The Kentucky Derby commands plenty of attention every year, but the 150th “Run for the Roses” on May 4 is expected to draw increased observation from analysts for several reasons including betting.
Recent development projects at Churchill Downs in Louisville have investors bullish on the latest renewal of Kentucky Derby betting. The $200 million paddock project will be unveiled to the public, and the First Turn Experience will host Kentucky Derby guests for the second time after opening last year.
“If you look at a normalized year, typically the Kentucky Derby grows mid-to-high single digits,” Stifel analyst Jeffrey Stantial recently told LSR. “This year, we expect it to be north of 15%.”
Kentucky Derby 2024 added attention
The primary reason for heightened awareness from investors, according to Stantial, is the milestone anniversary. The Kentucky Derby is America’s longest continually run sporting event at 150 years old.
Beyond that, investors are looking toward the construction projects and the potential for increased pricing in the years ahead.
“Typically, (events) do not take full pricing in the first year,” Stantial said, referring to the First Turn Experience. “Usually, they take some pricing and then figure out what demand looks like, and then the next year they take more, so they are still taking some residual pricing from that project.”
Ticket sales exceed expectations
While touting record first-quarter revenue during a Thursday earnings call with investors, Churchill Downs Incorporated (CDI) CEO Bill Carstanjen said the energy around this year’s Kentucky Derby feels particularly heightened.
“Ticket sales throughout our new seating areas have exceeded expectations, and all the metrics we track appear exceptional,” he said.
Carstanjen also teased future development for Kentucky Derby 2025. The future project will be smaller, with a capital investment between $60 million and $80 million, and with a payback range of six to eight years. Investors will get more details on the project in July when they announce second-quarter earnings and overall business results from the Kentucky Derby.
Triple Crown construction projects
The two other homes of the horse betting Triple Crown are also being redeveloped.
Pimlico Race Course in Baltimore, home of the Preakness Stakes, is scheduled to undergo a renovation project in the next few years.
The Belmont Park grandstand in New York, home of the Belmont Stakes, is also under construction.
Kentucky Derby betting intrigues investors
One of the main reasons investors see the Kentucky Derby as a high-quality asset is because CDI owns the totality of the event.
It owns the track property, the racing content, a main horse betting platform in TwinSpires, and the race itself. Across the sports landscape, there tends to be some degree of stakeholders with pricing power that can cut into margins.
“CDI is unique since they own everything except for the horses,” Stantial said. “It gets undue attention in the stock price and valuation for that reason.”
Analysts eye next growth opportunity
The next growth opportunity investors see for CDI is its integrations with DraftKings and FanDuel. CDI has provided both operators with its TwinSpires technology since 2022.
Carstanjen mentioned the B2B and B2C sides of the TwinSpires business as essential to the company’s future growth. The TwinSpires segment produced a $17.8 million increase in first-quarter revenue compared to last year.
TwinSpires online and retail sports betting business was $2.3 million toward that increase. Horse racing revenue accounted for $1.2 million.
Customer crossover to horse betting into Kentucky Derby
Executives from FanDuel and DraftKings recently told LSR that with legal Kentucky sports betting, the state is the strongest for sports betting customers to crossover into horse betting and vice versa.
Legal sports betting states with race tracks tend to produce the largest players on both products. Investors are keeping an eye on whether that trend can continue on a national scale.
“If they can bring in their traditional sports betting player and cross them over into horse racing, and grow racing in that way, that’s what people need to see to believe in their online business moving forward rather than customer acquisition around the Kentucky Derby itself,” Stantial said.
