Good day, ladies and gentlemen, and welcome to the Churchill Downs Incorporated 2019 Fourth Quarter and Year-End Earnings Conference Call. [Operator Instructions]. As a reminder, this conference call is being recorded. I'd now like to introduce your host for today's conference, Mr. Nick Zangari, Vice President, Treasury and Investor Relations..

Thank you, Katrina. Good morning, and welcome to our Fourth Quarter and Year-End 2019 Earnings Conference Call. After the company's prepared remarks, we will open the call for your questions. The company's 2019 fourth quarter and year-end business results were released yesterday afternoon.

A copy of this release announcing results and other financial and statistical information about the period to be presented in this conference call, including information required by Regulation G, is available at the section of the company's website titled News, located at churchilldownsincorporated.com, as well as in the website's Investors section.

Before we get started, I would like to remind you that some of the statements that we make today may include forward-looking statements. These statements involve a number of risks and uncertainties that could cause actual results to differ materially.

All forward-looking statements should be considered in conjunction with the cautionary statements in our earnings release and the risk factors included in our filings with the SEC, specifically the most recent report on Form 10-K.

Any forward-looking statements that we make are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. During this call, we will present both GAAP and non-GAAP financial measures.

A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release. The press release and Form 10-K are available on our website at churchilldownsincorporated.com. And now I'll turn the call over to our Chief Executive Officer, Mr. Bill Carstanjen..

first, the track safety controversy at Santa Anita Park in California, which led to the cancellation of numerous race days as well as a decline in field sizes and quality of racing at Santa Anita; second, none of the top finishers in this year's Derby elected to compete in the Preakness, which dampened the usual anticipation leading up to the second leg of the Triple Crown; third, there wasn't a Triple Crown contender in 2019 like there was in 2018; and finally, the horse disqualification at the Kentucky Derby contributed significantly to lower player engagement metrics in the months following the Derby from customers we acquired during Derby week.

However, these metrics return to normal trends in the third quarter. Despite these industry challenges, TwinSpires was able to grow handle by 4.8%, although revenue and adjusted EBITDA declined very slightly due to the mix of wagering content and high volume, low-margin customers versus our usual lower volume, high-margin customer mix.

2019 was a highly unusual year for the industry, and I hope 2020 returns to the more typical previous trends for TwinSpires. Regarding sports betting and iGaming.

As Marcia will share with you in more detail, we report our wholly owned retail, i.e., brick-and-mortar sports betting results as part of our Gaming segment and our online and mobile sports betting results in the online wagering segment.

We were pleased with the impact that retail sports betting had in 2019 on our wholly owned Riverwalk and Harlow's Casinos in Mississippi, and our Presque Isle Casino in Pennsylvania, both through the returns generated directly by sports wagering on-premises and through increased slot and table games play.

Said another way, because our cost of acquisition for retail sports betting customers is nominal, this portion of our sports betting business is very profitable before even considering the incremental slot and table game play.

During 2019, we generated $5 million of net revenue at our retail BetAmerica Sportsbooks with nominal acquisition costs, thereby generating strong margins.

In the fourth quarter 2019, we invested a little more -- a little over $4 million of our adjusted EBITDA and our online BetAmerica Sportsbook business, with about half of the dollars spent on marketing-related costs, and the majority of the remaining spend related to people and operating costs to support the operations and build-out of the business.

As a reminder, we have purposefully maintained a primarily variable cost structure through our outsourcing of the technology and risk management platform as we learn the business and develop it across different states.

In 2019, we announced that we signed a market access agreement for Indiana and Colorado, and we have launched our retail and an online BetAmerica Sportsbook in Indiana.

We have also signed market access agreements in a number of states, where sports betting may become legal at some point in the future, and we will announce those agreements when legislation is approved in those states.

Our existing casino properties, our brick-and-mortar gaming equity investments and our market access agreements provide a portfolio of states where we can build on our sports book as efficiently as possible. We believe that states are far from equal and that population and wealth may not be the only indicators of a profitable market opportunity.

