Kentucky Derby Splits Beer Sponsorship, adds 3 Partners; Replaces Soft Drink Sponsor

Corona Extra

Tomorrow’s 144th running of the Kentucky Derby, presented by Woodford Reserve, falls on Cinco de Mayo (as does the 145th edition) and Corona Extra, Angry Orchard and Budweiser have all signed on to sponsor the day’s celebrations. Combined, the 3 brands will replace Stella Artois as the event’s beer sponsor. Corona Extra will serve as the Official Import Beer of North America’s oldest, continuously-held sporting event; hosting a fiesta in the infield for the 160,000+ in attendance and sponsoring Cinco de Mayo parties across the country. Angry Orchard, the Official Hard Cider of the Derby, plans on using the platform to show their newest innovation; Angry Orchard Rosé. Budweiser acquired the rights to serve as the Official Domestic Beer sponsor and for those wishing to remain sober, Coca-Cola has replaced Pepsi as the event’s Official Soft Drink provider.

Howie Long-Short: Louisville based Brown-Forman Corp. (BF.B) took over title sponsorship of the “most exciting 2 minutes in sports” from Yum Brands (YUM) and is using the exposure to market their Woodford Reserve bourbon; the key ingredient in a mint julep (the event’s signature drink). On March 7th, BF.B released its fiscal Q3 ’18 financials; a strong report that reflected net sales growth +9% YoY (to $878 million), with operating income up +11% YoY (to $304 million). The company’s American whiskey brands, Old Forester and Woodford Reserve, each contributed double-digit underlying net sales gains during the quarter (ended on January 31st). BF.B’s Q3 ‘18 results are comparable to net sales (+9% YoY to $2.5 billion) and operating income growth (+15% YoY to $894 million) over the first 9 months of the company’s fiscal ‘18 year. BF.B’s share price is up 42% over the last 12 mo., but has remained relatively flat YTD (-2%).

Constellation Brands (STZ) owns 100+ brands within its portfolio, including Corona Extra. In March, the company reported fiscal FY18 results that included “EPS growth of almost 30%”; the “5th consecutive year (that the company) achieved industry leading EPS growth of more than 20%.” Corona brand sales contributed to the growth, +4% YoY to 138 million cases.

Angry Orchard is a subsidiary of the Boston Beer Company, best known for brewing Sam Adams. Trading under the symbol SAM, the company reported Q1 ’18 earnings on April 25th. Net revenue rose +17.8% (to $28.8 million) as shipment volume increased 15%. CEO Jim Koch noted that the company had seen a “significant improvement in Angry Orchard trends”. SAM hopes that its new Angry Orchard Rosé product can draw clientele from the beer and wine categories.

As for Churchill Downs, Inc. (CHDN), in March the company announced it would be acquiring casinos in Pennsylvania and Mississippi, as it prepares to capitalize on legalized sports betting. Both PA & MS have passed sports betting legislation that would change their laws, should the SCOTUS strike down PAPSA. CHDN also owns brick and mortar casinos in Illinois, Kentucky and Louisiana, 3 other states actively working towards sports betting legalization. Following release of the news, shares climbed to a 52-week high ($268.20). They’ve only continued to rise.

The company reported Q1 ’18 financials on April 28th, including a rise in both net revenue +13% YoY (to $189.3 million) and adjusted EBITDA +36% YOY (to $49.2 million). CEO Bill Carstanjen attributed the growth to strong performance from the company’s casino and TwinSpires businesses. Casino adjusted EBITDA increased $9 million YoY, while TwinSpires’ adjusted EBITDA increased +$3.3 million as the company increased its handle to 20.2%; a significantly higher take than the balance of the thoroughbred industry (14%). CHDN shares are up 64% over the last 12 months (S&P +/-10%) and 17% since April 13th, currently sitting at $274.85 (Thurs. close).

It’s worth noting that JP Morgan recently assigned a $1.8 million valuation to the Kentucky Derby, roughly 48% of CHDN’s $3.74 billion market cap.

Fan Marino: 19 million people are expected to tune in on television for tomorrow’s race and Louisville icon Rick Pitino is likely to be one of them, despite co-owning a horse (Coach Rocks) running in the Kentucky Oaks. When fired by the University of Louisville in November, Pitino vowed to never return to the state. He’s since softened his stance, but in early April leveled an ultimatum stating he wouldn’t return to Churchill Downs unless both David Grissom (University Chairman) and John Schnatter (Papa John’s, Vice Chairman), “retire from the University Board of Trustees”. Of course, Grissom and Schnatter are the guys who fired Pitino when college basketball’s pay-to-play scandal broke. I admire Pitino’s pettiness, but fail to see how his absence hurts Grissom/Schnatter; it certainly seems as if Pitino is cutting off his nose to spite his face.

