Derby Experiences And Mobile Wagering Will Ignite Future Markets

Key Takeaways

• Strategic investment in premium Derby offerings, media partnerships, and digital expansion will boost revenue quality, national reach, and brand sponsorship appeal.
  
• Growth in experiential gaming venues and mobile wagering will drive recurring revenue, customer diversity, and sustained margin improvement.
  
• Heavy reliance on horse racing and HRM venues, combined with shifting consumer trends, rising costs, and regulatory risks, threatens long-term growth and earnings stability.

Catalysts

Operates live and historical racing entertainment venues, online wagering businesses, and regional casino gaming properties in the United States.

• Strategic reinvestment in premium Kentucky Derby experiences and selective venue upgrades-particularly expanding Derby Week with new hospitality offerings, international marketing, prime-time Oaks coverage, and enhanced digital content-should drive substantial step-function revenue growth, higher per-attendee pricing, and stronger sponsorship income in 2026 and subsequent years, supporting higher adjusted EBITDA and net margins.
  
• Expansion and ramp-up of high-margin Historical Racing Machine (HRM) properties in Kentucky and Virginia, along with new projects in New Hampshire and potential new markets, will increase Churchill Downs' exposure to experiential gaming and drive recurring revenue and margin growth, as consumer preferences continue shifting toward destination entertainment and integrated gaming.
  
• Renewed and expanded long-term media rights agreements (e.g., the new seven-year NBC contract and first-time prime-time Kentucky Oaks broadcast) provide multi-year, inflation-hedged visibility on media revenue streams, while increasing the company's national reach, cultural relevance, and attractiveness to sponsors-bolstering overall revenue resilience and free cash flow.
  
• Accelerating digital transformation and growth in mobile wagering through the TwinSpires platform-evidenced by record new registrations and active users, and enhanced partnerships with FanDuel and DraftKings-positions Churchill Downs to capture a broader, younger, and more diverse customer base, sustaining long-term wagering and transaction frequency growth.
  
• Optimized capital allocation, including disciplined project investments, share repurchases, and free cash flow enhancement from favorable tax changes (100% bonus depreciation, enhanced interest deductibility), will improve long-term earnings per share and support upside to current valuations as free cash flow per share rises.

Churchill Downs Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Churchill Downs's revenue will grow by 4.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 15.2% today to 16.9% in 3 years time.
• Analysts expect earnings to reach $541.1 million (and earnings per share of $7.24) by about September 2028, up from $429.9 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $609.2 million in earnings, and the most bearish expecting $454 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.6x on those 2028 earnings, up from 15.9x today. This future PE is lower than the current PE for the US Hospitality industry at 23.9x.
• Analysts expect the number of shares outstanding to decline by 4.59% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.55%, as per the Simply Wall St company report.

Churchill Downs Future Earnings Per Share Growth

Risks

• Churchill Downs remains highly concentrated in horse racing and historical racing machine (HRM) venues, which leaves the company exposed to event-specific risks such as adverse weather, regulatory changes, or declining interest in these forms of gambling-potentially causing revenue volatility and challenging long-term earnings stability.
  
• Sustained high levels of capital expenditure for renovations, new venues (e.g., The Rose, Salem casino), and premium experiences at Churchill Downs Racetrack may compress net margins and constrain free cash flow if returns on these investments do not materialize as expected, especially as competition increases and the market matures.
  
• Demographic shifts and evolving consumer preferences toward digital entertainment and away from traditional horse racing could dampen long-term demand for the company's core product, leading to stagnating attendance, reduced wagering, and weaker sponsorship revenue-ultimately pressuring future growth and revenue expansion.
  
• Intensifying competition from both regional gaming venues and digital/mobile betting operators may limit Churchill Downs' ability to differentiate its offerings, making it more difficult to expand or sustain market share in crowded and highly regulated markets, risking pressure on revenue growth and operating margins.
  
• The company's ongoing expansion into new markets such as Virginia and New Hampshire increases exposure to potential regulatory changes and tax rate adjustments, which, combined with rising labor and compliance costs in the gaming and hospitality sectors, could erode profit margins and hinder anticipated earnings growth.

Valuation

• The analysts have a consensus price target of $137.455 for Churchill Downs based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $155.0, and the most bearish reporting a price target of just $125.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.2 billion, earnings will come to $541.1 million, and it would be trading on a PE ratio of 20.6x, assuming you use a discount rate of 10.5%.
• Given the current share price of $97.69, the analyst price target of $137.45 is 28.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.