Good day, ladies and gentlemen and welcome to the Churchill Downs Incorporated 2021 Third Quarter Earnings Conference Call. As a reminder, this conference call is being recorded. I'd now like to introduce your host for today’s conference, Mr. Nick Zangari, Vice President of Treasury, Investor Relations and Risk Management. You may now go ahead.

Thank you, Kim. Good morning and welcome to our third quarter 2021 earnings conference call. After the company’s prepared remarks, we will open the call for your questions. The company’s 2021 third quarter business results were released yesterday afternoon. A copy of this release announcing results and other financial and statistical information about the period to be presented in this conference call, including information required by Regulation G, is available at the section of the company’s website titled News, located at churchilldownsincorporated.com as well as in the website’s Investors section. Before we get started, I would like to remind you that some of the statements that we make today may include forward-looking statements. These statements involve a number of risks and uncertainties that could cause actual results to differ materially. All forward-looking statements should be considered in conjunction with the cautionary statements in our earnings release and the risk factors included in our filings with the SEC, specifically the most recent report on Form 10-Q and Form 10-K. Any forward-looking statements that we make are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information or future events. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today’s earnings press release. The press release and Form 10-Q are available on our website at churchilldownsincorporated.com. And now, I will turn the call over to our Chief Executive Officer, Mr. Bill Carstanjen.

