Sports Betting Analysis: Is Churchill Downs Going Online or Gaining Ground?

Posted: March 14, 2022, 11:24 a.m.

Last update: March 14, 2022, 11:50 a.m.

Over the past two weeks, there has been more talk about Churchill Downs Inc.’s decision to pull out of online sports betting than about the Louisville-based company’s actual operations in the market. It may not be factually accurate, but that’s the way it is.

street sense
Calvin Borel won his first Kentucky Derby at Churchill Downs in 2007. Can the company keep up with the jockey’s racing style when it comes to sports betting? (Photo: Al Behrman/Associated Press)

The announcement late last month by Churchill Downs CEO Bill Carstanjen that the company’s TwinSpires division would no longer participate in mobile sports betting within six months raised some eyebrows. This led to discussions of how a company that had been a leading operator in online horse racing could only be a faint speck on the sports betting radar.

The consensus was that Churchill Downs screwed up what seemed like a sure thing.

Full House Resorts President and CEO Dan Lee shared his thoughts during his company’s call with analysts last week. Referring to TwinSpires’ position in online racing, Lee said Churchill Downs “had the opportunity to be the DraftKings” of sports betting. Churchill held Full House skins in Indiana and Colorado.

And then they kind of dropped the ball,” Lee added. “They didn’t step up the way some of these other guys did. They ended up with a tiny market share and they were losing money. So they leave the company.

The DraftKings comparison is a bit hyperbolic. There was no way Churchill Downs was spending those kinds of coins. There might also have been some residual emotions from Churchill Downs beating Full House for the 13th and likely last casino license in Indiana. It was a project that the Las Vegas company invested quite a bit of time and effort in pursuing.

The race for which is better for American sports still continues, and yes, Churchill Downs, indeed, could have had a better start. However, just because the company is backing down now doesn’t mean – to borrow a horse-racing term – that it’s pulling down the straight.

Watch it instead as Churchill Downs tries to gain ground for later in the race.

Churchill Downs Sports Betting History

Churchill Downs’ history in sports betting begins more than a year before the United States Supreme Court issued its landmark decision in the PASPA (Professional and Amateur Sports Act) case.

In April 2017, the company purchased BetAmerica, an early deposit (ADW) betting site. This would eventually become the brand name that Churchill Downs would roll out for its sports betting product, and it was launched in New Jersey, Pennsylvania and Indiana in 2019.

But early on, there were development issues with platform provider SBTech that prevented mobile phone apps from becoming available in Pennsylvania and Indiana. This limited online betting to computers in those states.

Then in April 2020, BetAmerica’s online bookmaker was shut down for three weeks after a cyberattack targeted SBTech data centers. In August of the same year, Churchill Downs announced that it was changing platform provider and opting for Kambi.

Early last year, Churchill Downs revealed that it would rebrand BetAmerica to TwinSpires, the company’s hugely popular online betting account. He also announced a marketing campaign that included Hall of Fame quarterback Brett Favre as a celebrity ambassador.

But even with the name change, TwinSpires failed to gain ground over its competitors. Take Indiana, for example. In January, the state set a handful record with $500.1 million wagered on sports betting and state mobile apps. However, TwinSpires brought in a retail and mobile handful of just $1.9 million. The $1.6 million wager through the TwinSpires app was only better than BetWay and BallyBet.

In retrospect, it probably would have made more sense to use the TwinSpires name from the start. It was a brand people were more familiar with, and people would have easily associated it with Churchill Downs.

Horse racing is not easily transmitted

Among ADWs, TwinSpires has led all operators in management in eight of the past nine years. Last year, according to figures from the Oregon Racing Commission, TwinSpires grossed a handful of $2.46 billion. This accounted for almost 37% of all online racing bets and 17.7% of all racing bets in 2021.

However, online horse racing still represents only a fraction of online sports betting revenue. The handful of online sports betting in the United States in 2021 was 52.7 billion, according to Front Office Sports.

Also, the younger audience that has been primed for sports betting is not from the ADW crowd. This comes from everyday fantasy, where DraftKings and FanDuel rule. Morning consultation found that people aged 44 and under were more engaged in sports betting than older adults, and that horse racing did not quite attract a younger crowd of regular bettors.

Others that emerged as sports betting leaders early in the race are BetMGM and Caesars. Both of these companies have a nationwide casino presence and dominate the Las Vegas Strip.

These four companies have more loss appetite than Churchill Downs.

Alfonso Straffon, a sports betting analyst and a Twitter staple for anyone interested in the industry, noted online earlier this month that the major US operators combined for $4.5 billion in net revenue. But that came with a $1.9 billion loss in earnings before interest, taxes, depreciation, and amortization (EBIDTA).

TwinSpires reported net revenue of $433.1 million in 2021, up $17.1 million from a year earlier. However, its EBIDTA fell from $112.9 million in 2020 to $78 million last year. That’s thanks to spending $49.4 million in 2021 on marketing and advertising. That figure represented an increase of nearly $33 million over its 2020 spending.

Carstanjen told analysts the company hopes to use “a variable-cost technology model” along with modest marketing spend to turn a profit. However, Churchill Downs executives see no “safe path” to proper profitability at this time.

“The online sports betting and online casino space is highly competitive with an ever-increasing number of participants that states have licensed,” he said last month. “Many seek maximum market share in each state with limited consideration for short-term or potentially even long-term profitability.”

Get on the rail, save land

Churchill Downs is not quitting the sports betting game altogether. While it plans to quit online sports betting, company executives plan to maintain retail operations. Carstanjen noted that they have profitable sports betting at four casinos.

So in some ways Churchill’s play reminds me of Calvin Borel right now. The jockey became a legend here in Louisville years ago for the way he guided horses in the Kentucky Derby.

In 2007, Borel’s Street Sense was second to last and almost 20 lengths after half a mile. Borel had positioned his colt alongside the rail and worked his way around the peloton to battle for the lead and eventually pass the peloton on the stretch.

Two years later, Borel and Mine That Bird were the last dead over halfway through the Derby. Sure enough, the same strategy of saving ground and walking along the rail again paid off.

There is no guarantee that a path will open up for Churchill Downs in the years to come. However, in the race for market share, some companies are willing to spend money and stand out. Meanwhile, Churchill Downs plans to focus on building a regional casino company and expanding its historic position in horse racing (HHR).

If these ventures remain profitable for the business, then in a few years Churchill Downs may have the money and the clientele he can leverage to get back into online sports betting. There is no guarantee that the strategy would work. But that beats the way the race was going for the company.

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