Churchill Downs Incorporated (NASDAQ:CHDN) Q3 2023 Earnings Call Transcript

And over the last couple of months, those have been turned off. Gray games were a relatively new thing in Kentucky compared to Virginia. It was just a newer, newly developed market that was expanding rapidly compared to Virginia, where we’ve seen a great deal of expansion. But we’ve also seen entrenched gray games for a period of time. So there in Virginia, an injunction had been granted by a lower state court that have allowed the machines to remain operational while the court case worked its way through the court system. Recently, during the quarter, the Supreme Court reversed the lower court, thus requiring that the law be in effect now and that and that gray games in accordance with the law are thus illegal. So the attorney general provided guidance that that sometime was necessary for the local outlets to have these machines to come into compliance.

And thus, starting sometime in mid-November, we expect enforcement to start to happen. So it is the law of the land. It is clearly the law. The Supreme Court has spoken on it, and we expect you’ll see enforcement. But it’s a big state. There are a whole lot of gray games in Virginia. I think it’s fair to say that we don’t have an accurate count because they were they were continuing to expand so rapidly. So it’ll take a bit of time to get them turned off. But so but to be clear, to answer your question very directly, there is no legal authority at this point permitting these machines to be turned on. And we expect we expect enforcement to catch up with the reality of how the law works. So comparing the two jurisdictions, a much more entrenched market in Virginia versus Kentucky.

Kentucky is a little bit ahead on the odyssey of gray games, ironically, though, and that they’ve already been substantially turned off. But Virginia, we expect to catch up over the next month or two.

Daniel Politzer: Got it. And maybe as a related follow up on Virginia, I mean, we get the kind of state reported data. The HRM growth has turned negative in the past few months. I mean, how much of this would you attribute to maybe the gray market versus, a softening consumer or competition or something else altogether?

Bill Carstanjen: Oh, sure. Yeah. So there was some decline in the statewide reported numbers in September in particular. About 90 percent of that is our Hampton site, which was always anticipated and expected by us. It’s been impacted by the opening of the Portsmouth casino in the in the area. So Virginia remains a very strong jurisdiction. We saw some impact at our Collinsville site, which is very small. That was impacted by the new Caesars project. But the bulk of the impact really was seen at Hampton, which is a large site for us because of the Portsmouth casino in the area. But also, as we’ve made clear in a couple of forums and certainly with authorities in Virginia, there was a pretty rapid expansion of gray games and the quality and quantity of gray games in Virginia over the course of 2023.

And so that that’s something that we think is going to be reversed now as we move into the next quarter. But ultimately don’t lump all the sites in the state together because there was one site that was hit in particular by a change in that in its market. And that was Hampton.

Daniel Politzer: Got it. Helpful. Thanks for the commentary.

Operator: Thank you. One moment, please, for our next question. Our next question comes from the line of Barry Jonas with Truelist Securities.

Barry Jonas: Hey, guys, good morning. Bill, maybe I just wanted to ask you about the macro impact you’re seeing in the portfolio, more focused on any segment of the database or geography is more spent per visit or impacting visitation? Thanks.