Churchill Downs Incorporated
Churchill Downs Incorporated
Incorporated: 1874 as Louisville Jockey Club and Driving Park Association
Sales: $147.3 million (1998)
Stock Exchanges: NASDAQ
Ticker Symbol: CHDN
NAIC: 111212 Racetracks
Churchill Downs Incorporated is a horse racing company best known for hosting the Kentucky Derby, America’s most prestigious horse race. The Derby, which is more than 125 years old, is held annually at the company’s flagship track, Churchill Downs, in Louisville, Kentucky. Churchill Downs’ other racetracks include Ellis Park Race Course in Henderson, Kentucky; Calder Race Course in Miami, Florida; a majority interest in Hoosier Park of Anderson, Indiana; and a minority interest in Kentucky Downs Race Course located in Franklin, Kentucky. The company also operates the Kentucky Horse Center in Lexington, Kentucky, a thoroughbred training and boarding facility.
Simulcast wagering is also a segment of Churchill Downs’ business. The company has full ownership of the Sports Spectrum, a simulcast wagering facility in Louisville, and majority ownership of similar facilities in Indianapolis, Merrillville, and Fort Wayne, Indiana. It also holds a majority interest in Charlson Broadcast Technologies, LLC, a software and video services company catering to racetracks and simulcast-wagering facilities, and a minority interest in Kentucky Off-Track Betting Inc., an alliance of Kentucky racetracks that operates simulcast-wagering facilities in four Kentucky locations.
Late 1800s: Birth of a Legend
Churchill Downs was founded by an ambitious 26-year-old Kentuckian, Col. Meriwether Lewis Clark, Jr. Clark, the grandson of William Clark, one-half of the famous Lewis and Clark expedition team, hatched the idea for the racetrack while traveling in England and France in the early 1870s.
Horse racing in Clark’s native state was by no means a new idea at that time; the first known Kentucky racecourse had been established almost 90 years earlier in Lexington. The Bluegrass State, with its reputation for thoroughbred horses, was a natural hotbed for this form of sport. By the time Clark was traveling in Europe, however, both horse racing and breeding were in decline in Kentucky, damaged by the ravages of the Civil War. An avid racing fan, Clark sought a way to revive the sagging industries. Lacking experience in racetrack management, he used his trip abroad to research several successful European racing establishments. When Clark returned to Kentucky, he broached a plan to a number of prominent and moneyed Louisville gentlemen: to build a track, hold a championship race, and establish a Jockey Club with memberships offered to high-society subscribers. The proposal was agreed upon, and in June 1874 the Louisville Jockey Club and Driving Park Association was incorporated. Clark leased 80 acres of land from his uncles, John and Henry Churchill, on which to build the new track—and sold 320 subscriptions to the track at $100 each to fund its construction.
On May 17, 1875, Clark’s racetrack was ready for its debut. Its inaugural meet included four races: the Kentucky Derby, Kentucky Oats, Clark Handicap, and Falls City. The Derby, which was modeled after England’s Epsom Derby, was the headliner, drawing a crowd of 10,000 spectators. Attendees wagered approximately $50,000 on the four races run that day, but the track itself did not oversee the betting. Instead, the wagering concessions were operated by an outside organization. Despite the popularity of gambling at the track, the race was more than just a sporting or wagering event. Due to Clark’s excellent promotional skills, it was an important social event as well—and for the next two decades, Churchill Downs was the place to be for the wealthy society set.
Unfortunately, the popularity and social cachet of the Derby were not enough to make the track a financial success. Although Clark covered thousands of dollars of company expenses from his own funds, Churchill Downs drifted deeper into debt. In 1894, a group of investors headed by Louisville racehorse owner and bookmaker William F. Schulte purchased the failed track, incorporating as the New Louisville Jockey Club. Clark was kept on as the track’s presiding judge until 1899, when he committed suicide.
One of the first things Schulte did was order construction of a new 1,500-seat, $100,000 grandstand on the opposite side of the track from the original stands. The new grandstand was topped by two twin spires, which were to become the hallmark of Churchill Downs and the Kentucky Derby. Schulte’s efforts did little to boost the financial condition of the enterprise, however, and the track continued to lose money through the end of the 1800s.
Turn of the Century: New Leadership
In 1902, Schulte’s group of investors began looking for someone to take over the track, and in October of that year, they found their successors: Louisvillians Charles Grainger, Charlie Price, and Matt J. Winn. Grainger, a former mayor of Louisville, was named president, Winn vice-president, and Price racing secretary. The real leader of the group was Winn, a former tailor with no racetrack management experience but a keen business sense. Winn’s motivation for taking on the track was partly personal; since watching the very first running of the Derby as a boy in the infield, he had been an unrelenting fan and attendee of the race.
