Wizards or prophets: The sustainability management of Churchill Downs, Inc.February 20, 2020
In Charles C. Mann’s 2018 book, The Wizard and the Prophet: Two Remarkable Scientists and Their Dueling Visions to Shape Tomorrow’s World, the Mann presented two very different visions of our environment.
There is a long-running dispute between what he calls, the “wizards,” those who believe that science will allow humans to continue prospering, and the “prophets,” who predict disaster unless we accept that our planet’s resources are limited. It’s a well-crafted and insightful argument, but its applicability ranges far beyond environmentalism.
Mann is cagey about not siding with either. We find wizards with astounding advances and we buy that the prophets are laden with gloomy forecasts. You will also discover, as the author argues, that technological miracles produce nasty side effects and that self-sacrifice, as prophets urge, has proven contrary to human nature.
Speaking of that last point, I wonder where Churchill Downs Inc. (CDI) resides on the wizard-prophet scale if we couch it in terms of managing sustainability?
Could the company that owns the legendary racetrack in Louisville, Kentucky be a wizard of progress and an innovator in the sport of horse racing? Or is CDI a prophet, a selfless protector who guards the memory of a simpler bygone past, and perhaps, it’s own interests?
The short answer? It depends on perception.
On the one hand, Churchill has moved from a four-race card back when Ulysses S. Grant was President in the 1870s to a model that is powerful and diversified. The owners of the “twin spires” are the provocateurs of some unique gaming experiences. Despite these money moves, CDI’s core event is still the most lucrative two minutes in all of sport—The Kentucky Derby.
Since the early 1940s, when Churchill Downs became incorporated, they slowly started to capitalize as other venerable betting institutions, like other horse tracks or casinos, were faltering towards the end of the century. To put it another way, they began to spend when others did not. If you don’t believe me, look below at their list of wide-ranging assets under their gaming umbrella. They are also publicly traded on the NASDAQ (CHDN) with a current share price just over $160.00. See https://finance.yahoo.com/quote/CHDN?p=CHDN.
Sounds like wizarding…
On the other hand, Churchill Downs Inc. remains rather prophet-like. For instance, they’re a staunch opponent of one current bill in Congress, the Horse Racing Integrity Act, which seeks to install a federal regulatory agency to govern the drug testing of thoroughbreds across some 38 jurisdictions. Many believe this move will assist in “cleaning up” a sport that for too long has operated independently.
CDI is not so sure. Mirroring arguments from the 70s and 80s, they warn that only horse racing can help horse racing, not an outside behemoth. They have outright refused to join the Coalition for Horse Racing Integrity, which to some, is rather like a coal miner not joining a union. CDI hasn’t changed their position on federal oversight, they have lobbied against it. http://horseracingintegrity.com/Default.asp?page=ABOUT.
Some prophets in their midst perhaps…
So, how do we make sense of whether this supposed venerable institution is more wizard or prophet?
Two cases might possibly assist us.
First, I might argue that we find a prophet in a strategic location within the CDI hierarchy. Her name is Elizabeth Wester, and she is the Vice President of Government Relations for their business. Her role is to represent their interests on Capitol Hill and coordinate a message, especially when it comes to major issues like the Horse Racing Integrity Act. She must navigate behind the scenes in a world of politics that can be a tenuous at best.
Remember, Congresspersons are universally challenged when it comes to understanding horse racing, as the recent hearing on the bill yielded. Wester must interpret history and forecast the side-effects of being too progressive in an industry that rebukes change. (Proof of a lack of Congressional understanding: look for the “Mongo Groom” reference uttered by a misinformed member of the committee). See https://www.thoroughbreddailynews.com/the-week-in-review-with-the-integrity-act-compromise-is-in-the-eye-of-the-proposer/.
Mind you, CDI has not left Wester with a paltry position from which to negotiate. See https://www.opensecrets.org/federal-lobbying/clients/summary?cycle=2019&id=D000024779.
Over the years, they have pumped big time dollars into a lobbying campaign overseen by Wester. Her background in the Florida banking scene has given her the acumen and insight to understand complicated systems. Though she reports directly to CDI’s CEO William C. Carstanjen, she still commands a strong position to broker deals and defend the mothership’s autonomy.
