This report contains various "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995 (the "Act"), which provides
certain "safe harbor" provisions for forward-looking statements. All
forward-looking statements made in this report are made pursuant to the Act. The
reader is cautioned that such forward-looking statements are based on
information available at the time and / or management's good faith belief with
respect to future events, and are subject to risks and uncertainties that could
cause actual performance or results to differ materially from those expressed in
the statements. Forward-looking statements speak only as of the date that the
statement was made. We assume no obligation to update forward-looking
information to reflect actual results, changes in assumptions or changes in
other factors affecting forward-looking information. Forward-looking statements
are typically identified by the use of terms such as "anticipate," "believe,"
"could," "estimate," "expect," "intend," "may," "might," "plan," "predict,"
"project," "seek," "should," "will," and similar words, although some
forward-looking statements are expressed differently.
Although we believe that the expectations reflected in such forward-looking
statements are reasonable, we can give no assurance that such expectations will
prove to be correct. Important factors that could cause actual results to differ
materially from expectations include the following:
•the impact of the novel coronavirus (COVID-19) pandemic, including the
emergence of variant strains, and related economic matters on our results of
operations, financial conditions and prospects;
•the occurrence of extraordinary events, such as terrorist attacks, public
health threats, civil unrest, and inclement weather;
•the effect of economic conditions on our consumers' confidence and
discretionary spending or our access to credit;
•additional or increased taxes and fees;
•the impact of significant competition, and the expectation the competition
levels will increase;
•changes in consumer preferences, attendance, wagering, and sponsorships;
•loss of key or highly skilled personnel;
•lack of confidence in the integrity of our core businesses or any deterioration
in our reputation;
•risks associated with equity investments, strategic alliances and other
third-party agreements;
•inability to respond to rapid technological changes in a timely manner;
•concentration and evolution of slot machine manufacturing and other technology
conditions that could impose additional costs;
•inability to negotiate agreements with industry constituents, including
horsemen and other racetracks;
•inability to successfully expand our TwinSpires Sports and Casino business and
effectively compete;
•inability to identify and complete expansion, acquisition or divestiture
projects, on time, on budget or as planned;
•difficulty in integrating recent or future acquisitions into our operations;
•costs and uncertainties relating to the development of new venues and expansion
of existing facilities;
•general risks related to real estate ownership and significant expenditures,
including fluctuations in market values and environmental regulations;
•reliance on our technology services and catastrophic events and system failures
disrupting our operations;
•online security risk, including cyber-security breaches, or loss or misuse of
our stored information as a result of a breach, including customers' personal
information, could lead to government enforcement actions or other litigation;
•personal injury litigation related to injuries occurring at our racetracks;
•compliance with the Foreign Corrupt Practices Act or applicable
money-laundering regulations;
•payment-related risks, such as risk associated with fraudulent credit card and
debit card use;
•work stoppages and labor issues;
•risks related to pending or future legal proceedings and other actions;
•highly regulated operations and changes in the regulatory environment could
adversely affect our business;
•restrictions in our debt facilities limiting our flexibility to operate our
business;
•failure to comply with the financial ratios and other covenants in our debt
facilities and other indebtedness; and
•increase in our insurance costs, or obtain similar insurance coverage in the
future, and inability to recover under our insurance policies for damages
sustained at our properties in the event of inclement weather and casualty
events.
The following information is unaudited. Tabular dollars are in millions, except
per share amounts. All per share amounts assume dilution unless otherwise noted.
This report should be read in conjunction with our Annual Report on Form 10-K
for the year ended December 31, 2020, including Part I - Item 1A, "Risk Factors"
of our Form 10-K for a discussion regarding some of the reasons that actual
results may be materially different from those we anticipate.
                 FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021
                                           27