Thanks Nick. Good morning, everyone. With me today are several members of our team, including Bill Mudd, our President and Chief Operating Officer; Marcia Dall, our Chief Financial Officer; and Brad Blackwell, our General Counsel. I will provide brief comments on our third quarter performance and then share some updates on our capital investment plans and other growth initiatives. After my comments, Marcia will provide more detail on our third quarter performance. Then we will open up the call for questions. Overall, we delivered the highest net revenue and highest adjusted EBITDA that we have ever generated in a third quarter in the history of our Company. Given the last year, we ran the Derby in the third quarter instead of our typical first weekend in May, we were especially pleased with the strength of these results. Operationally, we are performing on an exceptional level and we believe we will continue to do so. Strategically, we believe our growth projects and potential opportunities are outstanding and bode well for the future of our company. With respect to our HRM or Historical Racing Facilities, our Derby City Gaming and Oak Grove Properties in Kentucky performed very well again in the third quarter. Derby City Gaming had strong top-line growth while continuing its focus on operating efficiency to generate excellent margins. The property delivered 65% growth in adjusted EBITDA for the quarter compared to the prior year quarter. Oak Grove also performed very well in the third quarter. This facility opened in September of last year, so for comparison purposes, it benefited from a full quarter of operations in the third quarter this year. Margins for the property are improving as a result of strong top-line growth as we expand our reach in the Nashville and the surrounding area. We are on a very good and continuing to improve adjusted EBITDA run rate. Regarding our Newport Racing & Gaming facility, we are on track to complete the construction of the dedicated smoking expansion by the end of November. We are adding nearly 13,000 square feet of contiguous space next to the current gaming floor and we'll be relocating 150 of the existing HRMs into the new area. We believe these changes will enhance the customer experience for both our smoking and non-smoking guests and improve the performance of the property. Remember, that this facility is the annex under our Turfway Park gaming license. I will talk about the Turfway construction process in a few minutes. Turning to our TwinSpires segment, comparisons for our online horseracing wagering business within TwinSpires were greatly impacted by the running of the Derby in the third quarter of 2020 instead of the traditional second quarter as we ran it in this year. The Kentucky Derby is our focus each year for fishing customer acquisition and monetization. Comparing this timeframe to a quarter when we do not have the Derby can be misleading and confusing. So, I'm going to focus on comparison since 2019 to give you a better sense of the momentum and strength of this business. When we compare this year's third quarter to the third quarter of 2019, adjusted EBITDA for online horseracing wagering was up 56% to $31 million as a result of strong top-line growth. The growth in adjusted EBITDA reflects the continued growth in active users driven by the customer acquisition efforts and association with the Kentucky Derby coupled with the continuing trend of shifting wagering from brick-and-mortar locations to online wagering. Industry handle grew 10% or nearly $300 million in the third quarter compared to the third quarter of 2019. TwinSpires online horseracing handle was up 31% in the third quarter driven by a 23% increase in active users compared to 2019, resulting in an increase of $113 million. Marcia will discuss in her comments the trends with respect to the margins for this business, this is a powerful story that we're very proud of and I hope it resonates with you. Our TwinSpires sports and casino business delivered top-line growth as well, however, given the additional marketing spend to support the growth, we had a net loss in adjusted EBITDA of nearly $11 million in the quarter for this business. We are now live with sports betting in eight states and anticipate being live in Maryland and Louisiana by early 2022. We're also live with our iGaming casino platform in three states. We remain disciplined in our goal of efficiently expanding our footprint and growing this business steadily over time to maximize the potential value of this investment in the long-term. We expect the loss from this business in the fourth quarter will be slightly less than our third quarter run rate. Our approach is to get access, license and operational in states where there is a mid to long-term potential to generate adjusted EBITDA. We have not attempted to match the marketing spend of some of the competitors as we focus on building our footprint first and then testing and assessing and passing forward to our company. Turning to our gaming segment, all of our wholly-owned gaming properties performed well in the quarter despite modest ongoing labor challenges and in the case of fair grounds, the impact of Hurricane Ida. Our wholly-owned properties were able to collectively expand margins by three points in the third quarter compared to the third quarter of 2020 and by nearly eight points compared to the third quarter of 2019. Our properties in Louisiana were performing very well until the closure of the fair grounds and our 15 OTBs on August 27th in the face of the approaching Hurricane Ida. We were able to reopen the fair grounds as well as eight of our OTBs by September 15th and as of the end of September we reopened all but two of our OTBs. Our team is working hard to reopen the remaining two OTBs as soon as possible. We have property insurance including business interruption insurance less certain deductibles that will cover the majority of the costs that we will incur to reopen these facilities. Our team performed admirably and continues to produce wonderful results to get our operations back up. Turning to our equity investments, Rivers Casino and Miami Valley Gaming performed strongly in the third quarter, Rivers has benefitted from top-line growth from slots and table games. I will talk more in a minute about our expansion project at Rivers and of course we can hardly wait to get that open. Miami Valley also continues to perform well and experience significant growth in that revenue and adjusted EBITDA for the quarter compared to prior year. While Rivers and Miami Valley are properties that have been open for numerous years, we still view them as not yet at maturity and in the ramping up phase, much as we view Derby City Gaming and Oak Grove. We have and are seeing growth in margin expansion at our existing facilities, some of which is attributable to our emergence as a society from COVID restrictions. However, what differentiates our company from many others is the significant additional organic growth that we've identified and are delivering now and into the future. There are three groups of organic growth projects that will further transform our company over the next five years. I'll provide an update on our progress on all of our growth projects as organized into these three buckets. The first set of projects involves the multi-year expansion at Churchill Downs Racetrack. We are seeing extremely strong ticketing demand for the 148 Kentucky Derby set for May 2022. This is a nice backdrop against which to pursue these projects that will provide unique experiences for our guests and further solidify the iconic nature of this amazing annual entertainment spectacle. We believe they will also provide strong annual adjusted EBITDA growth with nominal levels of risk for our company. Our $10 million turf course is essentially done, we've installed new drainage, new irrigation and a new turf rail along with 14 acres of a bermudagrass hybrid that represents the best of today's turf technology. This new service will allow us to run additional races on the turf course, provide for more running lanes and greatly increase the durability of the race course. All of this will enable us to run more races on the turf course. Turf races generally have larger fields, thus generating more revenue per race. We believe it will also allow us to grow turf racing in Derby Week and attract more higher-level international trainers and horses which of course drive wagering. With the increase in purse money generated by Derby City Gaming and eventually our to-be-constructed downtown facility, we hope to unlock the potential for additional premium turf races throughout the year as well. We are also on track to finish our $45 million investment in the Homestretch Club prior to the Derby in 2022. This is the transformation of the section of the grandstand area that, as its name would suggest, is right alongside the homestretch of the track heading to the finish line. As of yesterday, we have sales and commitments for the new area at all-inclusive pricing levels for nearly all the premium seating, on the rail, the dining tables and the private VIP lounges and for more than 50% of the new stadium seats. And we are still more than six months from the Derby. Those are very strong results this far up for Derby Day. Across Churchill Downs Racetrack, all of our suites and the vast majority of premium seating are already sold out. The demand for Derby tickets is stronger than we've ever seen. So, if you haven’t requested seats yet, please act quickly. We’re also finalizing the design and preparing