We believe that our other factors like market access terms and tax and regulatory regimes also will help define the potential profitability of different states. We will adjust our focus and strategy where we see potential for margin across the various states.

In 2020, we anticipate spending approximately $5 million of our adjusted EBITDA per quarter based on the states that we are currently in, as well as those we believe we will launch in during the year, including Colorado. I would caution that this estimate could change based on timing of state launches and other factors that are out of our control.

We will keep you updated on our quarterly earnings calls. We will remain extremely disciplined. And if we see a state is not performing as we expect, then we will significantly reduce our stop spending in that particular state.

We are committed to building a long-term profitable sports betting and iGaming business in the same way that we built a profitable business in TwinSpires, which is by far the most profitable online horseracing wagering platform in the industry today.

There is a great deal to learn from our own experiences in the nascent sports and iGaming market and from what we observed others to be doing. We will learn and react and show constant improvement. Turning to our Gaming segment. In 2019, we experienced relatively stable operating environments.

We grew revenue at 5 of our 6 wholly owned existing properties, that we owned over both 2018 and '19, and the 1 property that did not grow revenue, our Oxford Casino, was essentially flat despite a new competitor in the broader Massachusetts market.

We grew adjusted EBITDA at 6 of our 7 existing properties that we owned over both 2018 and 2019, and the 1 property that did not grow adjusted EBITDA, our Calder Casino, was down $1.4 million as a result of running 2 highlight meets in 2019 as we began the 2-year process of moving from a horse racing permit to a less expensive solution over the long term, a highlight permit.

We are not required to run a highlight meet again until the first half of 2021, although we will incur some modest expenses related to the operation in 2020. So far in 2020, our markets continue to remain stable in attractive operating environments.

We will watch the dynamics in New England surrounding Oxford and expect to face challenges at Harlow's in Greenville, Mississippi, with the new temporary casino opened in Arkansas about 100 miles away.

In 2019, our focus was on efficient operational improvements and strategic growth capital projects at our existing regional gaming assets, along with acquiring certain strategic gaming properties at reasonable multiples.

I'd like to make a few comments on our acquisitions and greenfield projects, while Marcia will add more color on our core gaming operations.

In January last year, we completed the purchase of Presque Isle Downs & Casino, which provided us with an immediately accretive regional gaming asset at a modest multiple and long-term access to Pennsylvania for sports betting and iGaming.

We opened a retail BetAmerica Sportsbook at Presque Isle in August and launched an online BetAmerica Sportsbook in Pennsylvania in mid-December. We have had product-related delays with respect to the iOS and Android applications as we solve for the ability to use the same application in multiple states.

So while we are operational, we have not yet spent a significant amount of marketing dollars anywhere, including Pennsylvania. Every day, we are improving our online product and hope to have the technology challenges resolved very soon.

In March of last year, we completed the acquisition of the management contract of Lady Luck Nemacolin in Pennsylvania. It is a small casino and was a package deal with Presque Isle. Our team made some improvements there, and its performance has been a very nice surprise.

In March, we acquired a little over 61% of Midwest Gaming, which owns one of the best casino assets in the United States, the Rivers Casino Des Plaines, near Chicago. We believe Rivers has the highest net gaming revenue per machine in the country among commercial casinos. It also has a very strong management and operating team.

This investment became potentially more valuable after Illinois passed an expanded gaming bill that increased the number of positions allowed for existing casinos from 1,200 to 2,000, and allowed for other positive changes to our operations, including 24-hour gaming, which the property implemented last week.

The expanded gaming bill also allows Rivers Casino to offer retail sports book at the site and online sports wagering across the entire state.

In 2019, Rivers added 131 of the 800 additional positions, opened their new [indiscernible] bet River Sportsbook in preparation for retail sports betting, which is targeted to launch in March of this year, and began the parking garage expansion.