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Our Business
Executive Overview
Churchill Downs Incorporated (the "Company," "we", "us", "our") is an
industry-leading racing, online wagering and gaming entertainment company
anchored by our iconic flagship event, the Kentucky Derby. We own and operate
three pari-mutuel gaming entertainment venues with approximately 3,050
historical racing machines ("HRMs") in Kentucky. We also own and operate
TwinSpires, one of the largest and most profitable online wagering platforms for
horse racing, sports and iGaming in the U.S. and we have seven retail
sportsbooks. We are also a leader in brick-and-mortar casino gaming in eight
states with approximately 11,000 slot machines and video lottery terminals
("VLTs") and 200 table games. We were organized as a Kentucky corporation in
1928, and our principal executive offices are located in Louisville, Kentucky.
Segments
During the first quarter of 2021, we updated our operating segments to reflect
the internal management reporting used by our chief operating decision maker to
evaluate results of operations and to assess performance and allocate resources.
Our internal management reporting changed primarily due to the continued growth
from Oak Grove Racing, Gaming & Hotel ("Oak Grove") and Turfway Park, which
opened its annex historical racing machine ("HRM") facility, Newport Racing &
Gaming ("Newport"), in October 2020, which resulted in our chief operating
decision maker's decision to include Oak Grove, Turfway Park and Newport in the
new Live and Historical Racing segment. The Live and Historical Racing segment
now includes Churchill Downs Racetrack, Derby City Gaming, Oak Grove, Turfway
Park, and Newport. We also realigned our retail sports betting results at our
wholly-owned casinos from our Gaming segment to our TwinSpires segment. As a
result of this realignment, our operating segments that meet the requirements to
be disclosed separately as reportable segments are: Live and Historical Racing,
TwinSpires, and Gaming. We conduct our business through these reportable
segments and report net revenue and operating expense associated with these
reportable segments in our condensed consolidated statements of comprehensive
income (loss).
Impact of COVID-19 Pandemic
In March 2020, the World Health Organization declared the COVID-19 outbreak a
global pandemic. The COVID-19 global pandemic has resulted in travel limitations
and business and government shutdowns which have had significant negative
economic impacts in the United States and in relation to our business. Although
vaccines are now available, we cannot predict the duration of the COVID-19
global pandemic. The extent to which the COVID-19 pandemic, including the
emergence of variant strains, will continue to impact the Company remains
uncertain and will depend on many factors that are not within our control. We
will continue to monitor for new developments related to the pandemic and assess
these developments to maintain continuity in our operations.
In March 2020, as a result of the COVID-19 outbreak, we temporarily suspended
operations at our wholly-owned and managed and gaming properties, announced the
temporary furlough of our employees at these properties and certain racing
operations, and implemented a temporary salary reduction for all remaining
non-furloughed salaried employees based on a percentage that varied dependent
upon the amount of each employee's salary. The most senior level of executive
management received the largest salary decrease, based on both percentage and
dollar amount.
In May 2020, we began to reopen our properties with patron restrictions and
gaming limitations. One property temporarily suspended operations again in July
2020 and reopened in August 2020, and three properties temporarily suspended
operations again in December 2020 and reopened in January 2021. The Company
provided health, dental, vision and life insurance benefits to furloughed
employees through July 31, 2020 and during the subsequent property closure
periods.
During the second quarter of 2021, we held the 147th Kentucky Oaks and Derby
with capacity restrictions in compliance with Kentucky venue limitations at that
time. The capacity restrictions limited reserved seating in each area to
approximately 40% to 60% capacity and also limited general admission tickets.
The 146th Kentucky Oaks and Derby was held in the third quarter of 2020.
Asset Impairment
During the quarter ended June 30, 2021, the Company recorded an $11.2 million
non-cash impairment charge related to certain assets at Churchill Downs
Racetrack included in our Live and Historical Racing segment. The impairment was
due to a change in the Churchill Downs Racetrack capital plans and the Company's
planned usage of these assets.
                 FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021
                                           28


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Key Indicators to Evaluate Business Results and Financial Condition
Our management monitors a variety of key indicators to evaluate our business
results and financial condition. These indicators include changes in net
revenue, operating expense, operating income, earnings per share, outstanding
debt balance, operating cash flow and capital spend.
Our condensed consolidated financial statements have been prepared in conformity
with U.S. generally accepted accounting principles ("GAAP"). We also use
non-GAAP measures, including EBITDA (earnings before interest, taxes,
depreciation and amortization) and Adjusted EBITDA. We believe that the use of
Adjusted EBITDA as a key performance measure of results of operations enables
management and investors to evaluate and compare from period to period our
operating performance in a meaningful and consistent manner. Our chief operating
decision maker utilizes Adjusted EBITDA to evaluate segment performance, develop
strategy and allocate resources. Adjusted EBITDA is a supplemental measure of
our performance that is not required by, or presented in accordance with, GAAP.
Adjusted EBITDA should not be considered as an alternative to operating income
as an indicator of performance, as an alternative to cash flows from operating
activities as a measure of liquidity, or as an alternative to any other measure
provided in accordance with GAAP.
Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and
amortization, adjusted for the following:
Adjusted EBITDA includes our portion of EBITDA from our equity investments.
Adjusted EBITDA excludes:
•Transaction expense, net which includes:
-Acquisition and disposition related charges; and
-Other transaction expense, including legal, accounting and other deal-related
expense;
•Stock-based compensation expense;
•Rivers Des Plaines' impact on our investments in unconsolidated affiliates
from:
-The impact of changes in fair value of interest rate swaps; and
-Legal reserves and transaction costs;
•Asset impairments;
•Legal reserves;
•Pre-opening expense; and
•Other charges, recoveries and expenses
For segment reporting, Adjusted EBITDA includes intercompany revenue and expense
totals that are eliminated in the accompanying condensed consolidated statements
of comprehensive income (loss). Refer to the reconciliation of comprehensive
income to Adjusted EBITDA included in this section for additional information.
Governmental Regulations and Legislative Changes
We are subject to various federal, state, local, and international laws and
regulations that affect our businesses. The ownership, operation and management
of our Live and Historical Racing, TwinSpires, and Gaming segments, as well as
our other operations, are subject to regulation under the laws and regulations
of each of the jurisdictions in which we operate. The ownership, operation and
management of our businesses and properties are also subject to legislative
actions at both the federal and state level. The following update on our
regulatory and legislative activities should be read in conjunction with our
Annual Report on Form 10-K for the year ended December 31, 2020, including Part
I - Item 1, "Business" for a discussion of regulatory and legislative changes.
Specific State Gaming Regulations and Potential Legislative Changes
Florida
During the second quarter of 2021, the Florida Legislature passed multiple
pieces of legislation, along with a 30-year tribal gaming compact, both of which
will have an impact on Calder. The tribal gaming compact enables certain tribes
to conduct sports betting. The tribe can have contracts with pari-mutuel
facilities to operate retail and online sports betting with a revenue share for
the tribe. Separately, a bill to decouple certain pari-mutuel activities,
including jai alai, from gaming activities also passed. Previously, pari-mutuel
facilities, including horse racing and jai alai, were required to race or
conduct jai alai to retain their ability to operate slots and cardrooms.
However, under this new law, jai alai facilities can operate slots and cardrooms
without conducting jai alai games. The requirement to conduct racing still
applies to thoroughbred race tracks if their slot or cardroom licenses are
connected to their racing permits. Both the tribal sports betting and decoupling
legislative actions can only go into effect if the U.S. Department of the
Interior approves the compact, which could happen as soon as the third quarter
                 FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021
                                           29



