Louisville, Ky.

Last month marked 10 years since Bill Carstanjen was
promoted from chief operating officer to CEO of Churchill Downs Inc.

In the past decade, the value of CDI stock has risen
nine-fold, and annual corporate revenue has soared north of $2.6 billion. The
company has widened its casino and on-line gaming footprints, pioneering
historic horse-racing machines as a means to boost race purses. It bought Turfway
Park and Ellis Park in Kentucky and Colonial Downs in Virginia. Four months ago
Kentucky Derby day handle reached a record $320 million at the company’s
namesake track where spectator areas continue to be expanded.

Flatter: How interview with CDI CEO comes to be.

The 10 years also have been marked by the challenges of COVID,
the controversial closing of Arlington Park, the medication disqualification of
2021 Derby winner Medina Spirit and the ensuing suspension of Hall of Fame
trainer Bob Baffert, the advent of the Horseracing Integrity and Safety Act and
a spate of horse deaths in and around the 2023 Derby.

Carstanjen, 56, a career lawyer who has been a CDI executive
since 2005, talked about many of these topics in a 45-minute conversation this
week at Churchill Downs headquarters.

Among the highlights in the first half of the interview:

Declaring the company to be bullish on racing, Carstanjen
said, “Nobody over the last 20 years has invested more in horse racing in the
United States than Churchill Downs.”

Disputing any belief that CDI had moved its casino interests
ahead of racing, he said, “You can’t hive us up into parts. Racing is the
ethos. It’s the crown jewel of the company. It’s from where we’ve started.”

On the controversial 2021 closing of Arlington Park, Carstanjen
said, “When we find ourselves in an environment where we just don’t have a
friendly or understanding or supportive government or regulatory
infrastructure, bad things can happen.”

Looking down the road at further development of the
Churchill Downs racetrack, he said, “You’ll see us over the next number of
years make investments in the infield, because it’s all about giving them a
great experience.”

Time ran out before challenges like computer-assisted
wagering and the foal-crop decline could be addressed, so those will have to
wait for another day.

The entire unedited interview is on the current episode of Horse
Racing Nation’s Ron Flatter Racing Pod. The first half is transcribed here.
The written version of part 2, including a discussion of HISA and Baffert, will
be posted Sunday.

Bill Carstanjen, first of all, congratulations on 10
years and a little bit as CEO of Churchill Downs Inc.

Thanks. It’s been a wild and fun ride so far, so it’s an
honor to be here. It’s an honor to have this opportunity, and it still feels so
fresh and new. So lots more to come I hope.

Well, I will say this. I was on Tony Kornheiser’s show
during Kentucky Derby week. He was asking, “How did this guy Bill Carstanjen get
to be so powerful?” And I said let me offer this. When he took over as CEO, the
stock price for Churchill Downs Inc. was $15.66. Move it forward to, as we’re
recording now on Sept. 9, $140.17. I’m not even counting two stock splits in
there, but that’s nearly nine times the money. And I suggested you could wear a
T-shirt with the bar graph under a sport coat. And any critics, and I’ve been a
critic at times of Churchill Downs, you know that. You could just open that
coat and go, “Check this out” Is that a fair statement to say that you could do
that?

I don’t ever think about think about it that way. I’m
fortunate to be a part of a great team here with great people, and this is a
great company. As exciting as it’s been over the last 10 years to have some
success, stock price and otherwise, all I’m thinking about is what we need to
do today to build our company and what the future holds for us if we’re smart
about it. As you sit here today in our Churchill offices, no one around here is
allowed to rest on their laurels from the past. It’s all about what we do going
forward, but I think it does give the team a lot of confidence and a sense of comfort
knowing that they play for a team that’s demonstrated that they can get it done
on the field.

If I dare to continue using stock analysis here or at
least the terminology for it, racing is not exactly a bull market. Across the
country, across the world, it’s not a bull market. So why has the stock risen
as much as it has, and how do you fly in the face of what really is a bear
market for racing in general?

