On February 28, 2018, Churchill Downs, Inc. (CHDN) released its annual Securities & Exchange Commission 10-K report of operations for 2017.

At the close of 2017, CHDN owned four racetracks outright and half of another, eleven off-track betting facilities, six gaming properties, and online businesses that encompassed TwinSpires, United Tote, Bloodstock Research & Information Services, and an interest in HRTV.  The casinos offered 4,200 slots, 55 gaming tables, 36 poker tables, 185 lodging rooms, and 775 poker machines.

CHDN racetracks were listed as Arlington Park (Chicago), Calder (Miami), Churchill Downs (Louisville), Fair Grounds Race Course (New Orleans), and a 50 percent  interest in Miami Valley (Dayton, Ohio), a harness-racing racino.  TwinSpires is the largest online wagering platform in the United States.

(In January 2018, CHDN completed the sale of Big Fish Games, a mobile gaming company, for $990 million in order to refocus on its core operations.  $500 million of the proceeds were earmarked for repurchasing CHDN’s common stock.  On February 28, 2018, CHDN announced that during the current year it will complete the acquisition of Presque Isle Downs & Casino in Erie, Pennsylvania, offering Thoroughbred racing and gaming, and Lady Luck Casino in Vicksburg, Mississippi.)

Net Revenues for 2017 were $882.6 million compared to $822.4 in 2016.  The racetracks and TwinSpires accounted for $512.9 million or 58.1% of total revenues.  Casinos contributed $350.5 million in net revenues (39.7%) and “Other Investments” the remaining $19.2 million (2.2%).

CHDN reported Net Income in 2017 of $140.5 million in contrast to $108.4 million in 2016.  Diluted Earnings per share were $8.77 in 2017 and $6.42 in 2016.

CHDN’s stock price rose from $142.37 at the beginning of 2017 to $239.55 at the close of the year, an increase of 97.2%, and thereby trounced all the major indexes.  (At this writing, CHDN stock is about $258 per share for an appreciation of close to 10% in 2018.)

While it is hard to quibble with the wealth that CHDN has created for its shareholders, there are three cautionary notes.

First, CHDN is highly leveraged, which makes it very susceptible to escalating borrowing costs in the present environment of planned interest-rate increases by the Federal Reserve (three boosts in 2018 and three more in 2019).  As of December 31, 2017, CHDN’s capital structure was comprised of 27% equity and 73% debt.  The heavy reliance on financing with debt will increasingly raise CHDN’s cost of capital.

Second, CHDN’s current price-to-2017-earnings ratio is around 30 to 1.  2018 earnings will need to meet the market’s expectations to maintain a 30 to 1 multiple.

Lastly, CHDN’s board chairman, G. Watts Humphrey Jr., is retiring from this position on April 24, 2018 and the board has elected insurance executive Alex Rankin to take his place.  (CHDN is in the minority of public companies with different individuals filling the slots of board chairman and CEO.)  Whether Mr. Rankin can continue the success of Mr. Humphrey remains to be seen, especially with a heavily leveraged company facing the headwind of rising interest rates.

Copyright © 2018 Horse Racing Business

Full disclosure:  The author of this article, William Shanklin, is presently a CHDN shareholder.


The first equus caballus ever cloned was in 2003 and prominent sport-horse competitors have zealously exploited the technology.


The breeding of Thoroughbred racehorses is mandated to be by natural cover if the foal is eligible to be registered…and that has always been the case.  Whereas Standardbred and Quarter Horse registries allow for artificial insemination, Thoroughbred registries around the world do not.

Some participants in the sport of polo have gone much further, as highlighted in a March 11, 2018, segment on CBS-TV’s 60 Minutes.  Correspondent Lesley Stahl traveled to Argentina and Texas for the story.

The world’s best polo player for the past 22 years, Adolpho Cambiaso, teamed up with Texan Alan Meeker to clone outstanding polo ponies, such as Cambiaso’s ill-fated stallion Aiken Cura, who was humanely destroyed after breaking his leg in a 2006 polo match.  Before Aiken Cura was euthanized, Cambiaso had a veterinarian extract some of the stallion’s cells for cloning.