The Rivers team is in the final stages of their development plans for the expansion necessary to house the remaining approximately 670 positions.

We hope to have more definitive plans and timing to discuss with you at our next earnings call, both with respect to our site expansion plans and the regulatory process to approve online sports wagering across the state. Switching to Kentucky.

In 2019, we achieved several milestones with respect to our plans for expanding our historical racing machine footprint. We began the build-out of our $200 million Oak Grove racing and gaming facility. And as required under the terms of our license, ran our first harness race meet there in October and November.

We plan to open the HRM facility with approximately 1,300 units and a 128-room hotel in September 2020. We also acquired Turfway Park for $46 million and are planning to invest $155 million, inclusive of the $46 million to build a HRM facility with up to 1,500 units and a new $5.6 million racetrack that we announced last week.

We plan to open the new facility in the summer of 2021. You may have seen recently that the Kentucky Horse Racing Commission voted to amend state regulations to allow for Kentucky licensed racetracks to have a second location to conduct simulcasting and pari-mutuel wagering under certain conditions, subject to the Racing commission's approval.

We plan to apply to the racing commission for a second location with respect to our Turfway Park license, so that after live racing ends in March and demolition and construction begins at Turfway Park, we will be able to relocate our simulcast operations as quickly as possible during the year plus construction period.

Our plan is to lease existing retail space from a third-party in a Northern Kentucky location to open a facility. We plan to add a limited number of HRM machines at this location to help generate purse money for Turfway Park while we tear down the existing grandstand and build a new HRM facility in the grandstand area.

Given the investment required to retrofit the space for the new facility, we plan to request that the Racing Commission allow us to maintain the second location after Turfway Park's reconstruction is complete. We will go into greater detail during our next earnings call in late April.

Ultimately, the addition of the HRM machines at Derby City Gaming, Churchill Downs Racetrack, Turfway Park, its extension and Oak Grove will significantly increase jobs and tax revenues in the Commonwealth, increase the purse money for the horses that race on our racetracks, attract more money to be wagered on our races and increase the value of thoroughbreds for breeding purposes, which is good for the Kentucky horse industry as well as for the Commonwealth of Kentucky.

A few additional comments on Illinois. We remain excited about our joint bid with Rush Street Gaming, our partner in Rivers Des Plaines for the casino license in Waukegan. Our joint bid was 1 of the 3 bids certified by the City of Waukegan and submitted to the Illinois Gaming Board by the October 28, 2019 deadline.

Accordingly -- according to the gaming bill, the Illinois Gaming Board has 12 months from that deadline to award the gaming license to one of the bids. A few final thoughts.

As I mentioned at the beginning of my remarks, our team has delivered significant growth in 2019, and we are well positioned for significant growth in the next few years based on our committed pipeline of organic investments in greenfield opportunities. Over the past 5 years, we have delivered a total shareholder return of nearly 350%.

We have returned over $1 billion to our shareholders through share repurchases and dividends, while growing our operations significantly.

Our modest leverage provides flexibility to invest in our existing business and to also pursue strategic investments that we believe will create long-term shareholder value, while maintaining capacity for dividend growth and opportunistic share repurchases.

We have done this for a while and plan to continue to be thoughtful stewards of our shareholders' capital and assets. We have a significant amount of growth in our pipeline, and we are excited about the potential opportunities that continue to develop for our company.

Our next call is scheduled for the week before the 146th running of the Kentucky Derby. If you haven't gotten your tickets yet, please hurry, there are very few reserve seats that are left. I want to acknowledge and congratulate our newest board member, Paul Varga.

He's been nominated by the board to serve and will be included in the proxy for the April shareholder meeting. Paul is an outstanding, deeply experienced candidate and will be a great asset for our board. Now I'd like to turn the call over to Marcia to provide some additional details. After that, we will answer any questions you have. Thank you.