for construction of the $90 million Turn 1 seating expansion at Churchill Downs. We plan on starting the site work and construction on the second phase of our multi-year expansion in the fall of this year in order for this new venue to be completed by the 149th Derby in May 2023. The combination of the Homestretch Club and the Turn 1 project will result in a net addition of 1,750 all-inclusive premium seats and equally important, we'll convert 8,550 existing seats to all-inclusive premium seating. We're also working on the schematic design for the third multi-year project which involves a significant redesign of the paddock area, including the areas underneath and adjacent to the historic TwinSpires. The paddock and surrounding area is the heartbeat of Churchill Downs Racetrack, this project will enhance the overall experience for everyone who comes to our racetrack by creating an immediately visible iconic view of the paddock walking ring and the horses against the backdrop of the TwinSpires. A redesign will also reduce congestion by significantly improving the flow of guests through the paddock and surrounding areas. We will create a new paddock club in the area on the first floor under the TwinSpires that will provide never-before-seen window views of the paddock and the tunnel that the horses walk through as well as provide hospitality and other amenities for our guests from designated sections of our third-floor Clubhouse seating. We're also exploring the additional purses including a new turf club balcony overlooking the paddock to add additional premium seating inventory and to further enhance the guest experience in existing premium areas. We're planning to have this exciting expansion completed by the 150th anniversary of the Kentucky Derby in May 2024. Turning to the second group of capital projects, the second bucket, we have four unique HRM organic growth opportunities that are underway including expanding our Derby City Gaming property, constructing another HRM facility in Louisville, constructing the HRM facility at Turfway Park in northern Kentucky, and expanding our OTB network in Louisiana to include HRMs. Regarding our Derby City Gaming property, as a reminder, we are investing approximately $76 million to expand the property including the addition of a five-story, 123-room hotel. We will initially add 200 new HRM gaming positions and have the ability to add an additional 250. We are also adding a new VIP gaming space, a new sports bar and stage for live entertainment and an additional high-end restaurant and bar, all to attract new customers and enhance the experience of our existing customers to drive greater revenue per visit. We are obtaining zoning approval for the project and anticipate beginning construction in early 2022. We are targeting to open the new HRM area in the fourth quarter of 2022 and anticipate opening the hotel in time for the 149th Kentucky Derby in April of 2023. This past quarter, we also announced our plans to invest $80 million in a new Derby City downtown facility in Louisville. We were able to acquire a great building in the heart of downtown which will be considered the official annex of our Churchill Downs Racetrack gaming license as permitted under Kentucky law. The building is directly across the street diagonal to the Kentucky International Convention Center. We will be redesigning the interior and exterior of the building with the Kentucky Derby theme. This new venue will provide guests, including locals and tourists, as well as convention attendees, a spectacular gaming experience, a sports bar that will provide music and live entertainment, a premium bourbon library and a high-end lounge. We believe this facility will grow the Louisville market for us and will have minimal impact on our other Louisville gaming operation, Derby City Gaming. We are committed to investing in the City of Louisville. It is a key part of our company and a part of everyone's experience when they come from all over the country and world to enjoy the Derby. We're working in collaboration with local organizations to provide job opportunities at our new facility for individuals residing in Louisville’s most under-resourced neighborhoods and to provide training and additional social support services that will focus on retention, workforce development and professional advancement. The development of this property will also enable us to increase our efforts to identify and connect with women and minority-owned businesses for supply chain and other needs. We really appreciate all of the support that we've received from our local government and state representatives to create this opportunity for our community. We're planning to commence construction in the next few months and to open the venue in the first or second quarter of 2023. Our investment in the build-out of the Turfway Park racing and HRM entertainment venue is continuing and we're on track to open the facility in early July of 2022. We expect to open with approximately 850 to 1,000 HRMs with the ability to expand to up to 1,200 machines. The property will also add a sports bar, a VIP gaming area, a high-end lounge and a simulcast theatre. Finally, regarding our HRM expansion in Louisiana, given Hurricane Ida's impact to the area and some supply chain disruption primarily related to IT equipment availability, we're planning to add HRMs to three OTBs every month starting in the first quarter. We expect to spend approximately $35 million to upgrade our OTBs and plan to add approximately 600 HRMs in total in our 15 OTBs. Now I will spend a few minutes on our third bucket of capital projects. First, the $87 million two-story expansion at Rivers is well underway with the erection of the steel structure and framing as well as the roofing work. When this project is complete, the facility will be the first in the state to have the maximum number of 2,000 positions. The first-floor expansion with a great new gaming area and a new restaurant, we expect to be open in the first quarter of 2022. The second-floor expansion with a new gaming area and a new poker room, we expect to be open in the second quarter of 2022. Regarding our Miami Valley Gaming joint venture, the property will be investing $12 million to expand its smoking patio. This property continues to exceed our expectations and deserves more investment. We are exploring what more we should do to grow this asset. The investment at Rivers and Miami Valley Gaming will be funded at property levels from operating cash flow and debt as needed. Regarding Indiana, you may have seen that we have submitted a proposal for the Indiana Gaming Board to develop a $240 million gaming facility in Terre Haute, Indiana. We are one of four bidders for the license and believe our proposal is very compelling. We anticipate having 1,000 slots, 50 table games, a high-limit VIP gaming area, a sports bar, and several food and beverage add revenues at our venue and a 125-room luxury hotel. We would fund this project from a strong operating cash flow and revolving credit facility as needed. We anticipate a decision by the Indiana Gaming Board on November 17th. Collectively we believe these projects and others we may announce in the near future will propel strong revenue and adjusted EBITDA growth over the next five years. Switching topics, we're also working to monetize a few of our properties, Arlington Park and the excess land at our Calder property. On September 28th, we announced that we had reached an agreement with the Chicago Bears to sell the 326 acres on which sits our Arlington Park Racetrack. Although we are sad to close Arlington Park and would have loved to continue racing and investing in the region, we believe that the Chicago Bears will ultimately develop this prime real estate into a world-class stadium and development with numerous amenities for fans and residents to enjoy over the coming decades. We expect to close the sale in late 2022 or early 2023, subject to completion of due diligence and other customary closing conditions. In addition to the sale of Arlington Park, we're in the final stages of the process to sell 116 acres of excess land around our Calder Casino. Numerous bidders have participated and we are very pleased with the process to date. We expect to provide definitive information with respect to the terms of the sale in the fourth quarter. Given the taxable gains that would be realized on the sale of these two properties, we would like to purchase replacement property that qualify for the 1031 transaction under the IRS rules to the extent possible. As I discussed a few minutes ago, we have a number of organic capital growth projects that we believe will qualify, and we will also explore potential acquisitions that fit within our strategic framework. Finally, we recently announced a new $500 million share repurchase program and also just announced a 7.2% increase to our annual dividend that will be payable in January of 2022. We have demonstrated our ability to seamlessly execute our growth projects while returning capital consistently to our shareholders and we remain committed to continuing to deliver growth in strong shareholder returns over the long term. In summary, these are exciting times for our company. The strong free cash flow of our businesses coupled with monetization of underutilized assets enables us to maintain low leverage, invest in organic and also inorganic growth opportunities, pay increasing levels of dividends and strategically repurchase shares over the long term for our shareholders. With that, I will turn the call over to Marcia.

