What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-10-26 compared with 2022-07-27 · 177 added, 138 removed, 355 unchanged (47% of the section changed)

8 unchanged sentences

Important factors that could cause actual results to differ materially from expectations include the following:

• the receipt of regulatory approvals on terms desired or anticipated, unanticipated difficulties or expenditures relating to our proposed transactions, including, without limitation, difficulties that result in the failure to realize expected synergies, efficiencies and cost savings from the proposed transactions within the expected time period (if at all) and risks in connection with Internal Revenue Code §1031 exchanges, our ability to obtain financing on the anticipated terms and schedule, disruptions of our or Peninsula Pacific Entertainment LLC's ("P2E") current plans, operations and relationships with customers and suppliers caused by the announcement and pendency of the proposed transaction, our and P2E’s ability to consummate a sale-leaseback transaction with respect to the Hard Rock Sioux City on terms desired or anticipated;

• the impact of the novel coronavirus (COVID-19) pandemic, including the emergence of variant strains, and related economic matters on our results of operations, financial conditions and prospects;

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• compliance with the Foreign Corrupt Practices Act or applicable money-laundering regulations;

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

• payment-related risks, such as risk associated with fraudulent credit card and debit card use;

• work stoppages and labor issues;

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2022

• risks related to pending or future legal proceedings and other actions;

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This report should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021, including Part I - Item 1A, "Risk Factors" of our Form 10-K for a discussion regarding some of the reasons that actual results may be materially different from those we anticipate.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2022

Executive Overview

Churchill Downs Incorporated (the "Company") is an industry-leading racing, online wagering and gaming entertainment company anchored by our iconic flagship event, the Kentucky Derby.

We own and operate three entertainment venues with approximately 3,050 HRMs in Kentucky.

We own and operate five entertainment venues with approximately 4,200 HRMs in Kentucky.

We also own and operate TwinSpires, one of the largest and most profitable online wagering platforms for horse racing in the U.S.

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P2E Acquisition

On February 18, 2022, the Company entered into a definitive purchase agreement to acquire substantially all of the assets of Peninsula Pacific Entertainment LLC ("P2E") for total consideration of $2.485 billion (the "P2E Purchase Agreement") (collectively, the "P2E Transaction").

The P2E Purchase Agreement contemplates the acquisition by the Company of the following properties:

Colonial Downs Racetrack in New Kent, Virginia ("Colonial Downs"), six historical racing entertainment venues across Virginia, del Lago Resort & Casino ("del Lago") in Waterloo, New York, and the operations of Hard Rock Hotel & Casino in Sioux City, Iowa (“Hard Rock Sioux City”).

The Company has obtained the acquisition of ownership interest approval for the Virginia properties from the Virginia Racing Commission.

The P2E Transaction remains dependent on customary closing conditions, including the Company obtaining approvals from the New York State Gaming Commission and the Iowa Racing and Gaming Commission.

On February 18, 2022, the Company entered into a definitive purchase agreement (the "P2E Purchase Agreement") to acquire substantially all of the ass ets of Peninsula Pacific Entertainment LLC ("P2E") (collectively, the "P2E Transaction").

On September 2, 2022, we amended the P2E Purchase Agreement to include the Sioux City Property, increase the total consideration to be paid by the Company to P2E to $2.75 billion, and to remove the assumption by the Company of the approximately $850.0 million of P2E debt at closing.

The Company will acquire the following properties under the P2E Acquisition:

Colonial Downs Racetrack in New Kent, Virginia ("Colonial Downs"), six historical racing entertainment venues across Virginia, del Lago Resort & Casino ("del Lago") in Waterloo, New York, and Hard Rock Hotel & Casino in Sioux City, Iowa (“Hard Rock Sioux City”).

The P2E Transaction also includes other development rights including the opportunity, under Virginia law, to develop up to five additional HRM entertainment venues in Virginia with collectively up to approximately 2,300 additional HRMs.

These development rights include:

– The rights to build one of the new HRM entertainment venues with up to 1,150 HRMs in Dumfries, Virginia, with the potential for expansion up to 1,800 HRM's after the initial build out.

The Dumfries facility will replace the existing Rosie’s Dumfries facility located in northern Virginia and the initial phase of the project is expected to open in 2023.

– The rights to develop one of the new HRM entertainment venues with up to 150 HRMs in Emporia, Virginia.

The Emporia Project will be located along I-95 near the North Carolina border and is expected to open in 2023.

The P2E Transaction also includes the rights to P2E’s ongoing effort in partnership with Urban One, to develop ONE Casino + Resort, a $565.0 million destination casino in Richmond, Virginia.

The Company has obtained the acquisition of ownership interest approval for the Virginia properties from the Virginia Racing Commission and acquisition of a parent company involving an Iowa licensee approval from the Iowa Racing and Gaming Commission.

The P2E Transaction remains dependent on customary closing conditions, including the Company obtaining approval from the New York State Gaming Commission.

The transaction is expected to close before the end of 2022.

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The Fourth Amendment also provides for a senior secured delayed draw term loan A credit facility due 2027 in the amount of $800.0 million (the “Delayed Draw Term Loan A”).

The interest rate applicable to borrowings on the Revolver and Delayed Draw Term Loan A will be SOFR-based plus a spread, determined by the Company's total net leverage ratio.

The interest rate

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2022

applicable to borrowings on the Revolver and Delayed Draw Term Loan A will be SOFR-based plus a spread, determined by the Company's total net leverage ratio.

The Company also closed into escrow an offering of $1.2 billion in aggregate principal amount of 5.75% senior notes due 2030.

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Chasers Poker Room Acquisition

On March 22, 2022, the Company entered into a definitive purchase agreement to acquire Chasers Poker Room ("Chasers") in Salem, New Hampshire.

Chasers is a charitable gaming facility located approximately 30 miles from Boston, Massachusetts,

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

that offers poker and a variety of table games.

Following the closing of the acquisition, the Company plans to develop an expanded charitable gaming facility in Salem to accommodate historical racing machines.

The Company expects the total investment in Salem, inclusive of the Chasers purchase price to be approximately $150.0 million.

The transaction is expected to close in the third quarter of 2022.

On September 2, 2022, we completed the previously announced Chasers Transaction.

Chasers Poker Room in Salem, New Hampshire is a charitable gaming facility located approximately 30 miles from Boston, Massachusetts, that offers poker and a variety of table games.

The Company plans to develop an expanded charitable gaming facility in Salem to accommodate historical racing machines and table games.

As part of the Chasers Transaction, we made an initial payment to the sellers for rights to operate the poker room and to build a historical racing facility.

Additional payments will be made once all necessary permits are obtained and the planned historical racing facility is opened.

The total investment in Salem, inclusive of the amount paid to the sellers is expected to be approximately $150.0 million.

Ellis Park Acquisition

On September 26, 2022, we completed the Ellis Park Transaction for total consideration of $79.0 million in cash, subject to certain working capital and other purchase price adjustments.

In acquiring Ellis Park, the Company also assumes the opportunity to construct a track extension facility with HRMs in Owensboro, Kentucky.

