Churchill Downs (CHDN) Q2 2025: NBC Derby Contract Adds $10M EBITDA Catalyst for 2026
Churchill Downs delivered record Q2 results, but the real story is the setup for 2026, with the new NBC broadcast contract, Derby Week pricing power, and HRM expansion priming a step-change in earnings potential. Management’s capital allocation signals confidence, with a new $500 million buyback authorization, while the company leans into premium event experiences and geographic HRM growth to extend its moat. Investors should focus on the growing monetization of the Derby platform, the Virginia and New Hampshire HRM ramp, and the durability of consumer demand as the company enters a heavy investment cycle.
Summary
- Derby Platform Monetization: New NBC contract and premium experiences position Derby Week for outsized EBITDA growth in 2026.
- HRM Expansion Momentum: Virginia and Kentucky HRM venues continue to ramp, with New Hampshire entry broadening the growth runway.
- Capital Allocation Confidence: Aggressive buyback and reduced maintenance capex reflect management’s conviction in long-term free cash flow generation.
Performance Analysis
Churchill Downs posted all-time record net revenue and adjusted EBITDA for the second quarter, marking the fifth straight Q2 with new highs. The Live and Historical Racing (HRM) segment accounted for nearly two-thirds of adjusted EBITDA, with 6% growth year over year, driven by HRM strength in Kentucky and Virginia. Derby Week attendance exceeded 370,000, and despite tough comps from the 150th Derby and weather headwinds, Churchill Downs Racetrack matched last year’s exceptional EBITDA output.
The Wagering Services and Solutions segment also set Q2 records, bolstered by Twin Spires’ Derby Week performance and a $3 million EBITDA lift from the Xacta, HRM technology platform. Regional gaming properties reported solid spend per trip among rated players, though casino margins compressed 1.3 points due to tax normalization and machine reallocations. Free cash flow reached $455 million in the first half, supporting $250 million of share repurchases and a new $500 million buyback program.
- HRM Growth Outpaces Legacy: Kentucky and Virginia HRM venues drove segment growth, with Northern Kentucky, Louisville, and the new Owensboro property posting standout gains.
- Derby Pricing and Premiumization: Premium ticketing and differentiated experiences continue to expand revenue per attendee, reinforcing the Derby’s pricing power.
- Tax and Capex Leverage: New federal tax provisions and reduced maintenance capex will boost free cash flow by $50–60 million this year, amplifying capital return firepower.
While Derby Racetrack EBITDA was flat due to a tough comp, the underlying drivers—pricing, viewership, sponsorship, and wagering—are all positioned for a step function in 2026, with broadcast and venue upgrades acting as force multipliers.
Executive Commentary
"We anticipate that we will generate step function growth for Derby Week in 2026 based on growth in ticket revenue, from pricing and from the strategic investments we have made, as well as from the new NBC contract, increased wagering, and growth in sponsorships and licensing."
Bill Carstangen, Chief Executive Officer
"We repurchased over $250 million of our stock in the second quarter under our share repurchase program. This week, we announced that our board approved a new common stock repurchase program of up to $500 million. This reflects our strong belief in the future growth of our company."
Marcia Dahl, Chief Financial Officer
Strategic Positioning
1. Derby Week as a Scalable Platform
The Kentucky Derby is being systematically transformed from a single-day event into a week-long, multi-experience platform with differentiated pricing and premiumization. The company’s ability to segment and elevate customer experiences—culminating in the Derby—enables revenue optimization across five days, with attendance now rivaling five Super Bowls in scale. Upcoming renovations and the debut of the Starting Gate Pavilion are expected to further enhance pricing leverage and guest satisfaction.
2. Broadcast and Sponsorship Acceleration
The new seven-year NBC contract, starting in 2026, will deliver a $10 million EBITDA uplift and prime-time national exposure for the Kentucky Oaks race, previously limited to cable. This shift is designed to boost viewership, wagering, and sponsorship, positioning the Oaks as a marquee lead-in to the Derby and driving national and global awareness. Management expects these changes to unlock new sponsorship categories and higher rates as the Derby’s cultural relevance expands.
3. HRM and Geographic Expansion
HRM (Historical Racing Machine) venue expansion in Virginia and Kentucky remains a core growth engine, with new properties in Richmond, Henrico, and Calvert City progressing on time and on budget. The pending entry into New Hampshire via the Salem Casino acquisition marks a strategic move into the New England market, leveraging favorable demographics and cross-border access from Boston suburbs. Management sees substantial runway in both existing and new HRM markets, with technology investments in Xacta optimizing both internal and third-party operations.
