What changed in this filing

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Item 1A. Risk Factors

2020-07-29 compared with 2020-04-29 · 37 added, 50 removed, 21 unchanged (81% of the section changed)

The following description include an addition to our risk factors and an update to a risk factor previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.

The following description includes updates to a risk factor previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019, as supplemented by Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020.

The current novel coronavirus (COVID-19) pandemic has adversely affected, and could continue to adversely affect our business, financial condition and financial results.

Other major public health issues could adversely affect our business, financial condition and financial results in the future

In recent months, a new strain of coronavirus (COVID-19) has spread to many countries in the world, including the United States, and the outbreak has been declared a pandemic by the World Health Organization.

Secretary of Health and Human Services has also declared a public health emergency in the United States in response to the outbreak.

In March 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic.

Considerable uncertainty still surrounds the COVID-19 virus and its potential effects, and the extent of and effectiveness of responses taken on international, national and local levels.

However, measures taken to limit the impact of COVID-19, including shelter-in-place orders, social distancing measures, travel bans and restrictions, and business and government shutdowns, have already resulted in significant negative economic impacts in the United States and in relation to our business.

The long-term impact of COVID-19 on the United States and world economies remains uncertain, the duration and scope of which cannot currently be predicted.

Measures taken to limit the impact of COVID-19, including shelter-in-place orders, social distancing measures, travel bans and restrictions, and business and government shutdowns, have resulted and continue to result in significant negative economic impacts in the United States and in relation to our business.

The long-term impact of COVID-19 on the United States and world economies and continued impact on our business remains uncertain, the duration and scope of which cannot currently be predicted.

Our operating results depend, in large part, on revenues derived from customers visiting our casinos and racetracks.

In March 2020, we announced the temporary closure of all of our wholly-owned gaming properties, certain wholly-owned racing operations, and the two casino properties related to our equity investments.

In March 2020, we announced the temporary suspension of operations of all of our wholly-owned gaming properties, certain wholly-owned racing operations, and the two casino properties related to our equity investments.

Starting in mid-February, U.S.

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Horse racing content for wagering on TwinSpires also decreased, although handle increased as our customers wagered more on the content that was available.

COVID-19 could result in continuing suspensions of operations at our casino and racetrack properties, and we cannot predict how soon our casino and racetrack properties will be able to return to customary operations.

We began reopening the majority of our Gaming properties in May and June of 2020 under certain restrictions, such as patron capacity limitations as well as gaming machines and table game restrictions.

We also implemented other initiatives to facilitate social distancing and enhanced cleaning, such as increased frequency of cleaning and sanitizing of all high-touch surfaces, mandatory temperature checks of all guests and team members upon entry and required training for all team members on safety protocols.

Certain amenities have been suspended, including certain restaurants and food outlets, all of our food buffets, and valet services for certain properties.

However, despite these reopenings, COVID-19 could result in continuing suspensions of operations at our casino and racetrack properties;

for example, we had to temporarily suspend operations again at Calder Casino in July 2020, following an issuance of a Miami-Dade Emergency Order by the county mayor to close all entertainment venues in the Miami, Florida area.

We cannot predict how soon our casino and racetrack properties will be able to return to customary operations.

Our ability to return to our customary operations will depend, in part, on the actions of a number of governmental bodies over which we have no control.

Once restrictions are lifted, it is unclear how quickly customers will return to our casinos and racetracks, which may be a function of continued concerns over safety and decreased consumer spending due to economic conditions, including job losses.

We have temporarily furloughed certain employees and implemented a Company-wide decrease in base salary for non-furloughed salaried employees.

The Company continues to provide health, dental, vision and life insurance benefits to furloughed employees at our wholly-owned properties.

We cannot predict such employees’ willingness to remain with the Company during such furlough or salary reduction until our regular operations are restored.

Once all restrictions are lifted, it is unclear how quickly customers will return to our casinos and racetracks, which may be a function of continued concerns over safety and decreased consumer spending due to economic conditions, including job losses.

As noted above, COVID-19 makes it more challenging for management to estimate the future performance of our businesses.

As previously announced, we rescheduled the 146th Kentucky Oaks and Derby from May 1-2, 2020 to September 4-5, 2020.