I think horse racing is a microcosm or an example of
American business in general. You always have naysayers. You always have people
pointing out the negatives. But we found lots of opportunities to grow our
company in horse racing. Of course, we’ve also diversified, and we’ve been
successful doing that, but nobody over the last 20 years has invested more in
horse racing in the United States than Churchill Downs, and we’ve been smart to
do that. We’ve found ways to make it work for us and to find growth. Within the
larger narrative of negative trends here and there in the industry or things
that aren’t as good as they were in the past, within that larger trend that
people talk about or that larger narrative, there’s been lots of opportunities
to grow. There’s been lots of people that have made money in horse racing that
have grown their businesses in horse racing. You can’t listen to all the voices
out there, and you have to look at what’s on your plate, what you’re having for
dinner that night, and you have to find ways to make it work. So as a company,
we have. Let’s just remember that the biggest event in American horse racing,
maybe even the world, is the Kentucky Derby, and that’s never been healthier. That’s
never been stronger. That’s never been healthier. Every possible metric you can
look at with respect to that event is all moving in the right direction. Don’t
forget about the pockets of positivity. Don’t forget about the good things that
are going on. People shouldn’t forget that it’s a great game. Maybe it’s not
like it was across the board in the ’60s or ’70s in a world where you didn’t
have lotteries, where you didn’t have brick-and-mortar casinos, where you
didn’t have online sports wagering. Those prior periods, those prior eras,
horse racing really had a monopoly on gaming. But you fast forward to now, to
today, and it’s a much more complicated dynamic, and there is a lot of
competition. That doesn’t mean that our game has declined in terms of the level
of fun and entertainment it can deliver, but it’s a much more complex,
complicated world, and we got to work harder to make the opportunities pan out
for us.

You mentioned casinos, and Churchill certainly has gotten
in the casino business. Is it a bigger casino company now than a racing
company?

I don’t think so. I think you can’t hive us up into parts.
Racing is the ethos. It’s the crown jewel of the company. It’s from where we’ve
started. A lot of the opportunities that we’ve had in gaming come from the fact
that we’re in horse racing, so I don’t like to chop it up like that. The fact
is racing is incredibly important to our company. It’s something that all our
top executives are personally passionate about in addition to it being the
business that it is for our company. It’s one big stew that tastes pretty good,
and it isn’t right or fair to think of us as an online company or a casino
company or solely a racing company. We’re a company whose crown jewel is horse
racing, but we’ve used that to grow, and we’ve used that to build new skills. Ironically,
a lot of those skills all tie together and all tie back. If you look at
historical racing machines, if you look at Twin Spires and the technology for (advanced-deposit
wagering) , all of those things stem from horse racing, and our passion and
knowledge of horse racing are really what led us to develop those
opportunities.

HHR (historic horse racing) just seems like now it’s the
biggest, juiciest apple on the tree, and it happens to be the lowest branch in
a lot of ways. I mean, is the success of HHR beyond your expectations?

I have pretty high expectations.

Yes.

I don’t know if that’s a fair measurement. I’d say that I’ve
been thrilled by how that’s developed. I’ve been thrilled by how our company
has embraced it, how our company has owned it and put everything they could
into making it better and believed in it as an opportunity. I think it has a
lot more to offer. I think it’s done wonderful things for the state of horse
racing in Kentucky. I think it’s doing similar things in Virginia. I think it’s
a real tool in the toolbox for us to grow the industry, to grow the sport and
to grow our company. It’s pretty exciting, and it’s still very, very fresh, and
it’s opened a lot of doors. As much as I don’t ever like to admit something’s
exceeded expectations, maybe it has in this case. Our team has come up with
lots of innovations that I’ve been proud to see them come up with and made our
company better.

Are you worried it could be a fad, though, that it could
hit a peak and then start to peter out?

I think business is always changing, so there’ll come a
point where HRMs (historic-racing machines) need to continue to innovate, to
grow, to open up new doors for us, to lead to new things, and that’s American
business. Nothing stays the same. Nothing delivers consistent growth forever.
You constantly have to be ready to innovate and change with the times. That
said, I think where we are on the runway, on the ramp-up with HRMs, we’re still
a long way from seeing the horizon there. It’s still a long way to the horizon
for us, but eventually, nobody should be resting on their laurels. We have to
be constantly thinking about what are we doing in five years? What are we doing
in 10? As long as we’re planning for that and thinking about that and modifying
that expectation based on what we experience today or tomorrow, we’ll be fine.

The flip side of all this, you closed Arlington Park.
Churchill also had its hands at one time or another on Hollywood Park and on
Calder, and all three of those tracks are closed. You also have Ellis Park,
which has an ancient infrastructure about it. How do you look at that arc and
weigh that against the statement that Churchill Downs is certainly invested in
racing.