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of 2021. The Company is evaluating the impact of the decoupling legislation on
our Calder operations and alternative uses, including a sale of the excess
Calder land.
Louisiana
During the second quarter of 2021, the Louisiana State Legislature passed a bill
that was signed by Governor Edwards to allow HRMs in off-track betting
facilities. There are at least a dozen facilities operated by Fair Grounds that
will be able to add up to 50 machines per location under this new law. The
Louisiana Racing Commission will oversee historical horse racing.
In 2020, the Louisiana State Legislature passed a bill to allow citizens to
approve sports betting on a parish-by-parish basis. Sports betting was approved
in 55 of the 64 parishes. During the second quarter of 2021, the Louisiana State
Legislature defined the landscape for sports betting and approved casino and
racino operators to conduct retail and online sports betting in 55 parishes. The
Louisiana Gaming Control Board will oversee sports betting. The tax rate is 10%
on retail and 15% on mobile operations.
Maryland
In 2020, the Maryland General Assembly passed a bill to allow citizens to
approve sports betting, which was approved statewide by a 67% majority during
the November 2020 elections. During the second quarter of 2021, the Maryland
General Assembly defined the landscape for sports betting and approved casino
and racino operators to conduct retail sports betting. Other retail sports
betting outlets can apply, but not within 15 miles of Ocean Downs. Ocean Downs
is required to submit a bid for one of 60 online licenses. The Maryland Gaming
Control Board will oversee sports betting, with a tax rate of 15%.
In 2020, local zoning changes were adopted, and in the second quarter of 2021
statutory changes were made to allow Ocean Downs to build a hotel, which had
previously been obstructed.
Consolidated Financial Results
The following table reflects our net revenue, operating income (loss), net
income (loss), Adjusted EBITDA, and certain other financial information:
                                          Three Months Ended June 30,                            Six Months Ended June 30,
(in millions)                        2021               2020            Change             2021              2020            Change
Net revenue                     $    515.1           $ 185.1          $ 330.0          $   839.4          $ 438.0          $ 401.4
Operating income (loss)              135.4              (0.4)           135.8              182.1            (12.0)           194.1
Operating income (loss) margin          26   %             -  %                               22  %            (3) %
Net income (loss) from
continuing operations           $    108.3           $ (23.6)         $

131.9 $ 144.4 $ (46.2) $ 190.6 Net income (loss) attributable to Churchill Downs Incorporated 108.3

            (118.8)           227.1              144.4           (142.2)           286.6
Adjusted EBITDA                      233.3              30.1            203.2              343.9             85.4            258.5


Three Months Ended June 30, 2021, Compared to Three Months Ended June 30, 2020
•Net revenue increased $330.0 million due to a $152.6 million increase from Live
and Historical Racing driven primarily from the running of the 147th Kentucky
Oaks and Derby with capacity restrictions in the second quarter of 2021 compared
to the running of the 146th Kentucky Oaks and Derby in the third quarter of
2020, the temporary suspension of operations at Derby City Gaming during the
prior year quarter, and the opening of Oak Grove in September 2020; a $148.7
million increase from Gaming due to the temporary suspension of operations in
the prior year quarter; a $14.4 million increase from All Other primarily due
the temporary suspension of operations in the prior year quarter at Arlington
and United Tote; and a $14.3 million increase from TwinSpires due to an increase
in handle in Horse Racing and our expansion in additional states related to our
Sports and Casino business.
•Operating income (loss) increased $135.8 million due to an $85.4 million
increase from Live and Historical Racing primarily due to the increase in net
revenue; a $73.2 million increase from Gaming due to increased operating
efficiencies and the temporary suspension of operations at our Gaming properties
in the prior year quarter; a $7.0 million increase from All Other due to the
temporary suspension of operations at Arlington and United Tote in the prior
year quarter; and $0.2 million from other sources. Partially offsetting these
increases were an $11.2 million asset impairment at Churchill Downs Racetrack
related to revised capital plans associated with the first turn project, an
$11.0 million increase in selling, general and administrative expenses primarily
due to an increase in accrued bonuses in the current quarter due to the
temporary suspension of operations in the prior year quarter, and a $7.8 million
decrease from TwinSpires due to additional marketing spend related to the Sports
and Casino business.
                 FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021
                                           30