Over the next year, the Company expects its total investment in Henderson and Daviess Counties to be approximately $75 million in addition to the purchase price.

United Tote/ NYRA Transaction

On August 11, 2022, we entered into an agreement to sell 49% of United Tote Company (“United Tote”), a wholly-owned subsidiary of CDI, to NYRA Content Management Solutions, LLC, a subsidiary of the New York Racing Association, Inc.

NYRA is a not-for-profit corporation that operates the three largest Thoroughbred horse racing tracks in the state of New York.

The transaction is subject to usual and customary closing conditions, including applicable regulatory notices and approvals, and is expected to close during the first half of 2023.

FanDuel Agreement

On September 8, 2022, we announced a multi-year agreement with FanDuel Group ("FanDuel") to enable FanDuel to create a fully integrated and seamless wagering experience with a single wallet for horse racing and sports with exclusive TV rights to racing content and non-exclusive Kentucky Derby sponsorship rights for sports wagering.

Impact of COVID-19 Pandemic

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During the quarter ended March 31, 2022, the Company evaluated whether this planned exit would indicate it is more likely than not that any of the Company’s intangible assets, long-lived assets, current assets or property and equipment, were impaired (“Trigger Event”).

Based on the Company’s evaluation, the Company concluded that a Trigger Event occurred related to certain TwinSpires assets.

Based on the Company’s evaluation, the Company

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2022

concluded that a Trigger Event occurred related to certain TwinSpires assets.

As a result, the Company recorded a $4.9 million non-cash impairment charge related to certain assets in the TwinSpires segment.

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• Other charges, recoveries and expenses

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As of December 31, 2021, Arlington ceased racing and simulcast operations given the pending sale of the property to the Chicago Bears.

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Specific State Gaming Regulations

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2022

The 2022 Maine Legislature passed a sports betting bill effective August 8, 2022 which allows Oxford Casino to offer sports betting at its facility.

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The following table reflects our net revenue, operating income, net income, Adjusted EBITDA, and certain other financial information:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(in millions) 2022 2021 Change 2022 2021 Change

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Adjusted EBITDA 163.2 156.1 7.1 582.9 500.0 82.9

Three Months Ended June 30, 2022, Compared to Three Months Ended June 30, 2021

• Net revenue increased $67.4 million due to a $85.0 million increase from Live and Historical Racing primarily driven by Churchill Downs Racetrack running of the Kentucky Derby in 2022 without capacity restrictions that were in place in 2021 .

Partially offsetting this increase was a $11.9 million decrease in All Other primarily driven by the cessation of racing and simulcast operations at Arlington at the end of 2021, a $4.0 million decrease from TwinSpires driven by the decision to exit the direct online sports and ca sino business in the first quarter of 2022 and from horse racing as a higher portion of our patrons returned to wagering at brick-and-mortar facilities in the current quarter instead of wagering online, and a $1.7 million decrease in Gaming revenue primarily driven by the current economic conditions and competitive pressures in Mississippi and Louisiana and a mask mandate at our Harlow's property in Mississippi that was discontinued in early June 2022.

• Operating income increased $64.3 million due to a $63.9 million increase from Live and Historical Racing primarily due to an increase in net revenue, a $7.9 million increase from TwinSpires primarily due to d ecreased online marketing and promotions expense, and a $11.2 million decrease in asset impairment expense related to the 2021 revised capital plans associated with the Churchill Downs Racetrack first turn project .

Partially offsetting these increases are a $9.5 million decrease in Gaming primarily driven by decline in net revenue and an increase in marketing and salaries expense, a $3.0 million decrease in All Other as a result of Arlington not conducting live racing and ceasing simulcasting at the end of 2021, and a $6.2 million increase in Corporate expenses and transaction and legal costs.

• Net income increased $231.0 million.

The following items impacted comparability of the Company's second quarter of 2022 net income compared to the prior year's second quarter:

a $193.6 million after tax gain on the sale of Calder land,

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

an $8.1 million after-tax charge related to the 2021 asset impairment at Churchill Downs Racetrack that did not recur in 2022, a $4.7 million after tax decrease in Rivers Des Plaines' legal reserves and transaction costs, and a $0.3 million after tax benefit related to our equity portion of the non-cash change in the fair value of Rivers Des Plaines' interest rate swaps.

Offsetting these increases in net income were a $2.8 million after-tax increase in expenses related to transaction, pre-opening and other expenses, net, and a $2.3 million after-tax increase in legal reserves.

Excluding these items, net income increased $29.4 million primarily due to a $38.6 million after-tax increase driven by the results of our operations and equity in income from our unconsolidated affiliates, partially offset by a $9.2 million after-tax increase in interest expense associated with higher outstanding debt balances.

• Adjusted EBITDA increased $57.9 million driven by a $65.5 million increase from Live and Historical Racing primarily due to Churchill Downs Racetrack running of the Kentucky Derby in 2022 without capacity restrictions that were in place in 2021 and a $9.3 million increase from TwinSpires primarily due from Sports and Casino business decreased marketing and promotions expense.

Partially offsetting these increases was a $13.0 million decrease from Gaming primarily due to the current economic conditions and increased marketing and salaries expense and a $3.9 million decrease from All Other driven by Arlington not conducting live racing in the second quarter of 2022 and an increase in Corporate expenses.

Six Months Ended June 30, 2022, Compared to Six Months Ended June 30, 2021

• Net revenue increased $107.2 million due to a $107.8 million increase from Live and Historical Racing driven by Churchill Downs Racetrack running of the Kentucky Derby in 2022 without capacity restrictions that were in place in 2021 and a $23.6 million increase from Gaming primarily due to increases at Oxford, Calder, and Presque Isle as a result of capacity restrictions during the first half of 2021.

Partially offsetting this increase was a $17.0 million decrease in All Other primarily driven by the cessation of racing and simulcast operations at Arlington at the end of 2021 and a $7.2 million decrease from TwinSpires driven by the decision to exit the direct online sports and casino business in the first quarter of 2022 and from horse racing as a higher portion of our patrons returned to wagering at brick-and-mortar facilities instead of wagering online in the current year.

• Operating income increased $65.0 million due to a $73.7 million increase from Live and Historical Racing driven by the increase in net revenue, a $7.3 million increase from TwinSpires primarily due to d ecreased online marketing and promotions expense, and a net reduction in asset impairments of $6.3 million as non-cash impairment charges recorded in 2021 for certain first turn assets at Churchill Downs Racetrack were greater than the non-cash impairment charge recorded in the first quarter of 2022 as a result of our announcement to exit the direct online sports and casino business.

Offsetting these increases was a $6.1 m illion increase in transaction expense related to the P2E Transaction, a $3.1 million decrease in Gaming primarily driven by decline in net revenue attributable to current economic conditions and an increase in marketing and salaries expense, a $2.4 million decrease in All Other driven by Arlington not conducting live racing in the second quarter of 2022, and a $10.7 million increase in selling, general and administrative expenses due to an increase in employee benefits as well as an increase in legal fees and reserves.

