Churchill Downs Inc. (NASDAQ: CHDN) shares experienced a decline of approximately 21.6% since the beginning of the year, underperforming the S&P 500's gain of 8.5%. This drop was exacerbated by recent news focusing on the potential sale or spin-off of its gaming segment, which includes regional casinos and historical racing machines. Analysts suggest that divesting these capital-intensive, slower-growth assets could allow Churchill Downs to concentrate on its more prominent racing operations, particularly the globally recognized Kentucky Derby, and its online wagering platform, TwinSpires.
The discussions around exiting the gaming sector follow a mixed financial quarter for the company. In Q2 2026, Churchill Downs reported earnings of $3.45 per share, missing the Zacks Consensus Estimate of $3.51 per share, although it surpassed revenue expectations with $980 million, compared to an estimated $934.4 million. This marked an earnings surprise of -1.71%. The company had previously beaten EPS estimates in three of the last four quarters, including a 14.15% surprise in the prior quarter. Despite the revenue beat, the unfavorable estimate revisions ahead of the Q2 report led to a Zacks Rank #4 (Sell) for the stock.
Further contributing to market uncertainty, Churchill Downs announced a delay in multi-year development projects at its iconic racetrack, including the Skye, Conservatory, and Infield areas. This decision, made in April 2025, was attributed to tariffs and their impact on construction costs, reflecting concerns about the "evolving economic landscape." The company indicated it would reassess the timing and sequencing of these projects, which include a $280 million to $300 million investment in the Victory Run Project for the 2028 Derby Week. This project aims to replace aging box seats and refresh dining options.
The company's long-term strategy has been to diversify beyond just the Kentucky Derby, as casinos and racing machines have grown to represent a significant portion of its profit mix, with the Derby's contribution to full-year EBITDA estimated to have decreased from 25-30% to around 15%. However, recent Derby Week 2026 results showed a mixed performance: while overall handle for Derby Week set a new record of $487 million (up 3% from 2025), Derby Day wagering (at $340 million) and Kentucky Derby race wagering (at $225 million) both saw slight declines from the prior year's records. Despite this, Churchill Downs indicated that adjusted EBITDA for Derby Week 2026 reached a new record, with strong ticket demand. TwinSpires' handle for Derby week was up 6% year-over-year at $129 million.