Thanks, Bill. And good morning, everyone. I will begin with some insights into our third quarter financial results and then I will provide an update on capital management. We are very pleased with our third quarter financial results. It was all of our organic growth projects that are helping to drive strong growth for our company in the coming years. Our team delivered record revenue and record adjusted EBITDA on a consolidated basis in the third quarter. We remain on track to deliver the highest level of net revenue and the highest level of adjusted EBITDA for the full year that our company has ever generated. Turning to our three business segments. Let's start with our live and historical racing segment. As Bill discussed, quarter-over-quarter comparisons for Churchill Downs Racetrack are not meaningful. Given that we ran the Derby in the third quarter of 2020, and returned in 2021 to running the Derby at its normal time during the first Saturday in May. Excluding Churchill Downs Racetrack, our adjusted EBITDA for the third quarter of 2021 for this segment increased $18 million compared to the prior year quarter. Oak Grove and Derby City Gaming drive the majority of this increase. As Bill discussed, Oak Grove opened in September 20. So, we benefited from a full quarter of operations in the current year quarter. On a sequential basis, Oak Grove continues to grow net revenue, adjusted EBITDA, and margin. Derby City Gaming's performance continues to exceed our expectations delivering $22 million of adjusted EBITDA in the third quarter. As we look forward, Derby City Gaming will continue to grow as our team introduces new game titles and builds on its success with the addition of the hotel and in expanding the gaming floor. Turning to our TwinSpires segment, the timing of the Derby in 2020 and 2021 also significantly impacted the quarterly comparisons for TwinSpires horseracing business. So, today I will share comparisons of our performance for this segment versus the same quarter in 2019. TwinSpires adjusted EBITDA increased $5 million in the third quarter of 2021 versus the same quarter in 2019. Our TwinSpires horseracing business contributed an $11 million of incremental adjusted EBITDA in the third quarter of this year compared to the third quarter of 2019. As we expected, our margin rate in the third quarter for this business improved to over 33%, up five points compared to the same quarter in 2019 and nearly seven points higher than in the second quarter of this year. Our marketing spend in the third quarter returned to a typical level for quarters that we are not running the Derby. As we discussed last quarter, our margins for this business are typically lower in the second quarter due to the increase in marketing around the Derby, where we can efficiently acquire new customers at a low cost. Regarding sports and online casino, our launch in this business increased $7 million compared to the prior year quarter due to the marketing and promotional activities associated with our expansion into new states including Michigan, Tennessee, and Arizona. Now, turning to our gaming segment. We are very pleased with the performance of all of our gaming properties in the third quarter. Net revenue increased at all of our properties for the third quarter of 2021 compared to the prior year quarter with the exception of Riverwalk and our Louisiana operations which were impacted by Hurricane Ida during the quarter. We are pleased with nearly eight-point margin expansion in the third quarter of 2021 compared to the third quarter of 2019. For the quarter overall, we have seen continued strong demand and generally disciplined competitor behavior in our market. We are especially pleased with the performance of Rivers Des Plaines and Miami Valley Gaming which collectively contributed nearly half of the $36 million of adjusted EBITDA growth for the gaming segment compared to the prior year quarter. These two properties combined distributed $30 million of cash to us in the third quarter, self-funding their maintenance and project capital including the gaming floor expansion at Rivers Des Plaines that Bill discussed. Turning to capital management. Regarding project capital, we spent $30 million on project capital in the first nine months of 2021. The majority of our project capital has been spent on the final build-out of the Oak Grove and Newport facilities, the Share by Park expansion and our expansion of Churchill Downs Racetrack. Our teams have developed more detailed plans for our multi-year expansion at Churchill Downs Racetrack and executing the build-out of Turfway Park. Based on the timing of projected spends and the updated plans, some of the 2021 expected project capital has shifted into 2022. As a result, we have lowered our project capital estimates for the full year 2021 to $75 million to $85 million. Regarding maintenance capital, we have spent approximately $22 million in the first nine months of 2021 primarily related to improvements to our TwinSpires horseracing platform, Churchill Downs Racetrack, and our gaming property. We continue to anticipate spending $45 million to $55 million for maintenance capital in 2021; the majority of our fourth quarter maintenance capital is related to finishing the new turf course at the Churchill Downs Racetrack, new slot purchases and ongoing improvements to our TwinSpires horseracing platform. Now regarding our debt and leverage positions. At the end of September 2021, we had net leverage of 2.9 times. Our net leverage has decreased significantly over the past year reflecting substantial improvement in our operating performance and organic growth. We anticipate that our net leverage will decrease over the next 12 months based on our expected strong operating performance from our organic growth initiative and potential land sale. As Bill mentioned, we signed an agreement with the Chicago Bears to sell our Arlington property for $197 million in the process of monetizing the excess land at Calder. As Bill discussed, we plan to offset some of the gains with organic capital investments and the team is exploring potential acquisitions that will enable us to permanently defer the tax on the gain on sale related to these two properties. On September 29th, our board approved a $500 million stock repurchase program. We will continue to strategically repurchase shares in the open market and through block share repurchases. In the past six years on a split-adjusted basis, we have repurchased over 15 million shares at an average price of approximately $81 per share. We're also pleased that our board approved a 7.2% increase in our annual dividend that will be paid on January 7th, 2022 for shareholders of record as of December 31st, 2021. This is the 11th consecutive year of increased dividends for our shareholders. Both of these actions reflect our fundamental belief in the future growth of our company and our ability to effectively redeploy excess capital to create incremental value for shareholders. We believe our continued long-term strategic focus on growth including investments strategically in our existing properties and executing acquisitions that are additive to our unique portfolio of assets along with a thoughtful management of our balance sheet and access to capital can provide significant growth in adjusted EBITDA and free cash flow in the coming years. All of this coupled with our ability to return excess capital to our shareholders in the form of share repurchases and dividends supports our commitment to generating strong long-term shareholder returns. With that, I'll turn the call back over to Bill so that he can open the call for questions.