Incidentally, turf writers covering CDI’s behind-the-scenes reasons for staying “off-track,” when it comes to supporting the Horse Racing Integrity Act, would do well to steer clear of speculative ventures (like Castanjen’s cycling connection). Instead, they might focus on Wester’s role as the tip of an extremely sharp sword when it comes to advocacy. Afterall in 2019, the company reported a total of $240,000 that was spent on lobbying for CDI’s interests. See https://www.paulickreport.com/news/ray-s-paddock/horseracing-integrity-act-gains-support-64-trainers-among-major-tracks-churchill-downs-missing-action/.
A second case study concerning their status as wizards relates to CDI’s position on one of their assets that many wrote off as beleaguered—Calder Race Course. They acquired it back in April 1999 and eventually added a casino in 2010. Since then, Churchill extricated themselves from the situation by pawning off their position to the Stronach Group, which owns Gulfstream Park. Afterwards, what ensued was a complicated dance known as “decoupling”; in Florida and elsewhere this is the formal separation of horse or greyhound racing from its connection to say, slot machine money. In turn, these types of moves leave owners of either animal with no place to run, and summarily, another racetrack disappears. See https://floridapolitics.com/archives/278878-scratched-racing-horses-slots.
What CDI accomplished during Calder’s sinking was a crew-saving maneuver when pari-mutuel wagering was declining at the racetrack. Staving off being swamped, they found a means to keep the gaming business by divesting themselves from the anchor that was weighing them down. Ok, ok, enough nautical metaphors.
The point is, it was a pithy solution and timely choice for them. Churchill needed to innovate because history showed that lagging attendance brought in less and less handle at the windows. Calder Casino would have smaller takeouts, but more bodies in seats. Thus, CDI turned their backs on Calder’s history and the thoroughbred owners who made their homes in the stables there, but they found a means to turn a dud into a deal. See https://www.theledger.com/news/20180905/judge-rejects-challenge-to-racetrack-slots-license.
Will the choices CDI make now as either wizards or prophets promote long-term sustainability beyond a share price? Don’t the roots of horse racing run deep enough that they cannot forget where they came from? Or will their efforts with their diversification campaigns make them viable for years to come beyond hosting their signature event, the Kentucky Derby?
Time will tell, horse racing fans, which approach will ensure sustainability.
In the meantime, all this Churchill-related talk of wizards, prophets, and business paradigms reminds me of my own experience with one of their subsidiaries.
A decade ago, I had a quite a successful run as a member of Twin Spires, their online advance-deposit wagering service. One afternoon, I received a call from a manager at the company named “Tom.” In a stern, schoolmarm voice, he issued me an ultimatum, “Mr. Campbell, stop making such large show wagers, you are negatively impacting our pool, or else… One more and your account will be closed.”
It seemed very 1984, so of course I made another wager, and received a second call informing me my account was closed.
About a week later, much to my surprise, I received in the mail from Twin Spires a silver card granting me access to certain locations in the grandstand during the Kentucky Derby. The letter congratulated me on being such a great member!
The prophet forecasted gloom for me, while the wizard welcomed me into their midst.
Maybe to make a choice in this situation, what we need is a variation on what President Harry Truman called for when he was looking for answers about the economy, “Bring me a one-armed economist!” he said, “All mine keep saying, well, on the one hand and then on the other…”
Could Churchill Downs Inc. use a one-armed management consultant?
Well, on the one hand…
J.N. Campbell is a turf writer based in Houston, Texas. His work has appeared in a number of publications; including the International Journal of the History of Sport, Thoroughbred Daily News, The Sports Haven, and Gallop Magazine. You can head all of his prior work for ThoroCap at: https://thorocap.com/jn-campbell/
Churchill Downs, Incorporated owns the following racetrack and casino properties:
Churchill Downs Racetrack – See CDI’s new investment in a single gate for the Kentucky Derby, https://www.courier-journal.com/story/sports/horses/2020/02/03/kentucky-derby-2020-churchill-downs-receive-new-starting-gate/4647747002/
Derby City Gaming
Fair Grounds Race Course and Slots
Harlow’s Casino Resort
Lady Luck Casino Nemacolin
Miami Valley Gaming
Oxford Casino Hotel
Presque Isle Downs and Casino
Riverwalk Casino Hotel
Turfway Park — see link covering CDI’s new investment, https://www.thoroughbreddailynews.com/churchill-downs-to-invest-5-6m-in-new-tapeta-synthetic-track-at-turfway/
The company’s other business holdings include:
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