I think that’s a really fair question. I would start by
saying we’re not magicians. Making any gambling product in the country work,
whether it be casinos or online or horse racing, involves a relationship and a
partnership with the regulatory authorities and the government. When we find
ourselves in an environment where we just don’t have a friendly or
understanding or supportive government or regulatory infrastructure, bad things
can happen. You take Illinois. That is an extremely troubled regulatory infrastructure,
an extremely complicated legislative picture, and we’re not magicians. We
couldn’t find a way to make that work, and we did our very best over a long
period of time and may have stuck with it longer than we should have, but
that’s an example of don’t expect miracles. We are competent, responsible,
passionate businesspeople, and we tried very, very hard. But there are
environments in this country where it’s hard to make racing work when the laws
and the regulatory framework don’t change with the times. Illinois is an
example of that for us. I don’t think there was any ill will or malintent, but
the world really changed since the racing laws had been written. With the
expense profile in the jurisdiction and the level of competition from not only
casinos but video-lottery terminal routes, it was just hard to make that work
economically. Every year the costs were going up, but the income flowing in was
going down. I can’t speak as much to Hollywood Park, because I was not in the
company when that deal was signed 20 years ago, so I wasn’t involved with the
thinking at that point. It’s one of the hardest and most difficult times of my
career, and that is I was the decision maker for Arlington Park. I did have to
lead that analysis, and it’s one I probably got to a few years later than I
should have, because we were trying so hard to find a way to make it work in
that state. That is always going to be one of my favorite tracks and the first
racetrack I ever visited as a fan. It was a personal disappointment, and a real
disappointment to Mr. (Richard) Duchossois, in many ways the patriarch over the
last 25 years in our company, but we tried everything we could to make it work,
and others might find and have a similar experience in other jurisdictions in
our country. If there isn’t going to be a healthy, evolving, clear-eyed
partnership between legislative, regulatory and business interests, you’re
going to see bad things happen.

Is it a fair criticism, then, when folks in Illinois who
had their heart and soul at Arlington say, “Churchill wanted to have gaming
available to make Arlington Park go.” When it finally happened, it said, “No,
we’re not going to make it go.”

Not a fair criticism, because we did not support that gaming
bill. That gaming bill was an evolution of a process over several years, and
starting with a few years prior to its eventual passage, we were saying very
clearly and very loudly in the legislative process this bill doesn’t work
economically, and we are not supportive of it. As time went past they decided
to ignore that input from us and pass it, but we were very consistent to what
we’ve said the whole time that that bill didn’t work economically. I would
point out, Ron, that no gaming facility has been built at a racetrack under
that model, and it’s been a number of years now. That’s not to say it won’t
happen in the future, perhaps if interest rates go down a bunch more, but for
all the happy talk, for all the high-fiving and happy talk, nobody’s built a
gaming facility under that racetrack model.

What’s the plan for Ellis?

Ellis, the plan is invest, invest, invest. Owensboro (Ky.)
is going to open up in the first quarter of next year. That will provide …

A casino, right?

The HRM facility, the HHR facility. It’s not technically a
casino, but it’s got our HRM machines in there.

Sure.

That will generate a new pool of purse money that will fuel
the purses there. Our intent is to make it a meat-and-potato, healthy,
summertime racetrack that will keep Midwestern horsemen, whether they’re
stabled in Kentucky or in one of the states nearby, happy and healthy with an
opportunity to run for high purses in the Midwest. It’s about investing in that
racing product, first and foremost, because it’s part of our circuit, and it’s
an important part of our circuit.

Do you see rebuilding the grandstand at some point?

That’s not what the people want.

Really?

We do surveys down there in the market, and not every
racetrack is supposed to be the Taj Mahal. The people in Henderson (Ky.) and in
the surrounding community, the overwhelming feedback we get from them is, “Yeah,
we’d like to see a new paint job. We’d like to see some touch-ups here and
there, but we like this place. This is our place.” We’re not going to rebuild
the grandstand, because our fans don’t want us to. They like what they have.
That doesn’t mean we won’t continue to invest in it. Some of its infrastructural
investment. We’ve had trouble with the water supply there and some things like
that, but the grandstand itself, we’ll do touch-ups. We’ll do improvements, but
we’re not going to change it, because the overwhelming feedback we get from
people is that’s their place. They like it. Keep it clean. Keep it fresh. Keep
it nice. But don’t try to build Churchill Downs there, because that’s not what
they want.

Kind of like Fenway Park.

Yeah, it’s tradition. I don’t know how much time you’ve
spent there, Ron.

A little bit.

There’s a real culture there.

Yeah.