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Churchill Downs Partners with Old Forester, Introduces 1st “Thurby” Cocktail

Old Forester

Churchill Downs has partnered with Old Forester to create a race-day cocktail for Thurby, the Thursday before the Kentucky Derby (i.e. today). The Old Forester Perfect Old Fashioned will rival Churchill Downs’ other signature race-day mixed drinks, the mint julep and Lily; featured at the Kentucky Derby and Kentucky Oaks, respectively. A simplified version of the Louisville favorite will be served to race fans throughout the day; but, is limited to just Thursday’s event.

You don’t have to trek to Louisville today to sample CHDN’s version of the classic cocktail. Simply mix a 2 oz. of Old Forester 100 Proof Bourbon with .5 oz. of Old Forester Perfect Old Fashioned and serve it over ice. Just don’t forget to garnish your cocktail with an orange peel!

Howie Long-Short: On April 28th, Churchill Downs Incorporated (CHDN) reported Q1 ’18 financials; net revenue grew 13% YoY (to $189.3 million) with adjusted EBITDA up 36% YOY (to $49.2 million). CEO Bill Carstanjen attributed the growth to strong performance from the company’s casino and TwinSpires businesses. Casino adjusted EBITDA increased $9 million YoY, while TwinSpires’ adjusted EBITDA increased $3.3 million; as the company increased its handle to 20.2%, a significantly higher take than the balance of the thoroughbred industry (14%). CHDN shares are up 17% since April 13th, currently sitting at $274.80; just below their all-time high ($277.15).

Old Forester is a subsidiary of the Brown-Foreman (BF.B) Corporation, a publicly traded spirits and wine business; and component of the S&P 500. On March 7th, the company released its fiscal Q3 ’18 financials; a strong report that reflected net sales growth of +9% YoY (to $878 million), with operating income up +11% YoY (to $304 million). The company’s American whiskey brands, Old Forester and Woodford Reserve, each contributed double-digit underlying net sales gains during the quarter that ended on January 31st. BF.B’s Q318 results are comparable to net sales (+9% YoY to $2.5 billion) and operating income growth (+15% YoY to $894 million) over the first 9 months of the company’s fiscal 2018 year. The share price is up 42% over the last 12 mo., but has remained relatively flat YTD (-2%).

Fan Marino: The 144th running of the Kentucky Derby will take place on Saturday. Justify (3-1), Mendelssohn (5-1) and Magnum Moon (6-1) are the morning-line favorites in the field of 20. Justify, trained by Bob Baffert, will start from the No. 7 post. Should he win, he would break the “Opollo Curse”; becoming the first horse since 1882 to win the Derby (3-year olds) after not racing at all, as a 2-year old. Magnum Moon, trained by Todd Pletcher, is the only other horse in the race who can accomplish that feat; undefeated in 2018, he’ll start from the No. 16 post.

Fun Fact: Did you know that the University of Arizona has among the world’s most renowned Race Track Industry Programs? Established in 1973, the program offers 2 paths; business (race track management, regulation) and equine management (racing & breeding). Baffert and Pletcher are both proud graduates of the program.

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Churchill Downs Sells Big Fish Gaming for $990 Million

Churchill Downs Inc. (CHDN) has agreed to sell its mobile gaming subsidiary, Big Fish Games, to Aristocrat Technologies for $990 million (ROI of 14%); with the transaction scheduled to close in Q1 ‘18. The sale will enable the company to refocus its efforts on growing the Kentucky Derby, expanding its casino segment, TwinsSpires.com (and other forms of real money gaming) and maximizing thoroughbred racing operations. CHDN held the gaming company for just over 3 years, having acquired Big Fish in 2014 for $885 million. While Big FishGames operated on slimmer margins than the balance of CHDN assets, it still comprised 37% of company revenue and 20% of profits; shareholders must be concerned about how the company plans to replace that business.

Howie Long-Short: Aristocrat Technologies is a subsidiary of Aristocrat Leisure Limited (OTC: ARLUF), a publicly traded gaming company that operates in more than 90 countries. The acquisition makes Aristocrat the 2nd largest social casino publisher globally (far behind Playtika). In Q2 ’17, Playtika controlled 26.1% of the total market (expected to grow to $19 billion by ’22); with ARLUF and CHDN combining for just12.2% combined.

Fan Marino: Yum Brands (YUM) has pulled out as the title sponsor of the Kentucky Derby. The Louisville based Brown-Forman Corp. (BF.B) will take over as the event’s highest profile sponsor in 2018; using the exposure to promote its Woodford Reserve bourbon. Terms of the deal were not disclosed, but it’s estimated that YUM paid $1 million/year under the terms of the agreement signed in 2006. The mint julep is the traditional beverage of the Kentucky Derby. If you’ve never had one, here is a recipe (using Woodford Reserve, of course).

Churchill Downs selling mobile gaming company for almost $1B

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