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•Net income (loss) from continuing operations increased $131.9 million. The
following items impacted comparability of the Company's second quarter of 2021
net income from continuing operations compared to the prior year quarter: an
$8.1 million non-cash after-tax impact related to our asset impairment at
Churchill Downs Racetrack related to revised capital plans associated with the
first turn project and a $4.8 million after-tax increase in Rivers Des Plaines'
legal reserves and transaction costs. Partially offsetting these increases were
a $2.3 million after-tax expense decrease related to our equity portion of the
non-cash change in the fair value of Rivers Des Plaines' interest rate swaps and
a $0.3 million after-tax decrease in expenses related to lower transaction,
pre-opening and other expenses. Excluding these items, net income (loss) from
continuing operations increased $142.2 million primarily due to a $142.9 million
after-tax increase driven by the results of our operations and equity in income
from our unconsolidated affiliates, partially offset by a $0.7 million after-tax
increase in interest expense associated with higher outstanding debt balances.
•Net income (loss) attributable to Churchill Downs Incorporated increased $227.1
million due to a $131.9 million increase in net income from continuing
operations discussed above and a $95.2 million decrease in net loss from
discontinued operations related to the settlement of the Kater and Thimmegowda
litigations during the second quarter of 2020.
•Adjusted EBITDA increased $203.2 million driven by a $121.6 million increase
from Gaming primarily due to the increased operating efficiencies at our
wholly-owned properties and equity investments and temporary suspension of
operations in the prior year quarter; a $94.8 million increase from Live and
Historical Racing primarily due to the running of the 147th Kentucky Oaks and
Derby with capacity restrictions in the second quarter of 2021 compared to the
running of the 146th Kentucky Oaks and Derby in the third quarter of 2020, the
temporary suspension of operations at Derby City Gaming in the prior year
quarter, and the opening of Oak Grove HRM facility in September 2020; and a $2.4
million increase from All Other primarily due to the temporary suspension of
operations at Arlington and United Tote in the prior year quarter. Partially
offsetting these increases was a $15.6 million decrease from TwinSpires
primarily due to increased marketing and promotional activities for both the
Horse Racing and Sports and Casino businesses.
Six Months Ended June 30, 2021, Compared to Six Months Ended June 30, 2020
•Net revenue increased $401.4 million due to a $187.7 million increase from Live
and Historical Racing driven primarily from the running of the 147th Kentucky
Oaks and Derby with capacity restrictions in the second quarter of 2021 compared
to the running of the 146th Kentucky Oaks and Derby in the third quarter of
2020, the temporary suspension of operations at Derby City Gaming during the
prior year, and the opening of Oak Grove in September 2020; a $154.8 million
increase from Gaming due to the temporary suspension of operations in the prior
year; a $44.9 million increase from TwinSpires due to an increase in handle in
Horse Racing and our expansion in additional states related to our Sports and
Casino business; and a $14.0 million increase from All Other primarily due the
temporary suspension of operations in the prior year at Arlington and United
Tote.
•Operating income (loss) increased $194.1 million due to a $98.9 million
increase from Live and Historical Racing primarily due to the increase in net
revenue; a $97.1 million increase from Gaming due to increased operating
efficiencies and the temporary suspension of operations at our Gaming properties
in the prior year; a $7.9 million increase from All Other due to the temporary
suspension of operations at Arlington and United Tote in the prior year; a $6.3
million decrease in asset impairments due to the $11.2 million non-cash related
to our asset impairment at Churchill Downs Racetrack related to revised capital
plans associated with the first turn project during the current year quarter,
offset by the $17.5 million non-cash intangible asset impairment in the first
quarter of 2020; a $0.6 million increase from TwinSpires primarily due to the
increase in handle from Horse Racing partially offset by additional marketing
spend related to the Sports and Casino business; and a $0.4 million increase
from other sources. Partially offsetting these increases was a $17.1 million
increase in selling, general and administrative expenses primarily due to an
increase in accrued bonuses in the current year.
•Net income (loss) from continuing operations increased $190.6 million. The
following items impacted comparability of the Company's net income from
continuing operations during the six months ended June 30, 2021 compared to the
prior year period: a $16.3 million after-tax expense decrease related to our
equity portion of the non-cash change in the fair value of Rivers Des Plaines'
interest rate swaps; a $4.0 million non-cash after-tax decrease related to asset
impairments; and a $1.3 million after-tax decrease in expenses related to lower
transaction, pre-opening and other expenses. Partially offsetting these
decreases was a $5.7 million after-tax increase in Rivers Des Plaines' legal
reserves and transaction costs. Excluding these items, net income (loss) from
continuing operations increased $174.7 million primarily due to a $174.8 million
after-tax increase driven by the results of our operations and equity in income
from
                 FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021
                                           31



