Churchill Downs Incorporated: Digital Betting and Live Racing Fuel Long-Term Value Creation

Churchill Downs Incorporated (CDI) has long been a cornerstone of the American racing and entertainment industry. However, its Q2 2025 performance signals a strategic evolution that positions the company as a forward-thinking leader in both traditional and digital gambling markets. With record net revenue of $934.4 million and Adjusted EBITDA of $450.9 million, CDI's results were not merely a function of seasonal demand but a reflection of disciplined capital allocation, technological innovation, and a clear-eyed approach to market expansion. For investors, the question is not whether CDI is succeeding—it is whether its strategic bets in digital and live betting will compound into sustained value creation.

The Digital Catalyst: TwinSpires and Beyond

CDI's TwinSpires platform has emerged as a critical driver of growth, particularly in the wake of the 151st Kentucky Derby's record-breaking performance. The event's 6% increase in average viewership (17.7 million) and 8% peak viewership growth (21.8 million) underscore the enduring appeal of live racing. Yet the real story lies in how CDI has transformed passive viewership into active engagement. TwinSpires' integration of real-time wagering, in-play betting, and seamless mobile access has democratized access to horse racing for a new generation of bettors.

The Wagering Services and Solutions segment, which reported $168.4 million in revenue (up $8.5 million YoY), highlights the platform's scalability. Exacta's performance and sports betting expansion—now encompassing NFL, NBA, and NCAA events—demonstrate CDI's ability to leverage its parimutuel expertise into adjacent markets. By acquiring 90% of Casino Salem in New Hampshire for $180 million, CDI is further diversifying its footprint, blending physical and digital experiences to create a “gaming, entertainment, and dining destination.” This omnichannel strategy mirrors the playbook of successful tech-first companies, where user data and engagement metrics inform product development and marketing.

Live Betting and Historical Racing: A Dual Engine for Growth

While digital platforms are pivotal, CDI's Live and Historical Racing (LHR) segment remains its most underappreciated asset. The segment's $540.9 million in revenue (up $50.7 million YoY) was fueled by the expansion of HHR venues in Virginia and Kentucky. The Rose and Richmond locations, in particular, exemplify CDI's ability to replicate successful models in new markets. HHR machines, which simulate past races with parimutuel betting, now account for 88% of Kentucky's parimutuel wagering—a statistic that underscores their dominance.

Critics may argue that HHR's appeal is niche, but CDI's data tells a different story. These machines generate consistent cash flow while avoiding the volatility of live event-driven revenue. Moreover, their integration with live betting platforms creates a feedback loop: users who engage with HHR simulations are more likely to transition to live racing events or online wagering. This cross-pollination of audiences is a masterstroke, as it allows CDI to monetize both casual gamblers and hardcore enthusiasts.

Strategic Capital Management: Repurchases and Regulatory Tailwinds

CDI's Q2 2025 results also highlight its commitment to shareholder value. The company repurchased $250.4 million worth of shares under its previous buyback program and announced a new $500 million initiative, signaling confidence in its ability to generate free cash flow. These moves are bolstered by favorable regulatory developments, including the enactment of H.R. 1, which reinstates 100% bonus depreciation and introduces a 30% EBITDA-based interest expense deduction. These provisions are expected to reduce CDI's cash tax burden and free up capital for reinvestment or further buybacks.

Investors should also note CDI's disciplined approach to debt. Despite the Salem acquisition, the company maintains a robust balance sheet, with Adjusted EBITDA margins that outpace peers in the gaming sector. This financial flexibility is a luxury for many competitors and positions CDI to navigate regulatory shifts or economic headwinds without sacrificing growth.

Risks and Opportunities: A Balanced Perspective

No investment thesis is without caveats. The Gaming segment's $266.3 million revenue (down $8.1 million YoY) reflects the challenges of operating in markets with high tax rates and regulatory scrutiny. Terre Haute Casino Resort's performance, in particular, highlights the risks of relying on state-level gaming licenses. Additionally, the sports betting market is becoming increasingly crowded, with tech giants and fintech firms entering the space.

However, CDI's first-mover advantage in HHR and its deep integration with live racing give it a unique edge. The company's ability to leverage its intellectual property (e.g., race data, simulcasting rights) into digital products creates a moat that is difficult for rivals to replicate. Furthermore, CDI's focus on user experience—through personalized recommendations, loyalty programs, and seamless omnichannel integration—ensures that it remains competitive in a customer-centric market.

Final Verdict: A Buy for the Long-Term

For investors seeking exposure to a company that balances tradition with innovation, Churchill Downs Incorporated is a compelling candidate. Its Q2 2025 results validate a strategic shift toward digital betting and live racing, while its capital management and regulatory tailwinds provide a strong foundation for future growth. The Salem acquisition and H.R. 1's tax benefits are near-term catalysts, but the real opportunity lies in CDI's ability to scale TwinSpires and HHR into global platforms.

In a market where short-term volatility is inevitable, CDI's focus on long-term value creation—through strategic acquisitions, technological innovation, and disciplined capital returns—makes it a standout. While risks exist, the company's track record of execution and adaptability suggests that it is well-positioned to deliver outsized returns for patient investors. As the lines between digital and physical betting continue to blur, Churchill Downs Incorporated is not just keeping pace—it is setting the pace.