Marcia?.

one, we had profitability related to the Breeders' Cup in the fourth quarter of 2018 that did not recur in the fourth quarter of 2019; and second, we had increased expenses for additional resources to support the expansion initiatives we've announced at Churchill Downs Racetrack.

For the total year, Churchill Downs Racetrack grew adjusted EBITDA primarily based on the strong performance of Derby Week. Regarding our online wagering segment, as Bill discussed, we invested $4.2 million in the fourth quarter and $12 million in total for 2019 of our adjusted EBITDA to build our online sports betting and iGaming operations.

As Bill said, about half of this was from marketing and the balance was for people and operating costs to support the operations and building out the business. We also had a slight increase in the fourth quarter adjusted EBITDA from our TwinSpires business as a result of lower marketing spend in the quarter.

For the total year, adjusted EBITDA from our TwinSpires business was slightly lower as the loss of a few customers in our Velocity group that is higher volume, low-margin, more than offset the growth in our core TwinSpires business. Turning to net income.

Fourth quarter net income from continuing operations was $4.2 million compared to $7.3 million in the prior year quarter. Our press release highlights the items that impacted the comparability of our fourth quarter net income from continuing operations.

Two of the more significant operations in the fourth quarter were the $7.5 million after-tax expense related to the Turfway Park purchase price, that from an accounting perspective, was required to be expensed; and a $5.6 million noncash tax expense related to an increase in income attributable to states with higher tax rates that resulted in a remeasurement of our net deferred tax liabilities.

Excluding these items for the fourth quarter, we had a $7.9 million increase primarily from the $13 million after-tax increase and our income from operations and equity investments, and a $0.9 million to a higher level of discrete tax items that lowered our fourth quarter effective tax rates.

These items were partially offset by $6 million of higher after-tax interest expense in fourth quarter as a result of higher outstanding debt balances.

Net income for 2019, excluding the items that impact the comparability that we highlighted in our press release, grew $29 million as a result of $56 million of growth from our operations and equity investments, that was partially offset by higher interest expense, and a higher effective tax rate for the year as a result of an increase in income attributable to states with higher tax rates.

Turning to cash flows. Fourth quarter cash flow from operations was $29 million, down $33 million from the prior year quarter. We paid $16 million more in interest payments related to long-term debt, and had $20 million of incremental working capital needs that was partially offset by the growth in adjusted EBITDA.

For the full year, cash flow from operations was $290 million, up $92 million from the prior year, which was primarily driven by the growth in our operations. We paid $11 million for maintenance capital in the fourth quarter, which was in line with the prior year quarter. For the total year, we paid $48 million for maintenance capital.

Regarding project capital, we paid $30 million in the fourth quarter primarily for construction spend at Oak Grove and the quarantine barn and equine medical facility at Churchill Downs Racetrack. For the total year, we paid $83 million for project capital. And finally, some thoughts on 2020.

As Bill mentioned, we have positioned our company for significant growth in the next 2 to 3 years, based on our committed pipeline of organic investments and greenfield opportunities.

Regarding maintenance and project capital for 2020, we anticipate maintenance capital to be $45 million to $60 million, primarily for new slot capital and various maintenance capital at our properties. We anticipate that project capital spend will be $300 million to $360 million.

Our investment in the expansion at Churchill Downs Racetrack and the developments at Oak Grove and Turfway Park are driving the majority of the spend. We will have some smaller projects at our other properties as well in 2020. I'd like to close with some thoughts on our adjusted EBITDA growth over the next couple of years.

Starting with the 2019 adjusted EBITDA of $451 million, here's a list of organic projects we have underway and are committed to with good line of sight to the projected economics.

Regarding our Churchill Downs segment, as you know, we add unique customer experiences to grow Derby week every year in addition to smaller capital projects, like the $11 million we're spending to renovate a portion of the sixth floor at Churchill Downs Racetrack for the 146th Derby.