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our unconsolidated affiliates, partially offset by a $0.1 million after-tax
increase in interest expense associated with higher outstanding debt balances.
•Net income (loss) attributable to Churchill Downs Incorporated increased $286.6
million due to a $190.6 million increase in net income from continuing
operations discussed above and a $96.1 million decrease in net loss from
discontinued operations related to the settlement of the Kater and Thimmegowda
litigations during the second quarter of 2020, partially offset by a $0.1
million decrease in net loss attributable to our noncontrolling interest.
•Adjusted EBITDA increased $258.5 million driven by a $156.1 million increase
from Gaming primarily due to the increased operating efficiencies at our
wholly-owned properties and equity investments and temporary suspension of
operations in the prior year and a $112.1 million increase from Live and
Historical Racing primarily due to the running of the 147th Kentucky Oaks and
Derby with capacity restrictions in the second quarter of 2021 compared to the
running of the 146th Kentucky Oaks and Derby in the third quarter of 2020,
increased operating efficiencies and the temporary suspension of operations at
Derby City Gaming in the prior year, and the opening of Oak Grove HRM facility
in September 2020. Partially offsetting these increases was a $9.1 million
decrease from TwinSpires primarily due to increased marketing and promotional
activities for the Sports and Casino business and a $0.6 million decrease from
All Other.
Financial Results by Segment
Net Revenue by Segment
The following table presents net revenue for our segments, including
intercompany revenue:
                                                 Three Months Ended June 30,                                Six Months Ended June 30,
(in millions)                               2021                 2020            Change               2021                2020            Change
Live and Historical Racing:
Churchill Downs Racetrack            $    119.6               $  22.5          $  97.1          $    122.2                24.7          $  97.5
Derby City Gaming                          39.9                   7.7             32.2                72.8                29.3             43.5
Oak Grove                                  25.6                     -             25.6                45.0                   -             45.0
Newport                                     4.6                     -              4.6                 9.0                   -              9.0
Turfway Park                                0.8                   0.1              0.7                 6.2                 5.4              0.8
Total Live and Historical Racing          190.5                  30.3            160.2               255.2                59.4            195.8
TwinSpires:
Horse Racing                              127.5                 120.3              7.2               220.6               187.3             33.3
Sports and Casino                           8.4                   1.4              7.0                15.4                 3.8             11.6
Total TwinSpires                          135.9                 121.7             14.2               236.0               191.1             44.9
Gaming:
Fair Grounds and VSI                       35.1                  11.2             23.9                75.4                44.2             31.2
Presque Isle                               30.5                   1.9             28.6                54.3                28.9             25.4
Calder                                     27.4                   5.7             21.7                48.3                27.5             20.8
Ocean Downs                                27.0                   3.1             23.9                47.0                17.9             29.1
Oxford                                     24.6                   0.1             24.5                40.3                20.2             20.1
Riverwalk                                  18.4                   7.4             11.0                32.8                19.4             13.4
Harlow's                                   16.6                   5.6             11.0                30.6                17.0             13.6
Lady Luck Nemacolin                         6.4                   2.3              4.1                11.3                 9.6              1.7
Total Gaming                              186.0                  37.3            148.7               340.0               184.7            155.3
All Other                                  21.5                   6.0             15.5                33.6                18.2             15.4
Eliminations                              (18.8)                (10.2)            (8.6)              (25.4)              (15.4)           (10.0)
Net Revenue                          $    515.1               $ 185.1          $ 330.0          $    839.4             $ 438.0          $ 401.4


Three Months Ended June 30, 2021, Compared to Three Months Ended June 30, 2020
•Live and Historical Racing revenue increased $160.2 million due to a $97.1
million increase at Churchill Downs Racetrack primarily due to the running of
the 147th Kentucky Oaks and Derby with capacity restrictions in the second
                 FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021
                                           32


