Churchill Downs Annual Report 2017

FY2017 Annual Report · Churchill Downs

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CHURCHILL DOWNS

INCORPORATED

Notice of Annual Meeting of Shareholders
2018 Proxy Statement
2017 Annual Report on Form 10-K

Chairman and CEO’s Message

Dear Fellow Shareholders,

As we reflect on our 2017 results, we are proud of what our management team accomplished – especially in the second half of
the year. Here are a few of our accomplishments …

• We had a record setting Kentucky Derby Day and Kentucky Derby Week with respect to virtually all financial

metrics despite poor weather on both Oaks and Derby day;

• Our market leading TwinSpires team once again outpaced the industry growth by 15 percentage points;

• All of our wholly owned casino properties grew market share and our equity investments in Miami Valley Gaming
and Saratoga along with our new equity investment in Ocean Downs provided significant growth in Adjusted
EBITDA;

• On November 29th, we announced the sale of Big Fish for $990 million and on January 9, 2018, we closed the

transaction;

• Refinanced all of our debt; and

•

In January, we launched a $500 million share repurchase through a tender offer with a portion of the proceeds from
the sale of Big Fish and we completed the transaction with the repurchase of 1.9 million shares on February 12,
2018.

Our Strategy for Growth

The Kentucky Derby

The Kentucky Derby remains the crown jewel of our Company and we consistently invest in and grow it year over year. Our
strategy for long term growth of the Derby is to invest in ways that help our guests be part of a historic event – and to
experience a piece of the mystique and magic that only the Derby can create. Recent investments include:

•

In 2017, we completed our $16 million upgrade to the Clubhouse – improving amenities for nearly 18,000 guests.

• Our $37 million dollar Starting Gate Suites with a flexible configuration for approximately 1,800 new customers

and new premium entertainment spaces will open for Derby 2018.

•

In October, we announced a $32 million project to significantly improve the transportation to and from the Derby.

TwinSpires Segment

Our TwinSpires business has grown organically in the online horseracing wagering space even though the macro environment
for the horseracing industry reflects relatively modest growth. We have consistently proven we can acquire new players and
improve revenues per existing player. Customers value additional features and functionality, and we continue to invest to
make their experience competitive with the myriad of other online entertainment experiences that are truly a part of our
competitive landscape.

Casino Segment

Our strategy for growth in the Casino segment is to invest in casino properties with modest capital footprints in different
markets that are relatively stable with respect to the taxation and regulatory environment as well as the competitor set.
We also prefer markets where access to online gaming may one day be permitted by the applicable state legislature. We
are conservative in how we invest in and operate our existing nine casinos properties – 5 wholly owned and 4 equity
investments – in 8 states.

A Few Final Thoughts

Our shareholders enjoyed a 56 percent total shareholder return in 2017 based on increased dividends and an appreciating stock
price. We are conservatively levered and have plenty of capacity to pursue strategic options including reinvestment in our
current businesses, M&A activity, dividends, and share repurchases.

We remain committed to delivering strong financial results for our shareholders and are confident in our leadership team and
dedicated employees who work to create long-term value for you, our shareholders.

G. Watts Humphrey, Jr.
Chairman of the Board

William C. Carstanjen
Chief Executive Officer

Financial Highlights

$ in millions, except per share data

Consolidated Financial Results

Net Revenue
Operating Income
Net Income
EPS - Diluted
Adjusted EBITDA

Consolidated Balance Sheet

Total Assets
Total Debt
Total Liabilities
Shareholders’ Equity

Cash Flow and Liquidity

Cash Flows from Operating Activities
Capital Maintenance Expenditures
Net Leverage Ratio1

Shareholder Data

Dividends Declared per Common Share
Common Stock Share Repurchases
Year-End Closing Stock Prices
Equity Market Capitalization
Total Capitalization

Years Ended December 31,

2015

2016

2017

799
126
$
65
3.71
$
$ 302.5

822
173
$
108
6.42
$
$ 334.5

883
147
$
141
8.77
$
$ 366.5

$ 2,277
782
1,660
617

$ 2,254
922
1,569
685

$ 2,360
1,129
1,719
641

265
31
2.3x

227
31
2.6x

220
33
2.9x

$ 1.15
$
138
$141.49
$ 2,349
$ 3,131

1.32
$
$
28
$150.45
$ 2,480
$ 3,402

1.52
$
$
172
$232.70
$ 3,586
$ 4,715

Net leverage ratio is the ratio of total debt (less cash) to Adjusted EBITDA

TOTAL SHAREHOLDER RETURN

1 Year

3 Year

5 Year

226%

22%

15%

56%

38%

33%

150%

108%

94%

S&P 500

Russell 2000

CDI

S&P 500

Russell 2000

CDI

S&P 500

Russell 2000

CDI

CHURCHILL DOWNS INCORPORATED
600 N. HURSTBOURNE PARKWAY, STE. 400
LOUISVILLE, KENTUCKY 40222
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 24, 2018

To the Shareholders of
Churchill Downs Incorporated:

Notice is hereby given that the Annual Meeting of Shareholders (the “Annual Meeting”) of Churchill
Downs Incorporated (the “Company”), a Kentucky corporation, will be held at The Knickerbocker Hotel, located
at 6 Times Square, New York, New York 10036, on Tuesday, April 24, 2018, at 9:00 a.m. Eastern Daylight
Saving Time, for the following purposes:

II.

To elect the two (2) Class I Directors identified in this Proxy Statement for a term of three (3) years
(Proposal No. 1);

To ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered
public accounting firm for fiscal year 2018 (Proposal No. 2);

III.

To conduct an advisory vote to approve executive compensation (Proposal No. 3); and

IV. To transact such other business as may properly come before the meeting or any adjournment

thereof, including matters incident to its conduct.

The close of business on March 2, 2018, has been fixed as the record date for determining the shareholders
entitled to notice of, and to vote at, the Annual Meeting. Only shareholders of record at that time will be entitled
to notice of and to vote at the Annual Meeting and at any adjournments thereof.

Shareholders who do not expect to attend the meeting in person are urged to vote by telephone or over the

Internet, or by requesting and promptly signing and returning a proxy card.

By Order of the Board of Directors.

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March 15, 2018

BRADLEY K. BLACKWELL
Senior Vice President,
General Counsel and Secretary

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 24, 2018

The Company’s Proxy Statement for the 2018 Annual Meeting of Shareholders and the Annual Report to
Shareholders for the fiscal year ended December 31, 2017 are available at
http://www.churchilldownsincorporated.com/proxy

CHURCHILL DOWNS INCORPORATED
600 N. HURSTBOURNE PARKWAY, STE. 400
LOUISVILLE, KENTUCKY 40222

PROXY STATEMENT

Annual Meeting of Shareholders to be held on April 24, 2018

The Board of Directors (the “Board of Directors” or “Board”) of Churchill Downs Incorporated
(“Company,” “CDI,” or “CHDN”) is soliciting proxies to be voted at the 2018 Annual Meeting of Shareholders
to be held on Tuesday, April 24, 2018, at 9:00 a.m. Eastern Daylight Saving Time (the “Annual Meeting”), at
The Knickerbocker Hotel, 6 Times Square, New York, New York 10036, and any adjournments thereof.
Certain officers and directors of the Company and persons acting under their instruction may solicit proxies on
behalf of the Board of Directors by means of telephone calls, personal interviews and mail at no additional
expense to the Company. The Notice of Internet Availability of Proxy Materials (the “Notice”) was first mailed
on or about March 15, 2018.

Voting Rights

Only holders of record of the Company’s Common Stock, no par value (“Common Stock”), on March 2,
2018, are entitled to notice of and to vote at the Annual Meeting. On that date, 13,488,364 shares of Common
Stock were outstanding and entitled to vote. Each shareholder has one vote per share on all matters coming
before the Annual Meeting. The shareholders of the Company do not have cumulative voting rights in the
election of directors. Abstentions and broker non-votes are not counted in determining the number of votes
required for the election of a director or passage of any matter submitted to the shareholders. Abstentions and
broker non-votes are counted for purposes of determining whether a quorum exists.

Whether or not you plan to attend the meeting in person, to ensure the presence of a quorum, please vote
over the Internet or by telephone as instructed in these materials as promptly as possible. If a shareholder
executes and returns a proxy card, but does not specify otherwise, the shares represented by the shareholder’s
proxy will be voted: (i) for the election of each of the two director nominees listed below under “Election of
Directors”; (ii) for the ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s
independent registered public accounting firm for fiscal year 2018; (iii) for the advisory approval of the
compensation of the Company’s named executive officers as disclosed in this Proxy Statement pursuant to the
compensation disclosure rules of the SEC; and (iv) in the discretion of the person or persons voting the proxies,
on such other business as may properly come before the Annual Meeting or any adjournments thereof.

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Voting Instructions and Information

When and where is our Annual Meeting?

We will hold our Annual Meeting on Tuesday, April 24, 2018 at 9:00 a.m., Eastern Daylight Saving Time,

at The Knickerbocker Hotel, located at 6 Times Square, New York, New York 10036.

How are we distributing our proxy materials?

In accordance with the rules and regulations adopted by the SEC, instead of mailing a printed copy of our
proxy materials to each shareholder of record (the “full set delivery” option), we are furnishing proxy materials
to our shareholders over the Internet (the “notice only” option). A company may use either option, “notice only”
or “full set delivery,” for all of its shareholders or may use one method for some shareholders and the other
method for others. Although the Company has previously used the “full set delivery” option, we believe the
“notice only” process expedites shareholders’ receipt of proxy materials and reduces the costs and environmental
impact of our Annual Meeting. The Company will bear the entire cost of the solicitation.

On March 15, 2018, we began mailing a Notice to our shareholders containing instructions on how to access
this Proxy Statement and our 2017 Annual Report on Form 10-K and vote online, as well as instructions on how
to receive paper copies of these documents for shareholders who so select. This Proxy Statement and the 2017
Annual Report are also available at http://www.churchilldownsincorporated.com/proxy.

Who can vote at the Annual Meeting?

You are entitled to vote or direct the voting of your shares of CHDN’s Common Stock if you were a
shareholder of record or if you held CHDN Common Stock in “street name” at the close of business on Friday,
March 2, 2018 (the “Record Date”). On that date, 13,488,364 shares of CHDN Common Stock were outstanding.
Each share of CHDN Common Stock held by you on the Record Date is entitled to one vote.

How many votes must be present to hold the Annual Meeting?

We must have a “quorum” to conduct the Annual Meeting. A majority of the outstanding shares entitled to
vote, represented in person or by proxy, shall constitute a quorum. Once a share is represented for any purpose at
the Annual Meeting, it will be deemed present for quorum purposes for the remainder of the Annual Meeting and
for any adjournment of the Annual Meeting, unless a new record date must be set for the adjourned meeting.

What do I need to attend, and vote at, the Annual Meeting?

If you plan on attending the Annual Meeting, please remember to bring photo identification with you, such
as a driver’s license. In addition, if you hold shares in “street name” and would like to attend the Annual
Meeting, you must bring an account statement or other acceptable evidence of ownership of CHDN Common
Stock as of the close of business on the Record Date. Only CHDN shareholders of record as of the close of
business on the Record Date will be permitted to attend the Annual Meeting. In order to vote at the Annual
Meeting if you hold shares in “street name,” you will also need a valid “legal proxy,” which you can obtain by
contacting your account representative at the broker, bank or similar institution through which you hold your
shares.

What proposals will be voted on at the Annual Meeting?

The following proposals from the Company will be considered and voted on at the Annual Meeting:

To elect the two (2) Class I Directors identified in this Proxy Statement for a term of three (3) years
(Proposal No. 1);

To ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered
public accounting firm for fiscal year 2018 (Proposal No. 2); and

To conduct an advisory vote to approve the executive compensation of the Company’s named
executive officers as disclosed in this Proxy Statement (Proposal No. 3).

You may also vote on any other business as may properly come before the meeting or any adjournment

thereof, including matters incident to the meeting’s conduct.

How does the Board of Directors recommend I vote?

CDI’s Board of Directors unanimously recommends that you vote:

“FOR” each of the two (2) director nominees identified in this Proxy Statement under “Election of
Directors” to the Board of Directors.

“FOR” the proposal to ratify the appointment of PricewaterhouseCoopers LLP as the Company’s
independent registered public accounting firm for fiscal year 2018.

“FOR” the proposal to approve, on a non-binding advisory basis, executive compensation.

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How do I vote?

You may cast your vote in one of four ways:

•

By Submitting a Proxy by Internet. Go to the following website: www.proxypush.com/chdn. You
may submit a proxy by Internet 24 hours a day. To be valid, your proxy by Internet must be received
by 11:59 p.m., Eastern Daylight Saving Time, on April 23, 2018. When you access the website, follow
the instructions to create an electronic voting instruction form.

By Submitting a Proxy by Telephone. To submit a proxy using the telephone, call 1-866-284-6863
any time on a touch-tone telephone. There is NO CHARGE to you for the call in the United States or
Canada. International calling charges apply outside the United States and Canada. You may submit a
proxy by telephone 24 hours a day, 7 days a week. Follow the simple prompts and instructions
provided by the recorded message. To be valid, your proxy by telephone must be received by 11:59
p.m. Eastern Daylight Saving Time, on April 23, 2018.

By Submitting a Proxy by Mail. If you have requested and received a proxy card by mail, mark your
proxy card, sign and date it, and return it in the prepaid envelope that was provided or return it to:
Proxy Tabulator for Churchill Downs Incorporated, P.O. Box 8016, Cary, North Carolina 27512-9903.
To be valid, your proxy by mail must be received by 11:59 p.m., Eastern Daylight Saving Time, on
April 23, 2018.

At the Annual Meeting. You can vote your shares in person at the Annual Meeting (see “What do I
need to attend, and vote at, the Annual Meeting?”). If you are a shareholder of record, in order to vote
at the Annual Meeting, you must present an acceptable form of photo identification, such as a driver’s
license. If you hold your shares in street name, you must obtain a legal proxy, as described above under
“What do I need to attend, and vote at, the Annual Meeting?”, and bring that proxy to the Annual
Meeting.

How can I revoke my proxy or substitute a new proxy or change my vote?

You can revoke your proxy or substitute a new proxy by use of any of the following means:

For a Proxy Submitted by Internet or Telephone

•

By submitting in a timely manner a new proxy through the Internet or by telephone that is received by
11:59 p.m., Eastern Daylight Saving Time, on April 23, 2018;

Requesting, executing and mailing a later-dated proxy card that is received prior to 11:59 p.m., Eastern
Daylight Saving Time, on April 23, 2018; or

Voting in person at the Annual Meeting.

For a Proxy Submitted by Mail

•

Executing and mailing another proxy card bearing a later date that is received prior to 11:59 p.m.,
Eastern Daylight Saving Time, on April 23, 2018;

Giving written notice of revocation to CDI’s Secretary at 600 N. Hurstbourne Parkway, Ste. 400,
Louisville, Kentucky 40222 that is received by CDI prior to 11:59 p.m., Eastern Daylight Saving Time,
on April 23, 2018; or

Voting in person at the Annual Meeting.

Security Ownership of Certain Beneficial
Owners and Management

The following table sets forth information as of March 2, 2018 (except as otherwise indicated below) regarding
the beneficial ownership of the Common Stock by the only persons known by the Company to beneficially own
more than five percent (5%) of the Common Stock, each director and director nominee of the Company, each
named executive officer (as defined in “Executive Compensation—2017 Summary Compensation Table” herein),
and the Company’s directors and executive officers as a group. Except as otherwise indicated, the persons named in
the table have sole voting and investment power with respect to all of the shares of Common Stock shown as
beneficially owned by them. The percentage of beneficial ownership is calculated based on 13,488,364 shares of
Common Stock outstanding as of March 2, 2018. We are not aware of any pledge of our Common Stock or any
other arrangements the operation of which may at a subsequent date result in a change in control of our Company.

Name of Beneficial Owner

Amount and Nature Of
Beneficial Ownership

Percent of Class

BlackRock, Inc. and affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,364,375(1)

10.12

55 East 52nd Street
New York, NY 10055

The Vanguard Group, Inc. and affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,068,159(2)

7.92

100 Vanguard Blvd.
Malvern, PA 19355

CDI Holdings LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,003,373

7.44

845 Larch Avenue
Elmhurst, IL 60126

PAR Capital Management, Inc. and affiliates . . . . . . . . . . . . . . . . . . . . . . . .

813,165(3)

6.03

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200 Clarendon Street, 48th Floor
Boston, MA 02116

Ulysses L. Bridgeman, Jr. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Craig J. Duchossois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Richard L. Duchossois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Robert L. Evans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Robert L. Fealy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Douglas C. Grissom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Daniel P. Harrington . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
G. Watts Humphrey, Jr. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Karole F. Lloyd . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
R. Alex Rankin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
William C. Carstanjen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
William E. Mudd . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marcia A. Dall . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Paul J. Thelen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12 Directors and Executive Officers as a Group† . . . . . . . . . . . . . . . . . . . . .

5,061(4)
1,037,890(5)
1,181,929(6)
58,022(7)
16,237(8)
135(9)
248,744(10)
56,448(11)
0(12)
11,248(13)
152,887(14)
88,817(15)
5,072(16)
28,814
1,859,117(17)

*
7.69
8.76
0.43
0.12
*
1.84
0.42
*
*
1.13
0.66
*
0.21
13.78

†

Less than 0.1%.

Does not include Mr. Thelen, as a former employee, or Ms. Lloyd, as a director nominee.

(1) BlackRock, Inc. and its affiliates own beneficial

interest of 10.12% based on their holdings as of
December 31, 2017 divided by the shares of Common Stock outstanding as of March 2, 2018. The 10.12%
is held by the following: (a) BlackRock (Netherlands) B.V., (b) BlackRock Advisors, LLC, (c) BlackRock
Asset Management Canada Limited, (d) BlackRock Asset Management Ireland Limited, (e) BlackRock
Asset Management Schweiz AG, (f) BlackRock Financial Management, Inc., (g) BlackRock Fund Advisors,
(h) BlackRock Institutional Trust Company, N.A., (i) BlackRock Investment Management (Australia)
Limited, (j) BlackRock Investment Management (UK) Ltd, (k) BlackRock Investment Management, LLC,
and (l) BlackRock Advisors (UK) Ltd. All are related entities. According to a Schedule 13G/A filed on
January 29, 2018 for holdings as of December 31, 2017, BlackRock, Inc. and its affiliates have sole power
to vote or direct the vote of 26,005 shares, shared power to vote or direct the vote of 1,876 shares, sole
power to dispose of or direct the disposition of 1,041,330 shares and shared power to dispose or to direct the
disposition of 26,829 shares.

(2) The Vanguard Group, Inc. and its subsidiaries and affiliates own beneficial interest of 7.92% based on their
holdings as of December 31, 2017 divided by the shares of Common Stock outstanding as of March 2, 2018.
The 7.92% interest is held by the following: (a) The Vanguard Group, Inc., (b) Vanguard Fiduciary Trust
Company, and (c) Vanguard Investments Australia, Ltd. All are related entities. According to a Schedule 13G/A
filed on February 9, 2018 for holdings as of December 31, 2017, The Vanguard Group, Inc. and its subsidiaries
and affiliates have sole power to vote or direct the vote of 1,336,296 shares, shared power to vote or direct the
vote of 0 shares, sole power to dispose of or direct the disposition of 1,364,375 shares and shared power to
dispose or to direct the disposition of 0 shares.

(3) PAR Capital Management, Inc. and its affiliates own beneficial interest of 6.03% based on their holdings as
of December 31, 2017 divided by the shares of Common Stock outstanding as of March 2, 2018. The 6.03%
interest is held by the following: (a) PAR Investment Partners, L.P., (b) PAR Group, L.P., and (c) PAR
Capital Management, Inc. All are related entities. This information is based on a Schedule 13G/A filed on
February 14, 2018, for holdings as of December 31, 2017.

(4)

Includes 1,417 deferred stock units, which Mr. Bridgeman has elected to defer pursuant to the Company’s
deferred compensation plan. Also includes 3,644 restricted shares, over which Mr. Bridgeman has neither
voting nor dispositive power until immediately following his resignation or retirement from the Board,
awarded by the Company for his board service.

(5) Mr. Craig J. Duchossois is the son of Mr. Richard L. Duchossois, who is also a director of the Company.
Mr. Craig J. Duchossois shares voting and investment power with respect to 1,000,000 shares owned by
CDI Holdings, LLC, a wholly-owned subsidiary of The Duchossois Group, Inc., and 3,373 shares owned by
The Chamberlain Group, Inc. Mr. Craig J. Duchossois also shares voting and investment power with respect
to 17,646 shares owned by three trusts. He specifically disclaims beneficial ownership of these shares. Of
the shares listed as beneficially owned by Mr. Craig J. Duchossois, 1,003,373 shares are also listed as
beneficially owned by Mr. Richard L. Duchossois. Figure illustrated includes 11,422 deferred stock units,
which Mr. Craig J. Duchossois has elected to defer pursuant to the Company’s deferred compensation plan.
Also includes 5,448 restricted shares, over which Mr. Craig J. Duchossois has neither voting nor dispositive
power until immediately following his resignation or retirement from the Board, awarded by the Company
for his board service.

(6) Mr. Richard L. Duchossois is the father of Mr. Craig J. Duchossois, who is also a director of the Company.
Mr. Richard L. Duchossois shares voting and investment power with respect to 1,000,000 shares owned by
CDI Holdings, LLC, a wholly-owned subsidiary of The Duchossois Group, Inc., and 3,373 shares owned by
The Chamberlain Group, Inc. Mr. Richard L. Duchossois also shares voting and investment power with
respect
to 165,947 shares owned by the RLD Revocable Trust. He specifically disclaims beneficial
ownership of these shares. Of the shares listed as beneficially owned by Mr. Richard L. Duchossois,
1,003,373 shares are also listed as beneficially owned by Mr. Craig J. Duchossois. Figure illustrated
includes 2,613 deferred stock units, which Mr. Richard L. Duchossois has elected to defer pursuant to the
Company’s deferred compensation plan. Also includes 5,448 restricted shares, over which Mr. Richard L.

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Duchossois has neither voting nor dispositive power until his resignation or retirement from the Board,
awarded by the Company for his board service. Excludes 3,680 shares purchased by Mr. Richard L.
Duchossois on March 7, 2018, after the record date.

(7)

(8)

Includes 1,623 restricted shares, over which Mr. Evans has neither voting nor dispositive power until
immediately following his resignation or retirement from the Board, awarded by the Company for his board
service.

Includes 10,789 deferred stock units, which Mr. Fealy has elected to defer pursuant to the Company’s
deferred compensation plan. Also includes 5,448 restricted shares, over which Mr. Fealy has neither voting
nor dispositive power until immediately following his resignation or retirement from the Board, awarded by
the Company for his board service.

(9)

Includes 135 restricted shares, over which Mr. Grissom has neither voting nor dispositive power until
immediately following his resignation or retirement from the Board.

(10) Mr. Harrington shares voting and investment power with respect to 233,300 shares held by TVI Corp. He
specifically disclaims beneficial ownership of these shares. Figure illustrated includes 9,995 deferred stock
units, which Mr. Harrington has elected to defer pursuant to the Company’s deferred compensation plan.
Also includes 5,448 restricted shares, over which Mr. Harrington has neither voting nor dispositive power
until immediately following his resignation or retirement from the Board, awarded by the Company for his
board service.

(11) Includes 5,448 restricted shares, over which Mr. Humphrey has neither voting nor dispositive power until
immediately following his resignation or retirement from the Board, awarded by the Company for his board
service.

(12) Excludes 1,000 shares purchased by Ms. Lloyd on March 6, 2018, after the record date.

(13) Includes 5,448 restricted shares, over which Mr. Rankin has neither voting nor dispositive power until
immediately following his resignation or retirement from the Board, awarded by the Company for his board
service.

(14) Excludes 3,812 restricted stock units, tied to Mr. Carstanjen’s continued service to the Company, awarded
under the Company’s 2007 Omnibus Stock Incentive Plan over which Mr. Carstanjen has neither voting nor
dispositive power until December 31, 2018, at which time the 3,812 units shall vest without restriction.
Excludes 17,382 restricted stock units, tied to Mr. Carstanjen’s continued service to the Company, awarded
under the Company’s 2016 Omnibus Stock Incentive Plan over which Mr. Carstanjen has neither voting nor
dispositive power until December 31, 2018, at which time 7,227 units shall vest without restriction,
December 31, 2019, at which time 7,227 units shall vest without restriction, and December 31, 2020, at
which time the remaining 2,928 units shall vest without restriction. Excludes 33,114 performance stock
units awarded under the Company’s executive long term incentive compensation plan over which
Mr. Carstanjen has neither voting nor dispositive power until December 31, 2018, at which time the
performance period ends with regard to 11,437 performance stock units, December 31, 2019, at which time
the performance period ends with regard to 12,895 performance stock units, and December 31, 2020, at
which time the performance period ends with regard to the remaining 8,782 performance stock units.

(15) Excludes 1,652 restricted stock units, tied to Mr. Mudd’s continued service, awarded under the Company’s
2007 Omnibus Stock Incentive Plan over which Mr. Mudd has neither voting nor dispositive power until
December 31, 2018, at which time the 1,652 units shall vest without restriction. Excludes 7,092 restricted
stock units, tied to Mr. Mudd’s continued service, awarded under the Company’s 2016 Omnibus Stock
Incentive Plan over which Mr. Mudd has neither voting nor dispositive power until December 31, 2018, at
which time 2,973 units shall vest without restriction, December 31, 2019, at which time 2,973 units shall
vest without restriction, and December 31, 2020, at which time the remaining 1,146 units shall vest without
restriction. Excludes 13,874 performance stock units awarded under the Company’s executive long term
incentive compensation plan over which Mr. Mudd has neither voting nor dispositive power until

December 31, 2018, at which time the performance period ends with regard to 4,956 performance stock
units, December 31, 2019, at which time the performance period ends with regard to 5,481 performance
stock units, and December 31, 2020, at which time the performance period ends with regard to the
remaining 3,437 performance stock units.

(16) Excludes 1,834 restricted shares, tied to Ms. Dall’s continued service to the Company, awarded under the
Company’s 2007 Omnibus Stock Incentive Plan over which Ms. Dall has neither voting nor dispositive
power until October 12, 2018, at which time the 1,834 shares shall vest without restriction. Excludes 1,109
restricted stock units, tied to Ms. Dall’s continued service, awarded under the Company’s 2007 Omnibus
Stock Incentive Plan over which Ms. Dall has neither voting nor dispositive power until December 31, 2018,
at which time the 1,109 units shall vest without restriction. Excludes 4,361 restricted stock units, tied to
Ms. Dall’s continued service, awarded under the Company’s 2016 Omnibus Stock Incentive Plan over
which Ms. Dall has neither voting nor dispositive power until December 31, 2018, at which time 1,830 units
shall vest without restriction, December 31, 2019, at which time 1,830 units shall vest without restriction,
and December 31, 2020, at which time the remaining 701 units shall vest without restriction. Excludes 8,814
performance stock units awarded under the Company’s executive long term incentive compensation plan
over which Ms. Dall has neither voting nor dispositive power until December 31, 2018, at which time the
performance period ends with regard to 3,328 performance stock units, December 31, 2019, at which time
the performance period ends with regard to 3,385 performance stock units, and December 31, 2020, at
which time the performance period ends with regard to the remaining 2,101 performance stock units.

(17) See table on page 15 and “Executive Officers of the Company”.

Executive Officers of the Company

The Company’s executive officers, as listed below, are elected annually to their executive offices and serve

at the pleasure of the Board of Directors.

Name and Age

William C. Carstanjen(1)
50

William E. Mudd(2)
46

Marcia A. Dall(3)
54

Position(s) With Company
and Term of Office

Chief Executive Officer since August 2014; President and Chief Operating Officer
from March 2011 to August 2014; Chief Operating Officer from January 2009 to
March 2011; Executive Vice President and Chief Development Officer from June
2005 to January 2009; General Counsel from June 2005 to December 2006
President and Chief Operating Officer since October 2015; President and Chief
Financial Officer from August 2014 to October 2015; Executive Vice President and
Chief Financial Officer from October 2007 to August 2014
Executive Vice President and Chief Financial Officer since October 2015

(1) Prior to joining the Company, Mr. Carstanjen was employed at General Electric Company (“GE”). From
2004 through June 2005, he served as the Managing Director and General Counsel of GE Commercial
Finance, Energy Financial Services. From 2002 to 2004, he served as General Counsel of GE Specialty
Materials and, from 2000 to 2002, he served as Transactions and Finance Counsel of GE Worldwide
Headquarters. Carstanjen began his career as an attorney with Cravath, Swaine & Moore LLP in New York
City, specializing in mergers and acquisitions and other corporate transactions.

(2) Prior to joining the Company, Mr. Mudd was employed at General Electric Company. From 2006 through
October 2007, he served as Chief Financial Officer, Global Commercial & Americas P&L of GE
Infrastructure, Water & Process Technologies. From 2004 to 2006, he served as Chief Financial Officer,
Supply Chain, Information Technology and Technology Finance, GE Consumer & Industrial Europe,
Middle East, & Africa, Budapest and Hungary and, from 2002 to 2004, he served as Manager, Global
Financial Planning & Analysis and Business Development.