Thank you, Marcia. And for those of you out there listening, we apologize for the technical glitch but you didn't lose any of our commentary. We spotted the glitch and delayed until it came back on. So, you didn’t miss any of our comments. And with that, I'm happy to open this up for questions. Fire away.

Our first question comes from David Katz from Jefferies. Your line is now open.

Hi, good morning, everyone. Thanks for all the commentary. Bill, I wanted to and Marcia, I guess, I wanted to go back to one of the comments around the land sales between Arlington and Calder which it sounds like you're approaching under a 1031 exchange. And Bill, I wonder if you could just elaborate more on the potential avenues. I think you may have included M&A within there or if you could just help us maybe set some boundaries around what would be seriously considered as a reallocation of some of that capital.

Sure David, and good morning. So, in order to qualify, we have to invest in real property. And so, there are components of our capital reinvestments within our own projects, the Churchill Downs Racetrack, etc. That should qualify if we meet all the notification requirements and so there is some opportunity there. Also, when we look at acquisitions, not the entire purchase price but some portion of the purchase price is allocable, often in the case of acquiring brick-and-mortar casinos, is allocable to the real estate assets. So, that is another avenue that we can explore. So, we have a couple of different avenues to try to absorb some of these sales proceeds. And we're hard at work at that and we'll do our best, there's no guarantee, there are timing constraints, and there are qualification constraints within the 1031 section. But at 35,000 feet, that's the Rubik's cube that we're solving for.

Yes, I understood. So, it is required to be a hard asset rather than say something that were IP or digital or something like that, correct?

That's absolutely true, it's essentially real estate.

Understood. And just segueing myself into the second part of my question around the digital strategy. There is obviously a lot of motion and commotion going on around you in the industry about digital. And just some further elaboration about what we can reasonably expect to see out of Churchill Downs, six to 12 months from now with respect to the digital strategy would be helpful also.

Tough question to answer and I want to make sure I answer it as accurately as I can. The horseracing piece of our digital business is a great business that has a 14 year or 15 year track record of performance around it. And the key metrics around that continue to look stronger and stronger. So, we feel a great deal of enthusiasm and optimism as we continue to grow that business. With respect to the online sports and casino, our focus right now is getting our footprint built, doing that smartly, making sure that we're efficient in how we're doing it, and then evaluating what works from a marketing perspective, what the competitors are doing, what really is the best long-term positioning of that asset within our portfolio of business segments. So, we're always thinking, we're always looking, we're always trying to solve for the equation that's given us. And so far I've been pleased with it. I've been pleased with our team's ability to access markets to do it efficiently, but it is a crazy chaotic space and we always try to run our company as responsibly as we can for the creation of long-term shareholder value. So, we just put one foot in front of the other and we're going to continue doing that, building the best set of digital assets that we responsibly can. And so far, we're on a good pathway to do that.

Understood. Thanks, so much.

Thank you, David.

Our next question comes from the line of Dan Politzer from Wells Fargo. Your line is now open.

Hey everyone, good morning. Thanks for taking my questions.

Good morning, Dan.

I would like to start with TwinSpires. Can you remind us about the racing calendar for the upcoming quarters? Is the fourth quarter going to be similar to the fourth quarter of 2019? Also, I would like to address the margin point. Is the current run rate outside of the quarter in which the Derby occurs a reasonable level to expect moving forward?

Hey Dan, this is Bill Mudd. Let's say, first of all on the fourth quarter. We're kind of entering now a very stable period for TwinSpires. A lot of changes last year with the racing calendar and the timing of the Triple Crown. Next weekend, the Breeders' Cup occurs and it's in California at Del Mar. That is consistent with where we ran last year. The only calendar real calendar difference to last year is we had the pre-yes, I believe in early October of last year. So, otherwise I think we're back to consistency and I think we've pretty much stabilized where that business would be because as you know, a lot of it shifted online, some of them returned to brick and mortar more, but we still have a lot of growth as to grab in that channel of the industry. Marcia, you want to talk the other?