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quarter of 2021 compared to the running of the 146th Kentucky Oaks and Derby in
the third quarter of 2020; a $32.2 million increase at Derby City Gaming
primarily due to the temporary suspension of operations during the prior year
quarter and the completion of their second outdoor patio which added an
additional 225 HRMs in September 2020; a $25.6 million increase at Oak Grove as
a result of the opening of the HRM facility in September 2020 and the hotel in
October 2020; a $4.6 million increase at Newport due to the opening of the
facility in October 2020; and a $0.7 million increase at Turfway Park primarily
due to the temporary suspension of operations during the prior year quarter.
•TwinSpires revenue increased $14.2 million from the prior year quarter
primarily due to a $7.2 million increase from Horse Racing and a $7.0 million
increase from Sports and Casino. Horse Racing net revenue increased as a result
of an increase in handle of $50.9 million, or 8.9%, compared to the prior year
quarter primarily due to the running of the 147th Kentucky Oaks and Derby in the
second quarter of 2021 compared to the running of the 146th Kentucky Oaks and
Derby in the third quarter of 2020. Sports and Casino net revenues increased as
a result of our expansion in additional states and marketing and promotional
activities.
•Gaming revenue increased $148.7 million primarily due to the temporary
suspension of operations of all of our Gaming properties and the loss of revenue
at each property during the prior year quarter.
•All Other revenue increased $15.5 million primarily due to an $11.5 million
increase at Arlington and a $3.8 million increase at United Tote, both of which
were due to the temporary suspension of operations in the prior year quarter,
and a $0.2 million increase from other sources.
Six Months Ended June 30, 2021, Compared to Six Months Ended June 30, 2020
•Live and Historical Racing revenue increased $195.8 million due to a $97.5
million increase at Churchill Downs Racetrack primarily due to the running of
the 147th Kentucky Oaks and Derby with capacity restrictions in the second
quarter of 2021 compared to the running of the 146th Kentucky Oaks and Derby in
the third quarter of 2020; a $45.0 million increase at Oak Grove as a result of
the opening of the HRM facility in September 2020 and the hotel in October 2020;
a $43.5 million increase at Derby City Gaming primarily due to the temporary
suspension of operations during the prior year period and the completion of
their second outdoor patio which added an additional 225 HRMs in September 2020;
a $9.0 million increase at Newport due to the opening in October 2020; and a
$0.8 million increase at Turfway Park primarily due to the temporary suspension
of operations during the prior year period.
•TwinSpires revenue increased $44.9 million from the prior year quarter
primarily due to a $33.3 million increase from Horse Racing and a $11.6 million
increase from Sports and Casino. Horse Racing net revenue increased as a result
of an increase in handle of $164.2 million, or 18.3%, compared to the prior year
due to the continued shift from wagering at brick-and-mortar locations to online
wagering and the running of the 147th Kentucky Oaks and Derby in the second
quarter of 2021 compared to the running of the 146th Kentucky Oaks and Derby in
the third quarter of 2020. Sports and Casino net revenues increased as a result
of our expansion in additional states and marketing and promotional activities.
•Gaming revenue increased $155.3 million primarily due to the temporary
suspension of operations of all of our Gaming properties and the loss of revenue
at each property during the prior year.
•All Other revenue increased $15.4 million primarily due to an $11.5 million
increase at Arlington and a $3.6 million increase at United Tote, both of which
were due to the temporary suspension of operations in the prior year quarter,
and a $0.3 million increase from other sources.
                 FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021
                                           33


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Consolidated Operating Expense
The following table is a summary of our consolidated operating expense:
                                             Three Months Ended June 30,                                Six Months Ended June 30,

(in millions)                           2021                 2020            Change               2021                2020            Change
Taxes and purses                 $    132.9               $  36.6          $  96.3          $    221.8             $ 112.3          $ 109.5
Content expense                        54.1                  50.0              4.1                97.2                80.9             16.3
Salaries and benefits                  45.2                  20.8             24.4                82.4                66.2             16.2
Selling, general and
administrative expense                 33.4                  22.4             11.0                63.6                46.5             17.1
Depreciation and amortization          26.0                  22.1              3.9                52.0                44.1              7.9
Marketing and advertising              24.1                   3.8             20.3                36.2                13.6             22.6
Asset impairments                      11.2                     -             11.2                11.2                17.5             (6.3)
Transaction expense, net                  -                   0.2             (0.2)                0.1                 0.5             (0.4)
Other operating expense                52.8                  29.6             23.2                92.8                68.4             24.4
Total expense                    $    379.7               $ 185.5          $ 194.2          $    657.3             $ 450.0          $ 207.3


Three Months Ended June 30, 2021, Compared to Three Months Ended June 30, 2020
Significant items affecting comparability of consolidated operating expense
include:
•Taxes and purses increased $96.3 million driven by the temporary suspension of
operations in the prior year quarter, the opening of the Oak Grove HRM facility
in September 2020 and Newport in October 2020, and the running of the 147th
Kentucky Oaks and Derby with capacity restrictions in the second quarter of 2021
compared to the running of the 146th Kentucky Oaks and Derby in the third
quarter of 2020.
•Content expense increased $4.1 million primarily due to an increase in certain
host fees and source market fees for the TwinSpires Horse Racing business.
•Salaries and benefits expense increased $24.4 million driven by the temporary
suspension of operations in the prior year quarter, the opening of the Oak Grove
HRM facility in September 2020 and Newport in October 2020, and the running of
the 147th Kentucky Oaks and Derby with capacity restrictions in the second
quarter of 2021 compared to the running of the 146th Kentucky Oaks and Derby in
the third quarter of 2020.
•Selling, general and administrative expense increased $11.0 million driven
primarily from an increase in our accrued bonuses in the current year quarter
compared to the prior year quarter.
•Depreciation and amortization increased $3.9 million primarily driven by the
opening of the Oak Grove HRM facility in September 2020 and Newport in October
2020.
•Marketing and advertising expense increased $20.3 million primarily due to
increased marketing by our TwinSpires Horse Racing and Sports and Casino
businesses, the running of the 147th Kentucky Oaks and Derby with capacity
restrictions in the second quarter of 2021 compared to the running of the 146th
Kentucky Oaks and Derby in the third quarter of 2020, and the temporary
suspension of operations in the prior year quarter.
•Asset impairments increased $11.2 million due to a non-cash impairment charge
due to a change in the Churchill Downs Racetrack first turn capital plans and
the Company's planned usage of these assets.
•Other operating expenses include maintenance, utilities, food and beverage
costs, property taxes, insurance, and other operating expenses. Other operating
expense increased $23.2 million primarily driven by the temporary suspension of
operations at our properties during the prior year quarter and the running of
the 147th Kentucky Oaks and Derby with capacity restrictions in the second
quarter of 2021 compared to the running of the 146th Kentucky Oaks and Derby in
the third quarter of 2020.
Six Months Ended June 30, 2021, Compared to Six Months Ended June 30, 2020
Significant items affecting comparability of consolidated operating expense
include:
•Taxes and purses increased $109.5 million driven by the temporary suspension of
operations in the prior year, the opening of the Oak Grove HRM facility in
September 2020 and Newport in October 2020, and the running of the 147th
Kentucky Oaks and Derby with capacity restrictions in the second quarter of 2021
compared to the running of
                 FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021
                                           34


