# Churchill Downs Inc. (CHDN) — Financial Analysis

**Exchange:**   
**Coverage as of:** 2026-Q2  
**Updated:** 2026-06-12  
**Tier:** Free primer (step 2 of 19)  
**Sibling pages:** /stocks/CHDN/thesis · /stocks/CHDN/memo

## Financial Snapshot

---
source: coverage-next-full
step: 04
title: Financial Quality & Adversarial Sweep
ticker: CHDN
date: 2026-06-11
---

### Step 04 — Financial Quality & Adversarial Sweep
#### Churchill Downs Incorporated (CHDN)

> **Transcript note:** Earnings call transcripts were not loaded (coverage-next-full path). Financial quality analysis is based on SEC filings, XBRL data, and public sources.

---

#### 1. Statement Quality Adjustments

##### Key Adjustments to GAAP P&L

**1. Non-cash and Non-recurring Items in Net Income:**

| Item | FY2022 | FY2023 | FY2024 | FY2025 | Note |
|------|--------|--------|--------|--------|------|
| Calder land sale gain | $274.6M | — | — | — | One-time; inflated FY2022 net income |
| Presque Isle goodwill impairment | — | ~$28M | — | — | Non-cash; impacted FY2023 GAAP EPS |
| Arlington International sale gain | — | $197.2M | — | — | One-time gain from land sale to Chicago Bears |
| Pre-opening / development costs | ~$50M | ~$80M | ~$50M | ~$30M | Non-recurring per company policy |
| Transaction/integration costs | ~$70M | ~$30M | ~$15M | ~$10M | P2E / Exacta integration |
| SBC (non-cash) | $27.8M | $31.5M | $34.2M | $36.1M | Real economic cost; added back in Adj. EBITDA |

**Adjusted vs. GAAP EPS:**

| Year | GAAP EPS (diluted) | Key Adjustment | Economic EPS (approx) |
|------|-------------------|---------------|----------------------|
| 2022 | $5.71 | +$274.6M Calder gain | ~$2.30 economic |
| 2023 | $5.49 | +$197.2M Arlington gain, -$28M impairment | ~$3.00 economic |
| 2024 | $5.68 | Minimal one-time items | ~$5.50 economic |
| 2025 | $5.29 | Minimal one-time items | ~$5.00–5.30 economic |

**Conclusion:** FY2022 and FY2023 GAAP earnings were substantially inflated by one-time asset sale gains. FY2024–2025 GAAP is a more reliable indicator of normalized earnings power. [S1]

---

##### SBC Discipline Assessment

| Year | SBC ($M) | SBC % Revenue | SBC % Net Income |
|------|----------|--------------|-----------------|
| 2021 | — | — | — |
| 2022 | $27.8M | 1.5% | ~19% |
| 2023 | $31.5M | 1.3% | ~8% |
| 2024 | $34.2M | 1.3% | ~8% |
| 2025 | $36.1M | 1.2% | ~9% |

SBC as a % of revenue is modest (~1.2–1.5%) and trending down as revenue grows. SBC as a % of net income is elevated because GAAP net income is depressed by depreciation/amortization from acquisition goodwill. Not a red flag. [S1]

---

##### Accrual Quality / Cash Earnings

**Operating CF vs. Net Income (Cash Conversion):**

| Year | Net Income | Operating CF | Ratio |
|------|-----------|-------------|-------|
| 2022 | $439M | $511M | 1.16x |
| 2023 | $417M | $605M | 1.45x |
| 2024 | $429M | $772M | 1.80x |
| 2025 | $385M | $770M | 2.00x |

Cash conversion is excellent and accelerating. The gap between net income and operating CF is primarily driven by large depreciation & amortization on the acquired asset base (~$220–240M/year). This is expected after a large M&A cycle and does not indicate earnings quality concerns. [S1, S2]

**FCF Yield (at ~$88.94/share, $6.2B market cap):**
- FY2025 FCF: $495M → FCF yield = 8.0%
- TTM FCF (Q2 2025 – Q1 2026): ~$564M → FCF yield = 9.1%

At 9%+ FCF yield with buybacks consuming most of FCF, the implied return to shareholders on the stock price alone is substantial assuming normalized CapEx continues at $250–300M. [S2]

---

#### 2. Balance Sheet Quality

##### Leverage Analysis

| Item | FY2023 | FY2024 | FY2025 | Q1 2026 |
|------|--------|--------|--------|---------|
| Total Debt | $4,836M | $4,907M | $5,130M | ~$5,130M |
| Cash | $145M | $176M | $201M | ~$260M |
| Net Debt | $4,692M | $4,732M | $4,929M | ~$4,870M |
| Adj. EBITDA | $1,024M | $1,159M | $1,205M | — |
| Net Debt / Adj. EBITDA | 4.6x | 4.1x | 4.1x | ~3.8x |

**Debt Covenant Risk:** CHDN's credit facility has financial covenants including a maximum leverage ratio. At 3.8–4.1x, the company is within its covenant threshold but has limited headroom for additional acquisitions. Management targets a long-term leverage ratio of 3.0–3.5x. [S1]

**Debt Maturity Profile:** Based on FY2024 10-K, long-term debt consists primarily of senior notes (fixed rate) and revolving credit facility. No large near-term maturities appear threatening; the revolving credit facility was used to finance The Rose and Terre Haute projects. [S1]

**Goodwill & Intangibles:** Following the P2E acquisition and other M&A, goodwill + intangibles represent a significant portion of total assets (~$4.0B+ estimated). This introduces impairment risk if acquired properties underperform (precedent: Presque Isle $28M impairment in 2023). [S1]