Winn turned out to be a top-notch public relations man. Concerned that the track was not receiving the patronage it once had from the Louisville society set, he made personal appeals to various individuals, offering them choice seats for the coming Derby. A $20,000 clubhouse was built to accommodate these elite Louisville gentry, who paid $100 each for a membership. Under Winn’s and his colleagues’ determined leadership, the track—which had failed to make money for 28 years—turned its first profit in 1903. That year, Grainger and the others asked Winn to become Churchill Downs’ general manager.
A few years later, Winn had another battle to face, this time with the government. An anti-gambling reform movement, which had been gathering steam across the nation, swept into Louisville in 1907 when a new, reformist mayor was elected. The city’s administration placed a ban on bookmaking, which was the only form of betting at Churchill Downs. Winn responded by tracking down a handful of old pari-mutuel machines—a type of wagering machine used in France, which divided up the total pool of money bet and calculated winners’ returns based on what they had wagered. Although Louisville had a prohibition against machine betting, an amendment exempted pari-mutuel machines from the law, making them a viable option. The machines proved to be very popular when they were unveiled; five times more money was wagered on the 1908 Derby than on the previous year’s race. Ironically, the government’s bookmaking ban had only served to increase the very activity it was trying to restrict.
The Derby continued to increase in popularity. Winn aggressively courted race participants from the eastern states, ensuring that the event would garner national attention. His cause was furthered in the early 1910s, with the setting of three successive track records that thrust the race into the news. In 1913, Donerail became the longest shot to win the Derby, paying $184.90 for a $2 bet. In 1914, Old Rosebud set a track speed record; and in 1915, Regret became the first filly to win the Derby. The publicity generated by the successive three records served to firmly establish the Kentucky Derby as a preeminent American sporting event.
1919-50: Acquisitions and Divestitures
In 1919, a group composed of Churchill Downs owners and the owners of three other Kentucky racetracks joined together to form the Kentucky Jockey Club as a holding company for the four tracks. Winn retained his position as vice-president and general manager of Churchill Downs.
The Churchill Downs management philosophy is grounded in three priorities: customer service, capital improvement and community service. Customer Service: We are committed to providing the highest level of customer service in all facets of our operations. We work hard at exceeding the expectations of the patrons who enter our facilities as well as the expectations of the many horsemen, vendors and others with whom we do business. Capital Improvement: Investment in facilities is an important part of exceeding customer expectations. We are dedicated to providing quality facilities for all our customers. Community Service: A hallmark of our business operations is participating in our communities as a good corporate citizen. Community relations is an integral part of our corporate philosophy, and we strive to take a role of leadership and responsibility in every community where we own or manage operations.
The Kentucky Jockey Club set about expanding its racing empire beyond the state line, building a new track in Crete, Illinois, and acquiring two existing properties also in Illinois. In 1927, the group reorganized as the American Turf Association, a holding company for all seven tracks. With the subsequent onset of the Great Depression, however, the business began to unload its holdings, selling two of its Illinois tracks and shutting down racing at two of its Kentucky operations. For economic purposes, the remaining three tracks—Churchill Downs, Latonia, and Lincoln Fields—were divided into two separate corporate entities: Churchill Downs-Latonia Inc. and the Lincoln Fields Jockey Club. Despite the reshuffling, the three tracks remained under the ownership of the American Turf Association. Matt Winn moved from his position as vice-president and general manger to president of Churchill Downs in 1938, the year after the reorganization.
In 1942, Churchill Downs-Latonia Inc. sold off its Latonia track and changed its name to Churchill Downs Incorporated. The American Turf Association’s remaining holding, Lincoln Fields, was sold in 1947, and three years later, the Turf Association dissolved. Shareholders exchanged their shares one-for-one for Churchill Downs Inc. stock. Winn had died the previous year at the age of 88.
Winn was succeeded as Churchill Downs’ president by Bill Corum, a former New York Times sports columnist. During Corum’s reign, Churchill Downs and the Kentucky Derby continued to develop, drawing more attention and more attendees. A major milestone occurred in 1952, when a CBS affiliate aired the first national telecast of the Derby. For the first time, people all over the nation were able to watch what came to be called the “most exciting two minutes in sports.” Other, less dramatic, advances made under Corum’s leadership included the addition of more seating boxes in the grandstand and clubhouse; installation of film patrol to provide racing officials with replays; and the addition of an automatic sprinkler system in the grandstand and clubhouse.
Corum died in 1958, and his position was filled by Wathen Knebelkamp. The aggressive and business-minded Knebelkamp immediately initiated an extensive building and renovation program. His improvements included new jockeys’ quarters, a new press box, and 1,000 additional seats on the north end of the grandstand. One of Knebelkamp’s best-known additions to the track was the Skye Terrace, a posh box seat area on the fourth and fifth floors of the clubhouse that came to be nicknamed “Millionaire’s Row.”