(3) Prior to joining the Company, Ms. Dall was employed at Erie Indemnity Company, a company providing
sales, underwriting and administrative services to Erie Insurance Exchange, where from March 2009
through October 2015, she served as Executive Vice President and Chief Financial Officer. From 2008 until
March 2009, she served as Chief Financial Officer of the Healthcare division at CIGNA Corporation. Prior
to CIGNA, Ms. Dall was a corporate officer and the Chief Financial Officer for the International and U.S.
Mortgage Insurance Segments of Genworth Financial, a former subsidiary of GE. Ms. Dall began her career
in 1985 in the Financial Management Program at GE and held various leadership roles both in finance and
operations over her twenty-plus year tenure with GE. Ms. Dall is a Certified Public Accountant.

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Election of Directors
(Proposal No. 1)

At the Annual Meeting, shareholders will vote to elect the two (2) persons identified below to serve in
Class I of the Board of Directors and to hold office for a term of three (3) years expiring at the 2021 Annual
Meeting of Shareholders and thereafter until their respective successors shall be duly elected and qualified or
until the earlier of their resignation, death or removal.

The Amended and Restated Bylaws of the Company provide that the Board of Directors shall be composed
of not fewer than three (3) nor more than fifteen (15) members, the exact number to be established by the Board
of Directors, and further provide for the division of the Board of Directors into three (3) approximately equal
classes, of which one (1) class is elected annually to a three (3) year term. Currently the Board of Directors is
comprised of ten (10) directors, with three (3) directors in Class I, four (4) directors in Class II and three
(3) directors in Class III. The Board of Directors has established the size of the Board to be composed of eight
(8) members, effective at the Annual Meeting.

Three (3) directors, each of whom are in Class I, will not be standing for reelection: G. Watts Humphrey, Jr.,
Robert L. Evans, and Craig J. Duchossois. In order to establish approximately equal classes of directors, William
C. Carstanjen has agreed to move from a Class II director to a nominee for shareholder approval as a Class I
director at the Annual Meeting. In addition, upon the recommendation of the Nominating and Governance
Committee, the Board has nominated Ms. Karole F. Lloyd for election as a director nominee in Class I at the
Annual Meeting. Ms. Lloyd was originally recommended to the Nominating and Governance Committee by an
executive officer of the Company.

The Company has a mandatory retirement age policy in the Corporate Governance Guidelines with regard to
directors, which provides that a person is not qualified to serve as a director unless he or she is less than seventy
(70) years of age on the date of election. The Board believes that it is important to monitor overall Board
performance and suitability, and pursuant to the policy, upon the recommendation of the Nominating and
Governance Committee, the Board may waive the effective date of mandatory retirement. No director nominees
in Class I will have met the mandatory retirement age at the Annual Meeting.

The Nominating and Governance Committee has recommended, and the Board has approved,
the
nomination of the two (2) persons named in the following table for election as directors in Class I. As noted
above, Mr. Carstanjen currently serves as a member of Class II and has agreed to stand for election and serve as a
Class I director if re-elected, and Mr. Humphrey, Mr. Evans, and Mr. Craig Duchossois are not standing for
re-election as directors at the Annual Meeting.

Directors are elected by a plurality of votes cast by the shares entitled to vote in the election at a meeting at
which a quorum is present. With each shareholder having one vote per share to cast for each director position, the
nominees receiving the greatest number of votes will be elected. The biographical information for our directors
and director nominees below includes information regarding certain of the experiences, qualifications, attributes
and skills that led to the determination that such individuals are qualified to serve on the Board of Directors.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION OF THE

DIRECTORS IN CLASS I NAMED BELOW.

UNLESS OTHERWISE INSTRUCTED, IT IS THE INTENTION OF THE PERSONS NAMED IN THE
PROXY TO VOTE THE SHARES REPRESENTED THEREBY “FOR” THE ELECTION OF THE CLASS I
DIRECTORS NAMED BELOW.

Election of Directors

The following table sets forth information relating to the Class I director nominees of the Company who are
proposed to the shareholders for election to serve as directors for terms of three (3) years, expiring at the 2021
Annual Meeting of Shareholders, and thereafter until their respective successors shall be duly elected and
qualified or until the earlier of their resignation, death or removal.

Name, Age and
Positions with
Company

William C. Carstanjen
50
Director since 2015

Karole F. Lloyd
59
Nominated Director

Principal Occupation
and Certain Directorships(1)

Class I—Nominated for Terms Expiring in 2021

Mr. Carstanjen was named the Company’s twelfth Chief Executive Officer in August
2014 and appointed to the Board of Directors in July 2015. Carstanjen served as CDI’s
President and Chief Operating Officer (2011-2014), CDI’s Chief Operating Officer
(2009-2011) and as Executive Vice President, General Counsel and Chief Development
Officer for the Company (2005-2008). Mr. Carstanjen joined CDI in July 2005 after
serving as an executive with General Electric Company. Mr. Carstanjen began his
career as an attorney with Cravath, Swaine & Moore LLP in New York City,
specializing in mergers and acquisitions, corporate finance and corporate governance.
Mr. Carstanjen brings a wealth of experience and knowledge to his leadership role at
CDI. Throughout his tenure, Mr. Carstanjen has led CDI’s diversification strategy into
online wagering and regional casino gaming, as well as led the growth of the Kentucky
Oaks and Kentucky Derby events.

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industries

including banking,

Ms. Lloyd is the retired Vice Chair and Southeast Regional Managing Partner for
Ernst & Young LLP (“EY”), an accounting firm. From 2009 through 2016, she served as
a member of the US Executive Board, Americas Operating Executive and the Global
Practice Group for EY. Under her leadership, the Southeast Region doubled its annual
revenue to exceed $1.3 billion. In her 35 plus year career at EY, Ms. Lloyd served many
of EY’s highest profile clients through mergers, IPOs, acquisitions, divestitures, and
across numerous
insurance, consumer products,
transportation, manufacturing, and retail. She served as the senior advisory partner for
The Coca-Cola Company, Intercontinental Exchange, Delta Airlines, Inc., WestRock,
and Johnson & Johnson. Ms. Lloyd formerly served as the coordinating partner for
Toronto Dominion Financial Group in Canada and Regions Financial Corporation
located in the southeast. Ms. Lloyd was appointed to the Board of Directors of AFLAC
Inc. in January 2017 and serves on the Audit and Risk Committee and the Investment
and Finance Committees. Ms. Lloyd is active in the Atlanta community, serving on the
Board of Trustees and Executive Committee of the Metro Atlanta Chamber of
Commerce; The United Way of Greater Atlanta and The Rotary Club of Atlanta.
Additionally, she was previously the Chair of the Atlanta Symphony Orchestra Board of
Directors. Ms. Lloyd is active in supporting many colleges and universities throughout
the southeast, including serving on the President’s Advisory Council and the Board of
Visitors at the University of Alabama.

(1) Directorships at any time within the last 5 years in companies with a class of securities registered pursuant
to Section 12 of the Exchange Act, subject to the requirements of Section 15(d) of the Exchange Act or
companies registered under the Investment Company Act of 1940 and, in the case of certain directors, other
directorships or positions considered significant by them.

The Board of Directors has no reason to believe that any of the nominees will be unavailable to serve as a
director. If any nominee should become unavailable before the Annual Meeting, the persons named in the proxy,
or their substitutes, reserve the right to vote for substitute nominees selected by the Board of Directors.

Continuing Directors

The following tables set forth information relating to the Class II and Class III directors of the Company

who will continue to serve as directors until the expiration of their respective terms of office.

Name, Age and
Positions with
Company

Ulysses L. Bridgeman, Jr.
64
Director since 2012

Richard L. Duchossois
96
Director since 2000

R. Alex Rankin
62
Director since 2008

Principal Occupation(1)
and Certain Directorships(2)

Class II—Terms Expiring in 2019

Mr. Bridgeman is the owner and chief executive officer of Heartland Coca-Cola
Bottling Company, LLC (“Heartland”), which owns and operates a Coca-Cola
production/manufacturing facility in Lenexa, Kansas and seventeen Coca-Cola
distribution facilities across various Midwestern states,
including Kansas,
Missouri, and Illinois. Prior to his February 2017 acquisition of Heartland,
Mr. Bridgeman was the owner and chief executive officer of various companies
operating over 450 restaurants in 20 states, including 263 Wendy’s restaurants
and 123 Chili’s restaurants. From 1975 to 1983, and from 1986 to 1987,
Mr. Bridgeman played professional basketball with the Milwaukee Bucks, and
from 1983 to 1986, he played for the Los Angeles Clippers. Mr. Bridgeman
currently serves on the Board of Directors of Meijer, Inc.,
the Naismith
Basketball Hall of Fame,
the James Graham Brown Foundation, Simmons
College and the West End School. He served as past chairman of the Board of
Trustees of the University of Louisville.

Mr. Duchossois is the founder and former Chairman of The Duchossois Group,
Inc. (a family-owned company with diversified business interests in companies
with leading brands in the residential and commercial access control markets).
Mr. Duchossois also serves as the Chairman of Arlington Park Racecourse, LLC,
a subsidiary of the Company. While Mr. Duchossois was originally nominated to
serve as a director of the Company pursuant to the stockholder’s agreement
between the Company and Duchossois Industries, Inc., the Company has been
and will continue to be well served by Mr. Duchossois’ entrepreneurial
experience and abilities, his proven leadership capabilities in successfully
developing and managing a diverse group of companies that have over 5,000
employees worldwide, as well as his horse racing industry experience in which
he led the resurrection of Arlington Park Racecourse as a world renowned
racetrack. Mr. Duchossois is currently a Director of The Duchossois Group, Inc.

Mr. Rankin is the Chairman of the Board of Sterling G. Thompson Company, LLC
(a private insurance agency and broker), the President of Upson Downs Farm, Inc. (a
thoroughbred breeding and racing operation), and the Chairman of the James
Graham Brown Foundation (a private, non-profit foundation that fosters the well-
being, quality of life, and image of Louisville and Kentucky by actively supporting
and funding projects in the fields of civic affairs, economic development, education,
and health and general welfare, which since 1954 has awarded over 2,680 grants
totaling over $450 million). He is also a Director of Glenview Trust Company and a
member of The Jockey Club. Among other exceptional personal and professional
attributes, Mr. Rankin’s expertise in the areas of finance and risk management, as
well as his experience in the business of thoroughbred horseracing, qualify
Mr. Rankin as a member of the Board of Directors and the Audit Committee.

(1) Except as noted with respect to Mr. Bridgeman, there has been no change in principal occupation or

employment during the past five years.

(2) Directorships at any time within the last 5 years in companies with a class of securities registered pursuant
to Section 12 of the Exchange Act, subject to the requirements of Section 15(d) of the Exchange Act or
companies registered under the Investment Company Act of 1940 and, in the case of certain nominees, other
directorships or positions considered significant by them.

Name, Age and
Positions with
Company

Robert L. Fealy
66
Director since 2000

Douglas C. Grissom
50
Director since 2017

Daniel P. Harrington
62
Director since 1998

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Principal Occupation(1)
and Certain Directorships(2)

Class III—Terms Expiring in 2020

Mr. Fealy currently serves as Managing Director of Limerick Investments, LLC,
an investment firm. He retired effective June 30, 2014 as President, Chief
Operating Officer and Director of The Duchossois Group, Inc. (a family
owned company which held diversified business interests in companies with
leading brands in the residential security, lighting and convenience products
markets and the commercial control, automation and digital media markets).
While Mr. Fealy was originally nominated to serve as a Director of the Company
pursuant to the stockholder’s agreement between the Company and Duchossois
Industries, Inc., the Company has been and will continue to be well served by
Mr. Fealy’s experience as a certified public accountant and senior executive with
oversight of a diverse group of companies that had over 5,000 employees
worldwide with operations located in over 30 countries as well as proven
capabilities in strategic business planning in a variety of industries. Mr. Fealy
currently holds the following leadership positions with other entities: Lead
Director, Pella Corporation; Board Director, Panduit, Inc.; Past Chairman and
Founding Board Member, Illinois Venture Capital Association; Director, Illinois
Venture Capital Association PAC; Entrepreneurial Partner and Advisor, Chicago
the Board of Trustees,
Ventures; Vice-Chairman and Past Chairman of
University of Cincinnati Foundation; Member, University of Cincinnati Business
Advisory Council; Board Chairman, Chicago Children’s Choir; Trustee and
Co-Chair of the Capital Campaign of The Morton Arboretum; Partner, Social
Venture Partners; Co-Founder and President, Aluminate, Inc.

Mr. Grissom serves as the Managing Director and Head of Madison Dearborn
Partners’ (“MDP”) Business & Government Software and Services team. Prior
to joining MDP, a Chicago-based private equity firm focused on buyout and
in private equity,
growth equity investments, he was with Bain Capital
McKinsey & Company and Goldman Sachs. Mr. Grissom currently serves on the
Boards of Directors of BlueCat Networks, CoVant Technologies II, Fleet
Complete and LGS Innovations. In addition, he was formerly on the Boards of
Directors of @stake, Aderant, Asurion, Cbeyond, Fieldglass, Great Lakes
Dredge and Dock Corporation, Intelsat, and Neoworld. Outside of MDP, he is a
Board Member at Amherst College, the Lincoln Park Zoo, METROsquash, the
Museum of Science and Industry, and the University of Chicago Laboratory
Schools.

Mr. Harrington serves as the President and Chief Executive Officer of HTV
Industries, Inc. (a private holding company with diversified business interests that
include manufacturing, distribution,
technology and banking). Among other
exceptional personal and professional attributes, Mr. Harrington has extensive
financial, accounting and chief executive experience within a variety of industries
that qualifies Mr. Harrington as a member of the Board of Directors. In addition,
Mr. Harrington qualifies as an Audit Committee Financial Expert, which makes him
well suited for his current role as the Chairman of the Company’s Audit Committee.
Mr. Harrington also serves as a Trustee of The Veale Foundation. In addition,
Mr. Harrington has served as a Director of First Guaranty Bank, First State Financial
Corporation, and Portec Rail Products, Inc. (serving on its Audit and Compensation
Committees).

(1) There has been no change in principal occupation or employment during the past five years except with

respect to Mr. Fealy.

(2) Directorships at any time within the last 5 years in companies with a class of securities registered pursuant
to Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), subject to the
requirements of Section 15(d) of the Exchange Act or companies registered under the Investment Company
Act of 1940 and, in the case of certain directors, other directorships or positions considered significant by
them.

Emeritus Directors

Emeritus Directors are available for counsel, but do not attend meetings of the Board of Directors and do not
vote on matters presented to the Board. The Company’s Amended and Restated Bylaws provide that a person
may not be qualified for election as a director due to age, pursuant to any mandatory retirement age requirement
adopted by the Company. The Company’s Corporate Governance Guidelines provide that the Board will
establish and maintain a policy with regard to a mandatory retirement age for non-employee directors. The
current policy provides that a person is not qualified to serve as a director unless he or she is less than seventy
(70) years of age on the date of election. However, the Board believes that it is important to monitor overall
Board performance and suitability and, upon the recommendation of the Nominating and Governance
Committee, the Board may waive the effective date of mandatory retirement. Each director shall become a
Director Emeritus upon the expiration of his or her current term following the date on which he or she is no
longer qualified for election due to age, provided the effective date of such mandatory retirement has not been
waived. The Emeriti Directors are Charles W. Bidwill, Jr., Catesby W. Clay, J. David Grissom, James F.
McDonald, Thomas H. Meeker, Carl F. Pollard, and Darrell R. Wells.

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Director Compensation for Fiscal Year Ended December 31, 2017

Each non-employee director of the Board of Directors of the Company receives the compensation set forth
below (all fees shown are annual fees, except for meeting fees), which did not change from the compensation
levels set for 2016:

Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Committee . . . . . . . . . . . . . . . . . . . . . . .
Nominating and Governance Committee . . . . . . . . . . .
Audit Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Retainer
Fee

$60,000

Meeting
Fees**

$2,000
$2,000
$2,000
$2,000

Stock
Awards

Chairman
Fee

Non-Chairman
Fee

$125,000*

$25,000
$20,000
$35,000

$12,500
$10,000
$15,000

Each non-employee director receives a grant of restricted share units (“RSUs”), with an aggregate grant date
fair value of $125,000.

** Directors who do not reside in Louisville may request reimbursement for their travel expenses to and from

Board and committee meetings.

In 2017, we provided the following compensation to our non-employee directors. Mr. Carstanjen, our CEO,
is not separately compensated for his service on our Board. Please see the 2017 Summary Compensation
Table for a summary of the compensation paid to our CEO with respect to 2017.

Name

Ulysses L. Bridgeman, Jr.
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Craig J. Duchossois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Richard L. Duchossois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Robert L. Evans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Robert L. Fealy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aditi J. Gokhale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Douglas C. Grissom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Daniel P. Harrington . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
G. Watts Humphrey, Jr. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
R. Alex Rankin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Fees earned or
paid in cash ($)

Stock
Awards ($)(2)

97,250(1)
86,500(1)
88,000(1)
70,000
98,000(1)
20,750(3)
29,923(1)
131,500(1)
112,000
142,000

125,000
125,000
125,000
125,000
125,000
-0-
-0-
125,000
125,000
125,000

Total ($)

222,250
211,500
213,000
195,000
223,000
20,750
29,923
256,500
237,000
267,000

(1) The Churchill Downs Incorporated 2005 Deferred Compensation Plan allows directors to defer receipt of all
or part of their retainer and meeting fees in a deferred share account until after their service on the Board has
ended. This account allows the director, in effect, to invest his or her deferred cash compensation in
Company Common Stock. Funds in this account are credited as hypothetical shares of Common Stock based
on the market price of the stock at the time the compensation would otherwise have been earned.
Hypothetical dividends are reinvested in additional shares based on the market price of the stock on the date
dividends are paid. All shares in the deferred share accounts are hypothetical and are not issued or
transferred until the director ends his or her service on the Board. Upon the end of Board service, the shares
are issued or transferred to the director. In 2017, Mr. Craig J. Duchossois, Mr. Fealy, Mr. Grissom, and
Mr. Harrington deferred all of their directors’ fees into a deferred share account under the plan. Ms. Gokhale
deferred all of her 2017 directors’ fees into a mutual fund account. Mr. Bridgeman deferred 50% of his 2017
directors’ fees into a deferred share account under the plan. As of December 31, 2017, Mr. Bridgeman had
1,408 deferred shares, Mr. Craig Duchossois had 11,350 deferred shares, Mr. Richard Duchossois had 2,596
deferred shares, Mr. Fealy had 10,721 deferred shares, Mr. Grissom had 134 deferred shares, and
Mr. Harrington had 9,932 deferred shares under the plan.

(2) On April 25, 2017, each non-employee director (with the exception of Ms. Gokhale, who did not stand for
re-election as a member of the Board of Directors on April 25, 2017, and Mr. Grissom who was appointed
to the Board on July 25, 2017) received a grant of RSUs, valued in the amount of $125,000, calculated
based upon the closing price of a share of Common Stock on the date of grant. The RSUs vest one year from

the date of grant, subject to the director’s continued service through the vesting date. At the time a director
ceases being a director of the Company, the Company will issue one share of Common Stock for each
vested RSU held by such director. As of December 31, 2017, Mr. Bridgeman had 3,621 RSUs, Mr. Craig
Duchossois had 5,414 RSUs, Mr. Richard Duchossois had 5,414 RSUs, Mr. Evans had 1,613 RSUs,
Mr. Fealy had 5,414 RSUs, Mr. Harrington had 5,414 RSUs, Mr. Humphrey had 5,414 RSUs, and
Mr. Rankin had 5,414 RSUs.

(3) Ms. Gokhale did not stand for re-election as a member of the Board of Directors on April 25, 2017.

Share Ownership Guidelines

As memorialized in the Corporate Governance Guidelines, the Board expects all directors to display
confidence in the Company by ownership and retention of a meaningful amount of the Company’s stock. As a
result, each director is expected to own shares of the Company’s stock with a fair market value equal to five
(5) times the director’s annual retainer. Each director appointed or elected to the Board has five (5) years from
the date of appointment or election to the Board to meet this requirement. Compliance is measured at the five
(5) year anniversary date of the director’s appointment or election. Each director’s continuing compliance with
the ownership guidelines will be measured in the year he or she stands for re-election and will be considered as
one of the criteria for nomination by the Nominating and Governance Committee. Mr. Carstanjen is excluded
from the chart below, as he is subject to maintaining holdings of Company stock equal to at least six (6) times his
base annual salary, pursuant to the Key Executive Stock Ownership and Retention Guidelines, as further
described in the “Executive Stock Ownership Guidelines” section below. Furthermore, deferred shares acquired
by directors under the Churchill Downs Incorporated 2005 Deferred Compensation Plan and RSUs granted as
director compensation are included for purposes of measuring compliance with the Company’s share ownership
guidelines.

Director

Ulysses L. Bridgeman, Jr.
. . . . . . . . . . . . . . .
Craig J. Duchossois . . . . . . . . . . . . . . . . . . . .
Richard L. Duchossois . . . . . . . . . . . . . . . . . .
Robert L. Evans . . . . . . . . . . . . . . . . . . . . . . .
Robert L. Fealy . . . . . . . . . . . . . . . . . . . . . . .
Douglas C. Grissom . . . . . . . . . . . . . . . . . . . .
Daniel P. Harrington . . . . . . . . . . . . . . . . . . .
G. Watts Humphrey, Jr. . . . . . . . . . . . . . . . . .
R. Alex Rankin . . . . . . . . . . . . . . . . . . . . . . .

Ownership
Guidelines(1)

Shares
Owned(2)

Value of
Shares(3)

5x
5x
5x
5x
5x
5x
5x
5x
5x

5,029
1,037,784
1,181,878
90,878
16,135
134
248,646
56,414
11,214

$
1,170,248
$241,492,336
$275,023,010
$ 21,147,326
3,754,614
$
$
31,181
$ 57,859,924
$ 13,127,537
2,609,497
$

Met
Guidelines
✓
✓
✓
✓
✓
*
✓
✓
✓

✓ = Met guidelines.

* = Has not yet met guidelines, but has five years from the date of appointment to the Board to meet the

guidelines.

(1) Guidelines adopted per the Company’s Board of Directors.

(2) Calculated as of December 31, 2017 and represents shares of Common Stock owned outright, amounts

deferred per the Company’s 2005 Deferred Compensation Plan, and RSUs issued for board service.

(3) Fair market value based on CHDN closing stock price of $232.70 as of December 29, 2017.

Corporate Governance

The Board of Directors is responsible for providing effective governance over the Company’s affairs. The
Company’s corporate governance practices are designed to align the interests of the Board and management with
those of our shareholders and to promote honesty and integrity throughout the Company.

During the past year, we continued to review our corporate governance policies and practices and compare
them to those suggested by various authorities in corporate governance and the practices of other public
companies. We have also reviewed guidance and interpretations provided by the SEC and NASDAQ.

Copies of the current charter, as approved by our Board, for each of our Audit, Compensation and
Nominating and Governance Committees and a copy of our Corporate Governance Guidelines, Code of Conduct
for Employees and Code of Ethics for Principal Financial Officers (along with any amendments or waivers
related to the Code of Conduct or Code of Ethics)
corporate website,
http://www.churchilldownsincorporated.com, under the “Investors” heading.

available on our

are

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Shareholders may send communications to the Company’s Board of Directors addressed to the Board of
Directors or to any individual director c/o Churchill Downs Incorporated, 600 N. Hurstbourne Parkway, Ste. 400,
Louisville, Kentucky 40222. Any correspondence addressed to the Board of Directors in care of the Company is
forwarded to the Board of Directors without review by management.

Board Leadership Structure

G. Watts Humphrey, Jr. is retiring as a director and Chairman of the Board of Directors, and current Vice-
Chairman, R. Alex Rankin, will be appointed Chairman of the Board of Directors, each effective immediately
prior to the Annual Meeting on April 24, 2018. The Board continues to deem it advisable to maintain certain
aspects of its governance structure to assure effective independent oversight. These governance practices
included maintaining executive sessions of the independent directors after each Board meeting, annual
performance evaluations of the Chief Executive Officer by the independent directors, and separate roles for the
Chief Executive Officer and Chairman of the Board of Directors.

Oversight of Company Risk

As part of its responsibility to oversee the management, business and strategy of the Company, the Board of
Directors has overall responsibility for risk oversight. While the Board of Directors as a whole performs certain
risk oversight functions directly, such as its ongoing review, approval and monitoring of the Company’s
fundamental business and financial strategies and major corporate actions, the majority of the Board of Directors’
risk oversight functions are carried out through the operation of its committees. Each committee oversees risk
management within its assigned areas of responsibility, as described below in the discussion of committee
responsibilities. The Audit Committee is primarily responsible for overseeing the Company’s risk assessment and
risk management practices, as well as its compliance programs. The Compensation Committee’s responsibilities
include oversight of the risks associated with the Company’s compensation policies and practices, as well as its
managerial development and succession plans. The Nominating and Governance Committee oversees the risks
related to the Company’s corporate governance structure and processes.

Board Meetings and Committees

Five (5) meetings of the Board of Directors were held during the last fiscal year. During the fiscal year, all
directors attended at least 75% of their Board and committee meetings for the period for which they served. The
Company encourages its directors to attend the Annual Meeting each year. Each of the directors then serving on
the Board, with the exception of Craig J. Duchossois, attended the Company’s Annual Meeting on April 25,
2017.

The Board has determined that all of the directors of the Company who served during any part of the last
completed fiscal year are “independent directors,” as defined under NASDAQ Rule 5605(a)(2), except
Robert L. Evans and William C. Carstanjen.

As required by the Company’s Corporate Governance Guidelines, the Board of Directors currently has four
(4) standing committees: the Executive, Audit, Compensation, and the Nominating and Governance Committees.

No Director Emeritus serves on any Board committee. The current composition of the committees is illustrated in
the table below, along with the number of meetings held in 2017.

Director Name

Executive
Committee

Ulysses L. Bridgeman . . . . . . . . . . . . .
William C. Carstanjen . . . . . . . . . . . . .
Craig J. Duchossois . . . . . . . . . . . . . . .
Richard L. Duchossois . . . . . . . . . . . . .
Robert L. Evans . . . . . . . . . . . . . . . . . .
Robert L. Fealy . . . . . . . . . . . . . . . . . .
Douglas C. Grissom . . . . . . . . . . . . . . .
Daniel P. Harrington . . . . . . . . . . . . . .
G. Watts Humphrey, Jr.(c)
R. Alex Rankin . . . . . . . . . . . . . . . . . .
Number of meetings in 2017 . . . . . . .

Board of
Directors
✓
✓
✓
✓
✓
✓
✓
✓
. . . . . . . . . . Chairman Chairman
✓
5

✓
0

✓

Audit
Committee
✓

Compensation
Committee

Nominating and
Governance Committee
✓

✓

✓
✓
✓
★
Chairman
3

Chairman
★
✓
4

✓

Chairman
✓

★
✓
3

✓ = Member

Executive Committee

The Executive Committee is authorized, subject to certain limitations set forth in the Company’s Amended
and Restated Bylaws, to exercise the authority of the Board of Directors between Board meetings. The members
of the Executive Committee are G. Watts Humphrey, Jr., who serves as Chairman, Robert L. Fealy, and
R. Alex Rankin. Mr. Rankin will replace Mr. Humphrey as Chairman following Mr. Humphrey’s retirement, and
Daniel P. Harrington will become a member of the Executive Committee, all to be effective at the Annual
Meeting. The Executive Committee does not meet on a regular basis, but instead meets as and when needed.

The Executive Committee did not meet during the last fiscal year.

Audit Committee

The primary purposes of the Audit Committee are to assist

the Board of Directors in fulfilling its
responsibility in monitoring management’s conduct of the Company’s financial reporting process and overseeing
the Company’s risk assessment and risk management practices. Under its charter, the Audit Committee is
generally responsible for monitoring the integrity of the financial reporting process, systems of internal controls
and financial statements and other financial reports provided by the Company to any governmental or regulatory
body, the public or other users thereof, as well as overseeing the processes by which management assesses the
Company’s exposure to risk and evaluating the guidelines and policies governing the Company’s monitoring,
control and minimization of such exposures.

The Audit Committee’s responsibilities are as follows:

•

To monitor the performance of the Company’s internal audit function;

To appoint, compensate, retain and oversee the independent registered public accounting firm
employed by the Company for the purpose of preparing or issuing audit opinions on the Company’s
financial statements and its internal control over financial reporting;

•

To monitor the Company’s compliance with legal and regulatory requirements as well as the
Company’s Code of Conduct and compliance policies;

To inquire of management, including its internal auditor, and the Company’s independent auditors
regarding significant risks or exposures, including those related to fraudulent activities, facing the
Company; to assess the steps management has taken or proposes to take to minimize such risks to the
Company; and to periodically review compliance with such steps;

In discharging its oversight role, to investigate any matter brought to its attention with full access to all
books, records, facilities and personnel of the Company and to retain outside counsel, auditors or other
experts for this purpose; and

To conduct an annual performance evaluation of the Committee.

We have a formal enterprise risk management program that falls under the leadership of our executive team.
The purpose of this program is to promote risk-intelligent decision making and, in turn, increase the likelihood of
achieving our operational objectives. Our Board of Directors is regularly advised of potential organizational risks
and supporting mitigating policies.

The members of the Audit Committee are Daniel P. Harrington, who serves as Chairman, Ulysses L.
Bridgeman, Jr., and R. Alex Rankin. The Company’s Board of Directors has determined that all members of the
Company’s Audit Committee are independent as defined under NASDAQ Rule 5605(a)(2) and Rule 10A-3(b)(1)
of the SEC.

Four (4) meetings of the Audit Committee were held during the last fiscal year. The Audit Committee

reviews the adequacy of its charter on an annual basis.

The Board of Directors has determined that Daniel P. Harrington is an “audit committee financial expert” as

defined by regulations promulgated by the SEC.