And as Bill discussed, the hotel and HRM facility at Churchill Downs Racetrack will open in the fourth quarter of 2021 and should generate a significant lift in adjusted EBITDA for the 2022 Derby Week.

Derby City Gaming continues to demonstrate strong growth in the market and will benefit from the introduction of Scientific Game units and their top game titles in the first quarter of this year.

We are working with other game manufacturers to develop HRM units with their top game titles as well, to enhance our customers' experience at all of the HRM facilities that we are building.

Regarding our online wagering segment, as Bill mentioned, we will remain disciplined in our investments in our online sports betting and iGaming spending with a projected investment of $5 million of our adjusted EBITDA per quarter in 2020, and the commitment to build a long-term profitable business just as we did with TwinSpires.

Regarding our Gaming segment, there are a number of drivers of adjusted EBITDA growth as well over the next few years, including at Rivers Des Plaines, the full year impact in 2020 from the addition of the 131 positions that we added in 2019, the addition of the remaining 669 positions that have been approved as part of the expanded gaming bill, the reduction in the table games tax rate when a new casino or temporary casino is opened, the potential impact of an equity investment in the Waukegan Casino if Midwest gaming is selected by the Illinois Gaming board, and the potential upside from retail and online sports betting to Rivers Des Plaines, as well as the potential for retail and online sports betting under our Arlington racing license.

Regarding our equity investment in Miami Valley Gaming, the garage, hotel and expanded gaming floor should open in the fourth quarter of 2021. We will also continue to invest judiciously in our other wholly owned casino properties to drive profitable growth where it is warranted.

As Bill discussed, we do have some potential headwinds at 2 of our casinos, Oxford and Harlow's, that we are watching carefully. And lastly, we have 2 additional construction projects underway that will also grow adjusted EBITDA in the next couple of years.

These 2 properties, given their early stages along with Arlington, the United Tote, are currently reported in the all other section of our financials. Oak Grove's hotel and HRM facility will be opened by September 1 this year, so we will have a full year benefit from this property in 2021.

And Turfway Park will undergo a major reconstruction in the coming months, resulting in a new HRM facility and a new synthetic track by the summer of 2021.

As Bill alluded to, we're hoping to add a second location to our Turfway Park license, such that we can continue to offer another location for our customers to go to for simulcasting and other gaming entertainment in Northern Kentucky, while we are rebuilding Turfway Park.

Regarding shareholder returns, we repurchased $25 million of our stock in the fourth quarter and we have $175 million of remaining share repurchase capacity under our existing program. As Bill highlighted, our dividend and share repurchase programs reflect our ongoing commitment to returning capital to our shareholders.

Our net leverage on a reported basis at December remains relatively low at 3.1x, and we have significant capacity based on our cash on hand, ongoing cash generated from operations, unused credit facility and relatively low leverage to support continued growth through acquisitions and organic investments, as well as our dividends and opportunistic share repurchases.

With that, I'll turn the call back over to Bill so that he can open the call for questions.

Bill?.

Thanks, Marcia. Okay, everybody, we're ready to take questions. Fire away..

[Operator Instructions]. For the first question, we have David Katz from Jefferies..

I wanted to focus on -- or at least deal with the type of question that we're getting across our coverage around prospective virus impact, and specifically, around the Kentucky Derby. There's been efforts to include our expectation of a Japanese horse involved.

Do you have any statistics that you are able to share any qualitative comments you can make around international visitors or attendees at the Derby, whether from Asia or otherwise? Help us sort of deal with that hypothetical matter as we sort of move through this..

Sure, David. Let me address that. First, from a broader perspective, the coronavirus itself, we're still more than two months away from our events. So there'll be many, many events, concerts, professional sporting events and all sorts of other events that happen in the country well before we get to our events.

So we have a lot of time to monitor and learn and study the best protocols to put in place if it, in fact, becomes relevant for our events. So our team will be very, very focused on that, and pay attention to that, just as we do every year to any other factors that we think potentially could impact us. With respect to the Japanese horse.