Three Months Ended September 30, 2022, Compared to Three Months Ended September 30, 2021

• Net revenue decreased $9.9 million due to a decrease of $19.3 million in All Other primarily driven by the cessation of racing and simulcast operations at Arlington at the end of 2021, $1.9 million decrease in Gaming primarily driven by decreases at our Mississippi and Pennsylvania properties as a result of current economic conditions and competitive pressures, and a $1.3 million decrease from TwinSpires driven by the decision to exit the direct online sports and ca sino business in the first quarter of 2022.

Partially offsetting these decreases was a $12.6 million increase from Live and Historical Racing primarily driven by the continued success of our HRM properties.

• Operating income decreased $4.6 million due to an $7.9 million decrease from All Other primarily driven by a decrease in net revenue, a $7.2 million decrease from Gaming primarily due to the decline in net revenue , a $5.2 million decrease in Live and Historical Racing primarily driven by increase in operating expense related to the opening of the Turfway Park historical racing facility and a $1.5 million increase in Corporate expenses and transaction and legal costs.

Partially offsetting these decreases is a $17.2 million increase in TwinSpires primarily driven by d ecreased online marketing and promotions expense by our TwinSpires Sports and Casino business due to the decision to exit the direct online sports and casino business in the first quarter of 2022.

• Net income decreased $4.4 million.

The following items impacted comparability of the Company's third quarter of 2022 net income compared to the prior year's third quarter:

a $2.4 million after-tax increase in expenses related to transaction, pre-opening and other expenses, net and a $1.4 million after-tax reduction in the benefit related to our equity portion of the non-cash change in the fair value of Rivers Des Plaines' interest rate swaps.

Offsetting these items in net income was a $0.3 million after tax decrease in Rivers Des Plaines' legal reserves and transaction costs.

Excluding these items, net income decreased $0.9 million primarily due to a $10.6 million after-tax increase driven by proceeds from business interruption insurance from Hurricane Ida and other nonrecurring income tax benefits and a $11.5 million after-tax increase in interest expense, net associated with higher outstanding debt balances.

• Adjusted EBITDA increased $7.1 million driven by an $9.0 million increase from TwinSpires primarily due to decreased marketing and promotions expense from the Sports and Casino business, $6.8 million increase from Live and Historical Racing primarily due to the continued success of our HRM properties and a $0.9 million increase from Gaming.

Partially offsetting these increases was a $9.6 million decrease from All Other driven by Arlington not conducting live racing in the third quarter of 2022 and an increase in Corporate expenses.

Nine Months Ended September 30, 2022, Compared to Nine Months Ended September 30, 2021

• Net revenue increased $97.3 million due to a $120.4 million increase from Live and Historical Racing driven by Churchill Downs Racetrack running of the Kentucky Derby in 2022 without capacity restrictions that were in place in 2021 and the continued success of our HRM propert ies.

Gaming net revenue increased $21.7 million primarily due to increases at Oxford and Calder as a result of capacity restrictions during the first half of 2021 and increases at Fair Grounds from HRM revenue at off-track betting locations and prior year shutdowns from Hurricane Ida.

Partially offsetting this increase was a $36.3 million decrease in All Other primarily driven by the cessation of racing and simulcast operations at Arlington at the end of 2021 and a $8.5 million decrease from TwinSpires driven by the decision to exit the direct online sports and casino business in the first quarter of 2022 and from Horse Racing as a

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2022

higher portion of our patrons returned to wagering at brick-and-mortar facilities instead of wagering online in the current year.

• Operating income increased $60.4 million due to a $68.5 million increase from Live and Historical Racing driven by the increase in net revenue, a $24.5 million increase from TwinSpires primarily due to decreased online marketing and promotions expense, and a net reduction in asset impairments of $6.3 million as non-cash impairment charges recorded in 2021 for certain first turn assets at Churchill Downs Racetrack were greater than the non-cash impairment charge recorded in the first quarter of 2022 as a result of our announcement to exit the direct online sports and casino business.

Offsetting these increases was a $5.3 million increase in transaction expense related to the P2E Transaction and Ellis Park Transaction, a $10.3 million decrease in Gaming primarily driven by decline in net revenue attributable to current economic conditions and an increase in marketing and salaries expense, a $10.3 million decrease in All Other driven by Arlington not conducting live racing in the third quarter of 2022, and a $13.0 million increase in selling, general and administrative expenses due to an increase in employee benefits, legal fees and reserves, and charitable donations.

• Net income increased $232.6 million.

The following items impacted comparability of the Company's net income from continuing operations during the six months ended June 30, 2022 compared to the prior year period:

a $193.6 million after tax gain on the sale of Calder assets, a net reduction in after tax impairment charges of $4.5 million as impairment charges recorded in 2021 for certain first turn assets at Churchill Downs Racetrack were greater than the impairment charge recorded in the first quarter of 2022 as a result of our announcement to exit the direct online sports and casino business, a $5.4 million after tax decrease in expense relate to Rivers Des Plaines' legal reserves and transaction costs, and a $4.7 million after tax benefit related to our equity portion of the non-cash change in the fair value of Rivers Des Plaines' interest rate swaps.

The following items impacted comparability of the Company's net income from continuing operations during the nine months ended September 30, 2022 compared to the prior year period:

a $193.6 million after tax gain on the sale of Calder assets, a $5.7 million after tax decrease in expense relate to Rivers Des Plaines' legal reserves and transaction costs, a net reduction in after tax impairment charges of $4.4 million as impairment charges recorded in 2021 for certain first turn assets at Churchill Downs Racetrack were greater than the impairment charge recorded in the first quarter of 2022 as a result of our announcement to exit the direct online sports and casino business, and a $3.6 million after tax benefit related to our equity portion of the non-cash change in the fair value of Rivers Des Plaines' interest rate swaps.

Offsetting these increases in net income were a $11.8 million after-tax increase in expenses related to transaction, pre-opening and other expenses, net, a $2.3 million after-tax increase in legal reserves, and $0.7 million of other charges.

Excluding these items, net income increased $40.1 million primarily due to a $63.3 million after-tax increase driven by the results of our operations and equity in income from our unconsolidated affiliates, partially offset by a $23.2 million after-tax increase in interest expense associated with higher outstanding debt balances.

• Adjusted EBITDA increased $75.8 million driven by a $75.1 million increase from Live and Historical Racing primarily due to Churchill Downs Racetrack running of the Kentucky Derby in 2022 without capacity restrictions that were in place in 2021 and a $10.3 million increase from TwinSpires primarily due from Sports and Casino business decreased online marketing and promotions expense.

Partially offsetting these increases was a $5.3 million decrease from All Other driven by Arlington not conducting live racing or simulcast operations during 2022 and an increase in Corporate expenses and a $4.3 million decrease in Gaming primarily driven by increases in marketing and salaries expense.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

• Adjusted EBITDA increased $82.9 million driven by a $81.9 million increase from Live and Historical Racing primarily due to Churchill Downs Racetrack running of the Kentucky Derby in 2022 without capacity restrictions that were in place in 2021 and the continued success of our HRM properties.