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Compensation Committee

Responsibilities of the Compensation Committee

The Compensation Committee of the Board of Directors operates under a written charter and is comprised
entirely of directors meeting the independence requirements of NASDAQ and Rule 10C-1 of the SEC. The Board
established the Compensation Committee to assist it in discharging the Board’s responsibilities relating to
compensation of the Company’s chief executive officer (“CEO”), each of the Company’s other executive
officers, and the Company’s non-employee directors. The Compensation Committee has overall responsibility
for decisions relating to all compensation plans, policies and perquisites as they affect the CEO and other
executive officers and may form and delegate authority to subcommittees when it deems appropriate.
Furthermore, the Committee has a special Subcommittee comprised of two non-employee directors for the
purposes of approving any stock grants or other stock related transactions to officers or directors of the
Company, as required under SEC Rule 16b-3. This Subcommittee is comprised only of “outside directors” as
defined by Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), and historically was
responsible for approving all performance standards for officers for any pay program that had been intended to
qualify as “performance based compensation” under this section of the Code. Historically, there was an exception
from Section 162(m)’s limit on deductibility for new awards that qualify as “performance-based compensation”
meeting the requirements under Section 162(m). With the enactment of tax reform in late 2017,
the
“performance-based compensation” exception has been eliminated except with respect to certain grandfathered
arrangements. The members of this special Subcommittee are Daniel P. Harrington and R. Alex Rankin.

During 2017, the Compensation Committee was composed of three (3) independent directors: R. Alex
Rankin, who serves as Chairman, Craig J. Duchossois, and Daniel P. Harrington. Douglas C. Grissom and Robert
L. Fealy joined the Compensation Committee upon approval by the Board of Directors at its February 27, 2018
meeting.

Three (3) meetings of the Compensation Committee were held during the last fiscal year. Members of
management attended the meetings. The agendas for the meetings were determined by the Chairman of the
Compensation Committee with management’s input prior to the meetings.

The Compensation Committee’s responsibilities are as follows:

•

Oversee the development and implementation of the Company’s compensation policies and programs
for executive officers, including the CEO.

Establish the annual goals and objectives relevant to the compensation of the CEO and the executive
officers and to present such to the Board annually.

Evaluate the performance of the CEO and other executive officers in light of the agreed-upon goals and
objectives and to determine and approve the compensation level of the CEO, including the balance of
the components of total compensation, based on such evaluation and to present its report to the Board
annually.

To develop guidelines for the compensation and performance of the Company’s executive officers and
to determine and approve the compensation of the Company’s executive officers, including the balance
of the components of total compensation.

To establish appropriate performance targets, participations and levels of awards with respect to the
Company’s incentive compensation plans.

To administer the Company’s equity-based compensation plans, including the establishment of criteria
for the granting of stock-based awards and the review and approval of such grants in accordance with
the criteria.

To establish and periodically review Company policies relating to senior management perquisites and
other non-cash benefits.

To review periodically the operation of the Company’s overall compensation program for key
employees and evaluate its effectiveness in promoting shareholder value and Company objectives.

To review the results of any advisory shareholder votes on executive compensation and consider
whether to recommend adjustments to the Company’s compensation policies and programs as a result
of such results.

To consider, at least annually, whether risks arising from the Company’s compensation policies and
practices for all employees, including non-executive officers, are reasonably likely to have a material
adverse effect on the Company,
incentive compensation
arrangements encourage excessive or inappropriate risk-taking.

including whether

the Company’s

To review, assess and recommend to the Board any changes to the Company’s compensation
“clawback” policy required by law or otherwise adopted by the Company.

To oversee regulatory compliance with respect to matters relating to executive officer compensation.

To approve plans for managerial development and succession within the Company and to present such
plans to the Board annually.

To review, assess and recommend to the Board appropriate compensation for outside directors.

To produce the report on executive compensation to be included in the Company’s proxy statement for
the annual meeting of shareholders.

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•

To review and discuss with management the compensation discussion and analysis, and based on such
discussion, make a recommendation to the Board as to whether or not the compensation discussion and
analysis should be included in the proxy statement.

To review and reassess the adequacy of its charter annually and recommend any proposed changes to
the Board for approval.

To conduct an annual performance evaluation of the committee.

The Compensation Committee’s charter reflects these responsibilities, and the Compensation Committee

and the Board periodically review and revise the charter.

Compensation Committee Interlocks and Insider Participation

None of the directors who served on the Compensation Committee at any time during the last fiscal year
were officers of the Company or were former officers of the Company. None of the members who served on the
Committee at any time during fiscal 2017 had any relationship with the Company requiring disclosure under
Item 404 of Regulation S-K, other than the transactions involving the Stock Repurchase Agreement and the
Amended and Restated Stockholder’s Agreement (each as defined and discussed below under the caption
“Certain Relationships and Related Transactions”) with respect to Mr. Craig J. Duchossois. Finally, no executive
officer of the Company serves, or in the past fiscal year has served, as a director or member of the compensation
committee (or other board committee performing equivalent functions) of any entity that has one or more of its
executive officers serving on the Board of Directors or the Compensation Committee.

Compensation Risk Assessment

The Compensation Committee performed an assessment of whether risks arising from the Company’s
compensation policies and practices for all employees during 2017, including non-executive officers, are
reasonably likely to have a material adverse effect on the Company. Each policy and plan was evaluated based on
certain elements of risk, including, but not limited to, (i) the mix of fixed and variable pay, (ii) types of
performance metrics, (iii) performance goals and payout curves, (iv) payment timing and adjustments, (v) equity
incentives, and (vi) stock ownership requirements and trading policies. Based on this evaluation, an assessment
of each plan was created, along with an overall assessment of compensation risk to the Company. After
evaluation and discussion, the Committee determined that the Company’s compensation policies and practices
are not reasonably likely to have a material adverse effect on the Company.

Nominating and Governance Committee

The Company’s Nominating and Governance Committee operates under a written charter and is responsible
for establishing the criteria for and reviewing the effectiveness of the Company’s Board of Directors. In addition,
the Nominating and Governance Committee provides oversight with regard to the Company’s programs for
dealing with business ethics and other governance issues.

Pursuant to the Company’s Corporate Governance Guidelines and its Policy on Board Composition, the
Nominating and Governance Committee determines criteria regarding personal qualifications needed for Board
membership and the Committee considers, reviews qualifications and recommends qualified candidates for
Board membership. In doing so, the Nominating and Governance Committee reviews the composition of the
Board to identify skill sets and qualifications which are represented in order to determine which ones are needed.
In addition, the Nominating and Governance Committee reviews the Company’s strategic plan to determine its
needs with regard to Board composition. While the Company does not have a formal policy on diversity for
members of the Board of Directors, the Company’s Corporate Governance Guidelines and its Policy on Board
Composition specifically provide that diversity of race and gender, as well as general diversity of backgrounds

and experience represented on the Board of Directors are factors to consider in evaluating potential directors. The
Nominating and Governance Committee sometimes employs an outside consultant to identify nominees with the
skill sets, experience and backgrounds that suit the Company’s needs.

A candidate for the Company’s Board of Directors should possess the highest personal and professional
ethics, integrity and values and be committed to representing the long-term interests of the Company’s various
constituencies. In considering a candidate for nomination as a member of the Board, the Nominating and
including
Governance Committee will consider criteria such as independence; occupational background,
principal occupation (i.e., chief executive officer, attorney, accountant, investment banker, or other pertinent
occupation); level and type of business experience (i.e., financial, lending, investment, media, racing industry,
technology, etc.) diversity in race and gender, number of boards on which the individual serves, and the general
diversity of backgrounds and experience represented on the Board. The Nominating and Governance Committee
periodically reviews the Company’s Corporate Governance Guidelines and its Policy on Board Composition and
recommends changes to the Board. It also evaluates the performance of the Board as a whole and provides
feedback to the Board on how the directors, the committees and the Board are functioning. Finally, it evaluates
Board of Director practices at the Company and other well-managed companies on an annual basis and
recommends appropriate changes to the Board and/or its practices.

The Nominating and Governance Committee receives and considers issues raised by shareholders or other
stakeholders in the Company and recommends appropriate responses to the Board. The Nominating and
Governance Committee will consider recommendations for director candidates submitted by shareholders. Such
questions, comments or recommendations should be submitted in writing to the Nominating and Governance
Committee in care of the Office of the Secretary at 600 N. Hurstbourne Parkway, Ste. 400, Louisville, Kentucky
40222. The Nominating and Governance Committee, in having adopted criteria to be considered for membership
on its Board, considers such candidates applying such criteria and follows the recommendation process noted
above. Recommendations by shareholders that are made in accordance with these procedures will receive the
same consideration as recommendations from other sources.

The members of the Nominating and Governance Committee, each of whom is independent as defined by
the NASDAQ listing standards, are Robert L. Fealy, who serves as Chairman, Ulysses L. Bridgeman Jr., Richard
L. Duchossois, and R. Alex Rankin. Douglas C. Grissom joined the Nominating and Governance Committee
upon approval by the Board of Directors at its February 27, 2018 meeting.

Three (3) meetings of the Nominating and Governance Committee were held during the last fiscal year.

Proposal to Ratify the Appointment of PricewaterhouseCoopers LLP as the
Company’s Independent Registered Public Accounting Firm for 2018
(Proposal No. 2)

On February 27, 2018, the Board of Directors, on recommendation from the Audit Committee, selected
PricewaterhouseCoopers LLP (“PwC”) to serve as the Company’s independent registered public accounting firm
for the year ending December 31, 2018. PwC has served as the Company’s independent registered public
accounting firm since the Company’s 1990 fiscal year.

Although the Company’s Amended and Restated Bylaws do not require that the Company’s shareholders
ratify the appointment of PwC as the Company’s independent registered public accounting firm, the Board of
Directors is submitting the appointment of PwC to the Company’s shareholders for ratification as a matter of
good corporate governance. This proposal will be approved if the votes cast favoring the action exceed the votes
cast opposing the action. If the appointment is not ratified, the Company’s Audit Committee will consider
whether it is appropriate to select another independent registered public accounting firm. Even if the appointment

is ratified, the Company’s Audit Committee, in its sole discretion, may select a different independent registered
public accounting firm at any time during the year if it determines that such a change would be in the best
interests of the Company and its shareholders.

Representatives of PwC are expected to be present at the Annual Meeting and will be available to respond to

appropriate questions and will have the opportunity to make a statement if they desire to do so.

THE BOARD OF DIRECTORS AND THE AUDIT COMMITTEE RECOMMEND THAT THE
OF
SHAREHOLDERS
PRICEWATERHOUSECOOPERS LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM FOR FISCAL YEAR 2018.

APPOINTMENT

RATIFICATION

“FOR”

VOTE

THE

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UNLESS OTHERWISE INSTRUCTED, IT IS THE INTENTION OF THE PERSONS NAMED IN THE
PROXY TO VOTE THE SHARES REPRESENTED THEREBY IN FAVOR OF THE PROPOSAL TO RATIFY
THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY’S INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL YEAR 2018.

Independent Public Accountants

Audit Fees

The audit fees incurred by the Company for services provided by PwC (i) for the year ended December 31,
2016, were $2,263,500 and (ii) for the year ended December 31, 2017, were $2,313,600. Audit fees include
services related to the audit of the Company’s consolidated financial statements, the audit of the effectiveness of
internal control over financial reporting, involvement with registration statement filings, statutory audits and
consultations related to miscellaneous SEC and financial reporting matters.

Audit-Related Fees

During each of 2016 and 2017, the Company incurred $3,500 and $68,600, respectively, in fees for
assurance and related services performed by PwC that were reasonably related to the performance of the audit or
review of the Company’s financial statements that are not reported in the preceding section.

Tax Fees

Tax fees incurred by the Company for services provided by PwC (i) in 2016, were $48,082, and (ii) in 2017,
were $144,039. Tax fees include services related to tax return preparation for a related entity, tax consultation
and tax advice.

All Other Fees

All other fees incurred by the Company for services provided by PwC relate to the use of Inform, PwC’s
accounting research software, and PwC’s disclosure checklist software, which amounted to $3,600 in 2016 and
$4,500 in 2017. The Audit Committee has considered whether the provision of non-audit services to the
Company is compatible with maintaining PwC’s independence.

The Audit Committee has adopted a policy of evaluating and pre-approving of services provided by the
independent auditors on a case-by-case basis. The Audit Committee pre-approved all audit and permissible
non-audit services provided by the independent auditors in 2017.

Advisory Vote to Approve Executive Compensation
(Proposal No. 3)

Pursuant to Section 14A of the Securities Exchange Act of 1934, the Company’s shareholders are entitled to
a vote to approve, on an advisory and non-binding basis, the compensation of the Company’s named executive
officers (“NEOs”) as disclosed in this Proxy Statement in accordance with SEC rules. In accordance with the
preference expressed by shareholders in the 2017 advisory vote regarding the frequency of voting on the
Company’s executive compensation program, the Company is holding such advisory votes on an annual basis.

The Company has a “pay-for-performance” philosophy that forms the foundation of all decisions regarding
compensation of the Company’s NEOs. This compensation philosophy, and the program structure approved by
the Compensation Committee, is central to the Company’s ability to attract, motivate and retain individuals who
can achieve superior financial results while also aligning the interests of the executives with the interests of
shareholders over the long-term. This approach has resulted in the Company’s ability to attract and retain the
executive talent necessary to guide the Company successfully during a period of growth and transformation.
Please refer to “Compensation Discussion and Analysis—Executive Summary” for an overview of the
compensation of the Company’s NEOs.

This vote is not intended to address any specific item of compensation, but rather the overall compensation
of our NEOs and the policies and practices described in this Proxy Statement. At the Annual Meeting,
shareholders will be asked to approve the compensation of the Company’s NEOs by voting FOR the following
resolution:

“RESOLVED, that the Company’s shareholders approve, on an advisory basis, the compensation of the
named executive officers, as disclosed in this Proxy Statement pursuant to the compensation disclosure rules
of the SEC, including the Compensation Discussion and Analysis, the Summary Compensation Table and
the other related tables and disclosure in this Proxy Statement.”

This vote is advisory and therefore not binding on the Company. The Board of Directors and Compensation
Committee value the opinions of the Company’s shareholders. Should there be a significant vote against the
named executive officer compensation as disclosed in this Proxy Statement, the Board will consider those
shareholders’ concerns and will evaluate whether any actions are necessary to address those concerns.

This proposal will be approved if the votes cast favoring the action exceed the votes cast opposing the

action.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE
ADVISORY RESOLUTION RELATING TO THE COMPENSATION OF THE COMPANY’S NAMED
EXECUTIVE OFFICERS AS DISCLOSED IN THIS PROXY STATEMENT.

UNLESS OTHERWISE INSTRUCTED, IT IS THE INTENTION OF THE PERSONS NAMED IN THE
PROXY TO VOTE THE SHARES REPRESENTED THEREBY IN FAVOR OF THE PROPOSAL TO
APPROVE THE ADVISORY RESOLUTION RELATING TO THE COMPENSATION OF THE COMPANY’S
NAMED EXECUTIVE OFFICERS AS DISCLOSED IN THIS PROXY STATEMENT.

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Compensation Discussion and Analysis

Executive Summary

Churchill Downs Incorporated is an industry-leading provider of horseracing, casino gaming, and online
account wagering on horseracing. As such, our long-term success depends on our ability to attract, engage,
motivate and retain highly talented executives and key employees to achieve our strategic plans and deliver
financial returns to shareholders over both the short-term and long-term. One of the key objectives of our
executive compensation program is to link executives’ pay to their performance and their advancement of the
Company’s long-term performance and business strategies. Other objectives include aligning the executives’
interests with those of shareholders and encouraging high-performing executives to remain with the Company
over the course of their careers. We believe that the amount of compensation for each Named Executive Officer
(NEO) reflects each individual’s extensive management experience, high performance and exceptional service to
the Company’s compensation
Churchill Downs Incorporated and our shareholders. We also believe that
strategies have been effective in attracting executive talent and promoting performance and retention.

This Compensation Discussion and Analysis describes the Company’s executive compensation policies and
programs and how they apply to our NEOs (the senior executives included in the 2017 Summary Compensation
Table on page 38). It also describes the actions and decisions of the Compensation Committee of the Board of
Directors (the “Compensation Committee” or “Committee”) and the Committee’s special Subcommittee (the
“Subcommittee”), both of which oversee the executive compensation program and determine the compensation
of the NEOs. A detailed discussion of the Committee’s structure (including the Subcommittee), roles and
responsibilities, and related matters can be found under “Compensation Committee” on pages 19-21.

Our long-term incentive goals are based on operational results that the Committee believes drive Company
and shareholder success over multi-year performance periods. Certain metrics the Company uses to determine
this success are as follows (see Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations in the 10-K for Fiscal Year 2017 for reconciliation of these metrics to the most directly
comparable GAAP measures, and the discussion of Long-Term Incentives beginning on page 31):

•

Adjusted EBITDA—Adjusted EBITDA used for compensation purposes in fiscal year 2017 was
$370.3 million, a 3.4% increase compared to fiscal year 2016 Adjusted EBITDA for compensation
purposes of $358.2 million;

Cash Flow Metric—Cash Flow Metric for compensation purposes in fiscal year 2017 was
$184.9 million, a 16.8% decrease compared to fiscal year 2016 Cash Flow Metric of $222.2 million; and

Total Shareholder Return—Total Shareholder Return from December 31, 2016 to December 31,
2017 was 55.7%.

As illustrated in the following chart, the Company’s stock price has increased to $232.70 per share as of

December 29, 2017 from $89.65 per share as of December 31, 2013.

e
c
i
r
P
k
c
o
t
S

$250.00

$200.00

$150.00

$100.00

$50.00

$0.00

$232.70

$141.49

$150.45

$89.65

$95.30

2013

2014

2015

2016

2017

Big Fish Games

On November 29, 2017, the Company entered into a definitive Stock Purchase Agreement (the “Purchase
Agreement”) to sell its mobile gaming subsidiary, Big Fish Games, Inc. and its specified subsidiaries (“Big
Fish”), to Aristocrat Technologies, Inc. (the “Transaction”). On January 9, 2018, the Company completed the
Transaction for an aggregate purchase price of $990.0 million, subject to adjustments set forth in the Purchase
Agreement. In connection with the Transaction, the Company and Mr. Paul Thelen (an NEO of the Company and
then-current President of Big Fish), entered into a separation agreement and release effective as of the closing
date of the Transaction. Although Mr. Thelen is no longer an employee of the Company, Mr. Thelen is included
in the 2017 compensation disclosures as an NEO for fiscal year 2017.

Executive Compensation Philosophy and Core Principles

What We Do

What We Don’t Do

✓ Executive Stock Ownership Guidelines
✓ Clawback Policy on Cash Bonus and Equity Incentives
✓ Performance-based Awards Vesting over Multi-year Periods ✗ Excise Tax Gross-ups upon Change in Control
✓ Capped Bonus Payments under Annual Incentive Plan
✓ Payouts Tied to Individual and Company Performance
✓ Use of an Independent Compensation Consultant

✗ Employment Agreements
✗ Re-pricing of SARs or Stock Options

✗ Excessive Perquisites

The fundamental philosophy of the Compensation Committee is to provide an executive compensation
program that links pay to business strategy and performance in a manner that is effective in attracting, motivating
and retaining key executives while also aligning the interests of the executives with the interests of shareholders
over the long-term. In order to continue to support the Company’s high-performance culture, the Company’s key
principles underlying the executive compensation program are to:

•

Attract and retain executives with the skills and experience needed to successfully grow the Company
and create value for shareholders;

Create an entrepreneurial culture and mindset by de-emphasizing fixed pay (primarily salary) and
focusing a significant percentage of compensation on at-risk pay elements (annual and long-term
incentives); and

• Motivate and reward executives for achieving exceptional performance supportive of creating value for

shareholders over the long-term.

The Compensation Committee will continue to adjust its pay practices to support these principles over time.

2017 “Say-on-Pay” Advisory Vote on Executive Compensation

The Compensation Committee monitors closely the results of the annual advisory “say-on-pay” vote, and
considers such results as one of the many factors considered in connection with the discharge of its
responsibilities. In 2017, the Company provided shareholders a “say-on-pay” advisory vote on its executive
compensation program, as disclosed in the Company’s 2017 proxy statement. At the 2017 Annual Meeting,
approximately 98% of our shareholders voting on the proposal expressed support for the compensation of our
NEOs as disclosed in the 2017 proxy statement. The Compensation Committee considered the results of the 2017
advisory vote and also considered other factors in evaluating the Company’s executive compensation programs
as discussed in this Compensation Discussion and Analysis, including the advice of the Committee’s independent
compensation consultant and the substantial changes made to the program in 2015, and therefore did not make
any changes to the executive compensation program in response to the 2017 “say-on-pay” vote.

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Role of Management and Independent Advisors

The Compensation Committee meetings are regularly attended by the CEO, the Senior Vice President of
Human Resources, who is responsible for
the discussions regarding the Company’s
leading some of
compensation programs as well as being responsible for recording the minutes of the meeting, and the
Company’s General Counsel. The Committee may request
the participation of management or outside
consultants as it deems necessary or appropriate. The Committee regularly reports to the Board on compensation
matters and annually reviews the CEO’s compensation with the Board.

The Committee and the Subcommittee may also meet in executive session without any members of
management, for the purpose of discussing and approving compensation for the CEO, as well as other topics. The
CEO reviews the performance of, and makes recommendations to, the Committee regarding total compensation
to be paid to the Company’s executive officers other than himself, including salary, annual bonus, and long-term
incentive awards, as appropriate. Management also develops and presents to the Committee recommendations for
the performance measures and targets to be used to evaluate annual performance incentives.

After the end of each fiscal year, the Committee conducts a review of the CEO’s performance. As part of
this process, the CEO provides a written self-assessment report. The Committee sets the compensation of the
CEO in executive session after considering its assessment of
including due
consideration of the CEO’s self-assessment report. Neither the CEO nor any other members of management are
present during this session.

the CEO’s performance,

The Committee has sole discretion, at the Company’s expense, to retain and terminate independent advisors,
including sole authority to approve the fees and retention terms for such advisors, if it shall determine the
services of such advisors to be necessary or appropriate. Such advisors are engaged by, and report directly to, the
Committee. Since March 2015, the Committee has retained Frederic W. Cook & Co., Inc. (“FW Cook”) as its
independent compensation consultant. The scope of the engagement of FW Cook includes:

•

Assisting the Chairman of the Committee in establishing appropriate agendas for the Committee
meetings;

Reviewing management reports and recommendations to the Committee as related to executive
compensation matters;

Attending all Committee meetings and providing the Committee with input and advice based on the
advisor’s broad experience with market practices,
including a perspective with regard to the
competitive market;

Assisting with the review of pay and performance and the evaluation of payouts under the Company’s
annual and long-term incentive programs;

Assisting in the review and evaluation of non-employee director compensation;

Providing the Committee and management with data on market practices for executive pay;

On behalf of the Committee, assisting management with disclosures, including this Compensation
Discussion and Analysis;

Providing updates to the Committee with regard to regulatory developments;

Assisting the Committee in evaluating future equity grants and cash compensation for the NEOs,
including the CEO; and

In 2017, advising the Committee on compensation actions relating to the sale of Big Fish.

FW Cook did not provide any services to the Company other than advising the Committee as provided
above. All of the decisions with respect to the Company’s executive compensation programs are made by the

Committee alone and may reflect factors and considerations other than, or that may differ from, the information
and recommendations provided by management or its outside advisor. The Compensation Committee assessed
FW Cook’s independence in light of the SEC requirements and NASDAQ listing standards and determined that
FW Cook’s work did not raise any conflict of interest or independence concerns.

Factors Used to Evaluate Pay Decisions

The Company does not currently manage compensation for individual executives to a specific total
compensation value or based on a strategy of positioning pay to a specific “percentile” of market practices.
Rather, the Company seeks to obtain and retain the services of executives who bring the skills, experience, and
motivation deemed necessary to significantly expand the scope and scale of the Company’s operations.
Therefore, compensation decisions for individual executives are made based on a balance of many subjective
factors as evaluated by the CEO in the case of his direct reports (with Committee review and approval) and the
Committee in the case of the CEO. These factors include:

•

The scope and responsibility of the NEO’s position and the perceived level of contribution;

Internal comparisons among the executive’s peers at the Company;

The recruitment and development of talent in a competitive market;

Target annual incentive opportunities based on Company’s annual goals with regards to NEO’s
position, as approved by the Committee; and

Long-term incentive opportunities driven by the perceived level of contribution expected of the
executive toward achieving the Company’s growth objectives.

Each element of compensation is evaluated independently based on the role of that component in achieving

the Company’s overall compensation objectives, with an emphasis on long-term incentives and retention.

In making executive pay decisions, the Committee relies substantially on the advice and experience of its
independent advisor and the CEO to evaluate the reasonableness of executive pay. As there are few direct peers
to the Company, the Committee does not rely directly on peer practices to establish pay levels or programs for its
executives. Rather, the Committee determines pay levels and practices based on the talent needs of the
organization as defined by our strategy of growing and diversifying revenues and with the guidance of the
Committee’s independent advisor.

Nevertheless,

the Committee believes that

is important for the Company to stay competitive on
compensation and the Committee, with the assistance of the Committee’s independent advisor, conducts periodic
reviews of compensation relative to similarly situated businesses, which can lead to adjustments in compensation
and program offerings. The compensation peer group was selected to represent a reasonable match to the
Company in terms of size and business characteristics. The group consists of public, similarly sized gaming
companies (including traditional gaming, casinos, and internet/software gaming to reflect the Company’s diverse
operations), where the median revenue and market capitalization approximate the Company’s revenue and
market capitalization. The Company periodically reviews the peer group and makes adjustments, as deemed
necessary, for continued appropriateness as a market reference for informing executive compensation levels. For
fiscal year 2017, the peer group was: Activision Blizzard, Inc. (ATVI); Blucora Inc. (BCOR); Boyd Gaming
Corporation (BYD); Choice Hotels International Inc. (CHH); Electronic Arts Inc. (EA); Glu Mobile Inc.
(GLUU); ILG Inc. (ILG); Isle of Capri Casinos, Inc. (ISLE); MGM Resorts International (MGM); Penn National
Gaming, Inc. (PENN); Pinnacle Entertainment Inc. (PNK); RealNetworks Inc. (RNWK); Scientific Games Corp
(SGMS); Take-Two Interactive Software, Inc. (TTWO); Tropicana Entertainment Inc. (TPCA); Wynn Resorts,
Limited (WYNN); and Zynga Inc. (ZNGA). Following the sale of Big Fish, the peer group was adjusted to better
reflect the Company’s current mix of traditional gaming and horseracing companies. The current peer group
beginning in 2018 is: Aristocrat Leisure Limited (ALL); Boyd Gaming Corporation (BYD); Caesars

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Entertainment Corp. (CZR); Eldorado Resorts Inc. (ERI); Gaming and Leisure Properties Inc. (GLPI); Madison
Square Garden Company (MSG); MGM Resorts International (MGM); Penn National Gaming, Inc. (PENN);
Pinnacle Entertainment Inc. (PNK); Red Rock Resorts Inc. (RRR); Scientific Games Corp (SGMS); Tropicana
Entertainment Inc. (TPCA); and Wynn Resorts, Limited (WYNN).

It is the opinion of the Committee that the pay decisions made by the Committee are reasonable relative to
pay provided to executives at other similar public companies, based on the Committee’s experience, the
performance expectations established for each element of pay, and consultation with the Committee’s
independent advisor.

Components of Compensation

During 2017, the Company used multiple components to provide an overall compensation and benefits

package designed to attract and retain the needed level of executive talent for the Company.

Base Salary

The Committee’s philosophy is that base salaries should meet the objectives of attracting and retaining the
executive talent needed to grow the business and create shareholder value. Therefore, the Committee establishes
base salaries for new hires based on the advice of management and its independent advisor regarding reasonable
market pay practices, and comparisons with the executive’s peers at the Company. Upon promotion or other
adjustment of responsibilities, executives receive base pay increases that are intended to be commensurate with
their new role or responsibilities and the pay levels for colleagues at similar levels in the organization and market
pay practices, with more modest rates of increase thereafter.

In 2017, the following adjustments were made to the base salaries for the Company’s NEOs:

Name

Position

2016 Base
Salary ($)(1)

Percentage
Change

Salary
Change ($)

2017 Base
Salary ($)(2)

William C. Carstanjen . . . . . . . . . . Chief Executive Officer
William E. Mudd . . . . . . . . . . . . . . President & COO
Marcia A. Dall
Paul J. Thelen . . . . . . . . . . . . . . . . . President, Big Fish Games

. . . . . . . . . . . . . . . . EVP & CFO

1,000,000
616,500
525,000
515,000

3.0%
5.4%
4.8%

30,000
33,500
25,000
-17.6% -90,640

1,030,000
650,000
550,000
424,360

(1) Annual rate of base compensation shown as of December 31, 2016.

(2) Annual rate of base compensation shown as of December 31, 2017. Actual salaries paid in 2017 are shown

in the 2017 Summary Compensation Table on page 38.