If a Japanese horse comes to the United States, that's a great thing. We welcome that. That's why we have the Japan Road to the Derby. If the horse doesn't come, another American horse will be eligible under our point system to enter the race.

So I don't think that this impacts the field sizes for the Kentucky Derby or the quality of horses that are entered into the Kentucky Derby. With respect to international participation in terms of attendance, I don't know that we have great access to that information in our fingerprints, but it's also not something I'm particularly concerned about.

The tickets are -- reserve tickets are largely sold at this time, and there's a healthy secondary market for those tickets as well. So I think it's a fair question to worry about. But from a -- from our calculus and how we think about it, I'm not sure that I see a path where that impacts our attendance in any meaningful way..

Perfect.

And just similarly around the Kentucky Derby and the exciting hotel and HRM facilities you're going to build, can we just recheck the prospect of any construction that will be going on over the next couple of years that could either, visually or literally, have any effect on that all-important event? How should we be comfortable with that?.

Well, in the section where we're building the hotel and HRM facility, traditionally, there are temporary seats that are constructed in that area. Our team has carefully staged the construction to ensure that those seats are all there for this Derby.

There will be some infrastructure that gets relocated, that services those seats, but those seats will be where they normally are for this year's Derby. And there's a plan in place to make sure those seats aren't lost for next year's Derby as well.

So you raised a good point and one that Bill Mudd and Kevin Flanery and the team are very focused on, to make sure that our guests are not displaced and that there's a plan to maintain their experience as best we can, and certainly maintain the ability to provide those seats to people..

Got it. And one last one, if I may. With respect to Illinois, and to your comment in the bill of a -- I believe, it's an October deadline for new casino licenses to be announced or issued. A twofold relevance for you. One, some other license becoming active through a temporary facility, and Waukegan, obviously, which we're highly interested in.

Is there any information we can garner about whether that October time line is -- how long we're going to have to wait? And/or do you think there's any probability that it could be sooner than that?.

Well, there's certainly a probability that it could be sooner than that. But there also isn't any hard information available that we can share with you to give you any guidance on that.

Certainly, I think everybody involved, whether it be us through bidding for the Waukegan license or any of the other potential license holders that are -- who are bidding for the other licenses, we all hope and think it's a legitimate possibility that the Gaming Commission moves faster than the October 29 deadline. I'm sure they would like to.

I'm sure that, that would be their expectation or hope as well. But we don't have any information at all that we can share with you on what their time frame will be. So we'll keep monitoring that. And if we do get information that we could share publicly, we would. But I think we're all just going to have to be patient. That's not within our control.

But certainly, everybody, including the state who is eagerly awaiting that -- those revenues, everybody had an interest in that process moving as fast as it responsibly can..

For the next question, we have Joe Stauff from Susquehanna..

one, when the regulator would approve that; and two, like any sizing, whether it be the number of HRMs that you expect to be there, what are the simulcast offerings that you could put in that facility? So that's the first question. And I'll just take it, I guess, question by question, please..

Thanks, and I appreciate that because sometimes it's hard to remember all the parts of the multipart question. So I'll let....

That probably helps me more than you..

So first, the relative size of the property, it's going to depend. We can't disclose a number yet because it will depend on pending down the most attractive real estate option. And then secondly, getting the Racing Commission's approval.

I think, I wouldn't want to risk prejudicing the process with the Racing Commission in any way, so I think those are still discussions that we need to have privately with them, in conjunction with identifying the right facility. But it certainly will not be of the size of what we're doing at Turfway Park.

It will be a much more modest offering than that. But I think a really good thing for the state and a good thing for our company, depending on where we can find a location to put it. The facility, as we envision, would offer both HRMs and a full suite of simulcast products that are available. So it would be both a place to wager on the horses.