Yes. I think just your question about from a margin perspective, do we say they were running you know more consistently what we've seen? Yes. Outside of the Derby quarter second quarter, you should see us have more normal sort of margin rates. That are very consistent, which is actually the beautiful part of the TwinSpires horseracing businesses. We have great confidence in our ability to achieve the target margins that we're working towards.

Got it. And this is obviously a pretty tight business. And can you just remind us of any the most that are here and the potential risk of any new entrants and do you possibly changing that competitive dynamic here?

Certainly, Dan, this is Bill. Regarding horse racing, it operates in the United States under the Interstate Horseracing Act, which mandates approval from content providers and other consent rights before wagers can be placed. Our business began around 14 years ago, and even though the industry has been in place for decades, a complex set of contracts and consents is still necessary to conduct business. Content providers, which include those directly involved in the races, play a crucial role in this process. For us, hosting significant events like the Kentucky Derby has been foundational. Although we weren't the first to enter the market, we approached it deliberately with a strong strategy focused on margin improvement and operational efficiency, and we've successfully implemented that over the past 14 to 15 years. However, it's different from wagering on sports like football. In horse racing, the betting format is parimutuel, meaning you're betting against other players rather than the house. At TwinSpires, we take a percentage of the wagers, with some funds allocated to taxes and other expenses. Importantly, we can predict our margins ahead of time since they remain consistent, allowing us to facilitate bets without being directly involved in them. This unique structure enables us to effectively monitor and evaluate our marketing expenses because we can accurately gauge the success of our bets and our earnings from them. This clarity is a significant advantage of parimutuel wagering, allowing us to operate efficiently and measure our marketing effectiveness.

Got it. And then, if I could just squeeze in one more quick one. On the casinos that were closed in Louisiana, is there any way that you could quantify an impact?

Dan, as you know, we haven’t disclosed that impact. As Bill mentioned, we have insurance that covers this interruption, and we will be coordinating with the insurance carriers in the coming months. Therefore, we don’t expect this to have a significant effect on our company.

Got it. Thanks so much, everyone.

Good news on that is we're going to get all of this reopened. We're going to get back on track, it's a hiccup, it's not a fundamental change. So, I'm just really proud of our team down there. They've just kept their heads down and have processed through every problem thrown in front of them to just get us back on track.

Our next question comes from the line of Jordan Bender from Macquarie. Your line is now open.

Good morning, everyone. I guess, start here, can we get kind of the messaging around why you exited Waukegan. And then, in the past, you've talked about interest in possibly entering downtown Chicago if and when that were to open up, so just any update messaging on that?

Sure, and good morning, Jordan. With respect to Waukegan, the process has been out there for a long time and after a lot of discussion over a long period of time with Rush Street Gaming our partner in our bid, we decided it was really important to just focus on all that we have going on with Rivers and we are making a material investment in Rivers. We've had a great deal of success there and we're expanding to maximize the number of positions there. So, when we looked across those two opportunities, Waukegan and Rivers, we just decided collectively we were best served focusing on Rivers. With respect to downtown, first, I'd say I believe Chicago is a great American city. We've been a part of it and a part of the region for a long time. So, our decision to sell Arlington Park really wasn't any kind of comment on Chicago or the Chicagoland region or even the state of Illinois. It was really a comment on the archaic racing laws that really haven't been changed in a material way and that stayed in 30-plus years and no longer worked. And while gaming was passed, it wasn't really passed in a form that was enough to make up for the racing paradigm in the state. I would note that the two other racetracks in that state even though it's been two and a half years since gaming was passed for racetracks, they never built anything either. So we made the right decision moving forward with the sales process for Arlington. But that isn't any kind of comment on what we think of the city of Chicago or the state of Illinois. We're always going to look for opportunities and look for potential investments. With respect to downtown, you won't see us file an application at the deadline which I believe is tomorrow. We will not be filing an application or participating in a bid tomorrow. But that's not a comment on that process. That's just the comments about what we think of the world of Chicago and I think it's going to bounce back and be stronger than ever. That's just the comment of where we are with all of our projects and all that we have going on and making sure that we do the projects we have well and that we're organized and clear-minded in our strategic priorities.

Perfect, thank you. And then you'll obviously have a lot of projects within Kentucky for next year. Ultimately, once you have Derby City gaming, the downtown facility and Churchill Downs Racetrack, can you just kind of talk about your strategy to leverage each of those assets with each other?

Yes. That's a good question. I think as we have some geographic density, it'll make it more important that the customers can move between the facilities and take advantage of their rewards and promotions, and we can get a little cross-facility activity. So, in the history of the company we hadn't made that a focus because we didn't really have that geographic density where we really thought that that was an opportunity. But within Kentucky, increasingly it's becoming apparent. And remember, we still have another annex associated with our Oak Grove facility that potentially can come into play in the future. But you add up the collection of facilities we have in the region and even in surrounding states, it'll make more sense for us to deliver solutions for our customers that allow them to move seamlessly between facilities.