TwinSpires increased $19.3 million primarily due from Sports and Casino business decreased online marketing and promotions expense.

Partially offsetting these increases was a $14.9 million decrease from All Other driven by Arlington not conducting live racing or simulcast operations during 2022 and an increase in Corporate expenses and a $3.4 million decrease in Gaming primarily driven by decreased net revenue and increased marketing and salaries expense.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2022

Financial Results by Segment

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The following table presents net revenue for our segments, including intercompany revenue:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(in millions) 2022 2021 Change 2022 2021 Change

5 unchanged sentences

Turfway Park 4.0 0.8 3.2 10.5 7.1 3.4

Chasers 0.9 — 0.9 0.9 — 0.9

Ellis Park 0.2 — 0.2 0.2 — 0.2

Total Live and Historical Racing 102.4 81.5 20.9 465.5 336.7 128.8

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Net Revenue $ 383.1 $ 393.0 $ (9.9) $ 1,329.7 $ 1,232.4 $ 97.3

Three Months Ended June 30, 2022, Compared to Three Months Ended June 30, 2021

• Live and Historical Racing revenue increased $85.4 million primarily due to an $69.3 million increase at Churchill Downs Racetrack due to the running of the Kentucky Derby in 2022 without capacity restrictions that were in place in 2021, an $8.5 million increase from Oak Grove, a $4.3 million increase at Derby City Gaming, a $2.9 million increase from Newport and a $0.4 million increase at Turfway Park.

The HRM properties benefited from the elimination of the capacity restrictions that were in place during the second quarter of 2021 and overall continued growth in the businesses.

• TwinSpires revenue decreased $4.1 million from the prior year quarter due to a decrease of $2.2 million from Sports and Casino and a $1.9 million decrease from Horse Racing.

The decrease in Sports and Casino was driven by the decision to exit the direct online sports and casino business in the first quarter of 2022.

Horse Racing net revenue decreased as a higher portion of our patrons returned to wagering at brick-and-mortar facilities instead of wagering online in the current quarter compared to the prior year quarter.

• Gaming revenue decreased $1.5 million primarily due to a decrease of $4.6 million at Harlow's and a $4.4 million decrease at Riverwalk as a result of current economic conditions, competitive pressures, and a mask mandate at Harlow's that was discontinued in early June 2022.

These decreases were partially offset by a $4.8 million increase at Oxford due to certain restrictions during the prior year quarter, a $2.1 million increase at Fair Grounds from the 2022 Jazz Festival that more than offset the decline in Fair Grounds Slots revenue due to current economic conditions and the ongoing closure of our Houma OTB, and a $0.6 million net increase in all other properties.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

Three Months Ended September 30, 2022, Compared to Three Months Ended September 30, 2021

• Live and Historical Racing revenue increased $20.9 million primarily due to a $6.5 million increase at Churchill Downs Racetrack as a result of increased handle from holding more live race days in the third quarter of 2022 as compared to 2021, a $6.2 million increase at Oak Grove, a $3.2 million increase at Turfway Park as a result of the opening of the historical racing facility on September 1, 2022, a $2.6 million increase at Newport, a $1.3 million increase at Derby City Gaming, and a $1.1 million increase related to the Chasers and Ellis Park Transactions in September 2022.

• TwinSpires revenue decreased $1.6 million from the prior year quarter due to a decrease of $3.4 million from Sports and Casino and a $1.8 million increase from Horse Racing.

The decrease in Sports and Casino was driven by the decision to exit the direct online Sports and Cas ino business in the first quarter of 2022.

The increase in Horse Racing net revenue was driven by increased handle from our high wagering-volume customer base.

• Gaming revenue increased $0.3 million primarily due to increases at Fair Grounds and Ocean Downs.

Fair Grounds revenue increased $5.7 million as a result of closures in the prior year quarter from Hurricane Ida that did not recur and incremental historical racing revenue from machines installed at certain off-track betting facilities.

Ocean Downs net revenue increased $1.6 million as a result of strong attendance during the summer months.

These increases were nearly

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2022

offset by decreases at our Mississippi and Pennsylvania properties as a result of current economic conditions and competitive pressures.

• All Other revenue decreased $21.8 million primarily as a result of Arlington ceasing racing and simulcast operations at the end of 2021.

Six Months Ended June 30, 2022, Compared to Six Months Ended June 30, 2021

• Live and Historical Racing revenue increased $107.9 million primarily due to a $69.2 million increase at Churchill Downs Racetrack primarily due to the running of the Kentucky Derby in 2022 without capacity restrictions that were in place in 2021, a $19.5 million increase at Oak Grove, a $14.2 million increase from Derby City Gaming, a $4.8 million increase from Newport, and a $0.2 million increase from Turfway Park.

The increase at our HRM properties reflected the benefit of the elimination of the operating restrictions that were in place during the first half of 2021 and overall continued growth in the businesses.

• TwinSpires revenue decreased $7.7 million from the prior year quarter primarily due to a $8.8 million decrease from Horse Racing that was partially offset by a $1.1 million increase from Sports and Casino.

Nine Months Ended September 30, 2022, Compared to Nine Months Ended September 30, 2021

• Live and Historical Racing revenue increased $128.8 million due to a $75.7 million increase at Churchill Downs Racetrack primarily due to the running of the Kentucky Derby in 2022 without capacity restrictions that were in place in 2021.

Our HRM properties had increases of $25.7 million from Oak Grove, $15.5 million from Derby City Gaming, and $7.4 million from Newport.

The increases at our HRM properties reflected the benefit of the elimination of the operating restrictions that were in place during the first half of 2021 and overall continued growth in the businesses.

The increase of $3.4 million from Turfway Park was a result of the historical racing facility opening on September 1, 2022.

The Chasers and Ellis Park Transactions contributed an additional $1.1 million of revenue.

• TwinSpires revenue decreased $9.3 million from the prior year primarily due to a $7.0 million decrease from Horse Racing and a $2.3 million decrease from Sports and Casino.

Horse Racing net revenue decreased as a higher portion of our patrons returned to wagering at brick-and-mortar facilities instead of wagering online in the current year compared to the prior year.

Sports and Casino net revenue increased as a result of higher hold rates.

• Gaming revenue increased $23.7 million primarily due to increases at Oxford, Calder, and Presque Isle as a result of certain capacity restrictions during the first half of the prior year and at Fair Grounds as a result of the 2022 Jazz Festival that was not held in the prior year due to COVID-19.

These increases were offset by decreases primarily at Harlow's and Riverwalk driven by the current economic conditions, competitive pressures, and a mask mandate at Harlow's that was discontinued in early June 2022.

The decrease in Sports and Casino net revenue was driven by the decision to exit the direct online sports and casino business in the first quarter of 2022.

• Gaming revenue increased $24.0 million primarily due to increases at Oxford and Calder as a result of certain capacity restrictions during the first half of the prior year and at Fair Grounds as a result of the 2022 Jazz Festival that was not held in the prior year due to COVID-19 and shutdowns in 2021 due to Hurricane Ida that did not recur.

