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Item 2. Management’s Discussion and Analysis

2023-04-26 compared with 2022-10-26 · 155 added, 359 removed, 173 unchanged (75% of the section changed)

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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.

• 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;

• the occurrence of extraordinary events, such as terrorist attacks, public health threats, civil unrest, and inclement weather;

• the occurrence of extraordinary events, such as terrorist attacks, public health threats, civil unrest, and inclement weather, including as a result of climate change;

• the effect of economic conditions on our consumers' confidence and discretionary spending or our access to credit, including the impact of inflation;

• additional or increased taxes and fees;

• 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;

• lack of confidence in the integrity of our core businesses or any deterioration in our reputation;

• loss of key or highly skilled personnel, as well as general disruptions in the general labor market;

• inability to successfully focus on market access and retail operations for our TwinSpires Sports and Casino business and effectively compete;

• online security risk, including cyber-security breaches, or loss or misuse of our stored information as a result of a breach, including customers’ personal information, could lead to government enforcement actions or other litigation;

• the impact of significant competition, and the expectation the competition levels will increase;

• changes in consumer preferences, attendance, wagering, and sponsorships;

• loss of key or highly skilled personnel;

• lack of confidence in the integrity of our core businesses or any deterioration in our reputation;

• risks associated with equity investments, strategic alliances and other third-party agreements;

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• concentration and evolution of slot machine and historical racing machine ("HRM") manufacturing and other technology conditions that could impose additional costs;

• inability to negotiate agreements with industry constituents, including horsemen and other racetracks;

• failure to enter into or maintain agreements with industry constituents, including horsemen and other racetracks;

inability to successfully focus on market access and retail operations for our TwinSpires Sports and Casino business and effectively compete;

• inability to identify, complete, or fully realize the benefits of, our proposed acquisitions, divestitures, development of new venues or the expansion of existing facilities on time, on budget, or as planned;

• general risks related to real estate ownership and significant expenditures, including fluctuations in market values and environmental regulations;

online security risk, including cyber-security breaches, or loss or misuse of our stored information as a result of a breach;

• reliance on our technology services and catastrophic events and system failures disrupting our operations;

• difficulty in integrating recent or future acquisitions into our operations;

• cost overruns and other uncertainties associated with the development of new venues and the expansion of existing facilities;

• general risks related to real estate ownership and significant expenditures, including risks related to environmental liabilities;

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023

• personal injury litigation related to injuries occurring at our racetracks;

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• 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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• failure to comply with the financial ratios and other covenants in our debt facilities and other indebtedness;

• increase to interest rates (due to inflation or otherwise);

• disruptions in the credit markets or changes to our credit ratings may adversely affect our business;

• increase in our insurance costs, or obtain similar insurance coverage in the future, and inability to recover under our insurance policies for damages sustained at our properties in the event of inclement weather and casualty events;

• other factors described in our most recent Annual Report on Form 10-K and in other filings we make with the Securities and Exchange Commission.

We do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

The following information is unaudited.

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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, 2022, 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 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 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.

and we have eight retail sportsbooks.

We are also a leader in brick-and-mortar casino gaming in eight states with approximately 11,800 slot machines and video lottery terminals ("VLTs") and 250 table games.

We were organized as a Kentucky corporation in 1928, and our principal executive offices are located in Louisville, Kentucky.

During the first quarter of 2022, we updated our operating segments to reflect the internal management reporting used by our chief operating decision maker to evaluate results of operations and to assess performance and allocate resources.

Our chief operating decision maker decided to include the results of our United Tote business in the TwinSpires segment as we evolve our strategy to integrate the United Tote offering with TwinSpires Horse Racing, which we believe will create additional business to business revenue opportunities.

Results of our United Tote business were previously included in our All Other segment.

The prior year results were reclassified to conform to this presentation.

P2E Acquisition

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.

Either the Company or P2E may terminate the P2E Purchase Agreement if the closing has not occurred prior to the date that is nine months after signing the P2E Purchase Agreement (such date being November 18, 2022), subject to the ability of either party to elect to extend such date for an additional four months in certain circumstances.

If certain required regulatory approvals are not obtained and the P2E Purchase Agreement is terminated, the Company may have to pay a Regulatory Termination Fee of up to $137.5 million.

April 2022 Financing Transactions

On April 13, 2022, the Company announced an amendment of its senior secured credit agreement (the “Fourth Amendment”) to extend the maturity date of its existing revolving credit facility to 2027 and to increase the commitments under the existing revolving credit facility from $700.0 million to $1.2 billion.

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

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.

Calder Land Sale

On June 17, 2022, the Company closed on the previously announced sale of 115.7 acres of excess land near Calder Casino for $291.0 million (or approximately $2.5 million per acre) to Link Logistics, a Blackstone portfolio company.

The Company received cash proceeds of $279.0 million, which was net of $12.0 million of transaction costs.

The Company is planning on using certain proceeds of the sale to purchase property as part of the previously announced P2E Transaction and to invest in other replacement properties that qualify as Internal Revenue Code §1031 transactions.

The Company has retained ownership of approximately 54 acres of land on which the Company's wholly-owned Calder Casino sits.

The Company may sell 15-20 acres of land in the future for retail development.

Chasers Poker Room Acquisition

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.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023

Churchill Downs Incorporated ("CDI" or the "Company") has been creating extraordinary entertainment experiences for nearly 150 years, beginning with the Company’s most iconic and enduring asset, the Kentucky Derby.

Headquartered in Louisville, Kentucky, CDI has expanded through the development of live and historical racing entertainment venues, the growth of the TwinSpires horse racing online wagering business and the operation and development of regional casino gaming properties.

We conduct our business through three reportable segments:

Live and Historical Racing, TwinSpires, and Gaming.

We aggregate our other businesses as well as certain corporate operations, and other immaterial joint ventures, in All Other.

For additional information about our segments, refer to Note 16 - Segment Information, to our Condensed Consolidated Financial Statements.

Arlington sale

On February 15, 2023, we closed on the sale of the Arlington property in Arlington Heights, Illinois.

We sold 326-acres to the Chicago Bears for $197.2 million.

The net proceeds of $195.7 million were used to pay down the outstanding balance amount on our Revolver that was drawn on to fund the acquisition of substantially all the assets of Peninsula Pacific Entertainment ("P2E").

Financing Transactions

On February 24, 2023, we entered into an incremental joinder to our senior secured credit agreement to increase the loans under the existing Term Loan A credit facility due 2027 by $500.0 million.

This joinder increases the existing Term Loan A credit facility due 2027 from $800.0 million to $1.3 billion and makes certain other changes to the existing credit agreement.

The Company used the net proceeds from the borrowings under the increased Term Loan A to repay outstanding loans under its senior secured revolving credit facility, pay related transaction fees and expenses and for general corporate purposes.

On April 25, 2023, we completed an offering of $600.0 million in aggregate principal amount of 6.750% senior unsecured notes that mature in 2031.

The Company used a portion of the net proceeds from the offering to repay indebtedness outstanding under its Term Loan B Facility due 2024 and to fund related transaction fees and expenses, and intends to use the remainder of the proceeds for working capital and other general corporate purposes.

Transactions Update

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

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

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

The COVID-19 global pandemic has resulted in travel limitations and business and government shutdowns which have had significant negative economic impacts in the United States and in relation to our business.

Although vaccines are now available, we cannot predict the duration of the COVID-19 global pandemic.

On December 19, 2022, the Company announced that it entered into a definitive agreement under which we would acquire all the outstanding equity interests of Exacta Systems, LLC ("Exacta") for total consideration of $250.0 million in cash (the "Exacta Transaction").

The Exacta Transaction is subject to certain working capital and other purchase price adjustments and is expected to close during 2023.

Impact of the COVID-19 Global Pandemic

The extent to which the COVID-19 pandemic, including the emergence of variant strains, will continue to impact the Company remains uncertain and will depend on many factors that are not within our control.

We will continue to monitor for new developments related to the pandemic and assess these developments to maintain continuity in our operations.

Asset Impairment

On February 24, 2022, the Company announced its plans to exit the dire ct online sports and casino bus iness and pursue monetization of its online market access licenses.

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

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.

Key Indicators to Evaluate Business Results and Financial Condition

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These indicators include changes in net revenue, operating expense, operating income, earnings per share, outstanding debt balance, operating cash flow and capital spend.

Our condensed consolidated financial statements have been prepared in conformity with U.S.

Our consolidated financial statements have been prepared in conformity with U.S.

generally accepted accounting principles ("GAAP").

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Adjusted EBITDA is a supplemental measure of our performance that is not required by, or presented in accordance with, GAAP.

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.

Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net income (as determined in accordance with GAAP) as a measure of our operating results.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023

Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization, adjusted for the following:

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• Transaction expense, net which includes:

• Acquisition, disposition, and land sale related charges;

• Direct online Sports and Casino business costs;

– Acquisition, disposition, and property sale related charges;

– Direct online Sports and Casino business exit costs;

– Other transaction expense, including legal, accounting and other deal-related expense;

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• Rivers Des Plaines' impact on our investments in unconsolidated affiliates from:

– The impact of changes in fair value of interest rate swaps;

– The impact of changes in fair value of interest rate swaps, and

– Legal reserves and transaction costs;

• Asset impairments;

• Gain on Calder land sale;

• Gain on property sales;

• Legal reserves;

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• Other charges, recoveries and expenses

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

Arlington's operating loss in the current quarter and year is treated as an adjustment to EBITDA and is included in Other expenses, net in the Reconciliation of Comprehensive Income to Adjusted EBITDA.

For segment reporting, Adjusted EBITDA includes intercompany revenue and expense totals that are eliminated in the accompanying Condensed Consolidated Statements of Comprehensive Income.

Refer to the Reconciliation of Comprehensive Income to Adjusted EBITDA included in this section for additional information.

As of December 31, 2021, Arlington ceased racing and simulcast operations and the property was sold on February 15, 2023 to the Chicago Bears.

Arlington's results in 2022 and 2023 are treated as an adjustment to EBITDA and are included in other expenses, net in the Reconciliation of Comprehensive Income to Adjusted EBITDA .

For segment reporting, Adjusted EBITDA includes intercompany revenue and expense totals that are eliminated in the Condensed Consolidated Statements of Comprehensive Income.

See the Reconciliation of Comprehensive Income to Adjusted EBITDA included in this section for additional information.

Governmental Regulations and Legislative Changes

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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.

The four-year initial and annual renewal fee for a sports wagering license is $4,000 and the state tax on sports betting is 10% of gross sports wagering receipts.

In 2023, the Kentucky General Assembly passed a bill to authorize the Kentucky Horse Racing Commission to regulate sports betting.

Only licensed racetracks and their extensions can operate retail sports betting.

Each track is allowed to contract with up to three providers to carryout online or retail sports betting.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023

Consolidated Financial Results

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

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

(in millions) 2022 2021 Change 2022 2021 Change

Three Months Ended March 31,

(in millions) 2023 2022 Change

Net revenue $ 559.5 $ 364.1 $ 195.4

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Adjusted EBITDA 222.9 128.5 94.4

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.

Three Months Ended March 31, 2023, Compared to Three Months Ended March 31, 2022

• Net revenue increased $195.4 million driven by a $128.4 million increase from Live and Historical Racing primarily due to revenue attributable to the properties acquired in the P2E, Ellis Park and Chasers Transactions, the opening of Turfway Park in September 2022 and continued growth at our Oak Grove property and a $72.7 million increase from Gaming primarily due to our New York and Iowa properties acquired in the P2E Transaction.

Partially offsetting these increases was a $5.5 million decrease in TwinSpires primarily due to a decrease in Horse Racing as a higher portion of our patrons returned to wagering at brick-and-mortar facilities instead of wagering online, the exit of our direct online Sports and Casino business in the first quarter of 2022 and a decrease in All Other of $0.2 million.

• Operating income increased $72.5 million primarily due to a $52.8 million increase in Live and Historical Racing incremental revenue from the P2E properties acquired in Virginia, and a $24.4 million increase in Gaming driven by the P2E acquired properties in New York and Iowa, decreased transaction and impairment costs of $10.1 million, and an increase in TwinSpires of $3.7 million as a result of the exit of our direct online Sports and Casino business.

Partially offsetting these increases was a $16.4 million increase in corporate general and administrative expenses driven by the acquisition of P2E and $2.1 million increase in All Other operating income.

• Net income increased $113.6 million.

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.

The following items impacted comparability of the Company's net income from continuing operations for the three months ended March 31, 2023 compared to three months ended March 31, 2022:

a $86.2 million after tax gain on the sale of the Arlington property, partially offset by a $1.2 million after-tax net increase in adjustments related to our unconsolidated affiliates, transaction, pre-opening and other expenses.

Excluding these items, net income increased $28.6 million primarily due to a $60.5 million after-tax increase driven by the results of our operations and equity in income from our unconsolidated affiliates, partially offset by a $31.9 million after-tax increase in interest expense associated with higher outstanding debt balances.

• 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

Net Revenue by Segment

• Adjusted EBITDA increased $94.4 million driven by a $54.2 million increase from Live and Historical Racing attributable to the properties acquired in the P2E, Ellis Park and Chasers Transactions, a $38.4 million increase from Gaming driven by the P2E properties acquired in New York and Iowa, and a $5.3 million increase from TwinSpires, partially offset by $3.5 million decrease from All Other.

Revenue by Segment

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

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

(in millions) 2022 2021 Change 2022 2021 Change

Three Months Ended March 31, Change

(in millions) 2023 2022

Live and Historical Racing $ 215.8 $ 87.2 $ 128.6

Churchill Downs Racetrack $ 15.6 $ 9.1 $ 6.5 $ 207.0 131.3 $ 75.7

Derby City Gaming 41.5 40.2 1.3 128.5 113.0 15.5

Oak Grove 33.3 27.1 6.2 97.8 72.1 25.7

Newport 6.9 4.3 2.6 20.6 13.2 7.4

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

Horse Racing 102.1 100.3 1.8 325.5 332.5 (7.0)

Sports and Casino 5.3 8.7 (3.4) 21.8 24.1 (2.3)

Total TwinSpires 107.4 109.0 (1.6) 347.3 356.6 (9.3)

Fair Grounds and VSI 30.5 24.8 5.7 111.2 100.2 11.0

Presque Isle 33.6 36.1 (2.5) 91.2 90.4 0.8

Calder 26.3 25.9 0.4 81.2 74.2 7.0

Ocean Downs 33.4 31.8 1.6 82.1 78.8 3.3

Oxford 31.6 31.8 (0.2) 87.8 72.1 15.7

Riverwalk 12.6 14.5 (1.9) 41.0 47.3 (6.3)

Harlow's 11.9 13.3 (1.4) 37.0 43.9 (6.9)

Lady Luck Nemacolin 6.0 7.4 (1.4) 18.1 18.7 (0.6)

Total Gaming 185.9 185.6 0.3 549.6 525.6 24.0

TwinSpires 96.3 101.4 (5.1)

Gaming 251.6 179.2 72.4

All Other 0.3 0.5 (0.2)

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Net Revenue $ 559.5 $ 364.1 $ 195.4

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.

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.

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.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023

Three Months Ended March 31, 2023, Compared to Three Months Ended March 31, 2022

• Live and Historical Racing revenue increased $128.6 million due to a $97.7 million increase attributable to the Virginia properties acquired in the P2E Transaction, a $15.6 million increase due to the opening of Turfway Park in Northern Kentucky in September 2022, a $7.5 million increase attributable to properties acquired in the Ellis Park and Chasers Transactions, a $6.2 million increase from our Oak Grove property in Southwestern Kentucky, a $1.2 million increase from our Derby City Gaming property in Louisville, and a $0.4 million increase from Churchill Downs Racetrack.

• TwinSpires revenue decreased $5.1 million primarily due to the decision to exit the direct online Sports and Casino business in the first quarter of 2022 which was partially offset by incremental revenue from United Tote.

• Gaming revenue increased $72.4 million primarily due to a $69.0 million increase attributable to the New York and Iowa properties acquired in the P2E Transaction.

Gaming revenue also increased $5.1 million collectively from our properties in Louisiana, Maryland, and Maine, partially offset by a decline of $1.7 million from our properties in Florida and Pennsylvania.

Consolidated Operating Expense

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

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

(in millions) 2022 2021 Change 2022 2021 Change

Three Months Ended March 31, Change

(in millions) 2023 2022

Taxes and purses $ 145.5 $ 101.6 $ 43.9

8 unchanged sentences

Total expense $ 439.6 $ 316.7 $ 122.9

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 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.

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 $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

Three Months Ended March 31, 2023, Compared to Three Months Ended March 31, 2022

Significant items affecting comparability of consolidated operating expense include:

• 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 $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.

This charge was partially offset by a non-cash impairment charge of $4.9 million related to the Company's plan to exit the direct online sports and casino business that was recorded in the first quarter of 2022.

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

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

• Taxes and purses, salaries and benefits, selling, general and administrative, marketing and advertising, depreciation and amortization, and other operating expenses increased due to the P2E, Ellis Park and Chasers Transactions, as well as the opening of Turfway Park in September of 2022.

• Transaction expenses decreased $5.2 million due to the 2022 P2E Transaction.

• Asset impairments decreased $4.9 million due to the first quarter 2022 impairment related to the decision to exit the direct online Sports and Casino business which did not recur.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023

Adjusted EBITDA

2 unchanged sentences

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

(in millions) 2022 2021 Change 2022 2021 Change

Three Months Ended March 31, Change

(in millions) 2023 2022

Live and Historical Racing $ 82.1 $ 27.9 $ 54.2

4 unchanged sentences

Total Adjusted EBITDA $ 222.9 $ 128.5 $ 94.4

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 $0.6 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 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.

Three Months Ended March 31, 2023, Compared to Three Months Ended March 31, 2022

• Live and Historical Racing Adjusted EBITDA increased $54.2 million due to a $46.8 million increase attributable to the Virginia properties acquired in the P2E Transaction, a $4.5 million increase due to continued growth at our Oak Grove property in Southwestern Kentucky, and a $2.5 million increase due to the opening of Turfway Park in Northern Kentucky in September 2022.

The remaining properties contributed a $0.4 million increase in Adjusted EBITDA..

• TwinSpires Adjusted EBITDA increased $5.3 million primarily due to the decision to exit the direct online Sports and Casino business in the first quarter of 2022 and incremental revenue from TwinSpires business to business agreements, partially offset by higher content related expenses and advance deposit wagering taxes in certain jurisdictions.

• Gaming Adjusted EBITDA increased $38.4 million driven by a $26.5 million increase attributable to the New York and Iowa properties acquired in the P2E Transaction, a $13.5 million increase from our equity investments, and a $0.9 million increase from our properties in Maine, Maryland, and Louisiana.

Partially offsetting these increases was a $2.5 million decrease from our properties in Pennsylvania, Florida, and Mississippi.

• All Other Adjusted EBITDA decreased $3.5 million driven primarily by increased corporate compensation related expenses and legal fees.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023

Reconciliation of Comprehensive Income to Adjusted EBITDA

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

(in millions) 2022 2021 Change 2022 2021 Change

Three Months Ended March 31, Change

(in millions) 2023 2022

Net income and comprehensive income $ 155.7 $ 42.1 $ 113.6

5 unchanged sentences

Stock-based compensation expense $ 8.6 $ 7.0 $ 1.6

Legal reserves — — — 3.2 — 3.2

Pre-opening expense 3.2 2.1 1.1

7 unchanged sentences

Other charges 0.3 1.0 (0.7)

Gain on Calder land sale — — — (274.6) — (274.6)

Gain on sale of Arlington (114.0) — (114.0)

Total adjustments to EBITDA (88.6) 23.5 (112.1)

1 unchanged sentence

Consolidated Balance Sheet

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

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

The following is a summary of our overall financial position:

(in millions) March 31, 2023 December 31, 2022 Change

Total assets $ 6,273.5 $ 6,206.8 $ 66.7

2 unchanged sentences

Significant items affecting the comparability of our Condensed Consolidated Balance Sheets include:

• 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.

• Total assets increased $66.7 million primarily driven by capital expenditures, increased cash and cash equivalents and increased other current assets driven by an increase in prepaid insurance, partially offset by the sale of our Arlington property.

• Total liabilities decreased $86.0 million primarily driven by net pay down of long-term debt.

• Total shareholders’ equity increased $152.7 million driven by increased current year net income and stock-based compensation.

Liquidity and Capital Resources

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

(in millions) Nine Months Ended September 30,

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023

(in millions) Three Months Ended March 31, Change

Cash flows from:

2022 2021 Change

Operating activities $ 215.9 $ 135.2 $ 80.7

1 unchanged sentence

Financing activities (237.7) (68.0) (169.7)

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.

Three Months Ended March 31, 2023 , Compared to the Three Months Ended March 31, 2022

• Cash flows from operating activities increased $80.7 million driven by a $77.7 million increase in operating income and distributions from unconsolidated affiliates, a $25.5 million increase in deferred revenue due to advanced sales for the 2023 Kentucky Derby, and $12.3 million decrease in cash used for working capital and all other.

These were partially offset by $34.8 million increased interest paid in 2023.

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 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

Included in cash flows from investing activities are capital maintenance expenditures and capital project expenditures.

Capital maintenance expenditures relate to the replacement of existing fixed assets with a useful life greater than one year that are obsolete, exhausted, or no longer cost effective to repair.

Capital project expenditures represent fixed asset additions related to land or building improvements to new or existing assets or purchases of new (non-replacement) equipment or software related to specific projects deemed necessary expenditures.

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

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.

• Cash flows from investing activities increased $117.3 million driven by the $195.7 million proceeds from the Arlington sale, partially offset by an increase in capital project expenditures in 2023 primarily at Churchill Downs Racetrack and for the Dumfries project in Virginia.

• Cash flows from financing activities decreased $169.7 million primarily driven by a $182.0 million net pay down of long-term debt in 2023, partially offset by stock repurchased during 2022.

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

Churchill Downs Racetrack First Turn Experience and the Paddock Project, the Derby City Gaming Expansion and Hotel, Derby City Gaming Downtown, the Ellis Park HRM facility in Owensboro, Kentucky, the Terre Haute Casino Resort in Virgo County, Indiana, a New Hampshire HRM Facility, the Virginia HRM entertainment venues in Dumfries and Emporia, and HRMs in our Louisiana OTBs.

We currently expect our project capital to be approximately $575 to $675 million in 2023, although this amount may vary significantly based on the timing of work completed, unanticipated delays, and timing of payments to third parties.

Common Stock Repurchase Program

On September 29, 2021, the Board of Directors of the Company approved a common stock repurchase program of up to $500.0 million ("2021 Stock Repurchase Program").

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

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

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

We had $270.2 million of repurchase authority remaining under this program on March 31, 2023.

Credit Facilities and Indebtedness

The following table presents our debt outstanding:

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

(in millions) March 31, 2023 December 31, 2022 Change

Revolver $ — $ 664.1 $ (664.1)

Delayed Draw Term Loan A due 2027 — — —

Term Loan B due 2024 379.0 380.0 (1.0)

Term Loan B-1 due 2028 294.0 294.7 (0.7)

Term Loan A due 2027 1,283.8 800.0 483.8

2027 Senior Notes 600.0 600.0 —

6 unchanged sentences

Net debt $ 4,350.7 $ 4,558.7 $ (208.0)

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023

Credit Agreement

On December 27, 2017, we entered into a senior secured credit agreement (as amended, the "Credit Agreement") with a syndicate of lenders.

The Credit Agreement provided for a $700.0 million senior secured revolving credit facility due 2024 (the "Revolver") and a $400.0 million senior secured Term Loan B due 2024 (the "Term Loan B").

Included in the maximum borrowing of $700.0 million under the Revolver was a letter of credit sub facility not to exceed $50.0 million and a swing line commitment up to a maximum principal amount of $50.0 million.

The Credit Agreement is collateralized by substantially all of the wholly-owned assets of the Company.

On April 28, 2020, the Company entered into a Second Amendment to the Credit Agreement, which (i) provided for a financial covenant relief period through the date on which the Company delivered the Company's quarterly financial statements and compliance certificate for the fiscal quarter ended June 30, 2021, subject to certain exceptions (the "Financial Covenant Relief Period"), (ii) amended the definition of "Consolidated EBITDA" in the Credit Agreement with respect to the calculation of Consolidated EBITDA for the first two fiscal quarters after the termination of the Financial Covenant Relief Period, (iii) extended certain deadlines and makes certain other amendments to the Company’s financial reporting obligations, (iv) placed certain restrictions on restricted payments during the Financial Covenant Relief Period, and (v) amended the definitions of "Material Adverse Effect" and "License Revocation" in the Credit Agreement to take into consideration COVID-19.

On February 1, 2021, the Company entered into the Third Amendment to the Credit Agreement to increase the restricted payments capacity during the Financial Covenant Relief Period from $26.0 million to $226.0 million to accommodate a share repurchase from an affiliate of TDG.

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.

1 (the "Joinder") to its Credit Agreement which provided $300.0 million in New Term Loan Commitments ("Term Loan B-1") as a new tranche of term loans under the existing Credit Agreement (as conformed to recognize the new loan), and carries a maturity date of March 17, 2028.

The Term Loan B-1 bears interest at LIBOR plus 200 basis points and requires quarterly payments of 0.25% of the original $300.0 million balance.

The Term Loan B-1 may be subject to additional mandatory prepayment from excess cash flow on an annual basis per the provisions of the Credit Agreement.

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.

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.

The Fourth Amendment also provides for a senior secured Delayed Draw Term Loan A credit facility due April 13, 2027 in the amount of $800.0 million which is part of the financing for the proposed acquisition by the Company of P2E.

The Company capitalized $2.8 million of debt issuance costs associated with the Revolver commitment increase and $5.8 million of debt issuance costs associated with the Delayed Draw Term Loan A which are being amortized as interest expense over the 5-year term.

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 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.

At March 31, 2023, the Company’s senior secured credit facility (as amended from time to time, the “Credit Agreement") consisted of a $1.2 billion revolving credit facility (the "Revolver"), $400.0 million senior secured term loan B due 2024 (the "Term Loan B"), $300.0 million senior secured term loan B-1 due 2028 (the "Term Loan B-1"), $1.3 billion senior secured term loan A due 2027 (the "Term Loan A"), and $100.0 million swing line commitment.

Certain amendments to the Credit Agreement entered into during 2022 and 2023, respectively, are described below.

On April 13, 2022, we amended the Credit Agreement to extend the maturity date of its Revolver 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.

This amendment also provided for the senior secured Term Loan A due April 13, 2027 in the amount of $800.0 million, which was drawn on November 1, 2022 as part of the financing for the P2E Transaction.

Refer to Note 3, Acquisitions to our Condensed Consolidated Financial Statements, for further information regarding the P2E Transaction.

The Company capitalized $3.2 million of debt issuance costs associated with the Revolver commitment increase and $6.4 million of debt issuance costs associated with the Term Loan A which are being amortized as interest expense over the 5-year term.

On February 24, 2023, we amended our Credit Agreement to increase the loans under the existing Term Loan A due 2027 from $800.0 million to $1.3 billion and made certain other changes to the existing credit agreement.

The Company used the net proceeds from the borrowings under the increased Term Loan A to repay outstanding loans under its Revolver, pay related transaction fees and expenses and for general corporate purposes.

The Company capitalized $2.5 million of debt issuance costs associated with the increased Term Loan A which are being amortized as interest expense over the remainder of the 5-year term.

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

For the period ended March 31, 2023, the Company's commitment fee rate was 0.25%.

The Revolver and 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 March 31, 2023, that applicable margin was 150 basis points.

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.

The Credit Agreement also contains financial covenants providing for the maintenance of a maximum consolidated secured net leverage ratio and maintenance of a minimum consolidated interest coverage ratio.

Actual Requirement

Interest coverage ratio 7.65 to 1.0 > 2.5 to 1.0

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 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 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.

The Company is required to pay an unused commitment fee for the period from and including the date that is sixty days after the Fourth Amendment up to the date funds are drawn.

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

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.

The Term Loan B may be subject to additional mandatory prepayment from excess cash flow on an annual basis per the provisions of the 2017 Credit Agreement.

The phase-out of LIBOR in existing debt agreements is set for June 30, 2023.

The Credit Agreement includes a general process for establishing an alternative reference rate to the extent LIBOR is phased out.

The Company will complete the transition of its financing from LIBOR to SOFR by June 30, 2023.

These transition activities will not have a material impact on the Company’s financial statements.

2027 Senior Notes

On March 25, 2019, we completed an offering of $600.0 million in aggregate principal amount of 5.50% Senior Unsecured Notes that mature on April 1, 2027 (the "2027 Senior Notes") in a private offering to qualified institutional buyers pursuant to Rule 144A that is exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"), and to certain non-U.S.

persons in accordance with Regulation S under the Securities Act.

The 2027 Senior Notes were issued at par, with interest payable on April 1 st and October 1 st of each year, commencing on October 1, 2019.

The Company used the net proceeds from the offering to repay our outstanding balance on the Revolver portion of our Credit Agreement.

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.

Bank National Association, as trustee.

The Company may redeem some or all of the 2027 Senior Notes at any time at redemption prices set forth in the 2027 Indenture.

The terms of the 2027 Indenture, among other things, limit the ability of the Company to:

(i) incur additional debt and issue preferred stock;

(ii) pay dividends or make other restricted payments;

(iii) make certain investments;

(iv) create liens;

(v) allow restrictions on the ability of certain of our subsidiaries to pay dividends or make other payments;

(vi) sell assets;

(vii) merge or consolidate with other entities;

and (viii) enter into transactions with affiliates.

As of March 31, 2023, we had $600.0 million in aggregate principal amount of 5.500% senior unsecured notes that mature on April 1, 2027 (the "2027 Senior Notes").

The 2027 Senior Notes were issued at par in a private offering to qualified institutional buyers, with interest payable in arrears on April 1st and October 1st of each year, commencing on October 1, 2019.

The Company may redeem some or all of the 2027 Senior Notes at redemption prices set forth in the 2027 Indenture.

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 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.

The Existing 2028 Senior Notes were issued at par, with interest payable on January 15 th and July 15 th of each year, commencing on July 15, 2018.

The Company used the net proceeds from the offering to repay a portion of our $600.0 million 5.375% Senior Unsecured Notes.

In connection with the offering, we capitalized $7.7 million of debt issuance costs which are being amortized as interest expense over the term of the Existing 2028 Senior Notes.

The Existing 2028 Senior Notes were issued pursuant to an indenture, dated December 27, 2017 (the "2028 Indenture"), among the Company, certain subsidiaries of the Company as guarantors (the "2028 Guarantors"), and U.S.

Bank National Association, as trustee.

The Company may redeem some or all of the Existing 2028 Senior Notes at any time at redemption prices set forth in the 2028 Indenture.

The terms of the 2028 Indenture, among other things, limit the ability of the Company to:

(i) incur additional debt and issue preferred stock;

(ii) pay dividends or make other restricted payments;

(iii) make certain investments;

(iv) create liens;

(v) allow restrictions on the ability of certain of our subsidiaries to pay dividends or make other payments;

(vi) sell assets;

(vii) merge or consolidate with other entities;

and (viii) enter into transactions with affiliates.

On March 17, 2021, the Company completed an offering of $200.0 million in aggregate principal amount of 4.75% Senior Unsecured Notes that mature on January 15, 2028 (the "Additional 2028 Notes") in a private offering to qualified institutional buyers 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.

The Additional 2028 Notes were offered under the indenture dated as of December 27, 2017, governing the Existing 2028 Senior Notes and form a part of the same series for purposes of the indenture.

In connection with the offering, we capitalized $3.4 million of debt issuance costs which are being amortized as interest expense over the term of the Additional 2028 Notes.

Upon completion of this offering, the aggregate principal amount outstanding of the Existing 2028 Notes, together with the Additional 2028 Notes (collectively the "2028 Senior Notes") is $700.0 million.

The Additional 2028 Notes were issued at 103.25% of the principal amount, plus interest deemed to have accrued from January 15, 2021, with interest payable on January 15 th and July 15 th of each year, commencing on July 15, 2021.

The 2028 Senior Notes will vote as one class under the indenture governing the 2028 Senior Notes.

The 3.25% premium will be amortized through interest expense, net over the term of the Additional 2028 Notes.

The Company used the net proceeds from the Additional 2028 Notes and the Term Loan B-1 (i) to repay indebtedness outstanding under our Revolving Credit Facility, (ii) to fund related transaction fees and expenses and (iii) for working capital and other general corporate purposes.

The Company may redeem some or all of the Additional 2028 Notes at any time as set forth in the 2028 Offering Memorandum.

In connection with the issuance of the Additional 2028 Notes, the Company and the 2028 Guarantors entered into a Registration Rights Agreement to register any 2028 Senior Notes under the Securities Act for resale that are not freely tradable 366 days from March 17, 2021.

As of March 31, 2023, we had a total of $700.0 million in aggregate principal amount of 4.750% senior unsecured notes (collectively, the “2028 Senior Notes”) maturing on January 15, 2028.

The 2028 Senior Notes consist of $500.0 million notes issued at par and $200.0 million notes issued at 103.25%.

The 2028 Senior Notes were issued in a private offering to qualified institutional buyers, with interest payable in arrears on January 15th and July 15th of each year, commencing on July 15, 2018.

The 3.25% premium is being amortized through interest expense, net over the term of the notes.

The Company may redeem some or all the 2028 Senior Notes at redemption prices set forth in the 2028 Indenture.

2030 Senior Notes

On April 13, 2022, CDI Escrow Issuer, Inc.

(the "Escrow Issuer"), a wholly-owned subsidiary of the Company, completed an offering of $1.2 billion in aggregate principal amount of 5.750% Senior Unsecured Notes that mature on April 13, 2030 (the "2030 Notes") in a private offering to qualified institutional buyers 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.

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.

As of March 31, 2023, we had $1.2 billion in aggregate principal amount of 5.750% senior unsecured notes that mature on April 13, 2030 (the "2030 Senior Notes").

The 2030 Senior Notes were issued at par in a private offering to qualified institutional buyers, with interest payable in arrears on April 1st and October 1st of each year, commencing on October 1, 2022.

In connection with the offering, we capitalized $18.3 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

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.

The 2030 Notes were issued at 100% of the principal amount, plus interest deemed to have accrued from April 13, 2022, with interest payable in arrears on April 1 st and October 1 st of each year, commencing on October 1, 2022.

The 2030 Senior Notes will vote as one class under the indenture governing the 2030 Senior Notes.

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.

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.

The Company held the net proceeds of this transaction of $1.2 billion in escrow until the proceeds were utilized to complete the P2E Transaction on November 1, 2022.

The Company may redeem some or all the 2030 Senior Notes at redemption prices set forth in the 2030 Indenture.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023

2031 Senior Notes

On April 25, 2023, the Company completed an offering of $600.0 million in aggregate principal amount of 6.750% Senior Unsecured Notes that mature on April 25, 2031 ("2031 Notes") in a private offering to qualified institutional buyers 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.

The 2031 Notes were issued at 100% of the principal amount, plus interest deemed to have accrued from April 25, 2023, with interest payable in arrears on May 1 and November 1 of each year, commencing on November 1, 2023.

The 2031 Notes will vote as one class under the indenture governing the 2031 Senior Notes.

The Company may redeem some or all of the 2031 Notes at any time prior to April 25, 2025, at redemption prices set forth in the 2031 Offering Memorandum.

Contractual Obligations

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

Our commitments to make future payments as of March 31, 2023, are estimated as follows:

(in millions) 2023 2024-2025 2026-2027 Thereafter Total

1 unchanged sentence

Interest on Term Loan A (1)

62.1 153.3 89.3 — 304.7

Term Loan B 3.0 376.0 — — 379.0

13 unchanged sentences

Operating and Finance Leases 4.5 10.7 7.5 7.0 29.7

Minimum Guarantees (2)

2.5 5.2 5.0 11.6 24.3

Total $ 276.9 $ 1,017.7 $ 2,106.1 $ 2,394.0 $ 5,794.7

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

(1) Interest includes the estimated contractual payments under our Credit Agreement assuming no change in the weighted average borrowing rate of 6.56% which was the rate in place as of March 31, 2023.

As of March 31, 2023, we had approximately $5.2 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