Executive Annual Incentive Plan

Bonus awards or incentive compensation paid with respect to 2017 were determined by the Committee per
the terms of the Executive Annual Incentive Plan (2013) (“EAIP”), a shareholder approved incentive plan.
Pursuant to the EAIP, the Committee established performance goals for the Company and bonus opportunities
for the 2017 performance year. In analyzing proposed awards against
target and maximum payouts, the
Committee used the goals as its roadmap to determine whether to issue awards above, at, or below each NEO’s
target award. As it has done historically, the Committee sets performance goals for 2017, based upon a
comprehensive assessment of the Company against its long-term strategic goals and its ability to achieve said
goals with its current leadership team and key employees. Therefore, individual performance by the Company’s
NEOs (as measured by various factors, including, but not limited to, continued growth and diversification of the
Company’s asset portfolio through acquisitions, customer and employee satisfaction, and the completion of
certain specified legislative and regulatory outcomes), and unit performance led by some of the Company’s key
employees (as measured by, among other things, increases in sales and revenues) also played a significant

role in setting and evaluating the Company’s performance goals, and determining the proper level of
compensation deemed necessary to incent the NEOs and key employees to continue to drive growth.

2017 Performance Goals. For 2017, the Committee set the following goals (per segment) for the EAIP.
These goals were used to assess the NEOs’ performance and determine EAIP payouts as disclosed in the 2017
Summary Compensation Table on page 38. The Committee, in setting the goals, considered the challenges to the
Company; however, each goal was deemed achievable, but requiring a superior level of performance. The goals
are expressed generally as follows, with no specific weighting attributed to any one goal:

Overall

•

Achieve revenue ($1.30 billion), adjusted earnings before interest, taxes, depreciation and amortization
(“Adjusted EBITDA”) ($343 million), earnings per share ($5.89) and capital expenditure ($187
million) goals (which included Big Fish results) as approved by the Committee;

Racing

•

Increase the financial performance of big events (e.g., Kentucky Derby, Kentucky Oaks, Arlington
Million, etc.);

Increase sponsorship opportunities and attract other events (e.g. Breeders’ Cup);

Complete projects on time and on budget, and manage overall budgets to reduce cost (without
impacting the customer experience);

Continue to work on innovative approaches to improve customer experience and engagement;

Gaming

•

Successfully develop, construct and open new and in-process projects and properties;

Assess and pursue opportunities to acquire accretive gaming properties;

TwinSpires

•

Continue to invest in and grow our advanced deposit wagering businesses;

Assess and pursue opportunities to expand our online gaming profile;

Improve technology, overall performance and user experience;

Big Fish Games

•

Continue to develop, invest in, and grow new and existing titles;

Refine and implement competitive retention policies to retain quality employees;

Assess and pursue opportunities to acquire accretive mobile and online gaming assets;

• Manage user acquisition spend and game enhancements to grow various gaming segments;

Other

•

Develop technology-driven cost out opportunities for all subsidiaries; and

Build pipeline and execute acquisitions, if feasible, consistent with current plan.

Incentive Opportunities. Under the EAIP, the NEOs have target award opportunities, which the Committee
reserves the right to exercise negative discretion against if it so chooses. For NEOs, these target and maximum

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opportunities are determined by the Committee based on internal pay equity considerations, market data, impact
on total short-term compensation and the expected level of contribution of each NEO to the Company’s
performance goals and growth objectives.

The Compensation Committee approves the target and maximum incentive levels, after considering
recommendations from the CEO for each NEO (except the CEO), at the beginning of each year. The Committee
independently evaluates and approves the target and maximum incentive levels for the CEO at the beginning of
each year. During 2017, the target and maximum awards assigned to the CEO and the other NEOs were as
follows:

Name

Position

Target Incentive
Award as a
Percentage
of Salary

Target Incentive
Award in ($)

Maximum Target
Incentive Award as a
Percentage of Salary

Maximum Target
Incentive
Award in ($)

William C. Carstanjen . . . Chief Executive Officer
William E. Mudd . . . . . . President & COO
Marcia A. Dall . . . . . . . . EVP & CFO
Paul J. Thelen . . . . . . . . . President, Big Fish Games

140%
100%
75%
80%

1,442,000
650,000
412,500
339,488

280%
200%
150%
160%

2,884,000
1,300,000
825,000
678,976

2017 Performance Results. In determining the payouts,

the Compensation Committee exercises its
discretion to determine whether to payout at, above, or below the target opportunities based upon its review of
the outcomes evaluated against Company and individual performance. The Compensation Committee established
a minimum corporate Adjusted EBITDA performance threshold for 2017 of $185 million, which was required to
be achieved before any incentives were eligible to be paid under the EAIP for 2017. The Compensation
Committee certified that actual Adjusted EBITDA for compensation purposes for 2017 exceeded this threshold
and that executives were eligible for payouts under the EAIP for 2017.

In evaluating 2017 performance, the Compensation Committee considered (i) revenue ($1.3 billion, an
increase of 3%), net income ($140.5 million, an increase of 30%), diluted net income per share ($8.77, an
increase of 37%), and Adjusted EBITDA for compensation purposes ($370.3 million, an increase of 3%), each as
compared to 2016; (ii) record all sources handle for Kentucky Derby and Oaks week of $285.1 million, up 7%
compared to 2016; (iii) strong organic growth from our Calder, Riverwalk and Oxford casino properties;
(iv) capital expenditures of $117 million; and (v) the growth of TwinSpires.com handle to $1.3 billion, up 16.9%
compared to 2016. The Compensation Committee determined that these achievements contributed to benefits
being realized by the Company’s shareholders.

The amounts earned by the NEOs for 2017 under the EAIP are reflected in the 2017 Summary
Compensation Table on page 38 in the column labeled “Non-Equity Incentive Plan Compensation.” As noted
above, the Company exhibited strong overall financial performance in 2017. The NEOs were viewed by the
Committee to be the primary parties responsible for the actual performance relative to the performance goals
established with respect to 2017. The Compensation Committee, after considering the Company’s overall
performance, awarded the NEOs EAIP awards as shown in the table on page 38. As such, the NEOs were
awarded an EAIP award at the following percentage of their target incentive award: Mr. Carstanjen 156%
($2,250,000), Mr. Mudd 138% ($900,000), Ms. Dall 163% ($675,000), and Mr. Thelen 100% ($339,488). The
awards for Mr. Carstanjen, Mr. Mudd, and Ms. Dall were made pursuant to the EAIP and as a reward for the
NEOs respective roles in driving performance during the period ending December 31, 2017. The 2017 award to
Mr. Thelen was paid at target and was provided as part of certain severance benefits detailed in the Potential
Payments Upon Termination or Change of Control found on page 43.

Long-Term Incentives

The objective of the Company’s long-term incentive compensation program is to support the entrepreneurial
mindset desired of management by the Board of Directors by providing an opportunity to earn significant equity
in the Company for achieving significant performance improvements.

In 2015, the Compensation Committee approved the adoption of the Executive Long-Term Incentive
Compensation Plan (the “ELTI Plan”), pursuant to which the NEOs may earn variable equity payouts based upon
the Company achieving certain key performance metrics. The purpose of the ELTI Plan is to provide participants
with a long-term incentive program that is market-competitive and provides long-term incentives on a regular,
predictable, and annual basis. Eligible participants (as determined by the Committee) may be members of the
Company’s senior executive team and/or such other executives and key contributors as the Committee may
designate from time to time. As and to the extent determined by the Committee as part of the annual
compensation planning process for participants, the CEO will participate in the ELTI Plan at a rate determined by
the Committee. No individual will have an automatic right to participate in the ELTI Plan. The ELTI Plan was
initially adopted pursuant to the 2007 Omnibus Stock Incentive Plan and is now administered under the 2016
Omnibus Stock Incentive Plan beginning in 2017. A summary of the 2017 terms and applicable award
opportunities, granted by the Committee to the NEOs, is provided below.

During the beginning of 2017, the CEO recommended employees to the Committee for participation in the
ELTI Plan for 2017 and their respective specific levels of proposed participation. Awards granted to eligible
employees under the ELTI Plan may be in the form of RSUs, Performance Share Units (“PSUs”), or both. To
the Committee
pursue the key objective of linking executive compensation with Company performance,
delivered at least 50% of the 2017 awards as PSUs (Mr. Thelen was awarded two-thirds (2/3) of his 2017 award
as PSUs). On January 9, 2018, Mr. Thelen terminated his employment with the Company as part of the
Company’s sale of Big Fish Games, Inc. (“Big Fish”). As part of the Separation Agreement and Release entered
into between Mr. Thelen, Big Fish, and the Company, the Company terminated Mr. Thelen’s RSU agreements
and PSU agreements and paid out 22,477 shares to Mr. Thelen as of the date of the separation agreement (less
8,839 shares withheld for taxes), calculated as 100% of his outstanding, unvested RSU awards (3,888 shares),
100% of his PSU awards at target for the performance period July 1, 2015 through December 31, 2017 (10,280
shares), and 50% of the remaining outstanding PSU awards (8,309 shares).

The Committee approved the 2017 NEO awards (for the 36-month performance period of January 1, 2017

through December 31, 2019) under the ELTI Plan on February 23, 2017. The 2017 awards are as follows:

RSUs

PSUs

Total

Executive Officer

William C. Carstanjen . . . . . . . . . . . . . . . . .
William E. Mudd . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Marcia A. Dall
Paul J. Thelen . . . . . . . . . . . . . . . . . . . . . . . .

12,897
5,481
3,387
3,354

$2,000,325
$ 850,103
$ 525,324
$ 520,205

12,895
5,481
3,385
6,706

$2,156,689
$ 916,697
$ 566,141
$1,121,579

25,792
10,962
6,772
10,060

$4,157,013
$1,766,800
$1,091,465
$1,641,784

(1) The market value of the time-vesting RSUs, in the above table, was calculated utilizing the closing price of
CHDN as of February 17, 2017 ($155.10) multiplied by the total number of time-vesting RSUs granted.

(2) The grant date fair value for the PSUs ($167.25/unit as of February 17, 2017) in the above table was
calculated based on the probable achievement of the performance goals and a Monte-Carlo simulation
model, which factors in the value of the relative TSR modifier (defined below) that is applied to the award
before the share-based payment vests. The PSUs, in the above table, represent the target opportunity, and
corresponding fair value, available to the grantees should the Company achieve the pre-determined
performance metrics. Actual shares that vest pursuant
to the PSUs may be more or less given the
performance on the selected metrics discussed below.

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With respect to the PSU awards in the table above, performance will be based on the following three
Performance Measures during the 36-month period from January 1, 2017 through December 31, 2019 (the
“Performance Period”):

1) Adjusted Earnings before Interest, Tax, Depreciation and Amortization (“Adjusted EBITDA”) (50%
weight). Adjusted EBITDA during the Performance Period relative to the goals set for such
measurement period, will be derived from the Company’s consolidated financial statements with
adjustments as described further below;

2) Cash Flow Metric (“Cash Flow Metric”) (50% weight). Cumulative Cash Flow (i.e. the sum of the free
cash flows from the annual periods ending December 31 of each of 2017, 2018, and 2019, respectively,
where the Cash Flow Metric goals are set at the beginning of each of those three periods) will also be
derived from the Company’s consolidated financial statements with adjustments as described further
below; and

3) Relative Total Shareholder Return Modifier

(“TSR”). The Company’s TSR modifier will be
determined by ranking the return on the Company’s shares against those of the companies in the
Russell 2000 index (the “Index”), in each case, over the Performance Period. The Company’s TSR will
be calculated based upon the Company’s relative placement against the Index over the Performance
Period. The PSU awards determined by the Adjusted EBITDA and Cash Flow Metric performance
goals described above will then be adjusted based on the Company’s TSR, by increasing the PSU
awards by 25% if the Company’s TSR is in the top quartile, decreasing the PSU awards by 25% if the
Company’s TSR is in the bottom quartile, and providing no change to the PSU awards if the
Company’s TSR is in the middle two quartiles.

The maximum number of PSUs that can be earned for the Performance Period is 250% of target. At the end
of
review performance achieved on each pre-established
the Performance Period,
Performance Measure. The goals are intended to be challenging, but achievable with strong management
performance. The payout for each Performance Measure will be determined by a payout curve, as achievement
that lies in between two goals will be interpolated.

the Committee will

With respect to the RSU awards, the RSUs vest in one third (1/3) increments on each of December 31,
2017, December 31, 2018 and December 31, 2019, respectively, generally subject to the executive’s continued
employment through the applicable vesting date. The Company intends to settle the vested RSUs in shares of
Company common stock.

With respect to the performance period and related PSU awards under the ELTI Plan for July 1, 2015
through December 31, 2017, the actual performance was certified by the Compensation Committee in its
February 2018 meeting (with a TSR at 88%, in the top 12% of the Russell 2000 over the performance period) as
set forth below, with settlement of the PSUs occurring on February 28, 2018:

Target

Actual

% of Target

Projected Payout

Weighted Payout

Adjusted EBITDA: . . . . . . . . . . $844 million $861.9 million
. . . . . . . . . . $365 million $465.1 million
Cash Flow Metric:

102.1%
107.1%
127.4% 200% (when >120%)

53.5%
100.0%

. . . . . .
Total Weighted Payout:
x TSR Modifier: . . . . . . . . . . . .

153.5%
125%

Target Multiplier: . . . . . . . . . .

191.9%

Name(1)

Target PSU
Award

Target
Multiplier

PSUs
Awarded

William C. Carstanjen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
William E. Mudd . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11,862
5,140

191.9% 22,765
191.9% 9,865

(1) Ms. Dall joined the Company in October 2015 after the 2015 ELTI awards were granted and, accordingly,
did not participate in the 2015 ELTI program. As part of his separation agreement, Mr. Thelen’s outstanding
RSU and PSU agreements were terminated and Mr. Thelen received the 2015 ELTI shares at target.

During 2016, the Company changed its definition of Adjusted EBITDA to exclude changes in Big Fish
Games deferred revenue for financial reporting purposes. For compensation purposes, Adjusted EBITDA targets
under the 2015 and 2016 awards were set prior to this change and, therefore, performance for these awards will
be evaluated based on the definitions of Adjusted EBITDA and Cash Flow in place at the time of the
establishment of the awards, per below:

•

Adjusted EBITDA – as defined in Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations in the 10K for Fiscal Year 2017. For compensation purposes, the
Committee has determined it is appropriate to include gains on sale of properties that are disposed of
pursuant to the long-term strategic plan for the Company, such as the Calder land sale in 2016, in the
calculation of Adjusted EBITDA.

As reported in 2017 10-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in Big Fish Games Deferred Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Calder Land Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$302.5
$ 39.6

$334.5
0
$
N/A $ 23.7

$366.5
3.8
$
N/A

Adj. EBITDA for Compensation Purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$342.1

$358.2

$370.3

2015

2016

2017

•

Cash Flow Metric – defined as Cash Flows from Operating Activities in Item 7, Management’s
Discussion and Analysis of Financial Condition and Results of Operations in the 10K for Fiscal Year
2017 plus distributions of capital from equity investments less capital maintenance expenditures. For
compensation purposes, the Committee has determined it is appropriate to include the net cash from
sale of properties that are part of the long-term strategic plan for the Company, such as the Calder land
sale, in the calculation of the cash flow metric.

2015

2016

2017

Cash Flow from Operating Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distributions of Capital from Equity Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital Maintenance Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Calder Land Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$226.8
0.7
$

$218.2
$264.5
$
0
$
0
$ (31.1) $ (30.9) $ (33.3)
N/A

N/A $ 25.6

Cash Flow Metric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$233.4

$222.2

$184.9

•

Total Shareholder Return – defined as the Company’s stock price as of the end of the measurement
period plus the value of dividends paid divided by the Company’s stock price as of the beginning of the
measurement period. The Company’s Total Shareholder Return for the period July 1, 2015 through
December 31, 2017 was 88.0%, for period January 1, 2016 through December 31, 2017 was 68.5%,
and for the period January 1, 2017 through December 31, 2017 was 55.7%.

The Adjusted EBITDA and Cash Flow results reported above do not total to the actual results shown on page
33 for the 2015-2017 performance period, as that performance period does not include all of fiscal year 2015. The
performance period on page 33 is for the initial performance period under the ELTI Plan, July 1, 2015 through
December 31, 2017. Subsequent awards under the ELTI Plan include performance periods of three full years.

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Executive Stock Ownership Guidelines

Our Board of Directors has adopted minimum stock ownership guidelines for our executive officers. The
principal objective of the guidelines is to enhance the linkage between the interests of shareholders and our
executive officers by requiring a meaningful, minimum level of stock ownership. The current guidelines provide
that, within five (5) years of becoming subject to the stock ownership guidelines, our CEO should own shares
valued at an amount equal to six times (6x) his base salary, our COO should own shares valued at an amount
equal to four times (4x) his base salary, our CFO should own shares valued at an amount equal to three times
(3x) her base salary, and all other executive officers should own shares valued at an amount equal to three times
(3x) the executive’s base salary.

In 2017, each NEO met or exceeded the guidelines or, in the case of Ms. Dall, is expected to achieve the

guidelines within the required five-year period:

Executive Officer

Ownership Guidelines

Shares Owned(1) Value of Shares(2) Multiple of Salary(3)

William C. Carstanjen . . . . . . . . . . . . .
William E. Mudd . . . . . . . . . . . . . . . . .
Marcia A. Dall . . . . . . . . . . . . . . . . . . .
Paul J. Thelen . . . . . . . . . . . . . . . . . . .

6x
4x
3x
3x

140,777
83,643
5,072
163,136

$32,758,807
$19,463,726
$ 1,180,254
$37,961,747

31
29
2
89

(1) Calculated as of December 31, 2017 and represents shares of Common Stock owned outright.

(2) Based on CHDN closing stock price of $232.70 as of December 29, 2017.

(3) Calculated using the base salary information illustrated on page 29. Ms. Dall joined the Company in
October 2015 and therefore has until October 2020 to meet the (3x) multiple pursuant to the guidelines.

Deferred Compensation Benefits

The Company’s philosophy is to provide retirement and savings benefits to executives which are commonly

provided by other public companies. These benefits include:

401(k). The Company maintains a 401(k) Retirement Plan, which is a profit sharing plan that is intended to
be a qualified retirement plan under Section 401(a) of the Code. The 401(k) Retirement Plan allows all
employees who meet the eligibility requirements to become participants. Participants may make salary deferral
contributions pursuant to Section 401(k) of the Code up to limits prescribed by the plan and the Code. The
Company makes matching contributions with respect to such salary deferrals at a rate of 100% on the first 3% of
compensation deferred and 50% on deferrals in excess of 3% of compensation deferred but no more than 5% of
compensation deferred. Salary deferral contributions and matching contributions are fully vested at all times.
Participants are allowed to direct investment of their accounts under the 401(k) Retirement Plan into as many as
30 investment options. All assets of the 401(k) Retirement Plan are held in a trust that is intended to be qualified
under Section 501 of the Code.

Deferred Compensation Plan. The Company also maintains a Deferred Compensation Plan for select
executives. The purpose of the plan is to provide eligible executives of the Company an opportunity to defer to a
future date the receipt of base salary and bonus compensation for services and to receive matching contributions
in similar fashion as provided by the Company’s 401(k) Retirement Plan for any base salary and bonus deferred
beyond the limits imposed by the IRS for that plan. The Committee believes that a Deferred Compensation Plan
is a typical benefit for executives at companies similar to the Company and is necessary to attract and retain
executive talent.

For purposes of determining earnings under the Deferred Compensation Plan, various hypothetical
investment alternatives are selected by the Committee in its discretion. The Deferred Compensation Plan allows,

but does not require, the Committee to receive input from participants regarding such investment alternatives.
The current hypothetical investments selected by the Committee include 37 investment return options for
determining the rate of return to be credited on participant deferrals. Participants are allowed to choose among
these investment return options in order to direct the hypothetical investments used to determine earnings under
the Plan.

Life insurance contracts have been purchased by the Company to provide some or all of the benefits under
the Deferred Compensation Plan. Other details regarding the Deferred Compensation Plan can be found in the
Nonqualified Deferred Compensation Table, on page 42, and the accompanying narrative below.

Allowances and Other Benefits

The Company’s standard, non-cash executive benefits are Company-paid premiums on executive term life
insurance and an optional supplemental long-term disability income plan for Mr. Carstanjen, Mr. Mudd, and
Ms. Dall. These plans provide benefits which are similar to those provided to all employees, but extend the
benefit levels to be appropriate to the income of the executive officers.

For Company executives,

the Company may reimburse spouse’s travel expenses for travel with the

executive on Company business on a case-by-case basis.

Severance Benefits

The Committee believes that arrangements which provide benefits upon termination or a change in control
of the Company support the goals of attracting and retaining qualified executives. Such benefits include
clarifying the terms of employment and reducing the risks to the executive where the executive believes that
either the Company may undergo a merger or be acquired or where the Company has tasked the executive to
develop new markets or lines of business for the Company. In addition, the Committee believes that such
agreements align the interests of executives with the interests of shareholders if a qualified offer to acquire the
Company is made, in that each of the executives would likely be aware of or involved in any such negotiation
and it is to the benefit of shareholders to have the executives negotiating in the best interests of the Company
without regard to their personal financial interests. In 2014, the Committee, in lieu of negotiating individual
severance agreements with each executive, adopted a form Executive Change in Control, Severance and
Indemnity Agreement (the “Change in Control Agreement”). William C. Carstanjen, William E. Mudd, and
Marcia A. Dall have each executed a Change in Control Agreement. The Change in Control Agreements, at the
time of execution, became immediately effective and each of Mr. Carstanjen’s and Mr. Mudd’s previously
executed employment agreement terminated. Mr. Thelen’s severance benefits were not provided in a Change in
Control Agreement, but rather through his executed offer letter. On January 9, 2018, in connection with the sale
of Big Fish Games, Inc., Mr. Thelen terminated his employment with the Company, and was provided with
certain severance benefits negotiated with the Company, as detailed in the Potential Payments Upon Termination
or Change of Control found on page 43.

Each Change in Control Agreement provides that, subject to the Company receiving a general release of
claims from the executive, in the event the executive’s employment is terminated (i) by the Company, other than
for “Cause” (as defined in the Change in Control Agreement), “Disability” (as defined in the Change in Control
Agreement), or death, or (ii) by the executive for “Good Reason” (as defined in the Change in Control
Agreement), the executive will be entitled to receive an amount in cash equal to 1.5 times the sum of (a) the
executive’s annual base salary and (b) the amount of the executive’s annual target bonus for the year in which the
executive was terminated. In the event the termination occurs within the 2-year period following a “Change in
Control” (as defined in the Change in Control Agreement), the amount shall be 2.0 times the sum of (a) and
(b) above. All equity-based awards in effect at the time of termination for the aforementioned reasons shall
remain governed by the applicable plan or award agreement.

The Change in Control Agreements eliminated any tax gross-ups for excise taxes payable following a

Change in Control.

Additional

information regarding severance benefits may be found under “Potential Payments Upon

Termination or Change in Control” on page 43.

Section 162(m) of the Code

As a publicly-traded company, we are subject to Section 162(m) of the Internal Revenue Code which limits
our ability to deduct for U.S. income tax purposes compensation in excess of $1 million paid to certain executive
officers of the Company. Historically, there was an exception for performance-based compensation meeting the
requirements under Section 162(m). With the enactment of tax reform in late 2017, the performance-based
compensation exception has been eliminated except with respect to certain grandfathered arrangements. The
Compensation Committee considers tax deductibility to be one of many factors to consider in setting executive
compensation. Because the Compensation Committee also recognizes the need to retain flexibility to make
compensation decisions that may not meet the standards of Section 162(m) when necessary to enable us to
it reserves the authority to approve
continue to attract, retain, and motivate highly-qualified executives,
non-deductible compensation.

Compensation Committee Report

The Compensation Committee has reviewed and discussed the information appearing above under the
heading “Compensation Discussion and Analysis” with management and, based on that review and discussion,
has recommended to the Board of Directors that the “Compensation Discussion and Analysis” section be
included in this Proxy Statement and the Company’s Annual Report on Form 10-K for the year ending
December 31, 2017.

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Compensation Committee of the Board of Directors:
R. Alex Rankin, Chairman
Craig J. Duchossois
Daniel P. Harrington

2017 Summary Compensation Table

The following table provides information regarding compensation earned by our Chief Executive Officer,
President & Chief Operating Officer, Executive Vice President & Chief Financial Officer, and our other
executive officer (sometimes referred to in this proxy statement as the “Named Executive Officers” or “NEOs”).

Name and Principal Position

Year

Base
Salary
($)

Bonus
($)

Stock
Awards
($)(1)

Option
Awards
($)

William C. Carstanjen . . . . . 2017 1,023,077
2016 1,000,000
726,000
2015

Chief Executive Officer

William E. Mudd . . . . . . . . . . 2017
2016
2015

President and
Chief Operating Officer

642,269
612,692
553,846

-0- 4,157,013
-0- 3,112,923
-0- 6,547,309

-0- 1,766,800
-0- 1,348,924
-0- 3,405,523

Marcia A. Dall . . . . . . . . . . . . 2017
2016
2015

Executive Vice President
and Chief Financial Officer

544,231
525,000 250,000
100,962 200,000

-0- 1,091,465
905,815
770,000

Paul J. Thelen . . . . . . . . . . . . 2017
2016
2015

Former President, Big Fish
Games

472,619
515,000
489,038

-0- 1,641,784
-0- 2,047,819
-0- 2,322,046

-0-
-0-
-0-

Non-Equity
Incentive Plan
Compensation
($)(2)

2,250,000
1,330,000
1,300,000

900,000
616,500
700,000

675,000
393,750
-0-

-0-
288,400
391,230

All Other
Compensation
($)(3)

Total
($)

17,102
14,338
14,012

38,049
38,204
33,186

15,535
141,004
528

364,454
7,506
8,867

7,447,192
5,457,261
8,587,321

3,347,118
2,616,320
4,692,555

2,326,231
2,215,569
1,071,490

2,478,857
2,858,725
3,211,181

(1)

In accordance with the SEC executive compensation disclosure rules, the amounts shown in 2017 for stock
the grant date fair value of such awards determined in accordance with Financial
awards represent
Accounting Standards Board Accounting Standards Codification Topic 718, Compensation—Stock
Compensation (“FASB ASC Topic 718”), but disregarding the estimate of forfeitures, in connection with
service-based RSUs and PSUs granted pursuant to the ELTI Plan to each of our NEOs in 2017. The grant
date fair value of the RSUs was calculated utilizing the closing price of CHDN as of February 17, 2017
($155.10) multiplied by the total number of time-vesting RSUs granted. The grant date fair value for the
PSUs ($167.25/unit as of February 17, 2017) was calculated based on the closing price of CHDN as of the
date of grant and the probable satisfaction of the performance conditions at the time of grant and applying a
Monte-Carlo simulation model, which factors in the value of the relative TSR modifier that is applied to the
award before the share-based payment vests. Assuming the highest level of performance is achieved for the
PSUs, the maximum value of the 2017 PSUs at the grant date would be as follows: Mr. Carstanjen—
$5,391,722; Mr. Mudd—$2,291,743; Ms. Dall—$1,415,353; and Mr. Thelen—$2,803,946.

(2) Amounts in this column represent payments for performance under the Executive Annual Incentive Plan
(“EAIP”). Mr. Carstanjen, Mr. Mudd, and Ms. Dall, received their 2017 EAIP awards in February 2018.
Mr. Thelen received his target 2017 EAIP award as part of the Separation Agreement and Release he
entered into on January 9, 2018. Typically, payments for each year shown are made by March 15 of the
following year.

(3) The table below shows the components of this column for 2017, which include the Company match for each
individual’s defined contribution plan contributions,
life insurance premiums, supplemental long-term
disability insurance premiums and allowances. Allowances for Mr. Carstanjen include $1,451 for spousal
travel. Allowances for Mr. Mudd include $2,130 for spousal travel.

All Other Compensation
For Fiscal Year Ended December 31, 2017

Name

Company
Contributions
Under Defined
Contribution
Plans
(a)

William C. Carstanjen . . . . . . .
William E. Mudd . . . . . . . . . . .
Marcia A. Dall . . . . . . . . . . . . . .
Paul J. Thelen . . . . . . . . . . . . . .

10,800
32,887
10,800
24,000

Supplemental
Long-Term
Disability
Insurance
Premiums
(c)

1,800
1,501
2,688
505

Life
Insurance
Premiums
(b)

3,051
1,531
2,047
461

Payments
under
Separation
Agreement
(e)

-0-
-0-
-0-
339,488

Allowances
(d)

1,451
2,130
-0-
-0-

Total All Other
Compensation

17,102
38,049
15,535
364,454

(a) This amount includes Company contributions to both 401(k) and deferred compensation accounts.

(b) Mr. Carstanjen, Mr. Mudd and Ms. Dall receive group life coverage equal to two times base salary with a
$3 million maximum. The amounts in this column are the premiums for the NEOs’ coverage. Mr. Thelen
received group life coverage equal to his base salary, or two times base salary in the event of an accidental
death.

(c) Mr. Carstanjen, Mr. Mudd and Ms. Dall receive long-term disability coverage equal to sixty percent (60%)
of their base salary with a $10,000 per month maximum in the event of a long-term disability, which benefit
is taxable to the NEO. The Company offers supplemental long-term disability income insurance to help fill
the gap between the executive’s regular monthly net income and the amount that would be paid under the
Company’s standard long-term disability insurance policy that is available to other salaried employees. The
amounts in this column are the premiums for the NEOs’ supplemental coverage paid by the Company.
Mr. Thelen received long-term disability coverage equal to his base salary with a $10,000 per month
maximum in the event of a long-term disability, which is a tax-free benefit to Mr. Thelen as the tax is paid
by the Company, pursuant to Big Fish policy.

(d) See Note 3 to the 2017 Summary Compensation Table on page 38.

(e) Mr. Thelen received his target 2017 EAIP Bonus pursuant to the terms of his separation agreement and
release. The remaining amounts paid or to be paid to Mr. Thelen under his separation agreement are
excluded from this table as Mr. Thelen’s separation did not occur, and the agreement was not entered into,
until 2018. Please see the Payments Upon Termination or Change of Control section of this Proxy Statement
for further information regarding Mr. Thelen’s 2018 separation agreement.

