The big payday at Churchill Downs (NASDAQ:CHDN) is the Kentucky Derby. Unfortunately, that won't show up until the second quarter. What we have to chew on now is first-quarter revenue, which while up 5.6%, drove a wider net loss, nonetheless. That is not a winning combination.

And while the first quarter is light on thoroughbred racing, President and CEO Thomas Meeker used the press release to talk about "alternative gaming" anyway. "We believe that the long-term success of our company and the industry depend upon a level playing field with competitors in the gaming industry," Meeker explains.

He's not talking about horses. Indeed, plenty of racing facilities host gaming (gambling). Empire Resorts (NASDAQ:NYNY) is building a casino adjacent to its harness racetrack 40 miles from New York City. Unfortunately for Empire, Caesars Entertainment (NYSE:CZR) will offer a resort in the area without the need to check to see if you are downwind.

Perhaps the best marriage of horse racing and gaming is Penn National (NASDAQ:PENN), which started gaming at its West Virginia racetrack in 1997 and has been expanding ever since. The West Virginia operations contributed 28% of revenue in 2003 and 35% of EBITDA.

Even casino heavyweight Harrah's Entertainment (NYSE:HET) has made clear its liking for the combined racetrack-casino format. It paid $94 million for Louisiana Downs in Dec. 2002. So clearly, there is something to the combination.

For now, Churchill has to make money from racing. For full-year 2004, that's expected to be $1.70 per share, down from the $1.80 it earned in 2003, though analysts expect the company to return to the $1.80 level in 2005. In other words, for 22 times earnings, you get a company with earnings going nowhere, a debt-to-equity ratio that's dicey at 48%, and the need for state legislation to help improve its margins.

Feeling lucky? Why bet on a horse standing still at the gate?

Is anyone else surprised that only 250,000 people registered for the free contest to win $5 million by picking the exact order of finish for the 18 horses in the Kentucky Derby? No person got the order right but one person picked the first five finishers in order -- and won $25,000. If she had bet the superfecta she would have won $41,380 - but that's not free!

Want to discuss Churchill Downs and Harrah's Entertainment with other investors? Try The Motley discussion board.

Fool contributor W.D. Crotty does not own stock in any of the companies mentioned.