These increases were offset by decreases primarily at our Mississippi properties as a result of the current economic conditions and competitive pressures.

• All Other revenue decreased $42.8 million primarily as a result of Arlington ceasing racing and simulcast operations at the end of 2021.

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The following table is a summary of our consolidated operating expense:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(in millions) 2022 2021 Change 2022 2021 Change

Taxes and purses $ 108.9 $ 109.3 $ (0.4) $ 345.5 $ 331.1 $ 14.4

Content expense 55.0 54.1 0.9 96.3 97.2 (0.9)

Salaries and benefits 45.3 43.4 1.9 137.5 125.8 11.7

Content expense 39.1 44.6 (5.5) 135.4 141.8 (6.4)

Selling, general and administrative expense 38.4 36.1 2.3 112.7 99.7 13.0

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Total expense $ 320.1 $ 325.4 $ (5.3) $ 1,019.6 $ 982.7 $ 36.9

Three Months Ended June 30, 2022, Compared to Three Months Ended June 30, 2021

Three Months Ended September 30, 2022, Compared to Three Months Ended September 30, 2021

Significant items affecting comparability of consolidated operating expense include:

• Taxes and purses increased $2.1 million primarily driven by the increase in net revenue at our HRM properties.

• Content expense increased $0.9 million primarily due to an increase in online simulcast host fees in the TwinSpires Horse Racing business.

• Salaries and benefits expense increased $4.7 million driven primarily by the running of the Kentucky Derby in 2022 at full capacity and the capacity restrictions at our gaming properties in the prior year quarter.

• Selling, general and administrative expense increased $5.0 million driven primarily from an increase in employee benefits as well as an increase in legal fees and reserves.

• Taxes and purses decreased $0.4 million primarily driven by decreases in taxes paid on gaming and sports wagering revenue, partially offset by increases in HRM taxes due to increases in net revenue at our HRM properties.

• Salaries and benefits expense increased $1.9 million driven primarily by the opening of the Turfway Park historical racing facility during the third quarter of 2022.

• Content expense decreased $5.5 million compared to the prior quarter.

Included in the decrease was an increase in content expense of $3.9 million for TwinSpires Horse Racing.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2022

• Selling, general and administrative expense increased $2.3 million driven primarily from the opening of the Turfway Park historical racing facility during the third quarter of 2022 and an increase in salaries and related benefits.

• Depreciation and amortization expenses increased by $1.6 million driven primarily by additional capital expenditures placed in service at Churchill Downs Racetrack and Turfway Park.

• Marketing and advertising expense decreased $7.4 million primarily due to decreased online marketing by our TwinSpires Sports and Casino business due to the decision to exit the direct online sports and casino business.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

decrease was partially offset by increased marketing spend at the properties in our Live and Historical racing segment.

• Transaction expense, net increased $1.2 million primarily due to increased legal and professional expenses related to the P2E Transaction.

• Asset impairments decreased $11.2 million due to a 2021 non-cash impairment charge related to a change in the Company's planned usage of certain first turn assets at Churchill Downs Racetrack.

This decrease was partially offset by increased marketing spend at the properties in our Live and Historical racing segment.

• Transaction expense, net decreased $0.8 million primarily due to a decrease in transaction related legal and professional expenses.

• Other operating expenses include maintenance, utilities, food and beverage costs, property taxes, insurance, and other operating expenses.

Other operating expense increased $9.1 million primarily driven by the running of the Kentucky Derby at full capacity in 2022, costs associated with the 2022 Jazz Festival held at Fair Grounds, and increases in food and beverage costs.

Six Months Ended June 30, 2022, Compared to Six Months Ended June 30, 2021

Other operating expense increased $3.0 million primarily driven by the increase in race days at Churchill Downs Racetrack and the opening of the Turfway Park historical racing facility in September 2022.

Nine Months Ended September 30, 2022, Compared to Nine Months Ended September 30, 2021

Significant items affecting comparability of consolidated operating expense include:

• Taxes and purses increased $14.8 million primarily driven by the increase in net revenue by our wholly-owned gaming and HRM properties.

• Content expense decreased $0.9 million primarily due to a decrease in online simulcast host fees in the TwinSpires Horse Racing business.

• Salaries and benefits expense increased $9.8 million driven by the running of the Kentucky Derby at full capacity in 2022 and the capacity restrictions at our gaming properties in the prior year.

• Selling, general and administrative expense increased $10.7 million driven primarily from an increase in employee benefits as well as an increase in legal fees and reserves.

• Depreciation and amortization decreased $0.8 million primarily driven by the assets held for sale at Arlington.

• Taxes and purses increased $14.4 million primarily driven by the increase in net revenue at our wholly-owned gaming and HRM properties.

• Salaries and benefits expense increased $11.7 million driven by the running of the Kentucky Derby at full capacity in 2022, the capacity restrictions at our gaming properties in the prior year, and the opening of the Turfway Park historical racing facility in September 2022.

• Content expense decreased $6.4 million compared to the prior year.

Included in the decrease was an increase in content expense of $3.0 million for TwinSpires Horse Racing.

• Selling, general and administrati ve expense increased $13.0 million driven primarily from an increase in employee benefits, legal fees and reserves, and charitable donations.

• Depreciation and amortization increa sed $0.8 million primarily driven by an increase in depreciation expense as a result of additional capital expenditures placed in service at Churchill Downs Racetrack and Turfway Park that was partially offset by the assets held for sale at Arlington.

• Marketing and advertising expense decreased $16.8 million primarily due to decreased online marketing by our TwinSpires Sports and Casino business due to the decision to exit the direct online sports and casino business.

This decrease was partially offset by increased marketing spend at our Gaming and Live and Historical racing properties.

• Transaction expense, net increased $6.1 million primarily due to increased legal and professional expenses related to the P2E Transaction.

• Transaction expense, net increased $5.3 million primarily due to increased legal and professional expenses related to the P2E and Ellis Park Transactions.

• Asset impairments decreased $6.3 million due to $11.2 million non-cash impairment charge related to a change in the Company's planned usage of certain first turn assets at Churchill Downs Racetrack recognized during the second quarter of 2021 that did not recur.

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• Other operating expenses include maintenance, utilities, food and beverage costs, property taxes, insurance, and other operating expenses.

Other operating expense increased $18.2 million primarily driven by increases in property insurance, food and beverage costs, the running of the Kentucky Derby at full capacity in 2022, and the 2022 Jazz Festival held at Fair Grounds.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

Other operating expense increased $21.2 million primarily driven by increases in property insurance, food and beverage costs, the running of the Kentucky Derby at full capacity in 2022, the 2022 Jazz Festival held at Fair Grounds, and the opening of the Turfway Park historical racing facility in September 2022.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2022

Adjusted EBITDA

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Adjusted EBITDA should not be considered as an alternative to operating income as an indicator of performance, as an alternative to cash flows from operating activities as a measure of liquidity, or as an alternative to any other measure provided in accordance with GAAP.