So our fans at Turfway Park have a place to go during this extensive reconstruction process of the Turfway Park site, but would also offer a modest but healthy number of HRM opportunities for players so that we can build the purse account and generate returns for the state and our own company..

I see. Two more questions, please. So I just wanted to clarify, say, on the license issuance process in Illinois. Is it fair to assume that the compete -- a different site, Rockford. I believe there's one bidder, and that bidder had applied earlier, I guess, versus your joint bid in Waukegan.

Is it fair to assume that -- assuming October 29 is the last date that Illinois would decide with respect to that application or that license much earlier? Or is it -- is the timing also -- whatever you can share with us. I know it's always difficult to try to handicap regulators.

But I was just wondering on the timing of that piece?.

Well, not every license in the state that is being offered has multiple bidders. So there are situations where there's just a single bidder, and there are other circumstances in the states where bidders have said that they would do a temporary, and that's part of their approach to winning new license.

With respect to the timing on when the racing -- or when the Illinois Gaming Board is going to make a decision, I just can't responsibly speculate on that, other than I can identify that they have motives, just like we all do to move as quickly as they responsibly can.

The governor has talked about the importance of this revenue to the state, et cetera. So I think everybody would like to move as expeditiously as possible. And I'm sure that, that includes the Illinois Gaming Board, that they would like to move as expeditiously as they can through this process.

But I'm just not the person that can be in a position to comment on whether they'll be finished and win in advance of the October deadline. Joe, I know that's not a very satisfying answer. [Indiscernible] a territory where we don't control bets. And I just want to be respectful of the people that do.

But I can tell you, I can't comment on their motivations and their incentives. Everybody wants this to move as quickly as possible in Illinois. But I don't want to be dismissive of their significant workload and their efforts. We'll just have to wait until they're ready. .

Okay. And just two clarifying questions. So one, when you exited Saratoga, I believe, in August of '18, correct me if I'm wrong, but you guys retain the access to potential online sports skin when New York gets there.

Is that accurate?.

Yes..

And can you tell me when, in the online segment currently, the impact from your Velocity business within the online segment, when we, at least in 2020, would anniversary the impact, I guess, from lower activity, specific in the Velocity business?.

Let me just make sure we understand that question. Would you [indiscernible]. I just want to make sure I understand that..

Yes, yes, yes, sure. Let me resay that. All I'm saying is, in the context of the online business, Velocity has contracted in 2019. And what I was just trying to figure out is, okay, when we kind of lap 1 year out, sort of the year-over-year impact of that first real hit in the Velocity business that occurred in 2019. Hopefully, that's clear..

I think it's clear. Well, let me start, and then I'm sitting here next to my colleague, Bill Mudd. This is a case where Bill, if you think I didn't quite capture, you jump in. I think Velocity saw some contraction last year, and there is a point at which we lap it.

But I have to say that I think that trend, in general, in Velocity is not something we expect to continue. So I don't feel Velocity will be a meaningful negative impact. It may even be a positive impact for this coming year. So I think there are actually multiple factors there.

But I would suggest that the trends from last year are not something you should focus on seeing continue..

Yes, I would agree with that. In the left that I think you're talking about probably was kind of middle of the second quarter type of impact, if that's the case..

That's right..

But to Bill's point, these are all very binomial and can move very quickly. So I view it more as an upside than any kind of material risk for this year..

I see, I see.

So you would expect that business to effectively kind of reflate, not decline further or flatten out?.

That's the way I feel about it, yes..

For the last question, we have Mr. Dan Politzer from JPMorgan..

The first one I want to hit on is sports betting, and I guess, your overarching strategy there.

How are you thinking about this business with respect to maybe adding a media partner, just given what's been going on in the space lately? And how do you think about your strategy for size versus profitability, especially as it relates to online versus retail? I know there's a lot in there, but just happy to get some color..