On June 24, 2020, we received approval from the Governor of Kentucky and state public health officials for its plan to allow limited spectators to attend the Kentucky Derby week events held September 1-5, 2020.

In light of the uncertainties surrounding COVID-19, it is unclear how willing spectators will be to attend the events during the Kentucky Derby week and how our operating results and business will ultimately be impacted by conducting the Kentucky Derby week in accordance with the applicable guidelines.

We have temporarily furloughed certain employees and implemented a Company-wide temporary decrease in base salary for non-furloughed salaried employees.

The decrease in base salary for non-furloughed employees will end with their start of the employee's first full pay period subsequent to July 31, 2020.

The Company continues to provide health, dental, vision and life insurance benefits to furloughed employees at our wholly-owned properties through July 31, 2020.

We cannot predict such employees’ willingness to remain with the Company during such furlough until our regular operations are restored.

These actions could prevent us from engaging in certain initiatives to improve the performance of our business, due to an insufficiency of workforce size or an insufficiency of certain required skills, and could prevent us from executing initiatives effectively, which could have an adverse effect on our financial results, business and prospects.

Our non-furloughed employees are primarily working from remote/work-at-home locations.

Certain non-furloughed employees are working from remote/work-at-home locations.

An extended period of remote work arrangements could strain our business continuity plans, introduce operational risk (including but not limited to cybersecurity risks) and may impair our ability to manage our business.

We also outsource certain business activities to third

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020

We also outsource certain business activities to third parties.

As a result, we rely upon the successful implementation and execution of the business continuity planning of such entities in the current environment.

While we seek to monitor the business continuity activities of these third parties, successful implementation and execution of their business continuity strategies are largely outside our control.

While we seek to monitor the business continuity activities of these third parties, successful

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

implementation and execution of their business continuity strategies are largely outside our control.

If one or more of the third parties to whom we outsource certain business activities experience operational failures or business disruption as a result of the impacts from the spread of COVID-19, or claim that they cannot perform, it may have negative effects on our business and financial condition.

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The COVID-19 pandemic may also have the effect of heightening many of the other risks described in Part I, Item 1A, Risk Factors, of our 2019 Annual Report on Form 10-K.

Our business is subject to online security risk, including cyber-security breaches.

Loss or misuse of our stored information as a result of such a breach, including customers’ personal information, could lead to government enforcement actions or other litigation, potential liability, or otherwise harm our business

We receive, process, store and use personal information and other customer and employee data by maintaining and transmitting customers’ personal and financial information, credit card settlements, credit card funds transmissions, mailing lists and reservations information.

Our collection of such data is subject to extensive regulation by private groups, such as the payment card industry, as well as governmental authorities, including gaming authorities.

There are numerous federal, state and local laws regarding privacy and the storing, sharing, use, processing, disclosure and protection of personal information and other data, and such privacy laws and regulations continue to evolve.

Many states have passed laws requiring notification to customers when there is a security breach for personal data, such as the 2002 amendment to California’s Information Practices Act, or requiring the adoption of minimum information security standards that are often vaguely defined and difficult to implement.

California has adopted the California Consumer Privacy Act of 2018 (the "CCPA"), which went into effect on January 1, 2020, providing California consumers greater control of the information collected, stored, and sold, and other states are considering similar legislation.

The CCPA provides a private right of action (in addition to statutory damages) for California residents whose sensitive personal information was breached as a result of a business’s violation of its duty to reasonably secure such information.

The costs of compliance with these laws may increase as a result of changes in interpretation or changes in law.

Any failure on our part to comply with these laws or our privacy policies may subject us to significant liabilities, including governmental enforcement actions or litigation.

The systems and processes that are designed to protect customer information and prevent data loss and other security breaches, including the systems and processes of third-party vendors that are designed to reduce the impact of a security breach at those vendors, may not be successful.

For example, on March 27, 2020, SBTech, our third party sports betting and i-Gaming platform provider, temporarily disabled our BetAmerica websites in response to a cyberattack on SBTech’s servers.

SBTech has since advised the Company that it has no reason to believe our customers’ data was accessed or exfiltrated, and the BetAmerica websites were back in normal operations on April 17, 2020.

Although we do not anticipate any material impact on the Company as a result of this cyberattack, similar attacks may occur in the future.