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Grants of Plan-Based Awards
For Fiscal Year Ended December 31, 2017

The grants in the following table are generally described in the Compensation Discussion and Analysis,

beginning on page 25.

Estimated Future Payout
under
Non-Equity Incentive Plan
Awards(1)

Estimated Future Payout
under
Equity Incentive Plan
Awards(2)

Name

Grant
Date

Threshold
($)

Target
($)

Max
($)

Threshold
(#)

Target
(#)

Max
(#)

William C. Carstanjen . . .

721,000 1,442,000 2,884,000

All Other
Stock
Awards:
Number of
Shares of
Stock or
Units (#)(3)

Grant
Date Fair
Value of
Stock
Awards
($)

02/17/2017
02/17/2017

William E. Mudd . . . . . . . .

325,000

650,000 1,300,000

02/17/2017
02/17/2017

Marcia A. Dall

. . . . . . . . . .

206,250

412,500

825,000

02/17/2017
02/17/2017

Paul J. Thelen . . . . . . . . . . .

169,744

339,488

678,976

02/17/2017
02/17/2017

6,448

12,895 32,238

12,897

2,156,689
2,000,325

2,741

5,481 13,703

1,693

3,385

8,463

3,353

6,706 16,765

5,481

3,387

916,697
850,103

566,141
525,324

1,121,579
520,205

3,354

(1) Represents annual incentive bonus opportunities under the EAIP for each of the NEOs. See “Executive
Annual Incentive Plan” beginning on page 29. Actual bonus payments for 2017 are listed under Non-Equity
Incentive Plan Compensation in the 2017 Summary Compensation Table on page 38.

(2) Represents the PSUs granted under the ELTI Plan to each of the NEOs, which vest based on the Company’s
performance with respect to Adjusted EBITDA for compensation purposes and the cash flow metric over
the 2017-2019 performance period. The vesting of these awards is also subject to a TSR modifier which
could increase or decrease the number of shares earned under an award by 25%, as more fully explained on
page 33.

(3) Represents RSUs granted under the ELTI Plan to each of the NEOs, which are scheduled to vest in 1/3
increments on each of December 31, 2017, 2018 and 2019, subject generally to the NEO’s continued
employment through the applicable vesting date.

Outstanding Equity Awards at Fiscal Year-End
For Fiscal Year Ended December 31, 2017

Option Awards

Stock Awards

Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)

Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)

Option
Exercise
Price ($)

Option
Expiration
Date

Number of
Shares or
Units of
Stock That
Have
Not Vested
(#)

Market
Value of
Shares or
Units of
Stock That
Have
Not Vested
($)(1)

Equity
Incentive Plan
Awards;
Number
of Unearned
Shares, Units
or Other
Rights
That Have
Not Vested
(#)

Equity
Incentive Plan
Awards;
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested ($)(1)

Name

William C. Carstanjen . . . . . .
William E. Mudd . . . . . . . . . .
Marcia A. Dall . . . . . . . . . . . . .

Paul J. Thelen . . . . . . . . . . . . .

-0-
-0-
-0-

-0-

-0-
-0-
-0-

-0-

N/A
N/A
N/A

N/A

N/A
N/A
N/A

N/A

12,410(2) 2,887,807
5,306(2) 1,234,706
783,501
3,367(2)
426,772
1,834(3)
904,738
3,888(2)

24,332(4)
10,437(4)
6,713(4)
-0-
18,589(4)

5,662,056
2,428,690
1,562,115
-0-
4,325,660

(1) Based on the closing price of our Common Stock on the NASDAQ Global Market at December 29, 2017 of

$232.70 per share.

(2) Represent awards under the ELTI Plan consisting of RSUs for continued employment for periods from
January 1, 2016 through December 31, 2019. The 12,410 RSUs for Mr. Carstanjen vest as follows: 8,111
units on December 31, 2018 and 4,299 units on December 31, 2019. The 5,306 RSUs for Mr. Mudd vest as
follows: 3,479 units on December 31, 2018 and 1,827 units on December 31, 2019. The 3,367 RSUs for
Ms. Dall vest as follows: 2,238 units on December 31, 2018 and 1,129 units on December 31, 2019. Prior to
the entrance into the separation agreement and release, the 3,888 RSUs for Mr. Thelen would have vested as
follows: 2,770 units on December 31, 2018 and 1,118 units on December 31, 2019.

(3) Represents restricted shares awarded under the 2007 Omnibus Stock Incentive Plan in connection with

Ms. Dall’s continued employment. The 1,834 restricted shares vest on December 31, 2018.

(4) Represent awards under the ELTI Plan consisting of PSUs for certain performance periods from January 1,
2016 through December 31, 2019. The 24,332 PSUs for Mr. Carstanjen are subject to vesting upon meeting
the performance criteria at the end of the following performance periods: 11,437 units on December 31,
2018 and 12,895 units on December 31, 2019. The 10,437 PSUs for Mr. Mudd are subject to vesting upon
the end of the following performance periods: 4,956 units on
meeting the performance criteria at
December 31, 2018 and 5,481 units on December 31, 2019. The 6,713 PSUs for Ms. Dall are subject to
vesting upon meeting the performance criteria at the end of the following performance periods: 3,328 units
on December 31, 2018 and 3,385 units on December 31, 2019. Pursuant to the separation agreement and
release entered into on January 9, 2018, Mr. Thelen received in Common Stock of the Company: the target
amount of PSUs (10,280 shares) for the performance period July 1, 2015 through December 31, 2017; 50%
of the target amount of PSUs (4,956 shares) for the performance period January 1, 2016 through
December 31, 2018; and 50% of the target amount of PSUs (3,353 shares) for the performance period
January 1, 2017 through December 31, 2019.

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Option Exercises and Stock Vested
For Fiscal Year Ended December 31, 2017

Option Awards

Stock Awards

Number of
Shares
Acquired on
Exercise (#)

Value
Realized
on Exercise
($)(1)

Number of
Shares
Acquired
on Vesting (#)

William C. Carstanjen . . . . . . . . . . . . . . . . . . . . . . . . . . .
William E. Mudd . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marcia A. Dall
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Paul J. Thelen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

-0-
-0-
-0-
-0-

56,807(1)
30,914(1)
4,071
5,340

Value Realized
on Vesting ($)(2)

13,799,497
7,445,245
902,597
1,242,618

(1) Shares include PSU vesting for Mr. Carstanjen (22,765) and Mr. Mudd (9,865) for the performance period

July 1, 2015 through December 31, 2017, as more fully explained under Long Term Incentives on page 31.

(2) Amounts reflect the market value of the stock on the day the stock vested or day the stock options were

exercised.

Nonqualified Deferred Compensation
For Fiscal Year Ended December 31, 2017

Name

Executive
Contributions
in Last Fiscal
Year ($)(1)

Registrant
Contributions
in Last Fiscal
Year ($)(2)

Aggregate
Earnings
(Losses) in Last
Fiscal Year ($)

Aggregate
Withdrawals
Distributions ($)

Aggregate
Balance at Last
Fiscal Year End ($)(3)

William C. Carstanjen . . . . . .
William E. Mudd . . . . . . . . . .
Marcia A. Dall
. . . . . . . . . . . .
Paul J. Thelen . . . . . . . . . . . . .

-0-
32,113
-0-
-0-

-0-
22,087
-0-
-0-

-0-
83,802
29,972
-0-

-0-
-0-
-0-
-0-

-0-
546,481
213,150
-0-

(1) The amounts in this column are also included in the 2017 Summary Compensation Table on page 38 in the

salary column or the non-equity incentive plan compensation column.

(2) The amounts in this column are also included in the 2017 Summary Compensation Table on page 38 in the
all other compensation column as a part of the Company contributions under defined contribution plans.

(3) Of the totals in this column,

the following totals have previously been reported in the Summary

Compensation Table for this year and for previous years:

Name

2017 ($)

Previous Years ($)

Total

William C. Carstanjen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
William E. Mudd . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marcia A. Dall
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Paul J. Thelen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

-0-
54,200
-0-
-0-

-0-
292,113
175,900
-0-

-0-
346,313
175,900
-0-

The Nonqualified Deferred Compensation table above shows information about

the Company’s
nonqualified deferred compensation plan. Executive officers and other executives may defer receipt of all or part
of their cash compensation under this plan. The plan operates in a similar manner as the Company’s 401(k) plan,
whereby participants can manage their self-directed accounts to allocate balances among various investment
alternatives, which determine gains or losses under the plan. A company match is provided for amounts deferred
above the qualified plan limits. The plan is unfunded for ERISA purposes and subject to forfeiture in the event of
insolvency or bankruptcy by the Company. Participants can elect to receive their deferred compensation balance
(i) upon termination of employment through a lump sum payment or (ii) while employed by the Company
provided that the initial distribution date is at least five (5) years from the initial participation date, in which case
distributions may be made on a monthly basis or in a lump sum.

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Potential Payments Upon Termination or Change of Control

The Company has entered into certain agreements and maintains certain plans that will require the Company
to provide compensation to the NEOs in the event of a termination of employment or a change in control (“CIC”)
of the Company. The amount of compensation payable to each NEO in each situation as of December 31, 2017 is
listed in the table below.

Name

William C. Carstanjen

Involuntary or good reason termination . . . .
Change in control without termination . . . . .
Death or Disability . . . . . . . . . . . . . . . . . . . .
Involuntary or good reason termination

Cash
Severance
Payment

$3,708,000
-0-

1,442,000(2)

Acceleration
&
Continuation
of Equity
Awards(1)

$2,887,807
2,887,807
8,549,863

Total Benefits

$ 6,595,807
2,887,807
9,991,863

within 2 years CIC . . . . . . . . . . . . . . . . . . .

4,944,000

8,549,863(3)

13,493,863

William E. Mudd

Involuntary or good reason termination . . . .
Change in control without termination . . . . .
Death or Disability . . . . . . . . . . . . . . . . . . . .
Involuntary or good reason termination

$1,950,000
-0-

650,000(2)

$1,234,706
1,234,706
3,663,396

$ 3,184,706
1,234,706
4,313,396

within 2 years CIC . . . . . . . . . . . . . . . . . . .

2,600,000

3,663,396(3)

6,263,396

Marcia A. Dall

Involuntary or good reason termination . . . .
Change in control without termination . . . . .
Death or Disability . . . . . . . . . . . . . . . . . . . .
Involuntary or good reason termination

$1,443,750
-0-

412,500(2)

$1,210,273
1,210,273
2,772,388

$ 2,654,023
1,210,273
3,184,888

within 2 years CIC . . . . . . . . . . . . . . . . . . .

1,925,000

2,772,388(3)

4,697,388

Paul J. Thelen(4)

Involuntary or good reason termination . . . .
Change in control without termination . . . . .
Death or Disability . . . . . . . . . . . . . . . . . . . .
Involuntary or good reason termination

$ 424,360
-0-
-0-

$4,771,747
4,771,747
4,771,747

$ 5,196,107
4,771,747
4,771,747

within 2 years CIC . . . . . . . . . . . . . . . . . . .

424,360

4,771,747(3)

5,196,107

(1) Represents the market value as of December 31, 2017 of restricted stock awards. For purposes of this
disclosure, market value is the closing price of our Common Stock on the NASDAQ Global Market at
December 29, 2017, of $232.70 per share.

(2) Represents the pro rata bonus for the year of death or disability based on the target bonus the executive was

eligible to receive for that year.

(3) Represents one hundred percent (100%) of all unvested restricted stock awards, RSU and PSU awards
granted under the 2007 Omnibus Stock Incentive Plan, 2016 Omnibus Stock Incentive Plan, and the ELTI
Plan.

(4) On January 9, 2018, Mr. Thelen terminated his employment with the Company as part of the Company’s
sale of Big Fish Games, Inc. (“Big Fish”). As part of the Separation Agreement and Release entered into
between Mr. Thelen, Big Fish, and the Company, Mr. Thelen is entitled to the following: (a) twelve months
of salary continuation, equal to $424,360 in the aggregate; (b) twelve months of COBRA subsidy, equal to
$23,820 in the aggregate; and (c) Mr. Thelen’s target bonus for the 2017 fiscal year under the Churchill
Downs Incorporated Executive Annual Incentive Plan, equal to a gross amount of $339,448. The Company
terminated Mr. Thelen’s RSU agreements and PSU agreements and paid out 22,477 shares to Mr. Thelen as
of the Closing Date, less 8,839 shares withheld for taxes.

Non-Solicit Provisions

Mr. Carstanjen, Mr. Mudd and Ms. Dall (the “Key Executives”) each entered into an Executive Change in
Control, Severance and Indemnity Agreement (the “Change in Control Agreement”) with the Company,
replacing all previously executed employment agreements, if any, which were mutually terminated by the
Company and each Key Executive. Pursuant to each of these agreements, each Key Executive is subject to a
two-year non-solicitation period after the termination of their employment with the Company for any reason,
during which they may not solicit any employee of the Company to leave employment with the Company or
solicit any customer of the Company for the purpose of engaging in business with them that competes with the
business engaged in by the Company.

Severance Benefits

The Change in Control Agreement, executed by the Key Executives, provides for the following principal
severance provisions upon termination by the Company without cause or by the executive upon constructive
termination or for good reason (as defined in each agreement):

Mr. Carstanjen, Mr. Mudd, and Ms. Dall. Cash payments equal to the product of 1.5 times the sum of
(a) base salary plus (b) target bonus for the year of termination of employment, payable in equal installments
over 18 months; treatment of all equity-based awards per the terms of the applicable plan, award or agreement;
and a lump sum cash payment equal to the total premiums for medical, dental and vision benefits for a three-
month period.

Mr. Thelen. As of December 31, 2017, if terminated without cause or due to good reason, Mr. Thelen was
entitled to: continuation of pay for twelve (12) months; COBRA for up to twelve (12) months (subject to earlier
termination if Mr. Thelen is no longer entitled to COBRA); earned but unpaid incentive plan bonuses; and any
accrued but unpaid salary and accrued but unused personal time off. As part of the Separation Agreement and
Release entered into on January 9, 2018 by and among the Company, Big Fish Games, Inc., and Paul Thelen,
Mr. Thelen is entitled to the following severance benefits: (a) twelve months of salary continuation, equal to
$424,360 in the aggregate; (b) twelve months of COBRA subsidy, equal to $23,820 in the aggregate; and
(c) Mr. Thelen’s target bonus for the 2017 fiscal year under the Churchill Downs Incorporated Executive Annual
Incentive Plan, equal to a gross amount of $339,448. The Company will also terminate Mr. Thelen’s RSU
agreements and PSU agreements and will pay out 22,477 shares to Mr. Thelen as of the Closing Date, less 8,839
shares withheld for taxes.

Change in Control Benefits. The new agreements for the Key Executives also provide for the following
change in control provisions: if the executive is terminated within two years following a change in control, the
Key Executive will receive severance as provided above, except that the salary and bonus severance shall instead
equal the product of 2.0 times the sum of (a) base salary plus (b) target bonus for the year of termination of
employment, payable in one lump sum on the sixtieth (60th) day following such termination.

In the event that any or all payments to any of the Key Executives are subject to the excise tax imposed by
Section 4999 of the Code, such payments shall be reduced to one dollar ($1) below the maximum amount of
payments that will not be subject to such tax; provided, however, that the foregoing limitation shall not apply in
the event the total payments to a Key Executive, on an after-tax basis, would exceed the after-tax benefits to the
Key Executive if such limitation applied. The Key Executive shall bear the expense of any and all excise taxes
due on any payments that are deemed to be “excess parachute payments” under Section 280G of the Code.

Pay Ratio Disclosure

As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, we are
providing the following disclosure about the relationship of the annual total compensation of our employees to
the annual total compensation of Mr. Carstanjen, our Chief Executive Officer. To understand this disclosure, we
think it is important to give context to our operations. Our business is seasonal and relies heavily on seasonal,
part-time and hourly workers. With Big Fish Games, Inc. (“Big Fish”), sixty-five percent (65%) of our workforce
are hourly workers. Without Big Fish, seventy-six percent (76%) of our workforce are hourly workers. Given the
recent sale of Big Fish, we have provided this disclosure with and without Big Fish employees, noting that, on
the selection date, Big Fish was a subsidiary of the Company.

We strive to create a compensation program which is competitive in terms of both the position and the
geographic location in which the employee is located. Accordingly, our pay structures vary among employees
based on position and geographic location.

Ratio

For 2017:

Median Annual Total Compensation (excluding CEO) . . . . . . . . . . . . . . . . . . . . . . . . .
CEO Annual Total Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pay Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
25,086
$7,447,192
297 to 1

$
21,693
$7,447,192
343 to 1

Including
Big Fish

Excluding
Big Fish

Identification of Median Employee

We selected December 15, 2017 as the date on which to determine our median employee. As of that date,
we had approximately 4,466 employees. For purposes of identifying the median employee, we ran a report for all
year-to-date taxable compensation for employees as of the selection date, and sorted by the total compensation.

Using this methodology, we determined that our median employee including Big Fish was a full-time,
hourly employee working at Oxford Casino, and excluding Big Fish, was a full-time, hourly employee working
at Calder Casino. In determining the annual total compensation of the median employee, we calculated such
employee’s compensation in accordance with Item 402(c)(2)(x) of Regulation S-K as required pursuant to SEC
executive compensation disclosure rules. This calculation is the same calculation used to determine total
compensation for purposes of the 2017 Summary Compensation Table with respect to each of the named
executive officers.

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Equity Compensation Plan Information(1)

(a)

(b)

Plan Category

Number of Securities to
be Issued Upon Exercise
of Outstanding Options,
Warrants and Rights

Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights

(c)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (a))

Equity compensation plans approved by security

holders(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

-0-(3)(4)

Equity compensation plans not approved by

security holders . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total

-0-
-0-

-0-

-0-
-0-

818,908(5)

-0-
818,908

(1) This table includes (i) aggregate data, including pricing, for shares presently committed under all equity
compensation plans of the Company as of the end of the most recently completed fiscal year and
(ii) aggregate data for shares still available to be issued under those plans.

(2) The equity compensation plans of the Company which have been approved by the shareholders of the
Company are the Churchill Downs Incorporated 2000 Employee Stock Purchase Plan (“Stock Purchase
Plan”), the Churchill Downs Incorporated 1993 Stock Option Plan (“1993 Plan”), the Churchill Downs
Incorporated 1997 Stock Option Plan (“1997 Plan”), the Churchill Downs Incorporated 2003 Stock Option
Plan (“2003 Plan”), the Churchill Downs Incorporated 2004 Restricted Stock Plan (“Restricted Stock
Plan”), the Churchill Downs Incorporated 2007 Omnibus Stock Incentive Plan (“2007 Plan”), the Churchill
Downs Incorporated 2016 Omnibus Stock Incentive Plan (“2016 Plan”) and certain stock options and
restricted stock awards granted to the prior CEO as a part of his employment agreement. The 1993 Plan, the
1997 Plan and the 2003 Plan each allow one- to three-year option vesting periods and require that options
expire ten (10) years after the date of grant, if not earlier under certain circumstances. The Restricted Stock
Plan allows for the award of stock subject to certain conditions and restrictions as determined by the
Compensation Committee at the time of the award. The 2016 Plan allows the Compensation Committee the
flexibility to design compensatory awards that are responsive to the Company’s needs. Awards under the
2016 Plan may be in the form of stock options, stock appreciation rights, restricted stock, restricted share
units, performance shares or performance units.

(3) The total does not include 142,556 (which excludes the 2016, 2017 and 2018 PSU awards provided under
the ELTI Plan) outstanding shares of Common Stock which have been awarded under the Restricted Stock
Plan, the 2007 Plan, and the 2016 Plan, as of December 31, 2017, which are unvested and over which the
participants have neither voting nor dispositive power until the lapse of the restriction period.

(4) Because each participant in the Stock Purchase Plan has one option each plan year and that option consists
of the number of shares which can be purchased, through exercise, at the end of the plan year using
compensation deductions made throughout the plan year, no outstanding options, warrants or rights for a
specific number of the Company’s securities to be issued upon exercise existed at fiscal year’s end and,
therefore, none are included in this total for the Stock Purchase Plan.

(5) Of this total, as of December 31, 2017, 216,034 shares of Common Stock of the Company remained
available for future issuance under the Stock Purchase Plan and 602,874 shares of Common Stock of the
Company remained available for future issuance under the 2016 Plan. Stock awards under the 2016 Plan
will be counted against the maximum number of shares as to which stock awards may be granted on a ratio
of 1-to-1.

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Certain Relationships and Related Transactions

The Company has adopted written policies and procedures for identifying and approving or ratifying related
person transactions. The policies and procedures cover all related person transactions required to be disclosed
under Item 404 (a) of Regulation S-K. The Audit Committee is responsible for applying the policies and
procedures. In evaluating related person transactions, the Audit Committee considers all factors it deems
appropriate, including without limitation, whether the related person transaction is on terms no less favorable
than terms generally available to an unaffiliated third party under the same or similar circumstances, the extent of
the related person’s interest in the transaction, and whether products or services of a similar nature, quantity, or
quality are readily available from alternative sources.

During fiscal year 2017, the Company entered into one related party transaction. On June 9, 2017, the
Company entered into an agreement with The Duchossois Group, Inc. (“TDG”) to repurchase 1,000,000 shares
of the Company’s Common Stock from TDG in a private transaction at a price per share equal to $158.78, for an
aggregate purchase price of approximately $158.8 million (the “Stock Repurchase Agreement”). In connection
with the Stock Repurchase Agreement, TDG and the Company entered into an Amended and Restated
Stockholder’s Agreement (the “Amended and Restated Stockholder’s Agreement”), amending the existing
stockholder’s agreement to provide for (i) limited registration rights for TDG; (ii) a restricted legend removal
process; and (iii) Mr. Craig J. Duchossois and Mr. Richard L. Duchossois to continue to serve as members of the
Board of the Directors of the Company until the expiration of their current terms, in 2018 and 2019, respectively.

Directors of the Company may from time to time own or have interests in horses racing at the Company’s
tracks. All such races are conducted, as applicable, under the regulations of the Kentucky Horse Racing
Commission,
the Florida Department of Business and Professional Regulation
Division of Pari-Mutuel Wagering, the Louisiana State Racing Commission, the Ohio State Racing Commission,
and the Maryland Racing Commission, and no director receives any extra or special benefit with regard to having
his or her horses selected to run in races or in connection with the actual running of races.

the Illinois Racing Board,

In its ordinary course of business, the Company may enter into transactions with certain of its officers and
directors for the sale of personal seat licenses and suite accommodations at its racetracks, and tickets for its live
racing events. The Company believes that each such transaction has been on terms no less favorable for the
Company than could have been obtained in a transaction with a third party and no such person received any extra
or special benefit in connection with such transactions.

Churchill Downs Incorporated
Audit Committee Report

The following is the report of the Company’s Audit Committee (the “Committee”), which currently consists
of three directors, each of whom has been determined by the Board of Directors (the “Board”) to meet the current
standards of the SEC and the NASDAQ exchange to be considered an “independent director.” The Board has
also determined that one member, Daniel P. Harrington, is an “audit committee financial expert” as defined by
the SEC.

The Committee has an Audit Committee Charter (the “Charter”), which was amended, restated and
approved by the Board on February 23, 2016. The Charter sets forth certain responsibilities of the Committee,
which include oversight of the integrity of the financial statements of the Company, the systems of internal
controls over financial reporting which management has established, the independence and performance of the
Company’s internal and independent auditors, the Company’s compliance with financial, accounting, legal and
regulatory requirements, and the effectiveness of the Enterprise Risk Management (“ERM”) function. The
Committee reviews the work of the Company’s management, the internal audit staff and the independent auditors
on behalf of the Board.

Specifically, the Committee:

• Met four (4) times during the year, during which the Committee reviewed and discussed with
management and the independent auditors the Company’s interim and annual financial statements for
2017; at each of such meetings, the Committee met in executive session with the Company’s Chief
Compliance Officer or General Counsel, along with the Vice President of Internal Audit.

•

Discussed with the independent auditors all matters required to be discussed by the applicable
requirements of the Public Company Accounting Oversight Board and the SEC.

Received the written disclosures and letters from the independent auditors required by applicable
requirements of the Public Company Accounting Oversight Board, regarding the independent auditors’
communications with the Audit Committee concerning independence, and discussed with the
independent auditors the independent auditors’ independence.

Based on the review and discussions referred to in the first three bullets above, the Committee
recommended to the Board that the Company’s audited financial statements be included in the
Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

Reviewed and discussed reports from the Company’s internal audit department and reports from the
Company’s legal department.

Discussed with management and the independent auditors the quality of the Company’s internal
controls.

Reviewed and approved all related person transactions.

Self-evaluated the effectiveness of the Committee.

Evaluated the effectiveness of the Company’s internal audit function.

Inquired of management, including its internal auditor, and the Company’s independent auditors
regarding significant risks or exposures, including those related to fraudulent activities, facing the
Company; assessed the steps management has taken or proposes to take to minimize such risks to the
Company and reviewed compliance with such steps.

Reviewed and approved the 2017 audit and non-audit services and related fees provided by the
independent auditors, PricewaterhouseCoopers LLP (“PwC”). The non-audit services approved by the
Audit Committee were also reviewed to ensure compatibility with maintaining the auditor’s
independence.

In February 2017, the Committee selected PwC to be reappointed as independent auditors for the
calendar year 2017. The Committee also reviewed and pre-approved the 2018 audit fees for services
related to the first quarter Form 10-Q review.

No portion of this Audit Committee Report shall be deemed to be incorporated by reference into any filing
under the Securities Act of 1933, as amended (the “Securities Act”), or the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), through any general statement incorporating by reference in its entirety the
Proxy Statement in which this report appears, except to the extent that the Company specifically incorporates this
report or a portion of it by reference. In addition, this report shall not be deemed to be filed under either the
Securities Act or the Exchange Act.

Members of the Audit Committee
Daniel P. Harrington, Chairman
Ulysses L. Bridgeman, Jr.
R. Alex Rankin

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires that the Company’s directors, executive officers and persons
who beneficially own more than ten percent (10%) of the Company’s Common Stock file certain reports with the
SEC with regard to their beneficial ownership of the Common Stock. The Company is required to disclose in this
Proxy Statement any failure to file or late filings of such reports. Based solely on our review of the forms filed
with the SEC or written representations from certain reporting persons received by us, we believe that our
directors, officers and persons who own more than ten percent (10%) of the Company’s Common Stock have
complied with all applicable filing requirements, except in the following instance: the Company filed late one
(1) Form 4 on behalf of Marcia A. Dall reporting one instance of a restricted stock unit award.

Multiple Shareholders Sharing the Same Address

The SEC has adopted rules that permit companies and intermediaries (e.g., brokers) to satisfy the delivery
requirements for proxy statements with respect to two or more shareholders sharing the same address by
delivering a single proxy statement or Notice addressed to those shareholders. This process, which is commonly
referred to as “house-holding,” potentially means extra convenience for shareholders and cost savings for
companies.

At this time, one or more brokers with accountholders who are Company shareholders will be “house-
holding” our proxy materials. A single Proxy Statement or Notice will be delivered to multiple shareholders
sharing an address unless contrary instructions have been received from the affected shareholder. Once you have
received notice from your broker that they will be “house-holding” communications to your address, “house-
holding” will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no
longer wish to participate in “house-holding” and would prefer to receive a separate Proxy Statement or Notice,
please notify your broker. You may direct your written request for a copy of the Proxy Statement or Notice to
Churchill Downs Incorporated, Attn: Paula Chumbley, 600 N. Hurstbourne Parkway, Ste. 400, Louisville,
Kentucky 40222, or at (502) 636-4400. If your broker is not currently “house-holding” (i.e., you received
multiple copies of the Company’s Proxy Statement or Notice), and you would like to request delivery of a single
copy, you should contact your broker.

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Proposals by Shareholders

Any shareholder proposal that may be included in the Board of Directors’ Proxy Statement and Proxy for
presentation at the annual meeting of shareholders to be held in 2019 must be received by the Company at the
principal executive office at 600 N. Hurstbourne Parkway, Ste. 400, Louisville, Kentucky 40222, Attention of the
Secretary, no later than November 15, 2018. Pursuant to the Company’s Amended and Restated Bylaws,
proposals of shareholders intended to be presented at the Company’s 2019 annual meeting of shareholders, but
not included in the Proxy Statement, must be received by the Company at the principal executive offices of the
Company not less than 90 nor more than 120 days prior to the anniversary date of the immediately preceding
annual meeting of shareholders. Accordingly, any shareholder proposals intended to be presented at the 2019
annual meeting of shareholders of the Company must be received in writing by the Company at its principal
executive offices no later than January 24, 2019, and no sooner than December 25, 2018. Any proposal submitted
before or after those dates will be considered untimely, and the Chairman shall declare that the business is not
properly brought before the meeting and such business shall not be transacted at the annual meeting.

BY ORDER OF THE BOARD OF DIRECTORS

G. Watts Humphrey, Jr.
Chairman

Bradley K. Blackwell

Senior Vice President and

General Counsel

Louisville, Kentucky
March 15, 2018

PLEASE VOTE BY TELEPHONE OR OVER THE INTERNET
IF YOU CANNOT BE PRESENT IN PERSON

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2017
OR
‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission file number 001-33998

(Exact name of registrant as specified in its charter)

Kentucky
(State or other jurisdiction of incorporation or organization)
600 North Hurstbourne Parkway, Suite 400
Louisville, Kentucky 40222
(Address of principal executive offices) (zip code)

61-0156015
(IRS Employer Identification No.)