In 1960, speculation that Churchill Downs was targeted for a hostile stock takeover developed. Attempting to forestall this, track directors drafted a proposal to have the city purchase the track via a bond issue. The proposal, however, was rejected, and the threat of a takeover continued to mount. Finally, in 1969, when a company called National Industries made a serious play for the track, a group of Churchill Downs board members banded together to establish the “Derby Protection Group.” The group outbid National Industries for control of the track, pushing its stock price up from $22 to $35.
The 1970s ushered in a new Churchill Downs president. Lynn Stone, who had previously served as the track’s vice-president and general manager, replaced the retiring Knebelkamp in early 1970. The ongoing modernization of the track facilities that had marked Corum’s and Knebelkamp’s administrations continued unabated under Stone’s direction, with the construction of steel emergency stairways in the stands and the refurbishing of the stable areas. By 1980, the extensive renovation program that had been initiated by Knebelkamp in the early 1960s was almost complete. More than $10 million had been pumped into the track over about 15 years, in the form of various improvements.
In 1982, the track’s board of directors voted to add racing days to the Spring Meet, extending it from 55 days to 93 days. Despite its efforts, however, both the 1983 and 1984 racing seasons were disastrously bad, resulting in enormous losses. Defeated, Stone resigned from his position in late summer of 1984, and was replaced by Thomas Meeker as acting president.
1984-99: Growth and Diversification
The 40-year-old Meeker, a Louisville lawyer who had formerly served as general counsel to Churchill Downs, was the youngest to hold the president’s position since Clark founded it at age 29. Determined to revive waning interest in the track, Meeker launched a new marketing plan, the linchpin of which was a five-year, $25 million renovation program. The program included core renovations, construction of a new turf course and paddock complex, improvements to the clubhouse and barn areas, and upgrading of the Skye Terrace.
Meeker’s campaign had the desired results. With the track once again pulling in record numbers of guests, Churchill Downs was chosen to host the 1988 Breeders’ Cup—a much-publicized championship race begun four years earlier. More than 71,000 spectators turned out for the Breeders’ Cup, setting an attendance record for the event. Churchill Downs would play host to the Breeders’ Cup again in 1991, 1994, and 1998.
The track thrived under Meeker’s leadership, showing growth on virtually all fronts. In the 1990s, the company began to grow beyond the boundaries imposed by the Churchill Downs property. The first major diversification came in 1992, when the company opened the Sports Spectrum, a simulcast wagering facility located just seven miles from the track. Although Kentucky law prohibited the Sports Spectrum from operating during race days at Churchill Downs, the facility offered visitors the chance to bet on races around the nation at all other times. Two years later, the company gained a majority interest in a second racetrack—Hoosier Park, in Anderson, Indiana. Under its Hoosier Park license, the company also began operating simulcast wagering centers in three other Indiana locations.
More acquisitions were soon to follow. In 1998, the company purchased Ellis Park Race Course, located in Henderson, Kentucky, and the Kentucky Horse Center training facility in Lexington, Kentucky. Another deal was closed in January 1999, for Calder Race Course in Miami, Florida. In May 1999, the company announced an agreement to purchase the Hollywood Park Race Track and Hollywood Park Casino, located in Ingle-wood Park, California. In addition, Churchill Downs acquired stakes in two companies that provided video services and telecommunications for the pari-mutuel betting industry. This diversification was partially in response to Kentucky’s mid-1990s legalization of riverboat gambling, which was likely to encroach on the race track’s revenues. A second reason for the aggressive acquisition pattern was that because its race tracks operated for only three months of the year, Churchill Downs needed to add sources of year-round income. With its simulcast facilities and its interests in the video and telecom businesses, the company was attempting to offset the seasonality of its core racing business.
Racing Into the New Century
As Churchill Downs closed out the 1900s, it planned to move into the new century with a four-point growth strategy. The four initiatives included promoting and enhancing the live racing product; increasing its share in the interstate simulcast market; becoming a leader in the consolidation and development of the racing industry; and integrating alternative forms of gaming into existing racing operations. Toward these ends, Churchill Downs planned to actively seek other racing businesses for acquisition and to meanwhile improve the race programs at all of its existing tracks. The company also intended to pursue growth in the simulcast market by packaging a year-round racing signal to sell nationally. Other phases of this simulcast growth initiative were to include testing of in-home simulcast wagering and a Television Games Network, with round-the-clock sports programming.
Calder Race Course, Inc.; Charlson Broadcast Technologies, LLC (60%); Churchill Downs Investment Company; Churchill Downs Management Company; Ellis Park Race Course; Hoosier Park L.P. (77%); Kentucky Horse Center; Kentucky Off-Track Betting, Inc. (25%); Louisville Sports Spectrum.
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