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the 146th Kentucky Oaks and Derby in the third quarter of 2020.
•Content expense increased $16.3 million primarily due to an increase in certain
host fees and source market fees for the TwinSpires Horse Racing business.
•Salaries and benefits expense increased $16.2 million driven by the temporary
suspension of operations in the prior year, the opening of the Oak Grove HRM
facility in September 2020 and Newport in October 2020, and the running of the
147th Kentucky Oaks and Derby with capacity restrictions in the second quarter
of 2021 compared to the running of the 146th Kentucky Oaks and Derby in the
third quarter of 2020.
•Selling, general and administrative expense increased $17.1 million driven
primarily from an increase in our accrued bonuses in the current year compared
to the prior year due to the temporary suspension of operations in the second
quarter of 2020.
•Depreciation and amortization increased $7.9 million primarily driven by the
opening of the Oak Grove HRM facility in September 2020 and Newport in October
2020.
•Marketing and advertising expense increased $22.6 million primarily due to
increased marketing by our TwinSpires Horse Racing and Sports and Casino
businesses, the running of the 147th Kentucky Oaks and Derby with capacity
restrictions in the second quarter of 2021 compared to the running of the 146th
Kentucky Oaks and Derby in the third quarter of 2020, and the temporary
suspension of operations in the prior year quarter.
•Asset impairments decreased $6.3 million due to an $11.2 million non-cash
impairment charge relating to the change in the Churchill Downs Racetrack first
turn capital plans and the Company's planned usage of these assets, compared to
a $17.5 million non-cash intangibles impairment recognized during the first
quarter of 2020 that did not recur in the current year.
•Other operating expenses include maintenance, utilities, food and beverage
costs, property taxes, insurance, and other operating expenses. Other operating
expense increased $24.4 million primarily driven by the temporary suspension of
operations at our properties during the prior year and the running of the 147th
Kentucky Oaks and Derby with capacity restrictions in the second quarter of 2021
compared to the running of the 146th Kentucky Oaks and Derby in the third
quarter of 2020.

                 FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021
                                           35


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Adjusted EBITDA
We believe that the use of Adjusted EBITDA as a key performance measure of the
results of operations enables management and investors to evaluate and compare
from period to period our operating performance in a meaningful and consistent
manner. Adjusted EBITDA is a supplemental measure of our performance that is not
required by or presented in accordance with GAAP. Adjusted EBITDA should not be
considered as an alternative to operating income as an indicator of performance,
as an alternative to cash flows from operating activities as a measure of
liquidity, or as an alternative to any other measure provided in accordance with
GAAP.
                                        Three Months Ended June 30,                               Six Months Ended June 30,
(in millions)                      2021               2020            Change               2021                 2020            Change
Live and Historical Racing    $      98.4          $   3.6          $  94.8          $    116.7              $   4.6          $ 112.1
TwinSpires                           23.1             38.7            (15.6)               45.6                 54.7             (9.1)
Gaming                              119.8             (1.8)           121.6               202.2                 46.1            156.1
Total Segment Adjusted EBITDA       241.3             40.5            200.8               364.5                105.4            259.1
All Other                            (8.0)           (10.4)             2.4               (20.6)               (20.0)            (0.6)
Total Adjusted EBITDA         $     233.3          $  30.1          $ 203.2          $    343.9              $  85.4          $ 258.5