(502) 636-4400
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, No Par Value
(Title of each class registered)

The NASDAQ Stock Market LLC
(Name of each exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes È No ‘
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange
Act. Yes ‘ No È
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Exchange Act during the preceding 12 months and (2) has been subject to such filing requirements for the past 90
days. Yes È No ‘
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405) during the
preceding 12 months (or
the Registrant was required to submit and post such
files). Yes È No ‘
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. ‘
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer È

Accelerated filer ‘ Non-accelerated filer ‘

for such shorter period that

Smaller reporting company ‘
Emerging growth company ‘

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange
Act. ‘
Indicate by check mark whether the Registrant
Act). Yes ‘ No È
As of February 22, 2018, 13,508,724 shares of the Registrant’s Common Stock were outstanding. As of June 30, 2017 (based
upon the closing sale price for such date on the NASDAQ Global Market), the aggregate market value of the shares held by
non-affiliates of the Registrant was $2,268,953,571.
Portions of the Registrant’s Proxy Statement for its Annual Meeting of Shareholders to be held on April 24, 2018 are
incorporated by reference herein in response to Items 10, 11, 12, 13 and 14 of Part III of Form 10-K. This Form 10-K filing
includes 103 pages, which includes an exhibit index on pages 98-101.

is a shell company (as defined in Rule 12b-2 of the Exchange

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4
21
34
34
35
36

37
39
40
59
61
107
107
107

108
108

108
108
108

109
110
114
115
116

CHURCHILL DOWNS INCORPORATED
INDEX TO ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 2017

Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4. Mine Safety Disclosures

Properties
Legal Proceedings

Part I

Part II

Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of

Equity Securities
Selected Financial Data

Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information

Financial Statements and Supplemental Data

Part III

Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder

Matters

Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services

Item 15. Exhibits and Financial Statement Schedule

Exhibit Index

Item 16. Form 10-K Summary
Signatures
Schedule II—Valuation and Qualifying Accounts

Part IV

Cautionary Statement Regarding Forward-Looking Information
This Annual Report on Form 10-K (“Report”) including the information incorporated by reference herein,
contains various “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934. The Private Securities Litigation Reform Act of 1995
(the “Act”) provides certain “safe harbor” provisions for forward-looking statements. All forward-looking
statements made in this Report are made pursuant to the Act. The reader is cautioned that such forward-looking
statements are based on information available at the time and/or management’s good faith belief with respect to
future events, and are subject to risks and uncertainties that could cause actual performance or results to differ
materially from those expressed in the statements. Forward-looking statements speak only as of the date the
statement was made. We assume no obligation to update forward-looking information to reflect actual results,
changes in assumptions or changes in other factors affecting forward-looking information. Forward-looking
statements are typically identified by the use of terms such as “anticipate,” “believe,” “could,” “estimate,”
“expect,” “intend,” “may,” “might,” “plan,” “predict,” “project,” “seek,” “should,” “will,” and similar words,
although some forward-looking statements are expressed differently. Although we believe that the expectations
reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will
prove to be correct. Important factors that could cause actual results to differ materially from expectations
include the factors described in Item 1A. Risk Factors of this Report.

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ITEM 1.

BUSINESS

Introduction

PART I

Churchill Downs Incorporated (the “Company”, “we”, “us”, “our”) is an industry-leading racing, gaming and
online entertainment company anchored by our iconic flagship event—The Kentucky Derby. We are a leader in
brick-and-mortar casino gaming with approximately 10,000 gaming positions in eight states, and we are the
largest, legal mobile and online platform for betting on horseracing in the United States. We were organized as a
Kentucky corporation in 1928, and our principal executive offices are located in Louisville, Kentucky.

Sale of Big Fish Games, Inc.

On November 29, 2017, the Company entered into a definitive Stock Purchase Agreement (the “Stock Purchase
Agreement”) to sell its mobile gaming subsidiary, Big Fish Games, Inc., a Washington corporation (“Big Fish
Games”), to Aristocrat Technologies, Inc., a Nevada corporation (the “Purchaser”), an indirect, wholly owned
subsidiary of Aristocrat Leisure Limited (“Aristocrat”), an Australian corporation (the “Big Fish Transaction”).
the Company completed the Big Fish
On January 9, 2018, pursuant
Transaction. The Purchaser paid an aggregate consideration of $990.0 million in cash in connection with the Big
Fish Transaction, subject to customary adjustments for working capital and indebtedness and certain other
adjustments as set forth in the Stock Purchase Agreement. As described in further detail in Part II, Item 8.
Financial Statements and Supplemental Data, the Company has presented Big Fish Games as held for sale and
discontinued operations in the accompanying Consolidated Financial Statements and related notes.

to the Stock Purchase Agreement,

B. Business Segments

During 2017, we managed our operations through five continuing operations segments: Racing, Casino,
TwinSpires, Other Investments and Corporate. Due to the Big Fish Transaction, our Big Fish Games segment is
now included as a discontinued operation. Financial information about these segments is set forth in Item 8.
Financial Statements and Supplemental Data, Note 20 of Notes to Consolidated Financial Statements contained
within this report. Further discussion of financial results by operating segment
is provided in Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations contained within this
report.

Racing Segment

Our Racing segment includes our four racetracks: Churchill Downs Racetrack (“Churchill Downs”), Arlington
International Race Course (“Arlington”), Fair Grounds Race Course (“Fair Grounds”) and Calder Race Course
(“Calder”). We conduct live horseracing at Churchill Downs, Arlington and Fair Grounds. On July 1, 2014, we
entered into a racing services agreement with The Stronach Group (“TSG”) to allow Gulfstream Park to manage
and operate Calder through December 31, 2020.

Our racing revenue includes commissions on pari-mutuel wagering at our racetracks and off-track betting
facilities (“OTBs”) plus simulcast host fees earned from other wagering sites. In addition, ancillary revenue
generated by the pari-mutuel facilities includes admissions, sponsorships and licensing rights, and food and
beverage sales. Racing revenue and income are influenced by our racing calendar. Racing dates are generally
approved annually by the respective state racing authorities. Therefore, racing revenue and operating results for
any interim quarter are not generally indicative of the revenue and operating results for the year. The majority of
our live racing revenue occurs during the second quarter with the running of the Kentucky Oaks and Kentucky
Derby at Churchill Downs.

Churchill Downs, Arlington, Fair Grounds, our eleven OTBs in Illinois and twelve OTBs in Louisiana offer year-
round simulcast wagering. Gulfstream Park took over operations of Calder’s simulcast wagering beginning
July 1, 2014. The OTBs accept wagers on races at the respective racetrack or on races simulcast from other
locations.

We generate a significant portion of our pari-mutuel wagering revenue by sending signals of races from our
racetracks to other facilities and businesses (“export”) and receiving signals from other racetracks (“import”).
Revenue is earned through pari-mutuel wagering on signals that we both import and export.

Churchill Downs

Churchill Downs is located in Louisville, Kentucky and is an internationally known thoroughbred racing
operation best known as the home of the iconic Kentucky Derby. We have conducted thoroughbred racing
continuously at Churchill Downs since 1875. The Kentucky Derby is the longest continuously held annual
sporting event in the United States and is the first race of the annual series of races for 3-year old thoroughbreds
known as the Triple Crown. Our history of record attendance, increasing wagering and television viewership is
attractive to presenting sponsors and contributed to the eighth consecutive year of earnings growth in 2017. We
conducted 70 live race days in 2015, 2016 and 2017, and anticipate having 70 live race days in 2018.

In 2002, as part of the financing of improvements to the Churchill Downs facility, we transferred title of the
Churchill Downs facility to the City of Louisville, Kentucky and leased back the facility. Subject to the terms of
the lease, we can re-acquire the facility at any time for $1.00.

The facility consists of approximately 147 acres of land with a one-mile dirt track, a seven-eighths (7/8) mile turf
track, a grandstand, luxury suites and a stabling area. The facility accommodates seating for approximately
59,000 patrons in our clubhouse, grandstand, Jockey Club Suites, Starting Gate Suites, Finish Line Suites, Turf
Club, Grandstand Terrace, Rooftop Garden and Mansion. We have a saddling paddock, accommodations for
groups and special events and parking areas for the public. Our racetrack also has permanent lighting in order to
accommodate night races. The stable area has barns sufficient to accommodate approximately 1,400 horses and a
114-room dormitory for backstretch personnel. The Churchill Downs facility also includes a simulcast wagering
facility.

We have continued to invest in the facility to enhance the experience of our customers. During the second quarter
of 2015, we opened our new winner’s circle suites and a courtyard. The winner’s circle suites include 20 private,
open-air suites reserved specifically for Kentucky Oaks and Kentucky Derby horsemen. The courtyard is a
spacious lawn area in front of the winner’s circle suites.

During the second quarter of 2016, we finalized our $19.0 million renovation of the Turf Club and other
premium areas. The Turf Club is an exclusive, members-only lounge and dining room located in the clubhouse
section of Churchill Downs, directly overlooking the racetrack’s finish line.

During the second quarter of 2017, we completed our $16.0 million renovation to modernize 95,000 square feet
of the second floor clubhouse. The second floor clubhouse now features more than 220 flat-screen televisions,
three new themed bars, 60 wagering windows and 40 self-serve betting machines.

We have two projects currently underway at Churchill Downs. We expect to complete in the second quarter of
2018 our $37.0 million capital project that will deliver more than 1,800 new seats for the 2018 Kentucky Derby
through the addition of 36 new luxury starting gate suites and interior dining tables. In October 2017, we
unveiled a $32.0 million project to improve the parking and transportation experience for guests traveling to the
Kentucky Derby. The project will feature a significantly enlarged, highly-efficient bus depot and additional
transportation infrastructure that will also enhance the overall traffic and parking flow for our guests. Phase 1 is
scheduled to be completed prior to the start of the 2018 Spring Meet in April 2018. The second phase will begin
after the 144th running of the Kentucky Derby on May 5, 2018 and will be completed prior to the 2018 Breeders’
Cup World Championships on November 2-3, 2018.

We also provide additional stabling and training facilities sufficient to accommodate 500 horses and a three-
quarter (3/4) mile dirt track approximately five miles from the racetrack facility.

Arlington
The Arlington racetrack is located in Arlington Heights, Illinois and is a thoroughbred racing operation with
eleven OTBs. The Arlington racetrack hosts a significant stakes race, the Arlington Million. We conducted 77
live race days in 2015, 74 in 2016 and 71 in 2017. We anticipate having 71 live race days in 2018.

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The racetrack sits on 336 acres, has a one and one-eighth (1 1/8) mile synthetic track, a one-mile turf track and a
five-eighths (5/8) mile training track. The facility includes a clubhouse, grandstand and suite seating for
approximately 7,500 persons, and food and beverage facilities. The stable area can accommodate approximately
2,200 horses and has approximately 550 rooms of temporary housing.

Fair Grounds

The Fair Grounds racetrack is located in New Orleans, Louisiana and is a racing operation with twelve OTBs in
Louisiana. The Fair Grounds racetrack hosts a significant stakes race, the Louisiana Derby. We conducted 83
thoroughbred live race days in 2015, 78 in 2016 and 83 in 2017. We anticipate having 81 thoroughbred live race
days in 2018. We conducted 12 quarter horse live race days in 2015, 10 in 2016 and 10 in 2017. We anticipate
having 10 quarter horse live race days in 2018.

The Fair Grounds facility consists of approximately 145 acres of land, a one-mile dirt track, a seven-eighths
(7/8) mile turf track, a grandstand and a stabling area. The facility includes clubhouse and grandstand seating for
approximately 5,000 persons, a general admissions area and food and beverage facilities. The stable area consists
of barns that can accommodate approximately 1,900 horses and living quarters for approximately 130 people.

Calder

Calder is located in Miami Gardens, Florida and is adjacent to Hard Rock Stadium, home of the Miami Dolphins.
Calder is a thoroughbred racing facility that consists of approximately 170 acres of land with a one-mile dirt
track, 7/8-mile turf track, barns and stabling facilities.

We have an agreement with TSG that expires on December 31, 2020 under which we permit TSG to operate and
manage Calder’s racetrack and certain other racing and training facilities and to provide live horseracing under
Calder’s racing permits. During the term of the agreement, TSG pays Calder a racing services fee and is
responsible for the direct and indirect costs of maintaining the racing premises, including the training facilities
and applicable barns, and TSG receives the associated revenue from the operation.

Based on our assessment of potential alternative uses of the Calder property, we razed the barns that were not
associated with the TSG agreement and commenced the demolition of the grandstand and certain ancillary
facilities. The Company recognized Calder exit costs of $0.8 million in 2017, $2.5 million in 2016, and
$13.9 million in 2015 related to demolition costs for the removal of the grandstand. The Calder exit costs
recognized in 2015 included a non-cash impairment charge of $12.7 million to reduce the net book value of the
grandstand assets to zero.

On November 8, 2016, we completed the sale of 61 acres of excess, undeveloped land at Calder for which we
received total proceeds of $25.6 million.

Casino Segment

We are also a provider of brick-and-mortar real-money casino gaming with approximately 10,000 gaming
positions located in eight states. We own five casinos (Oxford Casino, Riverwalk Casino, Harlow’s Casino,
Calder Casino and Fair Grounds Slots and Video Services, LLC) and three hotels (Oxford, Riverwalk and
Harlow’s). In addition, we have a 50% equity investment in Miami Valley Gaming, LLC (“MVG”), a 25% equity
investment in Saratoga Casino Holdings LLC (“SCH”), a 25% equity investment in Saratoga Casino Black
Hawk, and an effective 62.5% equity investment in The Casino at Ocean Downs, which we purchased in January
2017. Our casino revenue is primarily generated from slot machines, video poker and table games while ancillary
revenue includes hotel and food and beverage sales.

Oxford

Our Oxford Casino (“Oxford”) is located in Oxford, Maine. Oxford is a 27,000 square-foot casino with
approximately 970 slot machines, 28 table games and two dining facilities on approximately 97 acres of land.

During the fourth quarter of 2017, we opened a new attached $25.0 million hotel at Oxford, featuring over 100
new guest rooms and suites, as well as additional dining options, and an expanded gaming floor.

Riverwalk

Our Riverwalk Casino (“Riverwalk”) is located in Vicksburg, Mississippi. Riverwalk is a 25,000 square-foot
casino with approximately 650 slot machines, 15 table games, a five-story 80-room attached hotel and two dining
facilities on approximately 22 acres of land.

Harlow’s

Our Harlow’s Casino (“Harlow’s”) is located in Greenville, Mississippi. Harlow’s is a 33,000 square-foot casino
with approximately 730 slot machines, 15 table games, a 105-room attached hotel, a 5,600 square-foot multi-
functional event center and four dining facilities. Harlow’s is located on approximately 84 acres of leased land
adjacent to U.S. Highway 82 in Greenville, Mississippi.

Calder

Our Calder Casino (“Calder Casino”) is located in Miami Gardens, Florida near Hard Rock Stadium and is
adjacent to Calder Race Course. Calder Casino is a 106,000 square-foot facility with approximately 1,090 slot
machines and two dining facilities on a single-level.

Fair Grounds Slots and Video Services, LLC

Fair Grounds Slots is located in New Orleans, Louisiana adjacent to Fair Grounds Race Course. Fair Grounds
Slots is a 33,000 square-foot slot facility that operates approximately 620 slot machines with two concession
areas, a bar, a simulcast facility and other amenities for slots and pari-mutuel wagering patrons. Video Services,
LLC (“VSI”) is the owner and operator of approximately 820 video poker machines in ten OTBs in Louisiana.

Miami Valley Gaming Equity Investment

We have a 50% equity investment in MVG which owns a video lottery terminal (“VLT”) facility and harness
racetrack on 120 acres in Lebanon, Ohio, which opened on December 12, 2013. MVG is a 186,000 square-foot
facility with approximately 1,830 VLTs, a racing simulcast center, a 5/8- mile harness racetrack and four dining
facilities. MVG conducted 89 days of live harness racing in 2015, 86 days of live harness racing in 2016 and 87
days of live harness racing in 2017. MVG expects to conduct 87 days of live harness racing in 2018.

Saratoga Casino Holdings LLC Equity Investment

On October 2, 2015, we completed the acquisition of a 25% equity investment in SCH, which owns Saratoga
Casino and Raceway (“Saratoga’s New York facility”) in Saratoga Springs, New York, for $24.5 million from
Saratoga Harness Racing, Inc. (“SHRI”). Saratoga’s New York facility has a casino with approximately 1,700
VLT machines, a 1/2-mile harness racetrack with a racing simulcast center, a 117-room hotel, a 3,000 square-
foot multi-functional event space and five dining facilities. Saratoga’s New York facility has a 50% interest in a
joint venture with Delaware North Companies Gaming & Entertainment Inc. to manage the Gideon Putnam
Hotel and Resort. We also signed a five-year management agreement with SCH to manage Saratoga’s New York
facility for which we receive management fee revenue.

Saratoga’s New York facility conducted 170 live harness race days in 2015, 169 days in 2016 and 170 days in
2017. Saratoga’s New York facility expects to conduct 170 days of live harness racing in 2018.

On November 21, 2016, we completed the acquisition of a 25% equity investment in Saratoga Casino Black
Hawk in Black Hawk, Colorado (“Saratoga’s Colorado facility”) from SHRI. Saratoga’s Colorado facility has a
casino with approximately 460 slot machines, nine table games, three lounges and two dining facilities.

Our equity gain or loss from Saratoga’s New York facility and Saratoga’s Colorado facility are reported as
Saratoga (collectively, “Saratoga”).

Ocean Downs Equity Investment

On January 3, 2017, we acquired a 50% equity interest in Ocean Enterprise 589 LLC, Ocean Downs LLC and
Racing Services LLC (collectively, “Ocean Downs”). SCH owns the remaining 50% of Ocean Downs, and with
the Company’s 25% interest in SCH, we own an effective 62.5% interest in Ocean Downs. Since both the

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Company and SCH have participating rights and both must consent to Ocean Downs’ operating, investing and
financing decisions, the Company accounts for Ocean Downs using the equity method of accounting.

Ocean Downs, located near Ocean City, Maryland, owns and operates VLTs and table games at the Casino at
Ocean Downs and conducts harness racing at Ocean Downs Racetrack. The Casino at Ocean Downs added 100
VLTs and table games in December 2017. Including this expansion, the Casino at Ocean Downs now has
approximately 600 VLTs, 10 table games and two dining facilities. The racetrack at Ocean Downs conducted 48
live harness race days in 2015, 47 days in 2016 and 47 days in 2017. The racetrack at Ocean Downs expects to
conduct 48 days of live harness racing in 2018.

TwinSpires Segment
Our TwinSpires segment includes TwinSpires.com, Fair Grounds Account Wagering (“FAW”), Velocity, and
Bloodstock Research Information Services (“BRIS”). On April 24, 2017, we acquired certain assets of BAM
Software and Services, LLC (“BetAmerica”), which also is included in our TwinSpires segment.

TwinSpires.com is headquartered in Louisville, Kentucky and operates our mobile and online wagering business,
which is our platform for betting on horseracing. We are the largest legal mobile and online wagering platform in
the U.S. TwinSpires accepts pari-mutuel wagers from customers residing in certain states who establish and fund
an account from which they may place wagers via telephone, mobile device (through a browser or the
TwinSpires.com mobile app) or through the Internet at www.twinspires.com. Our business is licensed as a multi-
jurisdictional simulcasting and interactive wagering hub in the state of Oregon. We offer our customers
streaming video of live horse races, as well as replays, and an assortment of racing and handicapping
information. In addition, we provide technology services to third parties, and we earn commissions from white
label advance deposit wagering products and services. Under these arrangements, we typically provide an
advance deposit wagering platform and related operational services while the third party typically provides a
brand name, marketing and limited customer functions. We believe that TwinSpires.com is a key component to
our growth, and our gaming platform positions us to be a continued market leader in online gaming.

Our FAW business is a mobile and online wagering business licensed in the state of Louisiana that is operated by
Fair Grounds Race Course for Louisiana residents through a contractual agreement with TwinSpires.com.

Velocity is a mobile and online wagering business licensed under TwinSpires.com, which focuses on high dollar
wagering international customers. During December 2016, we completed the transition of Velocity customers to
the TwinSpires.com Oregon license.

BRIS is a data service provider with one of the world’s largest computerized databases of handicapping and
pedigree information for the thoroughbred horse industry. We provide special reports, statistical information,
handicapping information, pedigrees and other data through our websites Brisnet.com and TwinSpires.com.

Bluff, which operated a multimedia poker periodical and maintained a comprehensive online poker database, was
previously included in the TwinSpires segment but has ceased all operations.

Other Investments Segment
Our Other Investments Segment includes United Tote and our other minor investments.

United Tote
Our subsidiaries, United Tote Company and United Tote Canada (collectively “United Tote”), manufacture and
operate pari-mutuel wagering systems for racetracks, OTBs and other pari-mutuel wagering businesses. United
Tote provides totalisator services which accumulate wagers, record sales, calculate payoffs and display wagering
data to patrons who wager on horse races. United Tote has contracts to provide totalisator services to a
significant number of third-party racetracks, OTBs and other pari-mutuel wagering businesses and also provides
these services at many of our facilities.

Other
In June 2017, we announced Churchill Downs is investing $60.0 million to construct an 85,000 square-foot,
state-of-the-art historical racing machine facility in Louisville, Kentucky called Derby City Gaming, which we

expect to open in the second half of 2018. Derby City Gaming will operate under our Churchill Downs pari-
mutuel racing license.

In September 2017, we announced a partnership with Keeneland Association, Inc. to propose the construction of
two new racing facilities to be located in Corbin, Kentucky and Oak Grove, Kentucky. The proposed facilities
will feature live horse racing and historical racing machines. In partnership with Keeneland, we are working
closely with the Tourism, Arts and Heritage Cabinet of the Kentucky Department of Tourism and other state and
local officials on incentives and necessary infrastructure improvements to bring Corbin and Oak Grove facilities
to fruition. The construction of each proposed facility is contingent on receipt of an initial pari-mutuel racing
license by the Kentucky Horse Racing Commission. The Company and Keeneland each filed applications with
the Kentucky Horse Racing Commission on September 15, 2017.

Corporate Segment

Our Corporate segment includes miscellaneous and other revenue, compensation expense, professional fees and
other general and administrative expense not allocated to our other operating segments.

Big Fish Games Segment

Big Fish Games is a global producer and distributor of social casino, casual and mid-core free-to-play and
premium paid games for PC, Mac and mobile devices. Big Fish Games is headquartered in Seattle, Washington
and has a studio location in Oakland, California, with approximately 700 employees. On November 29, 2017, we
entered into the Stock Purchase Agreement to sell Big Fish Games to the Purchaser. On January 9, 2018, we
closed the Big Fish Transaction, at which time Big Fish Games ceased to be an operating segment of the
Company.

C. Competition

Overview

We operate in a highly competitive industry with a large number of participants, some of which have financial
and other resources that are greater than ours. The industry faces competition from a variety of sources for
discretionary consumer spending, including spectator sports, fantasy sports and other entertainment and gaming
options. Internet-based interactive gaming and wagering, both legal and illegal, is growing rapidly and we
anticipate competition in this area will become more intense as new Internet-based ventures enter the industry
and as state and federal regulations on Internet-based activities are clarified. Additionally, our brick-and-mortar
casinos compete with traditional and Native American casinos, video lottery terminals, state-sponsored lotteries
and other forms of legalized gaming in the U.S. and other jurisdictions.

Legalized gambling is currently permitted in various forms in many states and Canada. Other jurisdictions could
legalize gambling in the future, and established gaming jurisdictions could award additional gaming licenses or
permit the expansion of existing gaming operations. If additional gaming opportunities become available near
our racing or gaming operations, such gaming operations could have a material adverse impact on our business.

Racing

In 2017, approximately 37,000 thoroughbred horse races were conducted in the United States. Of these races, we
hosted approximately 2,200 races, or 5.9% of the total. As a content provider, we compete for wagering dollars in
the simulcast market with other racetracks conducting races at or near the same times as our races. As a racetrack
operator, we also compete for horses with other racetracks running live racing meets at or near the same time as
our races. Our ability to compete is substantially dependent on the racing calendar, number of horses racing and
purse sizes. In recent years, competition has increased as more states legalize gaming and allow slot machines at
racetracks with mandatory purse contributions. Over 89 percent of pari-mutuel handle is bet at off-track
locations, either at other racetracks, OTBs, casinos, or through mobile and online wagering channels. As a
content distributor, we compete for these dollars to be wagered at our racetracks, OTBs, casinos and via our
mobile and online wagering business.

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Churchill Downs

Churchill Downs faces competition from freestanding casinos and racetracks that are combined with casinos
(“racinos”) in Indiana, West Virginia and Ohio. In Indiana,
in
Elizabeth, Indiana; Belterra Casino in Florence, Indiana and French Lick Resort in French Lick, Indiana. In
Indiana, there are two racinos: Hoosier Park which operates 2,000 slot machines, and Indiana Grand Racing &
Casino, which operates 2,200 slot machines. In West Virginia, there are two racinos: Hollywood Casino at
Charles Town Races and Mountaineer Casino Racetrack and Resort. In Ohio, seven racetracks offer VLT
facilities.

these casinos include Horseshoe Indiana,

In New York, Aqueduct Racetrack has a gaming facility with more than 6,000 VLTs and electronic table games.
As a result of the addition of gaming activities, New York purse payments at each of the three largest New York
racetracks, Aqueduct Racetrack, Belmont Park and Saratoga Racetrack, were greatly enhanced compared to
historical levels.

These developments may result in Indiana, Ohio and New York racetracks attracting horses that would otherwise
race at Kentucky racetracks, including Churchill Downs, thus negatively affecting the number of starters that, in
turn, may have a negative effect on handle.

Arlington

Arlington competes in the Chicago market against a variety of entertainment options. In addition to other
racetracks in the area such as Hawthorne Race Course, there are ten riverboat casino operations that attract the
Chicago market, including Rivers Casino, in Des Plaines, Illinois. Additionally, Native American gaming
operations in Wisconsin may also adversely affect Arlington.

The Video Gaming Act was enacted in July 2009, authorizing the placement of up to five video gaming terminals
(“VGTs”) in licensed retail establishments, truck stops, and veteran and fraternal establishments. There are
currently over 28,000 VGTs distributed among more than 6,000 establishments throughout Illinois.

Fair Grounds

Fair Grounds competes in Louisiana in both thoroughbred and quarter horse racing with Louisiana Downs,
Evangeline Downs, Harrah’s Louisiana Downs and Delta Downs as well as with other southern state racetracks,
including Gulfstream Park in Florida and Oaklawn Park in Arkansas.

Casinos

Oxford

Oxford competes with Hollywood Casino in Bangor, Maine. Oxford also competes with Plainridge Park Casino
in Plainville, Massachusetts, which opened in June 2015. MGM Springfield in Springfield, Massachusetts is
scheduled to open in September 2018 and Wynn Boston Harbor also in Boston, Massachusetts is expected to
open in 2019.

Riverwalk

Riverwalk competes in the Vicksburg, Mississippi area and is one of five casinos in the local market. Our
principal local competitors are Ameristar Casino, Lady Luck Casino, DiamondJacks and WaterView Casino &
Hotel. In addition, Riverwalk faces regional competition from Magnolia Bluff Casino and the Pearl River Resort
in Mississippi.

Harlow’s

Harlow’s competes in Greenville, Mississippi with a variety of regional riverboat and land-based casinos. Our
primary local competitor is Trop Casino, which reopened its renovated property during October 2014. Harlow’s
also faces regional competition from a casino in Lula, Mississippi, eight casinos in Tunica, Mississippi and two
casinos in Arkansas.

The Mississippi Gaming Control Act does not limit the number of licenses that may be granted.

Calder Casino
Calder Casino competes with seven pari-mutuel casinos as well as four Native American-owned casinos, all of
which are located in Miami-Dade or Broward County, Florida. We also face competition from a large number of
cruise ship operators in Miami and Ft. Lauderdale. Native American casinos offer a variety of table games and
are taxed at lower rates and, therefore, are generally able to spend more money marketing their facilities to
consumers.

Fair Grounds Slots and Video Services, LLC
Fair Grounds Slots competes in the New Orleans, Louisiana area with two riverboat casinos and Harrah’s, which
is the largest, closest and only land-based casino competitor to Fair Grounds Slots. Fair Grounds Slots faces
significant gambling competition along the Mississippi Gulf Coast. Fair Grounds Slots and VSI also compete
with video poker operations located at various OTBs, truck stops and restaurants in the area. In 2015, Fair
Grounds Slots was adversely impacted by a smoking ban in Orleans Parish which increased competition from
properties outside of Orleans Parish.

MVG
MVG competes with Hollywood Gaming at Dayton Raceway, a VLT facility in Dayton, Ohio and JACK
Cincinnati, a slot machine and table games casino in Cincinnati, Ohio. MVG also faces regional competition
from three casinos in Indiana and two other gaming properties in Columbus, Ohio.

Saratoga
Saratoga’s New York facility competes with Rivers Casino, a new casino in Schenectady, New York, which
opened in February 2017. Saratoga’s Colorado facility competes in Black Hawk, Colorado with a variety of
casinos including Ameristar Casino, Isle of Capri Hotel & Casino and The Lodge & Hotel at Black Hawk, all of
which offer hotel accommodations, slot machines and poker and other table games.