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(in millions) 2022 2021 Change 2022 2021 Change

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Total Adjusted EBITDA $ 163.2 $ 156.1 $ 7.1 $ 582.9 $ 500.0 $ 82.9

Three Months Ended June 30, 2022, Compared to Three Months Ended June 30, 2021

• Live and Historical Racing Adjusted EBITDA increased $65.5 million due to a $58.5 million increase at Churchill Downs Racetrack driven by the running of the Kentucky Derby in 2022 without capacity restrictions that were in place in 2021, a $4.0 million increase at Oak Grove, a $1.7 million increase at Derby City Gaming, and a $1.3 million increase at Newport driven by increases in net revenue.

• TwinSpires Adjusted EBITDA increased $9.3 million primarily due to a $10.8 million increase from our Sports and Casino business due to decreased online marketing and promotional activities.

This increase was offset by a $1.2 million decrease from Horse Racing due to a reduction in net revenue and a $0.3 million decrease from United Tote.

• Gaming Adjusted EBITDA decreased $13.0 million driven by a $10.2 million decrease at our wholly-owned Gaming properties and a $2.8 million decrease from our equity investments.

The decreases at our wholly-owned Gaming properties are the result of decreased revenue and increases in marketing and salaries expense.

The decrease in our equity investments is also driven by increased marketing and salaries expense.

• All Other Adjusted EBITDA decreased $3.9 million driven primarily by a $3.1 million decrease as a result of Arlington not conducting live racing in the second quarter of 2022 as we ceased racing and simulcast operations at the end of 2021.

Three Months Ended September 30, 2022, Compared to Three Months Ended September 30, 2021

• Live and Historical Racing Adjusted EBITDA increased $6.8 million due to a $1.8 million increase at Churchill Downs Racetrack driven by increased race days in the third quarter as compared to 2021 and a $5.0 million increase at our HRM properties driven primarily by a $3.1 million increase at Oak Grove and a $1.6 million increase at Newport.

• TwinSpires Adjusted EBITDA increased $9.0 million primarily due to a $11.1 million increase from our Sports and Casino business due to decreased online marketing and promotional activities in the current year quarte r.

This increase was offset by a $1.5 million decrease from Horse Racing due to increased content expense and a $0.6 million decrease from United Tote.

• Gaming Adjusted EBITDA increased $0.9 million driven by a $1.4 million increase from our equity investments partially offset by a $0.5 million decrease at our wholly-owned Gaming properties.

The increase in our equity investments was driven by increased revenue at Rivers Des Plaines.

The decrease from our wholly-owned Gaming properties is the result of decreased revenue and increases in marketing and salaries expense.

Gaming Adjusted EBITDA includes $4.1 million of proceeds received for business interruption insurance claims related to Hurricane Ida.

• All Other Adjusted EBITDA decreased $9.6 million driven primarily by a $9.0 million decrease as a result of Arlington not conducting live racing in the third quarter of 2022 as we ceased racing and simulcast operations at the end of 2021.

We are excluding Arlington's operating results from Adjusted EBITDA in 2022 pending the sale of the property to the Chicago Bears.

Corporate expense increased $0.8 million as a result of increased legal fees and charitable donations.

Six Months Ended June 30, 2022, Compared to Six Months Ended June 30, 2021

• Live and Historical Racing Adjusted EBITDA increased $75.1 million due to a $57.3 million increase at Churchill Down Racetrack driven by running the Kentucky Derby in 2022 without capacity restrictions that were in place in 2021, a $9.3 million increase at Oak Grove, a $6.9 increase at Derby City Gaming, and a $2.1 million increase at Newport driven by increases in net revenue.

These were partially offset by a decrease at Turfway of $0.5 million.

• TwinSpires Adjusted EBITDA increased $10.3 million primarily due to a $14.5 million increase from our Sports and Casino business due to decreased marketing and promotional activities and a $0.4 million increase at United Tote.

Partially offsetting these increases was a decrease from Horse Racing of $4.6 million due to the reduction in net revenue.

Corporate expense increased $0.6 million as a result of increased salaries, benefits and charitable donations.

Nine Months Ended September 30, 2022, Compared to Nine Months Ended September 30, 2021

• Live and Historical Racing Adjusted EBITDA increased $81.9 million due to a $59.1 million increase at Churchill Downs Racetrack driven by running the Kentucky Derby in 2022 without capacity restrictions that were in place in 2021, a $12.4 million increase at Oak Grove, a $6.9 million increase at Derby City Gaming, and a $3.8 million increase at Newport.

The Chasers Transaction also produced $0.3 million of Adjusted EBITDA.

These increases were partially offset by a decrease at Turfway of $0.6 million.

• TwinSpires Adjusted EBITDA increased $19.3 million primarily due to a $25.6 million increase from our Sports and Casino business due to decreased marketing and promotional activities.

This was offset by a decrease of $6.1 million from Horse Racing due to the reduction in net revenue and a $0.2 million decrease at United Tote.

• Gaming Adjusted EBITDA decreased $3.4 million driven by a $5.0 million decrease at our wholly-owned Gaming properties that was partially offset by a $1.6 million increase from our equity investments.

The decreases at our wholly owned Gaming properties are primarily driven by increases in marketing and salaries expense.

The increase in our equity investments is driven by capacity restrictions the prior year that are no longer in place.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

• All Other Adjusted EBITDA decreased $5.3 million driven by a $3.4 million increase in Corporate expenses, primarily legal fees and charitable donations and a $1.9 million decrease from Arlington as we ceased racing and simulcast operations at the end of 2021.

The decrease from our wholly-owned Gaming properties is primarily driven by decreased revenue and increased marketing and salaries expense.

Gaming Adjusted EBITDA includes $4.1 million of proceeds received for business interruption insurance claims related to Hurricane Ida.

The increase in our equity investments is driven by capacity restrictions in the prior year that are no longer in place.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2022

• All Other Adjusted EBITDA decreased $14.9 million driven by a $10.8 million decrease from Arlington as we ceased racing and simulcast operations at the end of 2021.

We are excluding Arlington's operating results from Adjusted EBITDA in 2022 pending the sale of the property to the Chicago Bears.

Corporate expense increased $4.1 million as a result of increased legal fees and charitable donations.

Reconciliation of Comprehensive Income to Adjusted EBITDA

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(in millions) 2022 2021 Change 2022 2021 Change

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The following table is a summary of our overall financial position:

(in millions) June 30, 2022 December 31, 2021 Change

(in millions) September 30, 2022 December 31, 2021 Change

Total assets $ 4,674.1 $ 2,981.6 $ 1,692.5

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Significant items affecting the comparability of our condensed consolidated balance sheets include:

• Total assets increased $1,638.0 million driven b y a $1,525.0 million increase in restricted cash driven by cash proceeds received for the closing of the 2030 Senior Notes into escrow and the Calder land sale, $135.2 million increase in property and equipment driven by capital expenditures at Churchill Downs Racetrack, Turfway Park, and Derby City Gaming, a $23.2 million increase in accounts receivable driven by simulcast and other pari-mutuel wagering activity, and a $20.6 million increase in all other assets.