Sure. So with respect to partners, media partners or others, first, we did want vendor relationships as we entered this business that allowed us to enter the business as much in a variable-cost model as we could.

Because just having started businesses as we have within Churchill, we know that they can be lumpy at first, and it's hard to predict exactly how they'll grow and win. So you want a variable cost structure as much as you can at first to make sure that your costs aren't outsized compared to your revenues.

So feel very comfortable with our vendor relationship and -- relationships and what we've decided to outsource versus to do internal. And I think that's been a component of how we've approached the business.

With respect to true partnerships with media companies or otherwise, I think with any partnership you have to look at what they bring to the table and how much it would cost you to get it from a vendor or from -- or develop it yourself. So I think we'll look at all those -- yes, we've looked at media deals.

I think we'll continue to look at media deals and other types of deals. But it's really a question of analyzing clearly with the data you have, whether it's worth the cost of the partnership and worth sharing the upside.

Generally, as we've approached this business, much like when we entered TwinSpires all those years ago, we want to be careful about giving away the upside, and we want to make sure that we keep as much of the upside as we responsibly can.

And if we do give up upside, like if we have to enter a particular jurisdiction because we don't, ourselves, have any way to get access to the jurisdiction, we want to make sure we have a very good theory on quantifying that upside that we're giving up. So we've been cautious, maybe more cautious than others.

And maybe appropriately or inappropriately so, but we tend to be very, very careful on sharing upside for the long-term when it's not easy to completely quantify. Your second question, with respect to size versus probability, there's probably a number of places to go with that.

And so let me just start, and then you can follow-up if I didn't go in the direction you were anticipating.

Really, really like the retail sports betting, as Marcia was alluding to and I tried to allude to as well, since the cost of acquisition of the customer base within the casino is nominal compared to the cost of reaching potential customers in the online space, the margins are very good. So we like that, and we'll do as much of that as we can.

In the online space, so far, what we've seen, it can be expensive to acquire customers in the online space. It's just an expensive digital world. We want to make sure our product is mature and performs as required, so it doesn't disappoint the customers.

And we want to make sure we develop data on the value of customers so that we can compare it carefully to the cost of those customers. So there are different theories to approach this business, and we respect everybody that's made their choices on this. But from our company's perspective, we are very data driven, we are a very data-driven group.

So we tend to be incremental. We tend to be careful. We tend to test and retest, and that can come at the expense of speed. But over the long term, we think we'll have this data to make good decisions. So we're going to plug along at a pace that makes sense for us and try to get better every quarter.

And indeed, within every quarter, every week, every month, we'll try to get better and smarter about how we make decisions and spend our capital..

That's helpful. I appreciate that detail. If I could squeeze in one more. Just pivoting to Rivers.

And how are you think about the remaining 39% ownership there? And have you given thoughts to consolidating it? Or what are the puts and takes to that kind of relationship? And how do you see it evolving over time?.

The majority of the interest in Rivers that Churchill doesn't own really is owned by Neil Bluhm and his family and other -- some other key executives within his organization, and they're tremendous partners, and bring tremendous value to our company and there is no interest or plan to seek consolidation of that.

The plan is to continue to work with partners that bring tremendous value and improve our company and improve our efforts together in that jurisdiction.

So just harkening back a few minutes ago to the discussion about media partners in our online business and how we want to be careful and thoughtful about that, well, Illinois is an example where we have a tremendous partner that makes our company better and that we learn from and that we're pursuing other opportunities with, like Waukegan.

So I wouldn't expect any change in that anytime in the near term..

I am showing no further questions at this time. I would now like to turn the conference back to Mr. Bill Carstanjen..

Thank you, everyone. I really appreciate your time. I appreciate your interest in our company, we all do. We appreciate your good questions and your confidence in us and your investments in us.

So we're going to keep doing what we do, and we'll talk to you at a very short period of time, less than two months or about two months from now, we'll talk to you again and report further. So thanks, everybody..

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day. You may all disconnect..