Ocean Downs
Ocean Downs competes with Harrington Raceway & Casino, in Harrington, Delaware, which has slot machines,
table games, simulcasting and live racing. Ocean Downs also faces competition from Dover Downs Hotel and
Casino, in Dover, Delaware, which offers slot machines, table games, hotel accommodations and a spa facility.

TwinSpires
TwinSpires.com competes with other mobile and online wagering businesses for both customers and racing
content, and it also competes with online gaming sites. Our competitors include Betfair Limited (d/b/a TVG),
The Stronach Group (d/b/a XpressBet), Premier Turf Club, AmWest Entertainment, The New York Racing
Association (d/b/a NYRA Rewards), Connecticut OTB, Penn National Gaming Inc. and Racing2Day LLC.

Our BRIS business competes with companies such as Equibase and the Daily Racing Form.

Other Investments
In North America, United Tote competes primarily with Sportech and AmTote International, Inc. Our
competition outside of North America is very fragmented.

D. Governmental Regulations and Potential Legislative Changes
We are subject to various federal, state and international laws and regulations that affect our businesses. The
ownership, operation and management of our racing operations, our casino operations, TwinSpires and Big Fish
Games are subject to regulation under the laws and regulations of each of the jurisdictions in which we operate.
The ownership, operation and management of our segments are also subject to legislative actions at both the
federal and state level.

Federal Regulations
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law. The Tax Act
significantly revises the U.S. corporate income tax by, among other things, lowering the statutory corporate tax

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rate from 35% to 21%, eliminating certain deductions, imposing a one-time tax on accumulated earnings of
foreign subsidiaries as of 2017, introducing new tax regimes, and changing how foreign earnings are subject to
U.S. tax. The Tax Act also enhanced and extended through 2026 the option to claim accelerated depreciation
deductions on qualified property. We believe the Tax Act will have a positive impact on our business.

In September 2017, the U.S. Treasury Department and the Internal Revenue Service (“IRS”) announced
modernized regulations regarding withholding and reporting of pari-mutuel proceeds. Specifically, under the new
regulations, when determining an amount to be reported or withheld for taxes, the IRS will consider a bettor’s
entire investment in a single pari-mutuel pool instead of only the amount wagered on a winning result. We have
implemented the regulations and believe the new regulations will have a positive impact on our business.

Racing Regulations
Horseracing is a highly regulated industry. In the U.S., individual states control the operations of racetracks
located within their respective jurisdictions with the intent of, among other things, protecting the public from
unfair and illegal gambling practices, generating tax revenue, licensing racetracks and operators and preventing
organized crime from being involved in the industry. Although the specific form may vary, states that regulate
horseracing generally do so through a horseracing commission or other gambling regulatory authority. In general,
regulatory authorities perform background checks on all racetrack owners prior to granting them the necessary
operating licenses. Horse owners, trainers, jockeys, drivers, stewards, judges and backstretch personnel are also
subject to licensing by governmental authorities. State regulation of horse races extends to virtually every aspect
of racing and usually extends to details such as the presence and placement of specific race officials, including
timers, placing judges, starters and patrol judges. We currently satisfy the applicable licensing requirements of
the racing and gambling regulatory authorities in each state where we maintain racetracks or pari-mutuel
operations and/or businesses.

The total number of days on which each racetrack conducts live thoroughbred racing fluctuates annually
according to each calendar year and the determination of applicable regulatory authorities.

In the United States, interstate pari-mutuel wagering on horseracing is subject to the Interstate Horseracing Act
of 1978 (“IHA”), as amended in 2000. Through the IHA, racetracks can commingle wagers from different
racetracks and wagering facilities and broadcast horseracing events to other licensed establishments.

Kentucky
Horseracing tracks in Kentucky are subject to the licensing and regulation of the Kentucky Horse Racing
Commission (“KHRC”). The KHRC is responsible for overseeing horseracing and regulating the state equine
industry. Licenses to conduct live thoroughbred racing meets, to participate in simulcasting and to accept
advance deposit wagers from Kentucky residents are approved annually by the KHRC based upon applications
submitted by the racetracks in Kentucky. To some extent, Churchill Downs competes with other racetracks in
Kentucky for the award of racing dates; however, the KHRC is required by state law to consider and seek to
preserve each racetrack’s usual and customary live racing dates.

Illinois
In Illinois, licenses to conduct live thoroughbred racing and to participate in simulcast wagering are approved by
the Illinois Racing Board (“IRB”). In September 2017, the IRB appointed Arlington the dark host track in Illinois
for 60 simulcast host days during 2018, a decrease of 1 day compared to 2017. In addition, Arlington was
awarded 155 live host days for 2018, an increase of 1 day as compared to 2017. In total, Arlington was awarded
215 live and dark host days in 2018, which is the same as compared to 2017.

On May 26, 2016,
December 31, 2018 and continued incremental surcharges on winning wagers.

the Illinois legislature passed a bill

to reauthorize advance deposit wagering though

Florida
In Florida, licenses to conduct live thoroughbred racing and to participate in simulcast wagering are approved by
the Department of Business and Professional Regulation’s Division of Pari-Mutuel Wagering (“DPW”). The

DPW is responsible for overseeing the network of state offices located at every pari-mutuel wagering facility, as
well as issuing the permits necessary to operate a pari-mutuel wagering facility. The DPW also issues annual
licenses for thoroughbred, standardbred and quarter horse races but does not approve the specific live race days.

Louisiana

In Louisiana, licenses to conduct live thoroughbred racing and to participate in simulcast wagering are approved
by the Louisiana State Racing Commission (“LSRC”). The LSRC is responsible for overseeing the awarding of
licenses for the conduct of live racing meets, the conduct of thoroughbred horseracing, the types of wagering that
may be offered by pari-mutuel facilities and the disposition of revenue generated from wagering. Off-track
wagering is also regulated by the LSRC. Louisiana law requires live racing at a licensed racetrack for at least 80
days over a 20 week period each year to maintain the license and to conduct slot operations.

With the addition of slot machines at Fair Grounds, Louisiana law requires live quarter horseracing to be
conducted at the racetrack. We conducted quarter horseracing at Fair Grounds for 10 days in 2015, 10 days in
2016 and 10 days in 2017. We expect to conduct quarter horseracing for 10 days in 2018.

In March 2016, during a special session held to address Louisiana’s budget deficit, legislation was passed which
temporarily removed the sales tax exemption Fair Grounds qualified for as a pari-mutuel. From April 1, 2016
through June 30, 2016, Fair Grounds paid the statutory state tax of 4% on all purchases related to racing
operations. Effective July 1, 2016 through June 30, 2018, Fair Grounds is required to pay a 2% state tax on
purchases related to racing operations. During the same special session, the Louisiana Legislature also added
another one percent to the state tax base until July 1, 2018. The sales tax exemption is scheduled to be reinstated
July 1, 2018. The legislation is expected to have an adverse impact on our business.

Casino Regulations and Potential Legislative Changes

Casino laws are generally designed to protect casino consumers and the viability and integrity of the casino
industry. Casino laws may also be designed to protect and maximize state and local revenue derived through
taxes and licensing fees imposed on casino industry participants as well as to enhance economic development
and tourism. To accomplish these public policy goals, casino laws establish procedures to ensure that participants
in the casino industry meet certain standards of character and fitness. In addition, casino laws require casino
industry participants to:

• Ensure that unsuitable individuals and organizations have no role in casino operations;

• Establish procedures designed to prevent cheating and fraudulent practices;

• Establish and maintain responsible accounting practices and procedures;

• Maintain effective controls over financial practices, including establishment of minimum procedures for

internal fiscal affairs and the safeguarding of assets and revenue;

• Maintain systems for reliable record keeping;

• File periodic reports with casino regulators;

• Ensure that contracts and financial transactions are commercially reasonable, reflect fair market value and

are arms-length transactions;

• Establish programs to promote responsible gambling and inform patrons of the availability of help for

problem gambling; and

• Enforce minimum age requirements.

Typically, a state regulatory environment is established by statute and administered by a regulatory agency with
broad discretion to regulate the affairs of owners, managers and persons with financial interests in casino
operations. Among other things, casino authorities in the various jurisdictions in which we operate:

• Adopt rules and regulations under the implementing statutes;

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• Interpret and enforce casino laws;

• Impose disciplinary sanctions for violations, including fines and penalties;

• Review the character and fitness of participants in casino operations and make determinations regarding

suitability or qualification for licensure;

• Grant licenses for participation in casino operations;

• Collect and review reports and information submitted by participants in casino operations;

• Review and approve transactions, such as acquisitions or change-of-control

transactions of casino

industry participants, securities offerings and debt transactions engaged in by such participants; and

• Establish and collect fees and taxes.

Any change in the laws or regulations of a casino jurisdiction could have a material adverse impact on our casino
operations.

Licensing and Suitability Determinations
Gaming laws require us, each of our subsidiaries engaged in casino operations, certain of our directors, officers
and employees, and in some cases, certain of our shareholders, to obtain licenses from casino authorities.
Licenses typically require a determination that the applicant qualifies or is suitable to hold the license. Gaming
authorities have very broad discretion in determining whether an applicant qualifies for licensing or should be
deemed suitable. Criteria used in determining whether to grant a license to conduct casino operations, while
varying between jurisdictions, generally include consideration of factors such as the good character, honesty and
integrity of the applicant; the financial stability, integrity and responsibility of the applicant, including whether
the operation is adequately capitalized in the state and exhibits the ability to maintain adequate insurance levels;
the quality of the applicant’s casino facilities; the amount of revenue to be derived by the applicable state from
the operation of the applicant’s casino; the applicant’s practices with respect to minority hiring and training; and
the effect on competition and general impact on the community.

In evaluating individual applicants, casino authorities consider the individual’s business experience and
reputation for good character, the individual’s criminal history and the character of those with whom the
individual associates.

Many casino jurisdictions limit the number of licenses granted to operate casinos within the state and some states
limit the number of licenses granted to any one casino operator. Licenses under casino laws are generally not
transferable without approval. Licenses in most of the jurisdictions in which we conduct casino operations are
granted for limited durations and require renewal from time to time. There can be no assurance that any of our
licenses will be renewed. The failure to renew any of our licenses could have a material adverse impact on our
casino operations.

In addition to our subsidiaries engaged in casino operations, casino authorities may investigate any individual
who has a material relationship to or material involvement with, any of these entities to determine whether such
individual is suitable or should be licensed as a business associate of a casino licensee. Our officers, directors and
certain key employees must file applications with the casino authorities and may be required to be licensed,
qualify or be found suitable in many jurisdictions. Gaming authorities may deny an application for licensing for
any cause that they deem reasonable. Qualification and suitability determinations require submission of detailed
personal and financial information followed by a thorough investigation. The applicant must pay all the costs of
the investigation. Changes in licensed positions must be reported to casino authorities. In addition to casino
authorities’ ability to deny a license, qualification or finding of suitability, casino authorities have jurisdiction to
disapprove a change in a corporate position.

If one or more casino authorities were to find that an officer, director or key employee fails to qualify or is
unsuitable for licensing or unsuitable to continue having a relationship with us, we would be required to sever all
relationships with such person. In addition, casino authorities may require us to terminate the employment of any
person who refuses to file appropriate applications.

Moreover,
in many jurisdictions, certain of our shareholders may be required to undergo a suitability
investigation similar to that described above. Many jurisdictions require any person who acquires beneficial
ownership of more than a certain percentage of our voting securities, typically 5%, to report the acquisition to
casino authorities, and casino authorities may require such holders to apply for qualification or a finding of
suitability. Most casino authorities, however, allow an “institutional
investor” to apply for a waiver. An
“institutional investor” is generally defined as an investor acquiring and holding voting securities in the ordinary
course of business as an institutional investor, and not for the purpose of causing, directly or indirectly, the
election of a member of our board of directors, any change in our corporate charter, bylaws, management,
policies or operations, or those of any of our casino affiliates, or the taking of any other action which casino
authorities find to be inconsistent with holding our voting securities for investment purposes only. Even if a
waiver is granted, an institutional investor generally may not take any action inconsistent with its status when the
waiver was granted without once again becoming subject to the foregoing reporting and application obligations.

Generally, any person who fails or refuses to apply for a finding of suitability or a license within the prescribed
period after being advised it is required by casino authorities may be denied a license or found unsuitable, as
applicable. Any shareholder found unsuitable or denied a license and who holds, directly or indirectly, any
beneficial ownership of our voting securities beyond such period of time as may be prescribed by the applicable
casino authorities may be guilty of a criminal offense. Furthermore, we may be subject to disciplinary action if,
after we receive notice that a person is unsuitable to be a shareholder or to have any other relationship with us or
any of our subsidiaries, we: (i) pay that person any dividend or interest upon our voting securities; (ii) allow that
person to exercise, directly or indirectly, any voting right conferred through securities held by that person;
(iii) pay remuneration in any form to that person for services rendered or otherwise; or (iv) fail to pursue all
lawful efforts to require such unsuitable person to relinquish voting securities including, if necessary, the
immediate purchase of said voting securities for cash at fair market value.

Violations of Gaming Laws
If we violate applicable casino laws, our casino licenses could be limited, conditioned, suspended or revoked by
casino authorities, and we and any other persons involved could be subject to substantial fines. A supervisor or
conservator can be appointed by casino authorities to operate our casino properties, or in some jurisdictions, take
title to our casino assets in the jurisdiction, and under certain circumstances, income generated during such
appointment could be forfeited to the applicable state or states. Violations of laws in one jurisdiction could result
in disciplinary action in other jurisdictions. As a result, violations by us of applicable casino laws could have a
material adverse impact on our casino operations.

Some casino jurisdictions prohibit certain types of political activity by a casino licensee, its officers, directors
and key employees. A violation of such a prohibition may subject the offender to criminal and/or disciplinary
action.

Reporting and Record-keeping Requirements
We are required periodically to submit detailed financial and operating reports and furnish any other information
that casino authorities may require. Under federal law, we are required to record and submit detailed reports of
currency transactions involving greater than $10,000 at our casinos and racetracks as well as any suspicious
activity that may occur at such facilities. Failure to comply with these requirements could result in fines or
cessation of operations. We are required to maintain a current stock ledger that may be examined by casino
authorities at any time. If any securities are held in trust by an agent or by a nominee, the record holder may be
required to disclose the identity of the beneficial owner to casino authorities. A failure to make such disclosure
may be grounds for finding the record holder unsuitable. Gaming authorities may require certificates for our
securities to bear a legend indicating that the securities are subject to specified casino laws.

Review and Approval of Transactions
Substantially all material loans, leases, sales of securities and similar financing transactions must be reported to
and in some cases approved by casino authorities. We may not make a public offering of securities without the
prior approval of certain casino authorities. Changes in control through merger, consolidation, stock or asset

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acquisitions, management or consulting agreements, or otherwise are subject to receipt of prior approval of
casino authorities. Entities seeking to acquire control of us or one of our subsidiaries must satisfy casino
authorities with respect to a variety of stringent standards prior to assuming control. Gaming authorities may also
require controlling shareholders, officers, directors and other persons having a material relationship or
involvement with the entity proposing to acquire control, to be investigated and licensed as part of the approval
process relating to the transaction.

License Fees and Gaming Taxes
We pay substantial license fees and taxes in many jurisdictions in connection with our casino operations which
are computed in various ways depending on the type of gambling or activity involved. Depending upon the
particular fee or tax involved, these fees and taxes are payable with varying frequency. License fees and taxes are
based upon such factors as a percentage of the gross casino revenue received; the number of gambling devices
and table games operated; or a one-time fee payable upon the initial receipt of license and fees in connection with
the renewal of license. In some jurisdictions, casino tax rates are graduated such that the tax rates increase as
gross casino revenue increases. Tax rates are subject to change, sometimes with little notice, and such changes
could have a material adverse impact on our casino operations.

Operational Requirements
In most jurisdictions, we are subject to certain requirements and restrictions on how we must conduct our casino
operations. In certain states, we are required to give preference to local suppliers and include minority and
women-owned businesses and organized labor in construction projects to the maximum extent practicable. We
may be required to give employment preference to minorities, women and in-state residents in certain
jurisdictions. Our ability to conduct certain types of games, introduce new games or move existing games within
our facilities may be restricted or subject to regulatory review and approval. Some of our operations are subject
to restrictions on the number of gaming positions we may have and the maximum wagers allowed to be placed by
our customers.

Specific State Casino Regulations and Potential Legislative Changes
Florida
The ownership and operation of casino gaming facilities in the State of Florida is subject to extensive state and
local regulation, primarily by the Florida Department of Business and Professional Regulation (the “DBPR”),
within the executive branch of Florida’s state government. The DBPR is charged with the regulation of Florida’s
pari-mutuel, card room and slot gaming industries, as well as collecting and safeguarding associated revenue due
to the state. The DBPR has been designated by the Florida legislature as the state compliance agency with the
authority to carry out the state’s oversight responsibilities in accordance with the provisions outlined in the
compact between the Seminole Tribe of Florida and the State of Florida. Changes in Florida laws or regulations
may limit or otherwise materially affect the types of gaming that may be conducted and such changes, if enacted,
could have an adverse impact on our Florida gaming operation. The laws and regulations of Florida are based on
policies of maintaining the health, welfare and safety of the general public and protecting the video gaming
industry from elements of organized crime, illegal gambling activities and other harmful elements, as well as
protecting the public from illegal and unscrupulous gaming to ensure the fair play of devices. The failure to
comply with the rules and regulations of the DBPR could have a material adverse impact on our business.

Potential Seminole Compact and Potential Decoupling in Florida
In December 2015, Florida’s Governor signed a twenty-year Seminole Compact with the Seminole Tribe
preserving the Seminole Tribe’s geographic exclusivity and right to exclusively operate blackjack, craps and
roulette games and providing the state with an expected $3.0 billion in additional state revenue over a seven-year
period beginning in 2017. The Seminole Compact addresses other issues such as the potential for pari-mutuel
operations to add blackjack in a limited fashion as well as the potential for expanded licenses in Palm Beach and
Miami-Dade counties.

In November 2017, legislation was filed that would allow pari-mutuel facilities in Miami-Dade and Broward
counties to decouple their pari-mutuel and gaming operations. If a pari-mutuel facility elects to decouple, the

pari-mutuel facility must pay an amount equal to the lesser of $2.0 million or three percent of its slot machine
revenues. A pari-mutuel facility may offset these payments, if prior to the effective date of the legislation, the
pari-mutuel facility is making purse and award supplement payments in accordance with existing statutory
requirements. The bill provides for a five percent tax reduction on slot machine revenues in 2019 and another
five percent reduction in 2020, but if in any year going forward the aggregate amount of tax paid to the state by
slot machine licensees is less than the amount paid in fiscal year 2017-2018, the licensee that paid less in that
year than it did in 2017-2018 must pay a surcharge equal to the amount of taxes paid by the licensee in 2017-
2018. The legislation also makes it clear that designated player games are not a banked game and establishes
rules around the operation of such games. The issue is still pending before the legislature.

At this time it is not possible to determine what impact legislation with respect to authorizing the Seminole
Compact or decoupling would have on our business.

Louisiana
The manufacture, distribution, servicing and operation of video draw poker devices in Louisiana are subject to
the Louisiana Video Draw Poker Devices Control Law and the rules and regulations promulgated thereunder.
The manufacture, distribution, servicing and operation of video poker devices and slot machines are governed by
the Louisiana Gaming Control Board (the “Louisiana Board”) which oversees all licensing for all forms of
legalized gaming in Louisiana. The Video Gaming Division and the Slots Gaming Division of the Gaming
Enforcement Section of the Office of the State Police within the Department of Public Safety and Corrections
(the “Division”) performs the video poker and slots gaming investigative functions for the Louisiana Board. The
laws and regulations of Louisiana are based on policies of maintaining the health, welfare and safety of the
general public and protecting the video gaming industry from elements of organized crime, illegal gambling
activities and other harmful elements, as well as protecting the public from illegal and unscrupulous gaming to
ensure the fair play of devices. The Louisiana Board also regulates slot machine gaming at racetrack facilities
pursuant to the Louisiana Pari-Mutuel Live Racing Facility Economic Redevelopment and Gaming Control Act.
Changes in Louisiana laws or regulations may limit or otherwise materially affect the types of gaming that may
be conducted and such changes, if enacted, could have an adverse impact on our Louisiana gaming operations. In
addition, the LSRC also issues licenses required for Fair Grounds to operate slot machines at the racetrack and
video poker devices at its OTBs. The failure to comply with the rules and regulations of the Louisiana Board or
the LSRC could have a material adverse impact on our business.

On January 22, 2015, the New Orleans City Council approved a smoking ban in bars and other public places,
including casinos, in Orleans Parish which took effect on April 22, 2015. The smoking ban had a negative impact
on Fair Grounds Slots which was partially offset by VSI, whose OTB locations are located outside of Orleans
Parish.

Maine
The ownership and operation of casino gaming facilities in the State of Maine is subject to extensive state and
local regulation and is subject to licensing and regulatory control by the Maine Gambling Control Board (the
“MGCB”). The laws, regulations and supervisory procedures of the MGCB are based upon declarations of public
policy that are concerned with, among other things: (1) the regulation, supervision and general control over
casinos and the ownership and operation of slot machines and table games; (2) the investigation of complaints
made regarding casinos; (3) the establishment and maintenance of responsible accounting practices and
procedures; (4) the maintenance of effective controls over the financial practices of licensees, including the
establishment of minimum procedures for internal fiscal affairs and the safeguarding of assets and revenue and
providing for reliable record keeping; and (5) the prevention of cheating and fraudulent practices. The regulations
are subject to amendment and interpretation by the MGCB. Changes in Maine laws or regulations may limit or
otherwise materially affect the types of gaming that may be conducted and such changes, if enacted, could have
an adverse impact on our Maine gaming operations. The failure to comply with the rules and regulations of the
MGCB could have a material adverse impact on our business.

In November 2017, a citizen’s initiative was defeated, which would have permitted the construction of a casino
in York County.

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Maryland

In April 2017, Maryland’s Governor signed a law allowing casinos in Allegany and Worcester counties to qualify
for a 10% gaming tax reduction on slot machine revenue effective July 1, 2017. In order to qualify for the
gaming tax reduction, casinos must purchase or acquire the right to lease all of their VLTs prior to January 1,
2019. As of August 1, 2017, we purchased or acquired the right to lease all of our VLTs and have realized an
effective 10% gaming tax reduction from August 1, 2017 forward under this new law.

Under pre-April 2017 Maryland law, Ocean Downs would be required to spend $1.5 million on racing-related
capital maintenance and expenditures in order to qualify for a matching grant from the state. In April 2017,
legislation was signed into law to lower the required spend on racing-related capital maintenance and
expenditures to qualify for matching state funds to $0.3 million. This legislation has had and we believe will
continue to have a positive impact on our business.

Also in April 2017, legislation was signed into law to allow a VLT licensee to reduce the following day’s
proceeds by the amount of money returned to players that exceeds the amount bet through VLTs or table games
on a given day, thereby reducing the taxes owed by the VLT licensee. This legislation has had and we believe
will continue to have a positive impact on our business.

Mississippi

The ownership and operation of casino gaming facilities in the State of Mississippi is subject to extensive state
and local regulation, including the Mississippi Gaming Commission (the “Mississippi Commission”). The laws,
regulations and supervisory procedures of the Mississippi Commission are based upon declarations of public
policy that are concerned with, among other things: (1) the prevention of unsavory or unsuitable persons from
having direct or indirect involvement with gaming at any time or in any capacity; (2) the establishment and
maintenance of responsible accounting practices and procedures; (3) the maintenance of effective controls over
the financial practices of licensees, including the establishment of minimum procedures for internal fiscal affairs
and the safeguarding of assets and revenue, providing for reliable record keeping and requiring the filing of
periodic reports with the Mississippi Commission; (4) the prevention of cheating and fraudulent practices;
(5) providing a source of state and local revenue through taxation and licensing fees; and (6) ensuring that
to
gaming licensees,
amendment and interpretation by the Mississippi Commission. Changes in Mississippi laws or regulations may
limit or otherwise materially affect the types of gaming that may be conducted and such changes, if enacted,
could have an adverse impact on our Mississippi gaming operations. The failure to comply with the rules and
regulations of the Mississippi Commission could have a material adverse impact on our business.

to the extent practicable, employ Mississippi residents. The regulations are subject

Ohio

Video Lottery was introduced in the State of Ohio in 2012 when the Governor of Ohio signed Executive Order
2011-22K, which authorized the Ohio Lottery Commission (the “OLC”) to amend and adopt rules necessary to
implement a video lottery program at Ohio’s seven horse racing facilities. The ownership and operation of VLT
facilities in the State of Ohio is subject to extensive state and local regulation. The laws, regulations and
supervisory procedures of the OLC include: 1) regulating the licensing of video lottery sales agents, key gaming
employees and VLT manufacturers; 2) collecting and disbursing VLT revenue; and 3) maintaining compliance in
regulatory matters. Changes in Ohio laws or regulations may limit or otherwise materially affect the types of
gaming that may be conducted and such changes, if enacted, could have an adverse impact on our Ohio gaming
operations. The failure to comply with the rules and regulations of the OLC could have a material adverse impact
on our business.

New York

The ownership and operation of VLT facilities in New York are governed by the New York State Gaming
Commission (“NYSGC”) under the New York State Lottery for Education Law. The laws, regulations and
supervisory procedures of the NYSGC include: 1) regulating the licensing of video lottery gaming agents,
principal key gaming employees and VLT manufacturers; 2) collecting and disbursing VLT revenue; and 3)

maintaining compliance in regulatory matters. Changes in New York laws or regulations may limit or otherwise
materially affect the types of gaming that may be conducted and such changes, if enacted, could have an adverse
impact on our New York gaming operations. The failure to comply with the rules and regulations of the NYSGC
could have a material impact on our business.

During 2012, the Governor of New York and legislative leaders agreed to legalize casino gaming and seek an
amendment to the state constitution that would authorize such gaming and, during 2013, New York voters
approved a constitutional amendment authorizing up to seven casinos in the state. As of December 31, 2017,
New York had awarded four of the seven casino licenses. After a 7-year exclusivity period, the state may award
additional licenses. An expansion of gaming in New York includes incentives for the horse racing industry. At
this time, it is not possible to determine the impact casino gaming could have on our business.

Potential New York Racino Legislation

In January 2018, New York’s Governor released his proposed 2018-2019 budget, which included the removal of
the statutory hold-harmless provision for tax parity between newly opened casinos and previously existing
racinos. The issue is pending before the legislature. If this legislation is approved, we believe it would increase
our taxes and have a negative impact on our business.

Potential New York Interactive Gaming Legislation

In June 2017, the New York legislature passed a bill that will allow Saratoga Casino Hotel to be eligible to use
up to 4% of net winnings for capital improvement projects at the facility. The money must be used solely for
capital projects that will improve the facility and attract customers. The capital projects must be approved by the
lottery and the gaming commission. The bill was signed by the Governor and we believe it will have a positive
material impact on our business.

Specific State TwinSpires Regulations and Potential Legislative Changes

TwinSpires is licensed in Oregon under a multi-jurisdictional simulcasting and interactive wagering totalisator
hub license issued by the Oregon Racing Commission (“ORC”) and in accordance with Oregon law. TwinSpires
also holds advance deposit wagering licenses in certain other states where required such as California, Illinois,
Idaho, Kentucky, Maryland, Virginia, Colorado, Arizona, Wyoming, Arkansas, New York and Washington.
Changes in the form of new legislation or regulatory activity at the state or federal level could adversely impact
our mobile and online business.

Pennsylvania

On October 30, 2017, the Governor signed legislation (House Bill 271) that will expand gaming in the state,
including authorizing interactive gaming. Under the terms of the legislation, Category 1, 2 and 3 casino licensees
qualify for an interactive gaming license. Three categories of interactive gaming licenses are available: poker,
slot and table games. Each casino licensee has the opportunity to receive any or all of the three categories of
licenses for an initial period of five years. If a casino licensee applies for an interactive gaming license within the
first ninety days, the casino must apply for all three categories of licenses for a total fee of $10.0 million. If a
casino applies during the ninety to one hundred and twenty day time period, the casino may apply for one or
more categories of licenses for a fee of $4.0 million each. If, at the end of the one hundred and twenty day period,
there are remaining interactive gaming licenses, a qualified gaming entity licensed in any jurisdiction may apply
for one or more of the available licenses. A tax rate of 52% of gross interactive gaming revenue (“GIGR”) on
slots and 14% of GIGR on poker and table games was established. There is an additional 2% tax of daily GIGR
for local revenue share payments.

The legislation also removed previous statutory language which provided each Pennsylvania racetrack a local
monopoly over all telephone or Internet wagers on horse racing from Pennsylvania residents located within a 35
mile radius of such racetrack. The legislation also lowered the initial license fee for advance depositing wagering
operators from $500,000 to $50,000 and lowered the annual ongoing license fee from $100,000 to $10,000.

We believe this legislation may have a positive impact on business operations.

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E. Environmental Matters

We are subject to various federal, state and local environmental laws and regulations that govern activities that
may have adverse environmental effects, such as discharges to air and water, as well as the management and
disposal of solid, animal and hazardous wastes and exposure to hazardous materials. These laws and regulations,
which are complex and subject to change, include United States Environmental Protection Agency (“EPA”) and
state laws and regulations that address the impacts of manure and wastewater generated by Concentrated Animal
Feeding Operations (“CAFO”) on water quality,
limited to, storm and sanitary water
discharges. CAFO and other water discharge regulations include permit requirements and water quality discharge
standards. Enforcement of these regulations has been receiving increased governmental attention. Compliance
with these and other environmental laws can, in some circumstances, require significant capital expenditures. We
may incur future costs under existing and new laws and regulations pertaining to storm water and wastewater
management at our racetracks. Moreover, violations can result in significant penalties and, in some instances,
interruption or cessation of operations.

including, but not

In the ordinary course of our business, we may receive notices from regulatory agencies regarding our
compliance with CAFO regulations that may require remediation at our facilities. On December 6, 2013, we
received a notice from the EPA regarding alleged CAFO non-compliance at Fair Grounds. We are currently in
discussions with the EPA regarding potential remedial actions relating to alleged CAFO non-compliance at Fair
Grounds and expect to incur certain capital expenditures to upgrade these facilities to resolve this issue.