4. Capital Allocation and Balance Sheet Discipline
Shareholder returns remain a priority, with $250 million repurchased in Q2 and a new $500 million buyback authorization. Maintenance capex has been reduced by $10 million for 2025, and project capex for growth venues is proceeding within established ranges. The company’s net leverage is expected to remain in the low four times range through year-end, dropping below four in 2026 as new venues ramp and free cash flow benefits from tax changes materialize.
5. Technology and Product Innovation
The Xacta platform is broadening CHDN’s HRM ecosystem, providing margin leverage and enabling third-party licensing in new markets like Kansas. The company is also developing new HRM-based electronic table games, such as HRM roulette, in partnership with Interblock, aiming to enhance guest experience and support industry sustainability.
Key Considerations
Churchill Downs is executing a multi-pronged growth strategy that leverages its unique event assets, technology, and disciplined capital allocation to extend its competitive advantage.
Key Considerations:
- Derby Week Monetization: Premium pricing, expanded experiences, and prime-time broadcast rights are converging to drive a structural step-up in 2026 earnings.
- HRM Venue Ramp: Virginia and Kentucky HRM properties are still early in their maturity curve, with strong consumer metrics and upside from database expansion and brand building.
- New Hampshire Entry: Salem Casino provides a foothold in a high-value, underpenetrated market, with potential for further M&A or organic expansion in New England.
- Capital Return Discipline: Aggressive share repurchases and a long-term dividend growth target signal management’s confidence in future free cash flow, even as investment ramps.
- Tax and Regulatory Tailwinds: Permanent bonus depreciation and expanded interest deductibility will materially boost cash flow, supporting both growth and returns.
Risks
Execution risk remains around large-scale Derby renovations, HRM venue ramp-up, and integration of the New Hampshire acquisition. Regulatory changes or tax policy shifts could impact cash flow projections, and competitive pressure in regional gaming may compress margins. The durability of premium event demand and sponsorship pricing must be monitored as macro or consumer conditions evolve.
Forward Outlook
For Q3 2025, Churchill Downs expects:
- Continued ramp in Virginia and Kentucky HRM venues, with Richmond and Henrico openings on schedule.
- Stable regional gaming trends and incremental margin improvement as new venues mature.
For full-year 2025, management maintained guidance:
- Project capex of $250–290 million, maintenance capex reduced to $80–90 million.
- Net leverage to remain in the low four times range, dropping below four in 2026.
Management emphasized step function growth in Derby Week EBITDA for 2026 driven by pricing, broadcast, and sponsorship, and highlighted the cash tax benefit from federal legislation as a key free cash flow accelerant.
- 2026 Derby Week expected to benefit from new NBC contract and venue upgrades.
- Ongoing HRM expansion and technology investments to drive multi-year growth.
Takeaways
Churchill Downs is leveraging its event platform and HRM network to drive multi-year growth, with visibility into structural EBITDA gains in 2026 and beyond.
- Derby Platform as a Growth Engine: New broadcast rights, premium experiences, and sponsorship expansion will converge to deliver a material uplift in event-driven earnings.
- HRM and Geographic Diversification: Virginia, Kentucky, and New Hampshire HRM venues provide a long runway for growth, with the Xacta platform adding margin leverage and optionality.
- Watch for Execution on Capex and Ramp: The pace of HRM venue maturity, Derby renovation delivery, and integration of new markets will shape the next phase of value creation.
Conclusion
CHDN’s Q2 sets up a compelling 2026 story, with the Derby’s monetization and HRM expansion providing high-visibility growth levers. Investors should monitor execution on venue projects and Derby platform initiatives, as the company enters a capital-intensive, but high-return, phase of its growth cycle.
Industry Read-Through
The transformation of the Kentucky Derby into a week-long, premiumized event offers a blueprint for sports and entertainment operators seeking to extend the lifecycle and monetization of marquee assets. The HRM venue ramp in Virginia and New Hampshire highlights the continued opportunity for alternative gaming formats in underpenetrated markets, while the success of the Xacta technology platform underscores the value of proprietary gaming infrastructure. Regional gaming operators should note the increasing importance of diversified revenue streams, digital engagement, and disciplined capital allocation to sustain margin and growth in a competitive landscape.