Three Months Ended June 30, 2021, Compared to Three Months Ended June 30, 2020
•Live and Historical Racing Adjusted EBITDA increased $94.8 million due to a
$65.2 million increase from Churchill Downs Racetrack primarily due to the
running of the 147th Kentucky Oaks and Derby with capacity restrictions in the
second quarter of 2021 compared to the running of the 146th Kentucky Oaks and
Derby in the third quarter of 2020; a $19.3 million increase from Derby City
Gaming due to the increase in net revenue, increased operating efficiencies, and
the temporary suspension of operations during the prior year quarter; a $9.4
million increase at Oak Grove due to the opening of the Oak Grove HRM facility
in September 2020; a $0.6 million increase at Newport due to the opening of the
Newport facility in October 2020; and a $0.3 million increase from other
sources.
•TwinSpires Adjusted EBITDA decreased $15.6 million primarily due to a $8.2
million decrease from Horse Racing due to an increase in marketing and
advertising expense associated with the running of the 147th Kentucky Oaks and
Derby with capacity restrictions in the second quarter of 2021 compared to the
running of the 146th Kentucky Oaks and Derby in the third quarter of 2020,
partially offset by an increase in net revenue; and a $7.4 million increase in
the loss from our Sports and Casino business due to increased marketing and
promotional activities.
•Gaming Adjusted EBITDA increased $121.6 million driven by a $69.8 million
increase at our wholly-owned Gaming properties and a $51.8 million increase from
our equity investments, both of which were due to increased operating
efficiencies and the temporary closure of all of our Gaming properties in the
prior year quarter.
•All Other Adjusted EBITDA increased $2.4 million driven by a $4.9 million
increase at Arlington and a $1.8 million increase at United Tote, both of which
primarily resulted from the temporary suspension of operations in the prior year
quarter. Partially offsetting this increase was a $4.3 million decrease from
Corporate primarily due to an increase in accrued bonuses compared to the prior
year quarter.
Six Months Ended June 30, 2021, Compared to Six Months Ended June 30, 2020
•Live and Historical Racing Adjusted EBITDA increased $112.1 million due to a
$65.5 million increase from Churchill Downs Racetrack primarily due to the
running of the 147th Kentucky Oaks and Derby with capacity restrictions in the
second quarter of 2021 compared to the running of the 146th Kentucky Oaks and
Derby in the third quarter of 2020; a $28.2 million increase from Derby City
Gaming due to the increase in net revenue, increased operating efficiencies, and
the temporary suspension of operations during the prior year; a $16.1 million
increase at Oak Grove due to the opening of the Oak Grove HRM facility in
September 2020; a $1.3 million increase at Newport due to the opening of the
Newport facility in October 2020; and a $1.0 million increase at Turfway Park
primarily due to an increase in handle and the temporary suspension of
operations in the prior year.
                 FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021
                                           36


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•TwinSpires Adjusted EBITDA decreased $9.1 million primarily due to a $10.8
million increase in the loss from our Sports and Casino business due to
increased marketing and promotional activities, partially offset by a $1.7
million increase in Horse Racing primarily due to the increase in handle
partially offset by an increase in marketing and advertising expense associated
with the running of the 147th Kentucky Oaks and Derby with capacity restrictions
in the second quarter of 2021 compared to the running of the 146th Kentucky Oaks
and Derby in the third quarter of 2020.
•Gaming Adjusted EBITDA increased $156.1 million driven by a $93.9 million
increase at our wholly-owned Gaming properties and a $62.2 million increase from
our equity investments, both of which were due to increased operating
efficiencies and the temporary closure of all of our Gaming properties in the
prior year.
•All Other Adjusted EBITDA decreased $0.6 million driven by a $8.6 million
increase in accrued bonuses at Corporate compared to the prior year period.
Partially offsetting this decrease was a $6.2 million increase from Arlington
due to increased operating efficiencies and the temporary suspension of
operations in the prior year and a $1.8 million increase at United Tote due to
the temporary suspension of operations during the prior year.
                 FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021
                                           37


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Reconciliation of Comprehensive Income (Loss) to Adjusted EBITDA


                                             Three Months Ended June 30,                                Six Months Ended June 30,
(in millions)                          2021                 2020             Change              2021               2020             Change
Net income (loss) and
comprehensive income (loss)
attributable to Churchill Downs
Incorporated                     $    108.3              $ (118.8)         $ 227.1          $   144.4            $ (142.2)         $ 286.6
Net loss attributable to
noncontrolling interest                   -                     -                -                  -                 0.1             (0.1)
Net income (loss) before
noncontrolling interest               108.3                (118.8)           227.1              144.4              (142.3)           286.7
Loss from discontinued
operations, net of tax                    -                  95.2            (95.2)                 -                96.1            (96.1)
Income (loss) from continuing
operations, net of tax                108.3                 (23.6)           131.9              144.4               (46.2)           190.6

Additions:


Depreciation and amortization          26.0                  22.1              3.9               52.0                44.1              7.9
Interest expense                       22.0                  20.3              1.7               41.4                39.6              1.8
Income tax provision (benefit)         41.6                  (7.9)            49.5               57.8               (19.5)            77.3
EBITDA                           $    197.9              $   10.9          $ 187.0          $   295.6            $   18.0          $ 277.6

Adjustments to EBITDA:
Selling, general and
administrative:
Stock-based compensation expense $      7.1              $    6.1          $   1.0          $    12.6            $   10.4          $   2.2
Other charges                           0.2                  (0.1)             0.3                0.2                (0.1)             0.3
Pre-opening expense and other
expense                                 1.5                   1.9             (0.4)               2.1                 3.6             (1.5)
Asset impairments                      11.2                     -             11.2               11.2                17.5             (6.3)
Transaction expense, net                  -                   0.2             (0.2)               0.1                 0.5             (0.4)
Other income, expense:
Interest, depreciation and
amortization expense related to
equity investments                     10.5                   9.8              0.7               20.1                19.3              0.8
Changes in fair value of Rivers
Des Plaines' interest rate swaps       (1.8)                  1.3             (3.1)              (6.0)               16.2            (22.2)
Rivers Des Plaines' legal
reserves and transactions costs         6.7                     -              6.7                8.0                   -              8.0
Total adjustments to EBITDA            35.4                  19.2             16.2               48.3                67.4            (19.1)
Adjusted EBITDA                  $    233.3              $   30.1          $ 203.2          $   343.9            $   85.4          $ 258.5

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