Partially offsetting these increases was a $66.0 million decrease in income t ax receivable driven primarily by the current year income tax provision and a refund received from the IRS.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

• Total liabilities increased $1,341.9 million primarily driven by a $1,196.1 million increase in notes payable, net of debt issuance costs, related to the closing of the 2030 Senior Notes into escrow, an $86.7 million increase in income tax payable primarily driven by the tax gain on the Calder land sale, a $57.5 million increase in accounts payable primarily due to timing of racing related payments, a $20.4 million increase in deferred income tax due to our current year income tax provision, an $18.4 million increase in advance deposit wagering accounts, a $14.9 million increase in accrued interest due to higher outstanding debt balances and a $10.3 million increase in purses payable due to our spring and summer race meets.

Partially offsetting these increases was a $35.6 million decrease in current deferred revenue related to recognition of advanced sales for the 2022 Kentucky Derby, a $26.1 million decrease in dividends payable due to the payment of our annual dividends, and a $0.7 decrease in all other liabilities.

• Total shareholders’ equity increased $296.1 million driven by a $381.4 million increase from current year net income and $14.4 million from stock-based compensation.

• Total assets increased $1,692.5 million driven b y a $1,518.3 million increase in restricted cash from cash proceeds received for the closing of the 2030 Senior Notes into escrow and the Calder land sale, $246.0 million increase in property and equipment as a result of capital expenditures at Churchill Downs Racetrack, Turfway Park, and Derby City Gaming and Ellis Park Transaction, a $136.9 million increase in other intangible assets, net from the acquisition of Chasers gaming rights and Ellis Park gaming rights and trademark, a $27.1 million increase in accounts receivable driven by simulcast and other pari-mutuel wagering activity, and a $10.9 million increase in all other assets.

Partially offsetting these increases was a $180.7 million decrease in cash due to the Chasers and Ellis Park Transactions, and a

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2022

$66.0 million decrease in income t ax receivable as a result of the current year income tax provision and a refund received from the IRS.

• Total liabilities increased $1,386.6 million primarily driven by a $1,197.0 million increase in notes payable, net of debt issuance costs, related to the closing of the 2030 Senior Notes into escrow, a $60.0 million increase in income tax payable primarily from the tax gain on the Calder land sale, a $51.8 million increase in other liabilities as a result of the Chasers and Ellis Park Transactions, a $33.4 million increase in accrued interest due to higher outstanding debt balances, a $27.5 million increase in accounts payable primarily due to timing of racing related payments, a $26.7 million increase in deferred income tax due to our current year income tax provision, a $20.0 million increase in accrued fixed assets driven by capital expenditures for ongoing capital projects, a $15.8 million increase in long-term debt, net of current maturities and loan origination fees primarily driven by draw on Revolver debt, a $13.1 million increase in purses payable due to our spring and summer race meets, and a $0.6 million increase in all other liabilities.

Partially offsetting these increases was a $33.2 million decrease in current deferred revenue related to recognition of advanced sales for the 2022 Kentucky Derby, and a $26.1 million decrease in dividends payable due to the payment of our annual dividends.

• Total shareholders’ equity increased $305.9 million driven by a $438.4 million increase from current year net income, 23.5 million from stock-based compensation, and $2.7 million from the issuance of common stock.

Partially offsetting this increase were $145.5 million in repurchases of common stock, and $13.2 million in taxes paid related to net share settlement of stock awards.

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The following table is a summary of our liquidity and cash flows:

(in millions) Six Months Ended June 30,

(in millions) Nine Months Ended September 30,

Cash flows from:

3 unchanged sentences

Financing activities $ 1,020.1 $ 53.5 $ 966.6

Six Months Ended June 30, 2022, Compared to the Six Months Ended June 30, 2021

• Cash flows from operating activities increased $46.5 million driven by a $65.0 million increase in operating income, a $30.4 million increase in distributions from unconsolidated affiliates, and a $32.9 million tax refund related to the 2020 tax return loss.

Partially offsetting these increases was a $25.3 million decrease in deferred revenue primarily due to the recognition of advanced sales for the 2022 Kentucky Derby and a $56.5 million decrease in all other operating activities.

Nine Months Ended September 30, 2022, Compared to the Nine Months Ended September 30, 2021

• Cash flows from operating activities increased $33.5 million driven by a $60.4 million increase in operating income, a $40.2 million increase in distributions from unconsolidated affiliates, and a $34.2 million in tax refunds in the current year driven by the 2020 tax return loss.

Partially offsetting these increases was a $35.2 million decrease in other liabilities and accrued expenses, a $23.0 million decrease in deferred revenue primarily due to the recognition of advanced sales for the 2022 Kentucky Derby, a $19.5 million decrease in accounts payable primarily due to timing, and a $23.6 million decrease in all other operating activities.

We anticipate that cash flows from operations over the next twelve months will be adequate to fund our business operations and capital expenditures.

• Cash used in investing activities increased $135.1 million driven by the $279.0 million increase from proceeds from the Calder land sale.

This increase was offset by a $128.2 million increase in capital project expenditures primarily at Churchill Downs Racetrack and Turfway Park, a $9.3 million increase in capital maintenance expenditures and a $6.4 million increase from all other investing activities.

• Cash provided by financing activities increased $947.9 million primarily driven by a $843.1 million increase in net borrowings from long-term debt and a $109.4 million decrease in common stock repurchases.

Partially offsetting this increase was a $4.6 million decrease from all other financing activities.

• Cash used in investing activities decreased $51.8 million driven by the $196.8 million increase in capital project expenditures primarily at Churchill Downs Racetrack and Turfway Park, an $81.7 million decrease due to the Ellis Park Transaction, a $33.3 million decrease due to the Chasers Transaction, a $14.8 million increase in capital maintenance expenditures and a $4.2 million increase from all other investing activities.

Partially offsetting these decreases was the $279.0 million increase from proceeds from Calder land sale.

• Cash provided by financing activities increased $966.6 million primarily driven by a $863.1 million increase in net borrowings from long-term debt, a $98.9 million decrease in common stock repurchases and a $4.6 million increase from all other financing activities.

Capital Expenditures

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We have announced several project capital investments during the past year, including the following:

Churchill Downs Racetrack Homestretch Club and the Turn I Experience, Derby City Gaming Expansion and Hotel, Derby City Gaming Downtown, Turfway Park HRM Facility and Grandstand, the Queen of Terre Haute Casino Resort, and Louisiana HRMs.

Churchill Downs Racetrack Homestretch Club and the Turn I Experience, Derby City Gaming Expansion and Hotel, Derby City Gaming

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2022

Downtown, Turfway Park HRM Facility and Grandstand, the Queen of Terre Haute Casino Resort, and Louisiana HRMs.

We currently estimate that we will spend between $325.0 million and $350.0 million for project capital in 2022, although this amount may vary significantly based on the timing of work completed, unanticipated delays, and timing of payments to third parties.

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The 2021 Stock Repurchase Program includes and is not in addition to the unspent amount remaining under the prior 2018 Stock Repurchase Program authorization.