There’s a real feel to that place. There’s a real vibe to
it. And we’ve asked. We’ve done surveys, and the feedback we get is, “We like
it. This is our place. This fits for us, and make some improvements here and
there.” Ultimately, I think a lot of times in American business, if you just
listen to what your customers, your actual customers tell you, you can learn a
lot. You can surprise your customers in a positive way, but when they tell you
what they want, don’t surprise them. Give them what they want.

Kind of a county-fair feel.

A bit, yeah. A bit. That part of the country just feels like
it. In Kentucky we sit on the border of the Midwest and the South, but Ellis Park
to me feels very Midwest, feels very county fair, comfortable, and they just
want to see investment, and they just want to see economic activity, and they
just want to have a place to entertain their family and friends on the
weekends. What do we think our challenge there is? We just want to make that as
good a racetrack with as healthy as purses as we can make it to fit in with the
overall Kentucky circuit. Whether it’s our track or Keeneland or Kentucky Downs,
we think of it as a state circuit, and we want horsemen from Kentucky and the
surrounding region to always have an opportunity to race in Kentucky, if they
want it.

Let me take you right back here to Churchill Downs, the
racetrack, with all the improvements that have gone on there, most visibly
recently the big new paddock, the ongoing construction now for the grandstand
area closer to the finish line, etc. We know about what I like to call the big
racing condominiums up there by the top of the stretch. But how big can you go?
How big do you want it to be? I didn’t even mention the first turn, big
grandstand there. But how big is big, and how big is too big? Because at some
point, I guess you have got to deal with maintaining infrastructure for seats
that aren’t going to get used most of the year.

I wouldn’t want to get too philosophical about it, because
the fact is despite the event being 150 years old, I think in a lot of ways
we’re still defining what it is. There’s just so much opportunity to continue
to grow it. When we think about the overall number of people there, we want
everybody to have a great experience. Our team is not motivated to set
attendance records. We’re not trying to pack them in like sardines into the
infield. You’ll see us over the next number of years make investments in the
infield, because it’s all about giving them a great experience. We want them to
have a great, memorable, bucket-list experience, not set some sort of selfish
corporate goal of stuffing them in there like sardines. We’re not motivated,
and we don’t think it’s the right thing to do to jam as many people in there as
possible. It’s all about creating great experiences. When it comes to both the
infield and the front side, I think if you if you flew a drone over it, you’d
see lots of places where we can make improvements or build something where
there’s nothing currently. I think there’s more to come, but it’s always one
step at a time. There’s a discipline that’s imposed on us by the fact that
every first Saturday in May, we’ve got to be ready to go, and being ready to go
means giving people a bucket-list experience. Many of our guests, not the
majority for sure, but many of our guests are coming one time. Maybe we can
talk them into coming again, but it’s a bucket list, and it’s their first time,
and they’ve got to have a great experience. They’ve got to have an experience
that’s worthy of being their bucket-list experience. So we’ve got to be ready
every first Saturday in May on that, and that means when we plan our projects
and we plan our investments, we have to do so recognizing that whether we’re
done with the project or not, we got to get everything cleaned up and ready to
go so we can deliver a really unique experience. That imposes a discipline on
us that I think is helpful, because we always learn so much every year that we
can then plow back in. We can plow those learnings back into the projects we’re
finishing or the projects we’re planning for the future. The event is so
healthy, it is so strong right now, that we’re not thinking about the end of
projects. This is a period in our history where all systems are go, and we’ve
got to make these investments and grow the events. Again it’s not about
bringing lots of lots more bodies. It’s about differentiating and experiences
that we offer so that we can better meet the expectations of customers out
there.

What’s the infield going to look like?

We haven’t really announced that yet, but I think, I think
stay tuned. … We’re not ready to announce what these projects are, but I feel
comfortable in telling you that we’re hard at work on these. We think that if
you look at what we’ve done at Churchill, we’ve made a lot of investment on the
front side of the racetrack, and there’s a lot of opportunity in the infield
for our fans as well. Stay tuned. There will be more to come there, but I feel
very confident and comfortable in saying that’s an area where we want to see
development, and we want to see that in the short term.

I was just going to ask, how soon might we see that?

(Laughs) Even that I’m not allowed to tell you. I have to be
careful about that, because when you’re ready, you announce it. I am giving you
a hint, though, so I am sort of dangling the carrot out there to people should
stay tuned and pay attention. But soon. Soon.

OK.

The most I can say is soon you’ll see us talk about this
publicly.