horsemen that point for over the years and what might become of those races, and for that matter, the upcoming Spring Meet.

Byron, this is Kevin Flanery. Thanks for your question. Our intention is to really pick up Derby week starting from Tuesday of the May time frame, pick up that Tuesday through Saturday footprint, move it to the September 5 Derby, so starting on September 1 through September 5 and really replicate the racing that we would have had in the -- leading up to the first Saturday in May. So we'll be looking at all of that and talking with our partners as we go forward, but that's our intention. And with regard to the Spring Meet, we will, obviously, be monitoring the situation. We've got a lot of information to gather, but we're preparing for the Spring Meet when the time comes.

[Operator Instructions] And our next question comes from the line of Chris Otts with WDRB.

I would like to know if you guys have thought about -- I hate to say this, but I don't think we know whether this virus will be contained by Labor Day. You've run the race every year since 1875. Have you thought about what you can do if in the event that the event cannot go on in September, are there contingency plans for later in the year?

Chris, thanks for your question. Certainly, we picked this date after careful reflection with city, state, national experts, but certainly, things can change over time. But this was a very thoughtful, carefully considered plan that we're implementing. And we feel really good about it and we feel really confident about it. We also feel confident that we are going to run the Kentucky Derby, and we're going to run it with the crowd. The Kentucky Derby is a participatory event. Its energy and its magic really comes from everybody participating and being there to enjoy it. So we're going to make it happen. This race has happened 145 years in a row. It's going to happen 146th. So we'll roll with the punches, but we feel very, very good that September is the right date.

And our next question comes from the line of Jack Renaud with CBS News.

I apologize if this has been asked. My phone bounced out for a little bit. But how are you going to qualify horses now? What's the setup for that? Who's going to be the top 20?

Thank you for that question. Again, this is Kevin Flanery. We instituted the road to the Kentucky Derby several years ago, which provides points for those horses in certain races. Given the fact we're going to September, obviously, we're going to have some more time. So we will identify additional races over the course of the summer to supplement opportunities for horses to attain points to be in the Derby in the first Saturday in September. The points that they've already accumulated, those will count towards the race as well. But we're going to adjust so that the best horses, in the best form compete in the Kentucky Derby.

And our next question comes from the line of Willie Weinbaum with ESPN.

This is a question for Bill. I'm wondering what your impressions have been of horseracing without audiences over the last several days and what you think that has meant for the sport.

Well, certainly, it's never anybody's choice to hold horseracing without an audience. So we prefer to have an audience. But horseracing, there's a whole community that supports these horses, and there's a whole infrastructure and per structure an economy around these events. So the fact that some tracks have been able to safely conduct horseracing while maintaining social distancing has been a nice thing, and since so much of the wagering activity for the industry happens online, it's worked pretty well. It's been a good way of addressing the issues that we see with social distancing and the virus. So if it's a responsible thing to do, if the state, city and local authorities in that jurisdiction think that horseracing can be conducted safely with respect to all the patrons and with respect to the community, certainly, it's good for the industry and it's good for the fans, so many of whom are participating through online. But safety comes first. Being a good community partner comes first. Those are the hurdles that need to be addressed before it makes sense to even think about the logistics of holding horseracing.

And our last question comes from the line of Joe Drape with The New York Times.

This is Bill -- this is for Bill. In light of the recent indictments on the doping charges and the growing scrutiny from the public that your sport is not safe and a drug culture has pervaded, are you willing to change your opposition to the Horseracing Integrity Act? And if not, why so?

Joe, thanks for the question. So the indictment, which has nothing to do with Churchill Downs or this call, concerned the activity in Florida with a series of trainers operating down out of the Florida market. Generally, I think that's a good thing. We passionately and vehemently want to make sure that the sport is clean as possible, and we oppose cheating at every turn, and we will always oppose it. So we support every effort to clean up the sport. With respect to federal legislation, the devil is always in the details. It's about governance of it. It's about making sure that it's a solution to a problem, not just admiring a problem that exists. So federal legislation itself is not something that we oppose. It's just the details of the federal legislation. So we'll continue to work with industry partners to try to shape solutions, whether they be federal legislation or state legislation or industry oversight groups, we'll work with everybody to make the sport as safe and as honest as possible. And that will be a never-ending task, just like it is for many sports, but that's a challenge we accept and look forward to meeting.

Thank you. And this concludes today's question-and-answer session. I would now like to turn the call back to Bill Carstanjen for closing remarks.

Thank you again for being on the call. We look forward to celebrating the 146th Kentucky Derby with you on September 5. Look for more details and more information as we get closer to the event, but we'll be excited to see you in September. Thank you, everyone.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.