Repurchases may be made at

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

management’s discretion from time to time on the open market (either with or without a 10b5-1 plan) or through privately negotiated transactions.

Repurchases may be made at management’s discretion from time to time on the open market (either with or without a 10b5-1 plan) or through privately negotiated transactions.

The repurchase program has no time limit and may be suspended or discontinued at any time.

We have approximately $359.1 million of repurchase authority remaining under the 2021 Stock Repurchase Program at June 30, 2022, based on trade date.

We have approximately $300.2 million of repurchase authority remaining under the 2021 Stock Repurchase Program at September 30, 2022, based on trade date.

Credit Facilities and Indebtedness

The following table presents our debt outstanding:

(in millions) June 30, 2022 December 31, 2021 Change

(in millions) September 30, 2022 December 31, 2021 Change

Revolver $ 20.0 $ — $ 20.0

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Refer to Note 10, Shareholders' Equity, of the Notes to the Condensed Consolidated Financial Statements for information regarding this transaction.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2022

On March 17, 2021, the Company entered into the Incremental Joinder Agreement No.

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The Company capitalized $3.5 million of debt issuance costs associated with the Joinder which are being amortized as interest expense over the 7-year term of the Term Loan B-1.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

On April 13, 2022, the Company entered into the Fourth Amendment to the Credit Agreement (the "Fourth Amendment") to extend the maturity date of its existing revolving credit facility to April 13, 2027, to increase the commitments under the existing revolving credit facility from $700.0 million to $1.2 billion, and to increase the swing line commitment from $50.0 million to $100.0 million.

2 unchanged sentences

The Revolver and Delayed Draw Term Loan A bear interest at SOFR plus 10 basis points, plus a variable applicable margin which is determined by the Company's net leverage ratio.

As of June 30, 2022, that applicable margin was 137.5 basis points which was based on the pricing grid in the Fourth Amendment to the Credit Agreement.

As of September 30, 2022, that applicable margin was 137.5 basis points which was based on the pricing grid in the Fourth Amendment to the Credit Agreement.

The Term Loan B and Term Loan B-1 bear interest at LIBOR plus 200 basis points.

On September 26, 2022, we borrowed $20.0 million on our Revolver to provide the Company with financing for the Chasers and Ellis Park Transactions.

The Credit Agreement contains certain customary affirmative and negative covenants, which include limitations on liens, investments, indebtedness, dispositions, mergers and acquisitions, the making of restricted payments, changes in the nature of business, changes in fiscal year, and transactions with affiliates.

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Consolidated total secured net leverage ratio 0.59 to 1.0 < 4.0 to 1.0

The Company was compliant with all applicable covenants on June 30, 2022.

The Company was compliant with all applicable covenants on September 30, 2022.

In relation to the Revolver, the Company is required to pay a commitment fee on the unused portion of the Revolver determined by a pricing grid based on the consolidated total net leverage ratio of the Company.

For the period ended June 30, 2022, the Company's commitment fee rate for the Revolver was 0.20%.

For the period ended September 30, 2022, the Company's commitment fee rate for the Revolver was 0.18%.

Once drawn, the Delayed Draw Term Loan A requires quarterly payments of 1.25% of the original $800.0 million balance, or $10.0 million per quarter.

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That fee is determined by a pricing grid based on the Company’s consolidated total net leverage ratio.

For the period ended June 30, 2022, the Company's commitment fee rate for the Delayed Draw Term Loan A was 0.20%.

For the period ended September 30, 2022, the Company's commitment fee rate for the Delayed Draw Term Loan A was 0.18%.

The Term Loan B requires quarterly payments of 0.25% of the original $400.0 million balance, or $1.0 million per quarter.

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In connection with the offering, we capitalized $8.9 million of debt issuance costs which are being amortized as interest expense over the term of the 2027 Senior Notes.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2022

The 2027 Senior Notes were issued pursuant to an indenture, dated March 25, 2019 (the "2027 Indenture"), among the Company, certain subsidiaries of the Company as guarantors (the "2027 Guarantors"), and U.S.

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2028 Senior Notes

On December 27, 2017, we completed an offering of $500.0 million in aggregate principal amount of 4.75% Senior Unsecured Notes that mature on January 15, 2028 (the "Existing 2028 Senior Notes") in a private offering to qualified institutional buyers

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

pursuant to Rule 144A that is exempt from registration under the Securities Act, and to certain non-U.S.

persons in accordance with Regulation S under the Securities Act.

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persons in accordance with Regulation S under the Securities Act.

The offering of the Notes is part of the financing for the P2E acquisition.

The proceeds of the offering were placed in escrow pending satisfaction of certain conditions, including, without limitation, the consummation of the P2E acquisition.

The offering of the Notes is part of the financing for the P2E Transaction.

The proceeds of the offering were placed in escrow pending satisfaction of certain conditions, including, without limitation, the consummation of the P2E Transaction.

In connection with the offering, we capitalized $4.3 million of debt issuance costs which are being amortized as interest expense over the term of the 2030 Senior Notes.

Upon completion of this offering, the aggregate principal amount outstanding in escrow of the 2030 Notes is $1.2 billion.

Upon completion of this offering, the aggregate principal amount outstanding in escrow

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2022

of the 2030 Notes is $1.2 billion.

The cash held in escrow is invested in money market accounts and included in restricted cash in the Condensed Consolidated Balance Sheet.

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The Escrow Issuer may redeem some or all of the 2030 Notes at any time prior to April 1, 2025, at redemption prices set forth in the 2030 Offering Memorandum.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

In connection with the issuance of the 2030 Notes, the Escrow Issuer and the 2030 Guarantors entered into a Registration Rights Agreement to register any 2030 Senior Notes under the Securities Act for resale that are not freely tradable 366 days from April 13, 2022.

Contractual Obligations

Our commitments to make future payments as of June 30, 2022, are estimated as follows:

Our commitments to make future payments as of September 30, 2022, are estimated as follows:

(in millions) 2022 2023-2024 2025-2026 Thereafter Total

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3.9 30.4 29.7 17.7 81.7

Revolver — — — 20.0 20.0

Interest on Revolver 0.3 2.0 2.0 0.3 4.6

2027 Senior Notes — — — 600.0 600.0

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Total $ 71.2 $ 893.1 $ 465.0 $ 3,800.2 $ 5,229.5

(1) Interest includes the estimated contractual payments under our Credit Agreement assuming no change in the weighted average borrowing rate of 3.67% which was the rate in place as of June 30, 2022.

(1) Interest includes the estimated contractual payments under our Credit Agreement assuming no change in the weighted average borrowing rate of 5.10% which was the rate in place as of September 30, 2022.

(2) Includes the maximum estimated exposure where we are contractually obligated to make future minimum payments.

As of June 30, 2022, we had approximately $7.7 million of tax liabilities related to unrecognized tax benefits.

As of September 30, 2022, we had approximately $7.4 million of tax liabilities related to unrecognized tax benefits.

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 2. Management’s Discussion and Analysis