Cambiaso’s 17-year-old retired mare Cuartetera is widely hailed as the best polo pony of all time,  So far, Cambiaso and Meeker have fourteen clones of her with ten more planned for 2018 and the same number in 2019.  The clones are sequentially named Cuartetera 01, Cuartetera 02, and so on.  All have been born to surrogate mares.

The clones are very similar to the original Cuartetera in appearance, athletic ability, and disposition.  They have no special health problems and the infant mortality rate for cloned horses is only slightly higher than for foals born via natural breeding.

In the final match at the 2017 Argentine Open, members of the winning Cambiaso team all rode clones while their opponents were mounted on naturally bred ponies.  Cambiaso scored the winning goal in the sudden-death climax aboard Cuartetera 06.  Stahl raised the issue of whether Cambiaso had an unfair advantage in that every pony available to his team was a clone of the great Cuartetera?

Cambiaso’s business partner Meeker was asked about religious and moral objections to cloning.  He replied that he disagreed with human cloning but added:  “I’ve been asked by some of the wealthiest people on planet earth to clone a human being…and the answer is always a resounding ‘no.'”  Meeker predicted that someone will eventually take this controversial and troubling step…though he would not be the one to do so.

It is highly likely that Thoroughbred registries will continue to adhere to the natural method of contraception if for no other reason than to protect stallion fees.  Meanwhile, other sport-horse registries will persist with artificial insemination, embryo transplants, and, in many cases, cloning.

Despite concerns about the ethics and possible unintended consequences of animal cloning, I do wonder how, say, Secretariat 02 and 03 would do racing against one another and Man o’ War 07 in a future Kentucky Derby or Belmont.  And if we want to get into the Twilight Zone and an ethical/moral quagmire, how about if they were ridden by Ron Turcotte 02, Ron Turcotte 03, and Clarence Kummer 02.

While this scenario is farfetched and perhaps scary, it is nonetheless within the capabilities of extant science and technology rather than in the more comforting domain of science fiction.

Copyright © 2018 Horse Racing Business


Continued from Part 2 on February 25, 2018

One of the most interesting findings from the research of psychologists Daniel Kahneman (Nobel Laureate in Economic Sciences) and the late Amos Tversky is that people generally want to avoid losses more than they desire to attain gains.  Michael Lewis provides examples in his book The Undoing Project.

Question 1:  Would you rather have $500 for sure or a 50-50 shot at $1,000?

Answer:  Overwhelmingly, people took the sure thing.

Question 2:  Which of the following do you prefer?

Gift A:  A lottery ticket that offers a 50 percent chance of losing $1,000

Gift B:  A certain loss of $500

Most people took the gamble and became “risk seekers.”

Lewis writes: “It was instantly obvious to them (Kahneman and Tversky) that if you stuck minus signs in front of these hypothetical gambles and asked people to reconsider them, they behaved differently than they had when faced with nothing but possible gains…  The odds that people demanded to accept a certain loss over the chance of some greater loss crudely mirrored the odds they demanded to forgo a certain gain for the chance of a greater gain.  For example, to get people to prefer a 50-50 chance of $1,000 over some certain gain, you had to lower the certain gain to around $370.  To get them to prefer a certain loss to a 50-50 chance of losing $1,000, you had to lower the loss to around $370.”

Thinking about these results, which were characteristic of a cross-section of people, I wonder if avid horse-race bettors mirror the results or behave differently.  Are such bettors wired to take more risks?  For instance, in Question 1, would they more than the general population opt for the 50-50 shot at $1,000 or at least require a certain monetary gain of more than $500?  In the second question, the vast majority of dedicated horseplayers would undoubtedly follow the normal response and risk-seek.

Assume a handicapper is at the racetrack with winnings of $500 going into the last race.  He or she can skip the race and leave a winner…or can bet some or all of the $500 with the potential to go home with much more.  The findings of Kahneman and Tversky would predict that most people would go home a winner of $500 or risk only a small part of the $500.

By contrast, if a bettor had lost $500 prior to the last race, he or she would be apt to risk-seek and take a shot at getting some or all of the money back.  This proclivity to risk-seek in the face of loss is precisely why people with a gambling addiction keep digging deeper holes for themselves.  A Las Vegas card dealer said she has seen people lose vast sums of money yet try to borrow more in order to recoup.  She felt sorry for one such individual and whispered to him (so her boss could not hear) to please quit betting.

Copyright © 2018 Horse Racing Business