Perfect, thanks. Nice quarter.

Our next question comes from the line of Shaun Kelley from Bank of America. Your line is now open.

Hi, everyone. Thank you for taking my questions. I wanted to focus on a comment you made, Bill, during your prepared remarks regarding your margin performance in the gaming segment. You mentioned something about ongoing labor inflation, and I would appreciate it if you could elaborate on that. Your year-over-two-year margin expansion is still remarkable, but what cost pressures are you experiencing? Did these pressures worsen in the third quarter compared to the second? Are you facing challenges in finding strong candidates? Please share more about that.

Sure, happy to do that, Shaun. So, I think those of us across American business can see that there can be some labor shortages and some wage pressures. But although that's been discussed a lot in the media, and it's something that we certainly deal with like everybody else, that's not really been keeping us up at night. I mean, what happens when the cost of anything goes up including labor, when the cost goes up, you want to consume less of it, you want to buy less than, and so you want to find ways to be more efficient, you want to find ways to substitute processes for people and reduce your reliance on expensive labor. So, while there are some labor pressures and professional economists can tell you how long that's going to last and how to think about that long term. But our team, as you know, I'm just so proud of them. They just focus on what's available, and how do we substitute out better ways of getting things done in order to mitigate the increasing costs. So, whether it be supply chain disruptions or labor pressures, there's nothing that we have to go too deeply in on this particular phone call because largely we're managing through that and we'll keep our eye on it. We will stay focused on it. But we're not missing a beat in our process of dealing with it.

Great, very clear. And then, second question would also be related to something you said, which was, you're just as you were talking through the Derby you mentioned several times that the demand you're seeing for Derby tickets is basically stronger than you ever seen. I'm just wondering if you could expand on that a little bit maybe give us a little bit of color about the lead times for ticketing for the event. So, traditionally how much might have been sold by 12 months, six months, three months out directionally, of course, but just trying to get a sense of how much of a book of business are you sort of able to draw conclusions from right now, just based on what you typically have sold at this point in time?

Sure. So, I don't have empirical data right in front of me at my fingertips to cite but I have been involved in this process for 16 years. And so I have a very good intuitive feel that I know it will be backed up empirically. We're noticeably ahead of schedule with respect to premium areas, suites, premium seating, and the nature of months. So, those are all things to feel good about. And if I could have pulled the data to back this up and Bill Mudd and I are staring at each other, but neither one of us brought data that could precisely quantify how far ahead we are. And next time we have this call we'll be ready for that, we will pull some of that. Bill do you want to add?

Yes, I would like, I think, Shaun, I think Bill's comments are about two things. One is that this year we ran the Derby with around 52,000 people, and we're normally somewhere between 160,000 and 170,000. Not that we measure performance based on the number of people. But I think the first comment is the demand for people to come back to that event is extremely strong. The second comment, I think, and really this has got more to do with a new area and that's where his comments were focused. When we start new areas, for example, the starting gate suites a couple of years ago, the first year, you bring new space out people are familiar with it. So, they don't know exactly what they're purchasing. So, it usually takes two years to really get momentum. And for example, the starting gate suites now the demand far exceeds the supply because it's a great experience. I think we're seeing in the Homestretch Club. That's an area which we haven't even opened yet and in fact, it's totally you can't go look at it right now. It's under construction and the demand for that area with all the premium spaces is virtually sold out or under commitment for more than 50% of the grandstand seats are already sold. That just shows how much in demand new spaces are and how much customers have seen, we built new stuff and it's a great experience. So, to me that that is just an indicator of people still want to come to the event. They like the new areas that we are developing, and they want to try new experiences even within the same event each year.

Great, thank you for all the color.

Our next question comes from the line of Joe Stauff from Susquehanna. Your line is now open.

Thanks. Good morning, everyone. I wanted to ask maybe a few questions about TwinSpires and the online platform. I'm curious Bill or Bill, kind of where you think the percentage say of total pari-mutuel settles out in terms of ADW, obviously it was some 40% pre-COVID. Last year it was over 60. And I'm wondering if you think sort of this migration or re-migration of those that say at the window at the retail shops? Are we at the point now where that has kind of normalized and so maybe ADW is more like a mid-50s as a percentage of pari-mutuel? What are your thoughts there?

First of all, Joe, that's a great question. As we mentioned in the prior earnings call and to your point, pre-COVID was about 40%, it was 39% in the fourth quarter of 2019 I should say, and adjusted to like 42% in the first quarter of the following year. And when COVID really was in full swing, which is the second quarter of last year, we jumped to 75% where people stopped going to brick-and-mortar facilities and from 75% have dropped to the 63 last year in the third quarter and then it got down to like 56% in the second quarter of this year. I think as you went through April, May, June in each month drops. Our third-quarter numbers this year are not out yet, we believe have stabilized somewhere around 50%. So, it went from 40% to 50% of the industry. And I think it's stabilized there. So I would say we kept about half of what went from brick-and-mortar to online. The other half went back to the brick-and-mortar facilities and then go into your question for as to where it settles, only about 10% of wagers that occur today happen to live at the racetrack where the event is running. So, I would say that we're back to, we've leveled out 50% and I think we'll continue to grow from there like we did pre-COVID where people continue to move their wagering habits to online versus brick-and-mortar.