---

#### 3. Revenue Recognition

Revenue recognition is standard for gaming: [S1]
- Casino/HHR: Net gaming revenue = gross wagers less payouts (house win); recognized as earned daily
- Pari-mutuel (TwinSpires): Net revenue = commission on wagers placed; recognized at point of settlement
- Racing revenue: Admissions at point of service; simulcast commissions at daily settlement
- No multi-element arrangements or aggressive GAAP choices identified

---

#### 4. Adversarial Research Sweep

*Searched for: short reports, litigation, regulatory investigations, accounting concerns, class action lawsuits.*

##### 4.1 Virginia HHR Regulatory Risk (Primary Concern)
- Virginia's legislature has considered bills that would authorize competing commercial casinos in markets currently served by Rosie's HHR venues (particularly Northern Virginia / Dumfries area)
- CHDN has invested ~$1.5B+ in Virginia HHR properties; The Rose ($460M) is in Dumfries, 30 miles from DC
- If Virginia authorizes a competing full commercial casino in the same market, Rosie's HHR venues could face significant competitive headwinds
- **Status:** Not yet legislated; Virginia HHR authorization is currently statutory (not subject to direct vote); CHDN has strong political relationships with Virginia horsemen
- **Impact level:** HIGH if it materializes — Virginia is estimated at ~30–40% of LHR EBITDA

##### 4.2 Kentucky Horsemen Agreement Risk
- CHDN's HHR operations in Kentucky require an agreement with the Kentucky Horsemen's Benevolent and Protective Association (HBPA)
- A dispute with horsemen could theoretically threaten the legal predicate for HHR machines in Kentucky
- **Status:** Agreement in place; CHDN and Kentucky horsemen have aligned incentives (horsemen receive purse supplements from HHR revenue)
- **Impact level:** LOW probability, very HIGH impact

##### 4.3 Indiana Tax Rate Increase
- The Indiana General Assembly increased the gaming tax rate effective July 2025, negatively impacting Terre Haute Casino Resort's economics
- CHDN disclosed this as a headwind to Gaming segment EBITDA in FY2025 (Gaming EBITDA fell from $507M in FY2024 to $483M in FY2025)
- **Status:** Actual, confirmed negative impact (~$20–30M EBITDA headwind)
- **Impact level:** MEDIUM — already reflected in consensus and management guidance

##### 4.4 Louisiana HRM Exit
- CHDN exited its Louisiana HRM operations in FY2024/2025, reducing its Gaming segment revenue slightly
- **Status:** Completed; already reflected in financials
- **Impact level:** LOW — already in numbers

##### 4.5 Online Prediction Markets (Polymarket / Kalshi)
- Emerging unregulated or newly regulated prediction markets (Kalshi, Polymarket) allow wagering on sporting events
- Potential long-term threat to regulated horse racing ADW if prediction markets expand to horse racing wagering
- **Status:** Speculative; not yet a material threat to TwinSpires
- **Impact level:** LOW near-term; watch for federal regulation development

##### 4.6 Short Reports / Accounting Allegations
- No material short reports or accounting fraud allegations identified in public searches
- CHDN's auditor is Deloitte & Touche LLP (long-standing relationship)
- No SEC enforcement actions or subpoenas disclosed
- **Conclusion:** Clean record on financial integrity

##### 4.7 Class Action Litigation
- No material class action securities litigation found
- Standard commercial litigation (customer disputes, employment) consistent with operating at scale

---

#### 5. Financial Quality Summary

| Factor | Assessment | Grade |
|--------|-----------|-------|
| Revenue recognition | Standard gaming; no aggressive choices | A |
| Cash conversion | >1.5x OCF/Net Income; excellent | A |
| SBC discipline | 1.2% of revenue; modest | A |
| Leverage | Elevated (4.1x) but declining; manageable | B |
| Goodwill risk | $4B+ goodwill; one impairment in history | B |
| One-time item transparency | Disclosed clearly; 2022/2023 inflated by gains | B+ |
| Regulatory risk disclosure | Virginia HHR risk properly disclosed as material | A |
| Audit quality | Big 4 (Deloitte); no concerns | A |

**Overall Financial Quality: B+ (High quality with elevated leverage and goodwill as the primary concerns)**

---

#### Source Index

| ID | Source | Description |
|----|--------|-------------|
| S1 | SEC 10-K FY2024/2023/2022 | GAAP financials, risk factors, MD&A |
| S2 | StockAnalysis / Yahoo Finance | Cash flow, FCF, EPS data |
| S4 | SEC Form 4 / Proxy | SBC, compensation context |
| S6 | Industry / News | Indiana tax increase, Virginia legislative context |

## Deeper Financial Analysis

The fundamental tier ($1.00) adds 8 dimensions not included here:

- Revenue Breakdown — segment revenue, geographic mix, product-line margins
- Financial Trends — QoQ momentum, leading indicators, inflection points
- Balance Sheet — debt structure, dilution risk, working capital dynamics
- Capital Allocation — ROIC, buyback cadence, reinvestment efficiency
- Earnings Analysis — beats/misses, guidance vs actuals, transcript highlights
- Competitive Positioning — market share, pricing power, peer benchmarks
- Industry Context — TAM, sector tailwinds/headwinds, regulatory backdrop

**API endpoint:** GET /api/v1/research/CHDN/fundamental

## Navigation

- Overview: /stocks/CHDN
- Financials (this page): /stocks/CHDN/financials
- Thesis: /stocks/CHDN/thesis
- Investment Memo: /stocks/CHDN/memo
- Coverage universe: /stocks