Churchill Downs Inc. CHDN Business Risk Report

I. Market Risks

A. Fluctuations in horse racing industry
Churchill Downs Inc. is susceptible to the variable nature of the horse racing industry, which can be influenced by economic conditions, changes in consumer interests, and even weather patterns. These fluctuations can significantly impact attendance and betting volumes at races.

B. Regulatory changes in gambling laws
Changes in gambling regulations can directly impact Churchill Downs Inc.’s operations, particularly in terms of how betting is conducted on its platforms and at its racetracks. Legislation can vary significantly by state, affecting how the company operates in different regions.

II. Operational Risks

A. Technology disruptions impacting online betting platforms
Churchill Downs Inc. relies heavily on its online betting platforms, such as TwinSpires. Disruptions, whether from cyber-attacks, software malfunctions, or other technological failures, could lead to loss of revenue and customer dissatisfaction.

B. Potential disruptions to physical race events
Physical events like the Kentucky Derby are central to Churchill Downs Inc.’s revenue. These events can be disrupted by unexpected occurrences such as severe weather, pandemics, or security incidents, potentially causing significant financial loss and harm to brand reputation.

III. Financial Risks

A. Revenue loss due to decreased consumer spending
Economic downturns or any factors that reduce disposable income can directly affect spending on leisure and betting, potentially decreasing Churchill Downs Inc.’s revenue streams from both live racing and online platforms.

B. Foreign exchange rate fluctuations impacting international operations
While Churchill Downs Inc. is primarily a US-based company, its potential expansions or partnerships abroad could expose it to currency risk. This might affect the profitability of such ventures and needs to be managed carefully.

IV. Strategic Risks

A. Competition from other entertainment and gambling alternatives
Increasing options for entertainment and gambling, including online gaming and fantasy sports, pose a significant risk by potentially diverting customers away from horse racing and betting at Churchill Downs Inc.’s facilities.

B. Failure to expand and diversify revenue streams
An inability to innovate or diversify its offerings could lead to over-reliance on traditional horse racing revenues, which may not sustain long-term growth especially as market dynamics and consumer behaviors evolve.

V. Legal and Compliance Risks

A. Lawsuits related to gambling addiction or unfair practices
Churchill Downs Inc. might face legal challenges related to gambling addiction issues or allegations of unfair practices, which can result in financial penalties, reputational damage, and operational constraints.

B. Non-compliance with gaming regulations
Non-compliance with strict gaming and betting laws can result in substantial fines, legal actions, and even the revocation of licenses, severely impacting operations.

VI. Mitigation Strategies

A. Diversification of revenue streams
To reduce dependency on traditional revenue sources, Churchill Downs Inc. is diversifying into gaming operations, online betting, and other entertainment services, broadening its financial base.

B. Robust monitoring of regulatory changes
The company maintains a legal team focused on staying abreast of legislative developments, ensuring compliance and readiness to adapt to new gambling laws across different states.

C. Implementing contingency plans for operational disruptions
Churchill Downs Inc. has developed contingency plans to address potential disruptions at its physical events and online platforms, ensuring continuity of operations.

D. Regular assessment and adjustment of risk management policies and procedures
Regular reviews and updates of risk management strategies are undertaken to mitigate financial, operational, legal, and compliance-related risks, helping safeguard the company’s assets and reputation.