Got you. And in the third quarter, obviously you had pretty significant say user growth in the second quarter given that you had the Kentucky Derby and how you use that strategically. I'm wondering just in terms of the handle that you had specifically at TwinSpires, was it in terms of the natural sort of decline and so forth was that a function of the less engagement in terms of say users or just less spending? I know it's always a combination, but I'm just trying to look for kind of puzzle pieces as to think about sort of that what happened in the third quarter in particular? Is it just okay, well, the Kentucky Derby and all the races leading in the last year and so that's say less spending per customer? Was it more one than the other in terms of that activity and what you saw on the third quarter?

Yes. Another great question, Joe. As Bill mentioned in his comments, there's a whole lot of noise when you compare this year's third quarter to last year third quarter. The Derby certainly was a huge part of that. But there are also changes in when Saratoga ran and Del Mar ran and a number of other racetracks ran and the races which they ran them which can also shift things around. So, the best way to really analyze and understand what's happening with TwinSpires, 2021 and third quarter was normal. When I say normal, it's normal in terms of the racing calendar and the races that ran within that calendar. So, if you compare that to the third quarter of 2019, which is the last normal period, the handle increased 31% on an apples-to-apples basis and the number of unique active players increased 23%. So the vast majority of that improvement from the third quarter 19 to the third quarter of 21 is an increase in active users. And there was a small, so that was called two-thirds of the increase. The other third was an increase in spending per player, and some of that, I think, is related to the fact that people have gotten a lot more engaged in online horseracing with COVID. And they’ve gotten used to using the app and they know how they're playing, playing into pools that they can play from the comfort of their home or their work desk. So, hopefully that helps answer your question. But the other thing that I'll point out here is, each of the last, over several years, we've spent more money marketing TwinSpires during Derby week, and each year, we’ve proven that we can continue to increase the scale. So, even though this product has been out there, and we've been in since 2007, we're spending more money each year and acquiring more new, unique users during Derby, which are casual users and we will clearly, for example, engage those casual players this coming weekend on the Breeders Cup. So, we'll push those votes in the Breeders Cup and hopefully over time, those players become more core players than casual players and we've proven that we can do that. So, the beauty of this business is now that we've grown the number of casual players, we have the ability to turn those into core players as time goes on and we've proven we can do that. And that's what our focus is.

Thanks a lot. That's interesting.

Our next question comes from the line of Zachary Silverberg from Berenberg. Your line is now open.

Good morning. Thanks for taking my question. I guess my first one is sort of spill on TwinSpires. I mean, can you provide any color on the sports and casino business given the start of the NFL season? Any color on bonusing and marketing throughout the 4Q here?

I didn't, would you mind repeating that question? I did not hear the first part of that question.

Yes, sorry about that. Just any color on the sports and casino segment on your TwinSpires business just in the beginning of NFL season? Any update on customer acquisition or marketing spend?

Yes. I think that's a great question and potentially you would think the answer would be more complicated than the answer I'm going to give you but the fact is TwinSpires keeps hammering away. So, we haven't really seen any kind of negative impact on TwinSpires as a result of the NFL season or anything else when we compare it as Bill was laying out in his answers to the previous questions when we compare it to 2019, which is really the most accurate way to look at it, everything looks good. And so in and of itself it seems like customers are getting more comfortable wagering online and that is something that's really benefited TwinSpires. So, that's all been good. With respect to sports wagering itself, we're still feeling our way through that. We have a DNA of not over-marketing and testing and assessing the results of everything we do. So don't have a huge amount to report on that beyond the numbers that I related in my comments.

Got you, thank you. And just one more, sort of on the Indiana casino bidding process, can you guys just sort of talk about what you're up against there? What the timeline is like? Just anything you're hearing on the ground?

The stated timeline by the Indiana Gaming Commission is November 17. And so that's the timeline that we're operating under. It's possible that they delay it but we've heard nothing on the ground that suggests that they are. So, we're working towards a November 17 deadline. We're up against three other bidders on every level we look to us like we're not only competitive but that we’re offering a superior product. So, we feel pretty good about it. But the other bidders are credible bidders and incredible people. And so we take them very seriously and we're just putting our best foot forward with the Indiana Gaming Commission. But we work very hard at the highest level of our company to put ourselves in a position to win that bid and we're going to sprint through the tape. We're going to run through the fence line to do everything that we responsibly can to demonstrate that we're the right company to win that project. And it'll be the decision of the Indiana Gaming Board at the end of the day.

Awesome. Thank you, guys.

Thanks, Zach.

I'm showing no further questions at this time. I would now like turn the conference back to CEO Bill Carstanjen. You may proceed.

Thanks everyone. Some really great questions today. Thank you for your time today, your questions and also for your interest in our company. We'll continue to try to do the right thing and invest your money wisely to grow your investment and grow this enterprise. Well, thanks very much. We look forward to the fourth quarter and we'll talk to you soon. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.