Interruptions in our services or a breach of a customer’s secure data could cause current or potential users to believe that our systems are unreliable, which could permanently harm our reputation and brand.

These interruptions could also increase the burden on our engineering staff, which, in turn, could delay our introduction of new features and services on our websites and in our casinos.

Such incidents could give rise to litigation or

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020

investigations, remediation costs, monetary fines and other penalties, which could be significant.

We attempt to protect against this risk with our property and business interruption insurance, which is designed to cover damage to or interruption of our systems, although there is no assurance that such insurance will be adequate to cover all potential losses.

Third-parties we work with, such as vendors, may violate applicable laws or our privacy policies, and such violations may also put our customers’ information at risk and could in turn have an adverse impact on our business.

We are also subject to payment card association rules and obligations under each association’s contracts with payment card processors.

Under these rules and obligations, if information is compromised, we could be liable to payment card issuers for the associated expense and penalties.

If we fail to follow payment card industry security standards, even if no customer information is compromised, we could incur significant fines or experience a significant increase in payment card transaction costs.

Security breaches, computer malware and computer hacking attacks have become more prevalent in our industry, and hackers and data thieves are increasingly sophisticated and operate large-scale and complex automated attacks.

Many companies, including ours, have been the targets of such attacks.

Due to the COVID-19 pandemic, many of our employees are primarily working from remote/work-at-home locations, which many introduce heightened cybersecurity risks in our business.

Any security breach caused by hacking which involves efforts to gain unauthorized access to information or systems, or to cause intentional malfunctions or loss or corruption of data, software, hardware or other computer equipment, and the inadvertent transmission of computer viruses could harm our business.

Though it is difficult to determine what harm may directly result from any specific interruption or breach, any failure to maintain performance, reliability, security and availability of our network infrastructure to the satisfaction of our players may harm our reputation and our ability to retain existing players and attract new players.

The costs to eliminate or address the foregoing security threats and vulnerabilities before or after a cyber-incident could be significant.

Our remediation efforts may not be successful and could result in interruptions, delays or cessation of service, and loss of existing or potential suppliers or customers.

As threats related to cyber-attacks develop and grow, we may also find it necessary to make further investments to protect our data and infrastructure, which may impact our results of operations.

We have insurance coverage for protection against cyber-attacks, which is designed to cover expenses around notification, credit monitoring, investigation, crisis management, public relations, and legal advice.

This insurance coverage may not be sufficient to cover all possible claims, and we could suffer losses that could have a material adverse effect on our business.

Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems, change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures.

Our business could be adversely affected by the occurrence of extraordinary events, such as terrorist attacks, public health threats and civil unrest

Our operating results depend, in large part, on revenues derived from customers visiting our casinos and racetracks, which is subject to the occurrence and threat of extraordinary events that may discourage attendance or expose us to substantial liability.

In particular, the success of the Kentucky Derby and Oaks week is dependent upon the willingness and ability of patrons to attend events at Churchill Downs Racetrack.

Terrorist activity, including acts of domestic terrorism, or other actions that discourage attendance at other locations, or even the threat of such activity, including public concerns regarding air travel, military actions, safety and additional national or local catastrophic incidents, could result in reduced attendance at Churchill Downs Racetrack and at our other locations.

A major epidemic or pandemic, or the threat of such an event, could also adversely affect attendance and could impact the supply chain for our major construction projects resulting in higher costs and delays of the projects.

The COVID-19 pandemic resulted in the temporary suspension of operations of all of our wholly-owned gaming properties, certain wholly-owned racing operations, and the two casino properties related to our equity investments.

Even when reopened, such properties are subject to operational restrictions that may impact attendance.

Riots, civil insurrection or social unrest could adversely affect attendance.

During the second quarter of 2020, certain areas of Louisville, Kentucky, experienced sustained protests and civil unrest, and continues to experience such demonstrations and civil unrest, which could adversely affect attendance at Churchill Downs Racetrack.

While we are constantly evaluating our security precautions in an effort to ensure the safety of the public, no security measures can guarantee safety and there can be no assurances of avoiding potential liabilities.

The occurrence or threat of any such extraordinary event at our locations, particularly at Churchill Downs Racetrack, could have a material negative effect on our business and results of operations.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors