Churchill Downs Inc (CHDN) Q1 2021 Earnings Call Transcript

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Churchill Downs Inc (CHDN 5.22%)
Q1 2021 Earnings Call
Apr 24, 2021, 11:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, your conference call is scheduled to start momentarily. Please continue to standby, and thank you for your patience.

Good day, ladies and gentlemen, and welcome to the Churchill Downs Incorporated 2021 First Quarter Earnings Conference Call. [Operator Instructions] I would now like to introduce your host for today's conference, Mr. Nick Zangari Vice President, Treasury and Investor Relations.

Nick Zangari -- Vice President, Treasury and Investor Relations

Thank you, Olivia. Good morning and welcome to our first quarter 2021 earnings conference call. After the company's prepared remarks, we will open the call for your questions. The Company's 2021 first-quarter business results were released yesterday afternoon. A copy of this release announcing results and other financial and statistical information about the period to be presented in this conference call, including information required by Regulation G is available at the section of the company's website titled News, located at churchilldownsincorporated.com as well as in the website's Investors section.

Before we get started, I would like to remind you that some of the statements that we make today may include forward-looking statements. These statements involve a number of risks and uncertainties that could cause actual results to differ materially. All forward-looking statements should be considered in conjunction with the cautionary statements in our earnings release and the risk factors included in our filings with the SEC, specifically the most recent report on Form 10-Q and Form 10-K. Any forward-looking statements that we make are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information or future events.

During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release. The press release and Form 10-Q are available on our website at churchilldownsincorporated.com.

And now I'll turn the call over to our Chief Executive Officer, Mr. Bill Carstanjen.

William C. Carstanjen -- Chief Executive Officer

Thanks, Nick. Good morning, everyone. With me today are several members of our team, including Bill Mudd, our President, and Chief Operating Officer; Marcia Dall, our Chief Financial Officer and Brad Blackwell, our General Counsel. I will comment on our first-quarter performance, our capital investment plans, and the upcoming Kentucky Derby. After my comments, Marcia will make her remarks and then we will open the call for questions.

As most of you have seen, we issued an 8-K earlier this week in which we announced changes to our segments for external financial reporting purposes to reflect the evolution and growth of our company and to provide further clarity for investors to better understand our operating performance. Our continued growth and evolving plans with respect to historical racing machine developments warrant these changes.

Turning our attention to the first quarter, we have completed our preparations for the 2021 Kentucky Derby, which we will conduct with fans in attendance along with appropriate health and safety protocols. I will provide more specifics on these plans in a few minutes. We worked with industry participants and our government representatives across Kentucky to pass new legislation clarifying the legality of historical racing machines in the Commonwealth, paving the way for the further development and growth of our current venues and the green light to move forward on potential additional projects. We repurchased 1 million shares of our stock. We placed $500 million of debt at very attractive terms and we delivered double-digit revenue and doubled our adjusted EBITDA in the first quarter compared to the prior year.

In light of the COVID-19 impacts that began in March of last year, we also compared our performance in the first quarter of this year to the same period in 2019. Our businesses also delivered double-digit revenue growth and double-digit adjusted EBITDA growth for the first quarter 2021, compared to the first quarter of 2019. Our net revenues for the quarter were up 28% compared to the same period in 2020 and up 22% compared to the same period in 2019. Adjusted EBITDA was double the same period from last year and nearly 50% higher than the same period in 2019.

The keys for us to delivering these results center around our continued long-term strategic focus on growth despite the short-term disruption of the pandemic the careful planning around our balance sheet and access to capital and the quality and focus of our operational leadership teams, more specifically over the last number of quarters through the first quarter we sought to protect the long-term value of our iconic asset, the Kentucky Derby, which remains the longest-running annual sporting event in the history of the United States. We planned aggressively but responsibly for the 2021 Kentucky Derby and will accelerate toward the 2022 event with what we expect will be significantly fewer if any COVID-related restrictions.

We will also further invest growth capital in our facility, which I will discuss a bit later. We sought to position our core assets, our regional gaming properties for high margin growth coming out of the pandemic by trimming operational expenses and then adding back cost only when the analytics showed it is accretive to do so. We sought to capture significant profitable growth from the accelerated channel migration with our market-leading TwinSpires Horse Racing business and then retain those customers online as brick and mortar restrictions were eased.

We continue to make organic investments in new high-growth historical racing and gaming entertainment properties. We demonstrated our stability and commitment to our investors by increasing our dividend by 7%. We repurchased a significant block of shares at a discounted price creating value for our long-term shareholders. We launched our auction process to sell the Arlington Park land so that we can more effectively deploy this currently locked-up capital into high-growth projects.

And finally, we reimagined our capital investment plans, resulting in a new portfolio of organic growth opportunities that will provide profitable growth for the foreseeable future. In short, we didn't want to lose our long-term focus because of short-term challenges but we also believed we could excel in the short term despite the pandemic. We believe our results demonstrate real strength and strategy and execution.

Let's focus for a moment on our regional gaming properties. Our regional gaming properties delivered record adjusted EBITDA in the first quarter, which was more than half of the adjusted EBITDA growth in the first quarter for the company compared to the prior year and compared to the first quarter of 2019. All of our regional gaming properties are now open. Rivers was actually closed most of the month of January and both Presque Isle and Nemacolin were shut down in the first week or so of January.

Regulatory-related COVID restrictions have been meaningfully reduced in all of our locations over the course of the first quarter although various levels of restrictions still exist for all of our properties and we will continue to benefit as these restrictions are lifted. The performance of our properties will still -- while still under serious although steadily declining restrictions over the quarter while -- excuse me, while still under serious although steadily declining restrictions over the quarter was an important component of our Company's overall strong performance and a source of optimism as we look forward. Our equity investments in River Casino -- in Rivers Casino and Miami Valley Gaming performed quite well in the quarter compared to the prior period even despite Rivers closure during most of January, reflecting the quality of these teams and our exceptional locations in large markets.

As we discussed last quarter, Rivers is investing $87 million to expand the facility, which will be funded from debt at the Rivers entity level. The expansion will accommodate approximately 725 gaming positions based on a combination of new slot games and table games, resulting in the facility utilizing it's full 2000 positions permitted under current law.

The target completion of spring of 2022, Rivers will also pay $24 million in licensing fees for the incremental gaming positions and $10 million for its sports wagering license by the end of the second quarter. This project is an exciting one for us and we believe a very efficient deployment of growth capital. Our wholly owned properties also performed well overall despite COVID-related regulatory restrictions that severely impacted some of our properties. Marshall will provide more color in a few minutes. The second area of adjusted EBITDA growth in the first quarter came from our TwinSpires Horse Racing business. Accelerated channel migration throughout the COVID-19 crisis shifted wagering on horse racing to the online channel from brick and mortar facilities. This trend remains a surprisingly strong one. Our horse racing business grew handle by 34% over the first quarter of 2020 compared to a 10% increase in wagering on U.S. thoroughbred races in the first quarter of 2021. Recall that some of our racing was canceled last year in the first quarter, which subsequently return to the racing calendar this year.

We continue to make careful strategic investments of building our TwinSpires Sports and Casino business. We launched our new GAN and Kambi platform for sports betting and casino wagering in Michigan and for sports betting in Tennessee. Our focus is on establishing that our technologies will perform as we scale and then testing our marketing and acquisition strategies to see if they can be deployed efficiently at scale. Our new technology platform is performed very well to date. We transitioned Pennsylvania and Indiana to the new GAN and Kambi platform earlier this week, expect to launch a mobile product in Colorado, by the end of the week -- of this week and to transition New Jersey later in the second quarter.

Note that our new segment reporting incorporates our retail sports betting results within our TwinSpires segments, to more accurately show our sports betting activities. There are other states that have recently approved new sports betting legislation including Maryland where we have a brick and mortar casino. There are additional states that have either passed legislation or are considering new legislation that may be an opportunity for long-term growth in sports betting and online casino wagering. While we appreciate these new possibilities, we remain cautiously optimistic given the long time frame that exists between legislation, when legislation is approved and when the business can become operational as well as the ongoing industry wide cash losses that are accumulating in all of these states that have already implemented sports betting, which is generally been driven by excess of free play marketing and brand spend, focused on revenue growth as opposed to profitability.

We remain committed to and disciplined in growing profitable businesses that create long-term shareholder value. This was our strategy and building our profitable online horse racing business and it remains our strategy in building our sports betting and online casino wagering business. As we identified clear path to a reasonable return on marketing spend, long-term profitability and margin sustainability, we will invest appropriately. We believe our and our investor patience -- our investors' patience will be rewarded in time in this space.

Our commitment to being disciplined and growing profitable businesses is reflected in our investment in historical racing and gaming entertainment properties. As a reminder, it has only been a little over three years since our team announced our partnership with Ainsworth to develop new state-of-the-art HRMs. In September 2018, our team opened our first HRM facility, Derby City Gaming in Louisville, which we built for $65 million. The success of Derby City reflects our ability to develop new products through industry partnerships, invest capital prudently and build customer demand for a unique entertainment venue. The expansion of HRM game titles to include the best names offered by Scientific Games and IGT has significantly enhanced our customer entertainment experience. Equally important, Derby City has generated significant purse money for Churchill Downs Racetrack to support the horse racing industry. The increase in purse money has attracted more and better quality horses to our premier Churchill Downs Racetrack and help strengthen the foundation of the entire horse industry in Kentucky.

Despite the challenges of the global pandemic, we also completed the construction of our Oak Grove HRM facility and hotel and Oak Grove Kentucky that opened in September 2020 and our Turfway Park HRM annex, Newport Racing & Gaming that opened in October 2020. These three facilities provided a combined $16 million of growth and adjusted EBITDA in the first quarter of 2021, compared to the prior year. Obviously, none of these venues have approached maturity and they offer us high growth opportunities that we plan to continue to invest and to grow over the long term.

We are making good progress in building our Turfway Park Racing and HRM entertainment venue, we held a groundbreaking ceremony in March, which was celebrated with the Governor of Kentucky, other state and local politicians and members of the Kentucky Horse Racing Commission. We are on track to open the facility in the summer of 2022.

Before discussing our preparation for the 147th Kentucky Derby, I will update you on our capital investment plans related to Churchill Downs Racetrack and Derby City Gaming. As I mentioned on our last earnings call, while the projects at Churchill Downs Racetrack were paused during the pandemic, we used the time to reevaluate a number of evolving factors including consumer travel trends especially hotel occupancy and room rates in our region, alternative capital investment opportunities at Churchill Downs Racetrack that would create new experiences for our customers, including new or enhanced reserved seats that would generate more immediate and higher returns with less risk and how to optimize the distribution of HRM facilities in the Louisville market in light of the continued significant growth of Derby City Gaming and the potential for an annex permissible under Kentucky law within 60 miles of Churchill Downs Racetrack, which includes downtown Louisville. Based on this analysis, we have decided to not build a hotel on the first turn of Churchill Downs Racetrack at this time. We may decide to build a hotel at the Racetrack in future. But now is not the right time. We think we have excellent alternative projects that offer better returns on our capital over shorter periods, both at the Racetrack and the Derby City Gaming.

As a result of this decision, we have developed a multi-year spaced set of projects that we believe will create significantly improved experiences for our guests at the Derby and will generate consistent adjusted EBITDA growth in the coming years for this iconic asset. We are developing the final designs, completing the due diligence and obtaining firm construction estimates for these projects. We anticipate that the first capital investment would be completed by next year's 148th Derby in 2022. The second project by the 149th Derby in 2023 and the third and most transformative project by the 150th Derby in 2024. While we haven't gotten firm construction estimates yet, we know these projects are economically viable. We will provide a complete summary of the 148th Derby project at our next earnings call, as well as provide more information on the project to be completed by Derby 149 in 2023. We will also share some of our plans for additional amenities for Derby 150. Please stay tuned, we are excited about what is to come at Churchill Downs Racetrack over the next two years, but we are not ready to share our detailed plans today.

We are also evaluating options to expand Derby City Gaming. We continue to be very pleased with the growth of this entertainment venue and believe that an expansion with additional floor capacity and other amenities will enhance the long-term growth of this asset. We are in the design phase and obtaining construction estimates. We expect to share these plans at or before the next earnings call.

Additionally, we are evaluating an opportunity to build the Churchill Downs HRM annex. Derby City Gaming is demonstrating the strength of our HRM product in the Louisville market and we believe the market will support a satellite facility that does not materially cannibalize Derby City Gaming. We are excited and confident about all of these projects and view them as likely to deliver strong returns with only modest risks. This is another irony of the pandemic, we stopped our Louisville projects in light of the uncertainty, but we have learned so much with the passage of the subsequent time and we will emerge with projects that we will monetize better and quicker.

And now, I will share some thoughts on the 147th Kentucky Derby that is just a little over a week away. Our team has worked hard in preparing to welcome spectators back to Churchill Downs for an amazing Derby week. For example, we partnered with Norton Healthcare to offer COVID-19 vaccinations at our racetrack for the community around the facility, the backside workers and our team members. There is growing excitement among our team members, our community and our fans with respect to this year's Kentucky Derby. Everyone wants to get back toward normal and our iconic event is an important step on that road for our state and region. Derby week will begin with opening night this Saturday evening celebrating Louisville's vibrant arts community with a variety of musicians, dancers, live performances, visual artists and of course horse racing. On Tuesday, April 27, we will celebrate Champions for Change with a special day of racing commemorating Black Horseman and thoroughbred racing and as a public commitment to increasing diversity and inclusivity in the sport of horse racing.

On that note, we are excited to launch today, the Derby Equity and community initiative, along with our partners at Humana and the Kentucky Derby Festival. The initiative is a combined effort to incorporate more inclusive events into the derby seasons with the intention of better ensuring a sense of belonging with respect to global communities that have historically encountered a lack of access to opportunities.

The 147th Kentucky Derby will be held on on May 1st, the first Saturday in May. We expect to have sold 40% to 60% of the reserved seating in each seating area depending on our ability in each area to comply with the Kentucky venue limitations. Guests will be asked to wear masks when they are not eating or drinking. In addition, we will have extra resources dedicated to cleaning and sanitizing high-touch services throughout the week. All of our reserved seats have been sold as all-inclusive to improve our guest experience and to minimize the need for cash handling. We are also selling a limited number of infield-only tickets at the traditional pricing levels to provide a more affordable option to attend as well. NBC Sports Network will provide coverage of the Kentucky Oaks Race from 12 PM to 6 PM on Friday, April 30th. NBC Sports Network and NBC proper will provide coverage of the Kentucky Derby from 12:00 to 7:30 PM on Saturday, May 1st.

We have worked tirelessly to make this year's event very special for our guests, and we look forward to welcoming them back to our historical -- our historic facility. It's going to be a great and very welcome experience for everybody.

With that, I will turn the call over to Marcia, and when she is finished, we will open the call for questions. Marcia?

Marcia A. Dall -- Executive Vice President and Chief Financial Officer

Thanks, Bill, and good morning everyone. As Bill mentioned, I will provide some thoughts on our new segment reporting and our first-quarter financial results. Then I will provide an update on our capital management plans. We filed our Form 8-K Tuesday afternoon in which we made two changes to our operating segments for the first quarter of 2021 and going forward. The first change we made was to rename our Churchill Downs segment to our live and historical racing operating segment. This segment represents racetracks with live racing and historical racing entertainment venues. This operating segment will now include our Churchill Downs Racetrack and it's HRM facility, Derby City gaming, our Oak Grove Racing gaming, and hotel venue, which opened in September 2020, our Turfway Park Racing Gaming venue where we are currently building the new HRM facility that Bill discussed, and our Newport Racing & Gaming venue, which opened in October 2020 and as an annex of Turfway Park.

The financial results for Oak Grove Turfway Park and Newport were previously included in All Other. The second change we made was to rename our online wagering segment as the TwinSpires segments. This is consistent with our branding for horse racing and for sports and online casino wagering. We are also now including our retail sports betting results from our wholly owned casinos and our sports and casino business within the TwinSpires segment. Our retail sports betting results at our wholly owned casinos were previously included in our gaming segment. This change provides a clear view of the total profitability of our sports and online casino business.

So turning to our financial results, we are very pleased with our first-quarter financial results. Our first-quarter results are direct reflection of our team's relentless fortitude during the 2020 pandemic to position our company for significant organic growth coming out of the pandemic. Our three business segments combined delivered double-digit revenue growth and doubled our adjusted EBITDA in first quarter compared to the prior-year quarter. As Bill shared, we also had double-digit revenue growth and double-digit adjusted EBITDA growth for the first quarter compared to the first quarter of 2019.

Our live and historical racing segment generated $65 million of net revenue in the first quarter, which was more than double the prior-year quarter and generated $18 million of adjusted EBITDA compared to $1 million in the prior-year quarter. Churchill Downs Racetrack is relatively quiet in the first quarter of each year with no live racing days. Therefore the nearly $36 million of growth in net revenue and the $17 million of growth in adjusted EBITDA for the quarter was from the opening of our Oak Grove and Newport properties and continued strong growth from Derby City Gaming.

We are very pleased with the performance of our Oak Grove and Newport properties since their opening in late 2020. Derby City Gaming's performance continues to exceed our expectations. The property benefited from the completion of a second outdoor gaming patio, which added 225 HRMs in September 2020 and increased operating efficiencies. Our primary competitor also closed for a few days during the quarter due to flooding, which helped bring additional traffic to Derby City Gaming.

The TwinSpires segment generated $100 million of net revenue of $31 million from the prior-year quarter and generated $22.5 million of adjusted EBITDA of $6.5 million from the prior-year quarter. Our TwinSpires Horse Racing business was $26 million of net revenue increase and generated an incremental $9.9 million of adjusted EBITDA compared to the prior-year quarter. Our horse racing business benefited from a 34% increase in handle compared to the prior-year quarter, which in part reflects the impact of the continued shift from brick and mortar wagering to online wagering.

Our sports and online casino net revenues increased nearly $5 million during the first quarter and our operating loss in this business increased $3.4 million from the prior-year quarter as a result of the increased marketing and promotional activities related to our launch in Michigan and Tennessee. And last, our gaming segment net revenue from only our wholly owned casinos increased $6.6 million or 4% from the prior-year quarter. Our gaming segments' adjusted EBITDA, which includes our wholly owned revenue -- wholly owned casinos and equity investments in Rivers and MVG increased $34.5 million or 72%.

Regarding our wholly owned casinos, it's important to note that the temporary closure of our brick and mortar properties beginning in mid-March of last year due to COVID-19 did impact our prior-year quarter comparison. In January 2021 Presque Isle and Nemacolin were closed for a brief period of time. All of the gaming properties were operating under state and local restrictions due to COVID-19 during the first quarter. We have seen a reduction in the restrictions at almost all of our properties. However, there are certain restrictions in place that are still there that limit our full operating potential for our gaming properties.

The margin for our wholly owned gaming properties excluding Presque Isle and Nemacolins increased 15 points compared to the first quarter of 2020. The margin improvement on the same basis for first quarter 2021 compared to the first quarter 2019 was over 7 points. Regarding our equity investments in Rivers Casino Des Plaines and MVG both properties are open and also continue to operate under certain state and local restrictions. As Bill mentioned, Rivers was closed for a few weeks in early January of this year. These two properties generated $10 million of incremental adjusted EBITDA in the first quarter compared to the prior-year quarter and also distributed a combined $22 million of cash to Churchill in the first quarter.

Turning to capital management, in the first quarter of 2021, we spent $5 million on maintenance capital compared to -- they were primarily related to capitalized improvements to our TwinSpires Horse Racing Technology platform and mandatory items at our gaming properties and Churchill Downs Racetrack. For full-year 2021, we continue to anticipate spending $50 million to $60 million of maintenance capital, of which about half is targeted on our gaming properties, primarily driven by a deferral of spending in 2021. We also anticipate spending the majority of the remainder on placing the Turf course at Churchill Downs Racetrack and on continued improvements to our TwinSpires Horse Racing Technology platform.

Regarding project capital, for the first quarter of 2021, we spent $8 million on project capital, of which more than half was spent on the Oak Grove facility. The balance of the project capital was spent at Churchill Downs Racetrack and site preparation at Turfway Park. For full-year 2021, we continue to anticipate spending $150 million to $160 million on project capital, of which approximately half is planned for the build-out of the Turfway Park, HRM facility, and the final completion of a few carryover projects related to Oak Grove and Newport, as well as some smaller capital projects at our gaming facilities, the balance of the 2021 project capital for the capital expansion plans at Churchill Downs Racetrack that Bill discussed.

Now regarding our debt and leverage positions, on February 1, we repurchased 1 million shares of our stock from an affiliate of The Duchossois Group. We repurchased the shares for a $193.94 per share with an aggregate purchase price of a $193.9 million. We funded the repurchase with our revolver. We believe that repurchasing large blocks of our shares at attractive prices is beneficial to our long-term shareholders and will be accretive to our EPS.

In March, we issued 300 -- a new $300 million term loan B, and $200 million of senior unsecured notes at very attractive pricing, which we used to pay off our revolver and fund the settlement payment to the Big Fish related legal cases on March 25th. We have approximately a $148 million of excess cash in our balance sheet that we will use for project capital and other corporate needs. At the end of March 2021, we had net leverage of 5.3 times, reflecting our increase in debt and the lower level of 2020 Adjusted EBITDA as a result of the pandemic. We were compliant with both of our revolver covenants at the end of the first quarter, even though we have a waiver of these covenants for the second quarter 2021 reporting period. We anticipate that our net leverage will decrease in second quarter and over-the-balance of the year and into 2022, as we benefit from the running of the Derby on its traditional date, the first Saturday of May, the continued listing of state and local restrictions on our gaming and HRM properties. And as we accelerate the growth from our newer HRM properties, I'd like to -- I'm excited for the 147th running of the Kentucky Oaks Center next week. It is truly the most special and magical sporting entertainment event in the world. With that, I'll turn the call back over to Bill. So that he can open the call for questions. Bill?

William C. Carstanjen -- Chief Executive Officer

Thanks Marcia. Okay everybody, we're ready to take your questions if you have any for us.

Questions and Answers:

Operator

[Operator Instructions] Now, first question coming from the line of Brett Andress with KeyBanc Capital. Your line is open.

Brett Andress -- KeyBanc Capital Markets -- Analyst

Good morning, thanks for taking my questions. Starting off on the Derby, obviously going to be a unique year again and maybe normally we would debate, some of the finer details like weather, field size, things like that, but, just how much revenue visibility around the event, do you have this year, maybe compared to a normal year? And then the second part of that question is industry handle, obviously continues to be strong, in person wagering, it's going to return to the Derby. Just how do you think about some of the puts and takes around that if it relates to TwinSpires?

William C. Carstanjen -- Chief Executive Officer

Sure. So I'll take your first question, there's a couple of questions within that. I'll take the first one first, revenue visibility. Our revenue visibility is really excellent because we know exactly how many seats we're able to sell in different areas. We understand our sponsorship numbers and we have a pretty good feel for wagering, although there may be some variability on that. Just because the circumstances are a little bit different this year, like they were last year. So generally as we go into the Derby, there is a fair amount of confidence and understanding of what we should be able to expect and we've largely telegraphed some of that in my earnings comments and other forms so that people know it primarily -- that we are not able to have the full contingent of fans that we normally would have because of COVID.

With respect to the puts and takes on wagering, the country is open back up for fans, there are limitations in different jurisdictions. So, as people return to brick-and-mortar facilities. That's one important place that people wager and while they couldn't do that as much last year, we weren't necessarily happy about that because not everybody is going to migrate to online. So, we're glad that the facilities are back open generally across the country even though there are restrictions within those facilities and of course channel migration to online has been a big theme for us over the last year. So, that's an important component for us and an important emphasis for us as well. So, we're optimistic about that.

Brett Andress -- KeyBanc Capital Markets -- Analyst

Yeah, OK. And then second, listening to some of your sports betting and online gaming peers there seems to be a desire, I think for some of them to get into the horse wagering business. So, as we begin to think about the possibility of new entrants it will be helpful for me, if you could maybe just talk through the competitive modes that you see around the TwinSpires business and what new entrants could even mean for the industry?

William C. Carstanjen -- Chief Executive Officer

Well, generally we like the idea of more fan participation in wagering on horse racing. Generally, we think that's a good thing for our game, for our company overall and for TwinSpires. It's a great gambling game but it's different than other forms of sports wagering from a couple of respects. First, from a legal perspective, that has a separate legal regime. It has a federal law, that sort of governs how horse racing, wagering is going to happen across state lines and it gives the content producer clear intellectual property rights with respect to any wagering activity on the content provider's content. So, deals are required with the horse racing providers, the tracks and their horseman in order to ever take wagers on their content. So it's a different legal construct and that is an important difference or mode to the rolling out of this product more broadly.

Secondly, wagering on horse racing is paramutually based. It's not fixed-odds based. So, the technology is different, generally the platforms you see out there across sports wagering providers, they're not quite set up at this time to take paramutual wagering, that's a technology challenge that certainly surmountable but it hasn't been undertaken yet. So there are some tweaks and differences about paramutual wagering on horse racing that are out there that over time might be surmounted by some who are willing to do the work and cut the necessary deals in order to do so and we're never afraid of that, we'll look to find opportunities within that. Better monetize our content and further the economics of TwinSpires as well.

Brett Andress -- KeyBanc Capital Markets -- Analyst

All right. And then, in the spirit of things going back to normal here, can we get your pick for the Derby?

William C. Carstanjen -- Chief Executive Officer

Oh, no, I never do that because that's incredibly unfair to these poor horse owners out there, who would then be cursed with me having picked them as my favorite that -- I wouldn't do that to people. It wouldn't help anybody -- wouldn't help that poor horse owner and it really screw over you betters out there who would maybe listen to my advice. So I'm the last person that can give that advice. But it's a really competitive field this year. So, it's actually pretty exciting for those that know the game. This is going to be a lot of fun this year.

Brett Andress -- KeyBanc Capital Markets -- Analyst

Just looking for looking for an edge there. All right, thanks for taking my question.

William C. Carstanjen -- Chief Executive Officer

Go to TwinSpires, they've got some tools that can help you out. Thank you. Thanks for those questions.

Operator

Our next question coming from the line of Finn Barrett with Bank of America. Your line is now open.

Finn Barrett -- Bank of America -- Analyst

Thanks and good morning, guys. Congrats on another great quarter. Starting off, I just wanted to ask a little bit about the return of customers you've seen on the regional casino side and also at the HRM properties at Kentucky, be great to just get some color around customer behavior and demographics of -- Are these rated players you've seen before? Or are you seeing any return of the older demographic? That will just be great to get some of what's driving demand now. Thanks.

William C. Carstanjen -- Chief Executive Officer

So I'm going to generalize. Generally there has been more unrated play than traditionally we've seen and generally our older players, the older demographics clearly demonstrated in the data are the most reluctant to return but they're starting to return as we believe the vaccination rollout across the country moves along.

Finn Barrett -- Bank of America -- Analyst

Great, that's very helpful. And then I guess, thinking about the Derby coming up this week. Can you just help us think about some of the margin impacts of the restrictions that you're facing this year and how we should expect that kind of tax rate flow through to P&L?

William C. Carstanjen -- Chief Executive Officer

There are puts and takes, when it comes to the margins with respect to Derby. We're doing more cleaning, etc., but also food and beverage is packaged with the tickets. So I don't -- I suggest that do not worry or focus much about margins, I think that's not a big driver in trying to predict this year how Derby will perform economically.

Finn Barrett -- Bank of America -- Analyst

Great, thank you. That's it for me and definitely looking forward to the Derby going back to normal in 2022.

William C. Carstanjen -- Chief Executive Officer

Us too. Thanks Ben.

Operator

Our next question coming from the line of Joseph with Susquehanna. Your line is open.

Joseph Stauff -- Susquehanna Internation Group -- Analyst

Okay, thank you. Good morning. Good morning, Bill. Good morning, Marcia. First question on the HRM's, Derby City Gaming, a record quarter despite the 60% fire code restriction as you suggested, Bill, say you're seeing more unrated players, just trying to ask where you see that incremental demand or any magnitude or measurement of it that you can give us. If the fire code restriction were to be removed, meaning, do you have -- certainly excess demand on the weekends, during weekdays any commentary you can give us, I'd be curious.

William C. Carstanjen -- Chief Executive Officer

I will talk about it a little bit more broadly than that. It's just a property that's not close to maturity yet, with respect to customer awareness in our market, with respect to customer familiarity with the quality of the product and with respect to the evolution of the product itself. We're still working hard to introduce more product, more games, more manufacturers on the floor, more innovation. So, generally, there are a lot of factors that are moving in the right direction. But I would start with the factor of it's still new, it's not close to maturity, and that's a really good thing. If you look at the size of, say, the Louisville market and that, so take that market, we were also down there at Oak Grove, pulling out of Nashville and up at our Newport facility pulling out of the Northern Kentucky Cincinnati region, but just looking at Louisville, you get a sense of the market based on what the activities are on the other side of the river and that's all third game for us to go after their economics and their customers and then we always derive confidence from knowing the size -- the historical size of the market by looking at their performance, but we think the market is even bigger than that, but that helps give a sense of what our targets are, to certainly we exist in competitive markets and we intend to to challenge competitors in our space, particularly those that have been around longer than us. So, there are a lot of good factors, we've built Greenfields before and this is a great place to be in the evolution of a Greenfield because we know we've got so much more to go, but but we've got to go prove it. So, the noise around the pandemic and fire code restrictions and and capacity constraints on weekends and whatnot, that's relevant that's important but I view that is less significant than just generally where we are in the stage of that property.

Joseph Stauff -- Susquehanna Internation Group -- Analyst

Makes sense. And on Oak Grove, you do have clearance regulatory plans to have over 1300 machines there and the other piece I wanted to ask is, how many of those machines say were available, given kind of like the reopening cadence and obviously it's a new property that you have to market, but what is the right way to think about that, just in terms of how many of those machines were available and or deployed at that location?

William C. Carstanjen -- Chief Executive Officer

Yeah. So they are about 1325 machines on the floor and somewhere around, but not the high 900s are actually turned on, that's primarily driven by COVID-related restrictions and sort of proximity of machines to each other. So, that's the current state of play on that facility floor. Now, if you ask me about every single floor, I'm not going to be able to answer that. So, please don't ask me for every one of our floors, but that one -- that's a facility that Bill Mudd and the team pay a lot of attention to. So, because we're so focused on growing it. So I happen to know those numbers off the top of my head.

Joseph Stauff -- Susquehanna Internation Group -- Analyst

Yeah. Okay and then TwinSpires and as you deploy additional, say menu options right, new products so as for gaming, I would imagine there is a hell of a lot of horse racing customers that you have intend to see and I guess my question primarily is within TwinSpires and so you're offering for Louisville in Tennessee and so forth, kind of going forward and this applies obviously to other states. Where are you in the development of a shared wallet? Seems naturally there could be a real weapon for cross promotion, as you suggested maybe in an earlier answer, there obviously is some software complexity to try to pair the paramutual in the fixed-odds racing or fixed-odds betting calculus together, but I'm wondering where you are in that?

William C. Carstanjen -- Chief Executive Officer

Yeah. We know how to do it and it is a priority and it is something that we think is important. But really our but it's not something we're addressing as a top priority right now, we've been focused on converting to GAN and Kambi and testing that technology, making sure that works and that will be our priority for the near term is -- as I covered a bit in my script as we get comfortable making sure that that technology is robust and scalable and I'm sure it will be. And then as we test our marketing and other plans with respect to traditional sports wagering and online casino, as soon as we can get around to the common wallet and that kind of exercise. We will, but right now we just have a lot to do, so we -- it's not a circumstance where you can do everything at once. So, that's how we prioritized.

Joseph Stauff -- Susquehanna Internation Group -- Analyst

Understood. Thanks very much.

Operator

Our next question coming from the line of David Katz with Jefferies. Your line is now open.

David Katz -- Jefferies -- Analyst

Hi, good morning everyone and thanks for all the information. I wanted to just talk about Illinois in a broad sense, I know that there is a process under way with Arlington and I'd love to get a sense for, even a neighborhood of timing with respect to that. And then there are sort of other license processes that obviously started pre-COVID and whether they've suspended themselves indefinitely or what would you like to see come out of those, whether it's Waukegan or downtown? Please.

William C. Carstanjen -- Chief Executive Officer

Sure, David. Good to talk to you. So, with respect to the Arlington Park land sale, preliminary bids -- a preliminary bid date has been set and as those bids come in, in the second quarter we'll evaluate them and figure out next steps. I think the ultimate conclusion of that process is something I can't responsibly predict for you, because we'll have to see the nature of the bids and if there -- if the property gets bidded, split up between multiple bidders or if it's a single bidder, etc. So there is a process. The process is under way. The preliminary indications are due in the second quarter and we'll take it from there and all is good on that front. It's just -- this is what it takes to run a complex process, to sell a big piece of land with a lot of value, like that one. With respect to opportunities on the gaming side in Illinois, I am understanding the Waukegan process Bill Mudd and I were talking about this morning. I think that the RFP window has closed for bankers to submit a response to the Waukegan RFP request to be the banker to help the Gaming Board make their decision, and I understand it's a 6-month window from the time that selected whenever the banker is selected. So that's all I know on that process. That's not a prediction that's just telling you what I know. That process is obviously taking longer than what we might have originally thought when we made our original bid, but we'll have to see.

And then, with respect to other opportunities in the state, I don't have anything to report, we're monitoring like you are and having discussions where appropriate but we are all really interested to see what happens with respect to downtown Chicago and we'll pay attention to that to see if there is opportunities for that and whether there's opportunities to move the racetrack elsewhere in the state as well. But I don't have anything to report on that at this time other than we work on it and think about it every day.

David Katz -- Jefferies -- Analyst

Appreciate that. And with respect to Kentucky. I know you made some commentary during your remarks and I believe I heard correctly that the notion of the all-suite hotel is being tabled for the time being. I just want to make sure that I heard that correctly and I suppose why and what is the vision for the Derby and how these properties might even interact with each other across Kentucky, right? I'm sort of looking for a grand vision of Kentucky as a whole if you can.

William C. Carstanjen -- Chief Executive Officer

Yes, we'll lay out a more fulsome picture of projects at Churchill Downs Racetrack and Derby City Gaming at or before our next earnings call. We're still going through some of the, some of the pricing and some of the construction. But ultimately if we back up and talk about what we had previously been proposing, a large hotel-based project at the track, I don't think it comes as any surprise to people out there. There is a lot more risk in a project like that just because of the disruption of travel and movement around the country. So we want to be thoughtful and careful about that and always make smart decisions. So as we challenge as we always do, and we've said that on these calls, we always challenge our assumptions, we always revisit and retest every assumption. We think they're just better projects for us to do that are higher return, lower risk, particularly in the current environment. So we reordered and reimagined what we want to do and segmented them, which always helps because we run the derby every May 1st, and so we always have to be ready to run the derby. So we've segmented them into three different projects for the track. So I think I think I have to leave it at there. I can't give you a big all-encompassing vision because you'll get that next time when we price that out and we can talk specifically on returns and costs associated with those returns. But I just ask that the investors be patient with us, give us the benefit of the doubt we've been -- we've demonstrated we've been good at these investments, we've been thoughtful about these investments for the Racetrack and we've got some really exciting things, and it was back to a point I made in my prepared remarks that this pandemic obviously has been a really terrible thing and disruptive to all our families and all our communities that we participate in, but ironically, it gave us time to think and retest and rejigger some of the, some of the projects we thought we should do and it's made us a better company. We will get a better return, we're more focused on cost and return and will do better with our projects going forward because we've had time to test and learn coming out of this pandemic.

David Katz -- Jefferies -- Analyst

All right. I appreciate that. And one last one if I may. Regarding digital and just the digital strategy, whether that's OSB iGaming or TwinSpires, it -- look, there is a population of entities out there that are running at certain speeds and obviously that bears a cost and risk profile, have you thought about the notion of doing it yourself versus partnering versus using B2B providers, etc. And how you're pacing that OSB and iGaming business relative to -- admittedly, what's going on now is an awful lot of enthusiasm.

William C. Carstanjen -- Chief Executive Officer

Yes, it's a really good question also a really hard question. I think partnerships, we have them with respect to technology. We have a technology partner. We have elected not to co-invest in our own technology and that's consistent with how we've started businesses here in the Company in the past. In the beginning, make your cost structure as variable as possible, so you pay by the drink and you can manage costs as you get into the business so you don't over-commit and overspend early on. So our technology partners, we've switched we're now with GAN and Kambi and we feel pretty good about that. So we feel that that's very stable and we're optimistic about that. When it comes to other sorts of partnerships, marketing partnerships, or equity partnerships, for us that just comes down to a question of do we think that's going to lower our cost per customer acquisition. Does that -- do we think that that will save us, that that's a cheaper more effective way to acquire customers than marketing on our own. And so those are always the deals that we look at and revisit. So one of the challenges in the space that people of -- in the space have approached differently and by the metric of market cap, it's been really beneficial to a couple, but we've looked around and looked at different deals and really felt that, that doesn't really change at this point our cost per customer acquisition or give us confidence that it will change our cost-per-acquisition, so we haven't pulled the trigger on any of that. But over time, we might, but we're always -- we're an established company. We have multiple business models. We want to be very careful about not falling victim to over-enthusiasm. We want to make sure that we invest in businesses that we're going to drive an acceptable return for our investors. And so, we're confident we should be playing in this space. We're being very methodical. We're being very patient, we're being very careful, and be patient with us. Give us a chance. We're being very thoughtful and spending as much time on this as any of our businesses but enthusiasm is not a substitute for demonstrated returns and so we want to make sure we see a path to get those before we commit incredibly seriously in some of these jurisdictions.

David Katz -- Jefferies -- Analyst

Understood. I appreciate it. Thanks very much.

William C. Carstanjen -- Chief Executive Officer

Thanks, David.

Operator

And we have a follow-up question from Brett Andress from KeyBanc. Your line is open.

Brett Andress -- KeyBanc Capital Markets Inc -- Analyst

Following up on that last Churchill investment question, would the plan still be in HRM operation on the Churchill property and now plus an annex in the surrounding area? I just want to make sure I'm not crossing any wires and I guess what analysis drove you the conclusion that, that market can absorb another HRM facility?

William C. Carstanjen -- Chief Executive Officer

We always have the right to put HRM facilities at the Racetrack but as the crow flies the Racetrack is within five miles of Derby City Gaming and they are both in that sort of south-southeast portion of the city. So that's always there. We may pursue that, I'm not discounting that for the future as advance of bold, but we have something in Derby City Gaming that just flat out works, just flat out works, and when you find that in business. You should invest in what works and Derby City Gaming really works for us. So our predisposition is to look hard at more investment there. When it comes to the annex, Bill Mudd and his teams -- you know that we have a lot of analytics on where our customers come from, where do we see zip codes in the metropolitan area that we don't draw from that we think may be go across the river. We've done a ton of work to figure out where are the strong spots for Derby City Gaming and where are the weak spots and where do the conventioneers who come to the city go. Do they go across the river? Do they go to Derby City Gaming? Where do the the transient folks that come through Louisville go? We've been running all of those questions because we do have that annex which is independent of putting machines at the racetrack itself. So we have that annex that we can deploy and we would look to do that obviously to maximize the collective return out of the Louisville market not over cannibalize and not cannibalize any material -- in any material respect what we have going on a Derby City Gaming.

Brett Andress -- KeyBanc Capital Markets Inc -- Analyst

Very helpful, thank you for the clarification.

William C. Carstanjen -- Chief Executive Officer

Our pleasure.

Operator

That's all the time we have for questions today. I would now like to turn the call back over to Mr. Bill Carstanjen for closing remarks.

William C. Carstanjen -- Chief Executive Officer

Thank you to our -- to all of you out there who are interested in our company and who have invested in our company. We're humbled and grateful for it and we'll do our best to be good stewards of your capital. Please stay tuned, please tune in for for the Derby on May 1st. It's going to be a great one, and I think it's really the first event since COVID hit in full force of this caliber and of this type with fans in the seat. So check it out, we'll do it right, we'll make you proud. Thanks very much everybody.

Operator

[Operator Closing Remarks]

Duration: 58 minutes

Call participants:

Nick Zangari -- Vice President, Treasury and Investor Relations

William C. Carstanjen -- Chief Executive Officer

Marcia A. Dall -- Executive Vice President and Chief Financial Officer

Brett Andress -- KeyBanc Capital Markets -- Analyst

Finn Barrett -- Bank of America -- Analyst

Joseph Stauff -- Susquehanna Internation Group -- Analyst

David Katz -- Jefferies -- Analyst

Brett Andress -- KeyBanc Capital Markets Inc -- Analyst

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