We also are subject to laws and regulations that create liability and cleanup responsibility for releases of
hazardous substances into the environment. Under certain of these laws and regulations, a current or previous
owner or operator of property may be liable for the costs of remediating hazardous substances or petroleum
products on its property, without regard to whether the owner or operator knew of, or caused, the presence of the
contaminants, and regardless of whether the practices that resulted in the contamination were legal at the time
they occurred. The presence of, or failure to remediate properly, such substances may materially adversely affect
the ability to sell or rent such property or to borrow funds using such property as collateral. Additionally, the
owner of a property may be subject to claims by third parties based on damages and costs resulting from
environmental contamination emanating from the property.

F. Marks and Internet Properties

We hold numerous state and federal service mark registrations on specific names and designs in various
categories including the entertainment business, apparel, paper goods, printed matter, housewares and glass. We
license the use of these service marks and derive revenue from such license agreements.

G. Employees

As of December 31, 2017, we employed approximately 4,300 full-time and part-time employees Company-wide.
Due to the seasonal nature of our live racing business, the number of seasonal and part-time persons employed
will vary throughout the year.

H. Available Information

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy
statements and other Securities and Exchange Commission (“SEC”) filings, and any amendments to those reports
and any other filings that we file with or furnish to the SEC under the Securities Exchange Act of 1934 are made
available free of charge on our website (www.churchilldownsincorporated.com) as soon as reasonably
practicable after we electronically file the materials with the SEC and are also available at the SEC’s website at
www.sec.gov. These reports may also be obtained from the SEC’s Public Reference Room at 100 F Street, NE,
Washington, DC 20549 or by calling the SEC at (800) SEC-0330.

ITEM 1A. RISK FACTORS
Risks Related to the Company
In addition to risks and uncertainties in the ordinary course of business that are common to all businesses,
important factors that are specific to our industry and us could materially impact our future performance and
results. The factors described below are the most significant risks that could have a material impact our business.

Our business is sensitive to economic conditions which may affect consumer confidence, consumers’
discretionary spending, or our access to credit in a manner that adversely impacts our operations
Economic trends can impact consumer confidence and consumers’ discretionary spending.

•

Negative economic conditions and the persistence of elevated levels of unemployment can impact
consumers’ disposable incomes and, therefore, impact the demand for entertainment and leisure
activities.

Declines in the residential real estate market, increases in individual tax rates and other factors that we
cannot accurately predict may reduce the disposable income of our customers.

Decreases in consumer discretionary spending could affect us even if such decreases occur in other
markets. For example, reduced wagering levels and profitability at racetracks from which we carry
racing content could cause certain racetracks to cancel races or cease operations and therefore reduce
the content we could provide to our customers.

Lower consumer confidence or reductions in consumers’ discretionary spending could result in fewer patrons
spending money at our racetracks, gaming and wagering facilities and our online wagering sites and could reduce
consumer spending.

Our access to and cost of credit may be impacted to the extent global and U.S. credit markets are affected by
downward economic trends. Economic trends can also impact
the financial viability of other industry
constituents, making collection of amounts owed to us uncertain. Our ability to respond to periods of economic
contraction may be limited, as certain of our costs remain fixed or even increase when revenue declines.

We are vulnerable to additional or increased taxes and fees
We believe that the prospect of raising significant additional revenue through taxes and fees is one of the primary
reasons that certain jurisdictions permit legalized gaming. As a result, gaming companies are typically subject to
significant taxes and fees in addition to the normal federal, state, provincial and local income taxes and such
taxes and fees may be increased at any time. From time to time, legislators and officials have proposed changes
in tax laws or in the administration of laws affecting the gaming industry. Many states and municipalities,
including ones in which we operate, are currently experiencing budgetary pressures that may make it more likely
they would seek to impose additional taxes and fees on our operations. It is not possible to determine the
likelihood or extent of any such future changes in tax laws or fees, or changes in the administration of such laws;
however, if enacted, such changes could have a material adverse impact on our business.

A lack of confidence in the integrity of our core businesses could affect our ability to retain our customers and
engage with new customers
The integrity of the horseracing, casino gaming and pari-mutuel wagering industries must be perceived as fair to
patrons and the public at large. To prevent cheating or erroneous payouts, the necessary oversight processes must
be in place to ensure that such activities cannot be manipulated. A loss of confidence in the fairness of our
industries could have a material adverse impact on our business.

We depend on key and highly skilled personnel to operate our business, and if we are unable to retain our
current personnel or hire additional personnel, our ability to develop and successfully grow our business
could be harmed
We believe that our success depends in part on our highly-skilled employee base, and our ability to hire, develop,
motivate and retain highly qualified and skilled employees throughout our organization. If we do not successfully

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hire, develop, motivate and retain highly qualified and skilled employees, it is likely that we could experience
significant disruptions in our operations and our ability to develop and successfully grow our business could be
impaired, which could harm our business.

Competition for the type of talent we seek to hire is increasingly intense in the geographic areas in which we
operate. As a result, we may incur significant costs to attract and retain highly-skilled employees. We may be
unable to attract and retain the personnel necessary to sustain our business or support future growth.

All of our officers and other employees in the United States are at-will employees, which means they may
terminate their employment relationship with us at any time and their knowledge of our business and industry
would be difficult to replace.

Our continued success and our ability to maintain our competitive position is largely dependent upon, among
other things, the skills and efforts of our senior executives and management team. We cannot guarantee that these
individuals will remain with us, and their retention is affected by the competitiveness of our terms of
employment and our ability to compete effectively against other companies. Certain of our key employees are
required to file applications with the gaming authorities in each of the jurisdictions in which we operate and are
required to be licensed or found suitable by these gaming authorities. If the gaming authorities were to find a key
employee unsuitable for licensing, we may be required to sever the employee relationship, or the gaming
authorities may require us to terminate the employment of any person who refuses to file appropriate
applications. Either result could significantly impair our operations. Our inability to retain key personnel could
have a material adverse impact on our business.

Our debt facilities contain restrictions that limit our flexibility in operating our business

Our debt facilities contain a number of covenants that impose significant operating and financial restrictions,
including restrictions on our ability to, among other things, take the following actions:

•

incur additional debt or issue certain preferred shares;

pay dividends on or make distributions in respect of our capital stock, repurchase common shares or
make other restricted payments;

make certain investments;

sell certain assets or consolidate, merge, sell or otherwise dispose of all or substantially all of our
assets;

create liens on certain assets;

enter into certain transactions with our affiliates; and

designate our subsidiaries as unrestricted subsidiaries.

As a result of these covenants, we are limited in the manner in which we conduct our business and we may be
unable to engage in favorable business activities or finance future operations or capital needs.

We have pledged a significant portion of our assets as collateral under our debt facilities. If any of these lenders
accelerate the repayment of borrowings, we may not have sufficient assets to repay our indebtedness and our
lenders could exercise their rights against the collateral we have granted them.

Under our debt facilities, we are required to satisfy and maintain specified financial ratios. Our ability to meet
those financial ratios can be affected by events beyond our control, and as a result, we may be unable to meet
those ratios. A failure to comply with the covenants contained in our debt facilities or our other indebtedness
could result in an event of default under our debt facilities or our other indebtedness which, if not cured or
waived, could have a material adverse impact on our business. In the event of any default under our debt
facilities or our other indebtedness, the lenders thereunder:

•

will not be required to lend any additional amounts to us;

•

could elect to declare all borrowings outstanding, together with accrued and unpaid interest and fees, to
be due and payable and terminate all commitments to extend further credit; or

require us to apply all of our available cash to repay these borrowings.

If the indebtedness under our debt facilities or our other indebtedness were to be accelerated, our assets may not
be sufficient to repay such indebtedness in full.

Ownership and development of real estate requires significant expenditures and is subject to risk
Our operations require us to own extensive real estate holdings. All real estate investments are subject to risks
including the following: general economic conditions, such as the availability and cost of financing; local and
national real estate conditions, such as an oversupply of residential, office, retail or warehousing space, or a
reduction in demand for real estate in the area; governmental regulation, including taxation of property and
environmental legislation; and the attractiveness of properties to potential purchasers or tenants. Significant
expenditures, including property taxes, mortgage payments, maintenance costs, insurance costs and related
charges, must be made throughout the period of ownership of real property. Such expenditures may negatively
impact our operating results.

We are subject to a variety of federal, state and local governmental laws and regulations relating to the use,
storage, discharge, emission and disposal of hazardous materials. Environmental laws and regulations could hold
us responsible for the cost of cleaning up hazardous materials contaminating real property that we own or operate
(or previously owned or operated) or properties at which we have disposed of hazardous materials, even if we did
not cause the contamination. If we fail to comply with environmental laws or if contamination is discovered, a
court or government agency could impose severe penalties or restrictions on our operations or assess us with the
costs of taking remedial actions. For instance, we are currently in discussions with the EPA regarding potential
remedial actions relating to alleged CAFO non-compliance at Fair Grounds and expect to incur certain capital
expenditures to upgrade these facilities to resolve this issue.

Catastrophic events and system failures could cause a significant and continued disruption to our operations
A disruption or failure in our systems or operations in the event of a major earthquake, weather event, cyber-
attack, terrorist attack or other catastrophic event could interrupt our operations, damage our properties and
reduce the number of customers who visit our facilities in the affected areas. Flooding, blizzards, windstorms,
earthquakes or hurricanes could adversely affect our locations. While we maintain insurance coverage that may
cover certain of the costs that we incur as a result of some natural disasters, our coverage is subject to
deductibles, exclusions and limits on maximum benefits. We may not be able to fully collect, if at all, on any
claims resulting from extreme weather conditions or other disasters. If any of our properties are damaged or if
our operations are disrupted or face prolonged closure as a result of natural disasters in the future, or if natural
disasters adversely impact general economic or other conditions in the areas in which our properties are located
or from which we draw our patrons, the disruption could have a material adverse impact on our business.

Our mobile and online wagering and brick-and-mortar casino businesses depend upon our communications
hardware and our computer hardware. We have built certain redundancies into our systems to avoid downtime in
the event of outages, system failures or damage; however, certain risks still exist. Our systems also remain
vulnerable to damage or interruption from floods, fires, power loss, telecommunication failures, terrorist cyber-
attacks, hardware or software error, computer viruses, computer denial-of-service attacks and similar events.
Despite any precautions we may take, the occurrence of a natural disaster or other unanticipated problems could
result in lengthy interruptions in our services. Any unscheduled interruption in the availability of our website and
our services results in an immediate, and possibly substantial, loss of revenue. Interruptions in our services or a
breach of customers’ secure data could cause current or potential users to believe that our systems are unreliable,
leading them to switch to our competitors or to avoid our site, and could permanently harm our reputation and
brand. These interruptions also increase the burden on our engineering staff which, in turn, could delay our
introduction of new features and services on our websites and in our games. We have property and business
interruption insurance covering damage or interruption of our systems; however, this insurance might not be
sufficient to compensate us for all losses that may occur.

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We have “all risk” property insurance coverage for our operating properties which covers damage caused by a
casualty loss (such as fire, natural disasters, acts of war, or terrorism); however, each policy has certain
exclusions. Our level of property insurance coverage, which is subject to policy maximum limits, may not be
adequate to cover all losses in the event of a major casualty. In addition, certain casualty events may not be
covered at all under our policies. Therefore, certain acts could expose us to substantial uninsured losses. We
renew our insurance policies on an annual basis. The cost of coverage may become so high that we may need to
further reduce our policy limits or agree to certain exclusions from our coverage.

Our debt instruments and other material agreements require us to meet certain standards related to insurance
coverage. Failure to satisfy these requirements could result in an event of default under these debt instruments or
material agreements.

We may not be able to identify and complete expansion, acquisition or divestiture projects on time, on budget
or as planned

We expect to pursue expansion, acquisition and divestiture opportunities, and we regularly evaluate opportunities
for development, including acquisitions or other strategic corporate transactions which may expand our business
operations.

We could face challenges in identifying development projects that fit our strategic objectives, identifying
potential acquisition or divestiture candidates and/or development partners, finding buyers, negotiating projects
on acceptable terms, and managing and integrating the acquisition or development projects. New developments
or acquisitions may not be completed or integrated successfully. The divestiture of existing businesses may be
affected by our ability to identify potential buyers. Current or future regulation may postpone a divestiture
pending certain resolutions to federal, state or local legislative issues. New properties or developments may not
be completed or integrated successfully.

We may experience difficulty in integrating recent or future acquisitions into our operations

We have completed acquisition transactions in the past, and we may pursue acquisitions from time to time in the
future. The successful integration of newly acquired businesses into our operations has required and will continue
to require the expenditure of substantial managerial, operating, financial and other resources and may also lead to
a diversion of our attention from our ongoing business concerns. We may not be able to successfully integrate
new businesses, manage the combined operations or realize projected revenue gains, cost savings and synergies
in connection with those acquisitions on the timetable contemplated, if at all. Management of the new business
operations, especially those in new lines of business or different geographic areas, may require that we increase
our managerial resources. The process of integrating new operations may also interrupt the activities of those
businesses which could have a material adverse impact on our business. The costs of integrating businesses we
acquire could significantly impact our short-term operating results. These costs could include the following:

•

restructuring charges associated with the acquisitions;

non-recurring acquisition costs, including accounting and legal fees, investment banking fees and
recognition of transaction-related costs or liabilities; and

costs of imposing financial and management controls (such as compliance with Section 404 of the
Sarbanes-Oxley Act of 2002) and operating, administrative and information systems.

We perform financial, operational and legal diligence on the businesses we purchase; however, an unavoidable
level of risk remains regarding the actual condition of these businesses and our ability to continue to operate
them successfully and integrate them into our existing operations. In any acquisition we make, we face risks that
include the following:

•

the risk that the acquired business may not further our business strategy or that we paid more than the
business was worth;

the risk that
expectations from and after the date of acquisition;

the financial performance of the acquired business declines or fails to meet our

•

the potential adverse impact on our relationships with partner companies or third-party providers of
technology or products;

the possibility that we have acquired substantial undisclosed liabilities for which we may have no
recourse against the sellers or third party insurers;

costs and complications in maintaining required regulatory approvals or obtaining further regulatory
approvals necessary to implement the acquisition in accordance with our strategy;

the risks of acquiring businesses and/or entering markets in which we have limited or no prior
experience;

the potential loss of key employees or customers;

the possibility that we may be unable to retain or recruit managers with the necessary skills to manage
the acquired businesses; and

changes to legal and regulatory guidelines which may negatively affect acquisitions.

If we are unsuccessful in overcoming these risks, it could have a material adverse impact on our business.

The legalization of online real money gaming in the United States and our ability to predict and capitalize on
any such legalization may impact our business

Nevada, Delaware, New Jersey and Pennsylvania have enacted legislation to legalize online real money gaming.
In recent years, California, Mississippi, Hawaii, Massachusetts, Iowa, Illinois, New York, Washington D.C. and
West Virginia have considered such legislation. If a large number of additional states or the Federal government
enact online real money gaming legislation and we are unable to obtain the necessary licenses to operate online
real money gaming websites in United States jurisdictions where such games are legalized, our future growth in
real money gaming could be materially impaired.

States or the Federal government may legalize online real money gaming in a manner that is unfavorable to us.
Several states and the Federal government are considering draft laws that require online casinos to also have a
license to operate a brick-and mortar casino, either directly or indirectly through an affiliate. If, like Nevada and
New Jersey, state jurisdictions enact legislation legalizing online real money casino gaming subject to this
brick-and-mortar requirement, we may be unable to offer online real money gaming in such jurisdictions if we
are unable to establish an affiliation with a brick-and-mortar casino in such jurisdiction on acceptable terms.

In the online real money gaming industry, a significant “first mover” advantage exists. Our ability to compete
effectively in respect of a particular style of online real money gaming in the United States may be premised on
introducing a style of gaming before our competitors. Failing to do so (“move first”) could materially impair our
ability to grow in the online real money gaming space. We may fail to accurately predict when online real money
gaming will be legalized in significant jurisdictions. The legislative process in each state and at the Federal level
is unique and capable of rapid, often unpredictable change. If we fail to accurately forecast when and how, if at
all, online real money gaming will be legalized in additional state jurisdictions, such failure could impair our
readiness to introduce online real money gaming offerings in such jurisdictions which could have a material
adverse impact on our business.

Our business may be adversely affected by the number of people attending and wagering on live horse races

Our Racing segment is dependent upon the number of people attending and wagering on live horse races at our
racetracks and our TwinSpires segment is dependent on wagering on live horse races at our racetracks and third-
party racetracks. According to industry sources, pari-mutuel handle on average declined 2% per year from 2008
to 2017 due to a number of factors, including increased competition from other wagering and entertainment
alternatives. From 2014 to 2017, pari-mutuel handle on horse racing has been relatively stable with average
annual growth of 1%.
If interest in horse racing is lower in the future, it may have a negative impact on revenue
and profitability in our Racing segment and our TwinSpires segment. If attendance at and wagering on live horse
racing declines, it could have a material adverse impact on our business.

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We may not be able to respond to rapid technological changes in a timely manner which may cause customer
dissatisfaction

Casino and TwinSpires segments are characterized by the rapid development of new technologies and continuous
introduction of new products. Our main technological advantage versus potential competitors is our software
lead-time in the market and our experience in operating an Internet-based wagering network; however, we may
not be able to maintain our competitive technological position against current and potential competitors,
especially those with greater financial resources. Our success depends upon new product development and
technological advancements including the development of new wagering platforms and features. While we
expend resources on research and development and product enhancement, we may not be able to continue to
improve and market our existing products or technologies or develop and market new products in a timely
manner. Further technological developments may cause our products or technologies to become obsolete or
noncompetitive.

We may inadvertently infringe on the intellectual property rights of others

In the course of our business, we may become aware of potentially relevant patents or other intellectual property
rights held by other parties. Many of our competitors as well as other companies and individuals have obtained,
and may obtain in the future, patents or other intellectual property rights that concern products or services related
to the types of products and services we currently offer or may plan to offer in the future. We evaluate the
validity and applicability of these intellectual property rights and determine in each case whether we must
negotiate licenses to incorporate or use the proprietary technologies in our products.

Claims of intellectual property infringement may also require us to enter into costly royalty or license
agreements. However, we may not be able to obtain royalty or license agreements on terms acceptable to us. We
also may be subject to significant damages or injunctions against the development and sale of our products and
services if we become subject to litigation relating to intellectual property infringement.

We may be unable to adequately protect our own intellectual property rights

Our results may be affected by the outcome of litigation within our industry and the protection and validity of our
intellectual property rights. Any litigation regarding patents or other intellectual property used in our products,
including in the areas of advance deposit wagering could be costly and time consuming and could divert our
management and key personnel from our business operations.

Some of our businesses are based upon the creation, acquisition, use and protection of intellectual property.
Some of this intellectual property is in the form of software code, patented and other technologies and trade
secrets that we use to develop and market our businesses. We rely on trademark, copyright and patent law, trade
secret protection and contracts to protect our intellectual property rights. If we are not successful in protecting
these rights, the value of our brands and our business could be adversely impacted.

Competitors may devise new methods of competing with us which may not be covered by our patents or patent
applications. Our patent applications may not be approved, the patents we have may not adequately protect our
intellectual property or ongoing business strategies and our patents may be challenged by third parties or found to
be invalid or unenforceable.

Effective trademark, service mark, copyright and trade secret protection may not be available in every country.
The laws of certain countries do not protect proprietary rights to the same extent as the laws of the United States;
therefore, we may be unable to protect our intellectual property and proprietary technologies adequately against
unauthorized copying or use in certain jurisdictions.

We have licensed in the past, and expect to license in the future, certain of our proprietary rights, such as
trademarks or copyrighted material to third parties. These licensees may take actions that could diminish the
value of our proprietary rights or harm our reputation, even if we have agreements prohibiting such activity. To
the extent third parties are obligated to indemnify us for breaches of our intellectual property rights, these third
parties may be unable to meet these obligations. Any of these events could harm our business.

including customers’ personal

Our business is subject to online security risk, including security breaches, and loss or misuse of our stored
information as a result of such a breach,
information, could lead to
government enforcement action or other litigation, potential liability, or otherwise harm our business
We receive, process, store and use personal information and other customer data. There are numerous federal,
state and local laws regarding privacy and the storing, sharing, use, processing, disclosure and protection of
personal information and other data. Any failure or perceived failure by us to comply with our privacy policies,
our privacy-related obligations to customers or other third parties, or our privacy-related legal obligations, or any
compromise of security that results in the unauthorized release or transfer of personally identifiable information
or other player data, may result in governmental enforcement actions, litigation or public statements against us by
consumer advocacy groups or others and could cause our customers to lose trust in us which could have an
adverse impact on our business. In the area of information security and data protection, many states have passed
laws requiring notification to customers when there is a security breach for personal data, such as the 2002
amendment to California’s Information Practices Act, or requiring the adoption of minimum information security
standards that are often vaguely defined and difficult to practically implement. The costs of compliance with
these types of laws may increase in the future as a result of changes in interpretation or changes in law. Any
failure on our part to comply with these types of laws may subject us to significant liabilities.

Third parties we work with, such as vendors, may violate applicable laws or our policies, and such violations
may also put our customers’ information at risk and could in turn have an adverse impact on our business. We
are also subject to payment card association rules and obligations under each association’s contracts with
payment card processors. Under these rules and obligations, if information is compromised, we could be liable to
payment card issuers for the associated expense and penalties. If we fail to follow payment card industry security
standards, even if no customer information is compromised, we could incur significant fines or experience a
significant increase in payment card transaction costs.

Security breaches, computer malware and computer hacking attacks have become more prevalent in our industry.
Many companies, including ours, have been the targets of such attacks. Any security breach caused by hacking
which involves efforts to gain unauthorized access to information or systems, or to cause intentional
malfunctions or loss or corruption of data, software, hardware or other computer equipment, and the inadvertent
transmission of computer viruses could harm our business. Though it is difficult to determine what harm may
directly result from any specific interruption or breach, any failure to maintain performance, reliability, security
and availability of our network infrastructure to the satisfaction of our players may harm our reputation and our
ability to retain existing players and attract new players.

We take significant measures to protect the secrecy of large portions of our source code. If unauthorized
disclosure of our source code occurs, we could potentially lose future trade secret protection for that source code.
This could make it easier for third parties to compete with our products by copying functionality which could
adversely affect our revenue and operating margins. Unauthorized disclosure of source code also could increase
security risks.

Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems,
change frequently and often are not recognized until launched against a target, we may be unable to anticipate
these techniques or to implement adequate preventative measures. We have developed systems and processes
that are designed to protect customer information and prevent data loss and other security breaches, including
systems and processes designed to reduce the impact of a security breach at a third party vendor; however, such
measures cannot provide absolute security.

We are subject to payment-related risks, such as risk associated with the fraudulent use of credit or debit cards
which could have adverse effects on our business due to chargebacks from customers
We allow funding and payments to accounts using a variety of methods, including electronic funds transfer
(“EFT”), and credit and debit cards. As we continue to introduce new funding or payment options to our players,
we may be subject to additional regulatory and compliance requirements. We also may be subject to the risk of
fraudulent use of credit or debit cards, or other funding and/or payment options. For certain funding or payment
options, including credit and debit cards, we may pay interchange and other fees which may increase over time

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and, therefore, raise operating costs and reduce profitability. We rely on third parties to provide payment-
processing services and it could disrupt our business if these companies become unwilling or unable to provide
these services to us. We are also subject to rules and requirements governing EFT which could change or be
reinterpreted to make it difficult or impossible for us to comply. If we fail to comply with these rules or
requirements, we may be subject to fines and higher transaction fees or possibly lose our ability to accept credit
or debit cards, or other forms of payment from customers which could have a material adverse impact on our
business.

Chargebacks occur when customers seek to void credit card or other payment transactions. Cardholders are
intended to be able to reverse card transactions only if there has been unauthorized use of the card or the services
contracted for have not been provided. In our business, customers occasionally seek to reverse online gaming
losses through chargebacks. We place great emphasis on control procedures to protect from chargebacks;
however, these control procedures may not be sufficient to protect us from adverse effects on our business or
results of operations.

Any violation of the Foreign Corrupt Practices Act, other similar laws and regulations, or applicable anti-
money laundering regulations could have a negative impact on us
We are subject to risks associated with doing business outside of the United States, including exposure to
complex foreign and U.S. regulations such as the Foreign Corrupt Practices Act (the “FCPA”) and other anti-
corruption laws which generally prohibit U.S. companies and their intermediaries from making improper
payments to foreign officials for the purpose of obtaining or retaining business. Violations of the FCPA and other
anti-corruption laws may result in severe criminal and civil sanctions and other penalties. It may be difficult to
oversee the conduct of any contractors, third-party partners, representatives or agents who are not our employees,
potentially exposing us to greater risk from their actions. If our employees or agents fail to comply with
applicable laws or company policies governing our international operations, we may face legal proceedings and
actions which could result in civil penalties, administration actions and criminal sanctions. Any determination
that we have violated any anti-corruption laws could have a material adverse impact on our business.

We also deal with significant amounts of cash in our operations and are subject to various reporting and anti-
money laundering regulations. Any violation of anti-money laundering laws or regulations by any of our
properties could have a material adverse impact on our business.

Work stoppages and other labor problems could negatively impact our future plans
Some of our employees are represented by labor unions. A strike or other work stoppage at one of our properties
could have an adverse impact on our business and results of operations. From time to time, we have also
experienced attempts to unionize certain of our non-union employees. We may experience additional and more
successful union activity in the future.

Risks Related to Our Racing Business
We may not be able to attract a sufficient number of horses and trainers to achieve full field horseraces
We believe that patrons prefer to wager on races with a large number of horses, commonly referred to as full
fields. A failure to offer races with full fields results in less wagering on our horseraces. Our ability to attract full
fields depends on several factors, including our ability to offer and fund competitive purses and the overall horse
population available for racing. Various factors have led to declines in the horse population in certain areas of the
country, including competition from racetracks in other areas, increased costs and changing economic returns for
owners and breeders, and the spread of various debilitating and contagious equine diseases. If any of our
racetracks is faced with a sustained outbreak of a contagious equine disease, it could have a material impact on
our profitability. If we are unable to attract horse owners to stable and race their horses at our racetracks by
offering a competitive environment, including improved facilities, well-maintained racetracks, better conditions
for backstretch personnel involved in the care and training of horses stabled at our racetracks and a competitive
purse structure, our profitability could also decrease.

We also face increased competition for horses and trainers from racetracks that are licensed to operate slot
machines and other electronic gaming machines that provide these racetracks an advantage in generating new

additional revenue for race purses and capital improvements. Churchill Downs and Arlington have experienced
heightened competition from racinos in Indiana, Pennsylvania, Delaware and West Virginia whose purses are
supplemented by gaming revenue. The opening of the Genting New York Resort at Aqueduct racetrack has
enhanced the purse structure at New York racetracks as compared to historical levels. In February 2017, the
Rivers Casino & Resort Schenectady opened in New York. Competition from these facilities could harm our
ability to attract full fields, which could have a material adverse impact on our business.

We depend on agreements with industry constituents including horsemen and other racetracks
The Interstate Horseracing Act, or IHA, as well as various state racing laws, require that we have written
agreements with the horsemen at our racetracks in order to simulcast races, and, in some cases, conduct live
racing. Certain industry groups negotiate these agreements on behalf of the horsemen (the “Horsemen’s
Groups”). These agreements provide that we must receive the consent of the Horsemen’s Groups at the racetrack
conducting live races before we may allow third parties to accept wagers on those races. The agreements between
other racetracks and their Horsemen’s Groups typically provide that those racetracks must receive consent from
the Horsemen’s Groups before we can accept wagers on their races. We may not be able to maintain agreements
with, or to obtain required consent from, Horsemen’s Groups. We currently negotiate formal agreements with the
applicable Horsemen’s Groups at our racetracks on an annual basis. The failure to maintain agreements with, or
obtain consents from, our horsemen on satisfactory terms or the refusal by a Horsemen’s Group to consent to
third parties accepting wagers on our races or our accepting wagers on third parties’ races could have a material
adverse impact on our business.

From time to time, the Thoroughbred Owners of California, the Horsemen’s Group representing horsemen in
California,
the Florida Horsemen’s Benevolent and Protective Association, Inc. (the “FHBPA”), which
represents horsemen in Florida, and the Kentucky Horsemen’s Benevolent and Protective Association have
withheld their consent to send or receive racing signals among racetracks. Failure to receive the consent of these
Horsemen’s Groups for new and renewing simulcast agreements could have a material adverse impact on our
business.

We also have written agreements with the Horsemen’s Groups with regards to the proceeds of gaming machines
in Louisiana and Florida. Florida law requires Calder Casino to have an agreement with the FHBPA governing
the contribution of a portion of revenue from slot machine gaming to purses on live thoroughbred races
conducted by TSG at Calder and an agreement with the Florida Thoroughbred Breeders and Owners Association
governing the contribution of a portion of revenue from slot machine gaming to breeders’ stallion and special
racing awards on live thoroughbred races conducted by TSG at Calder before Calder can receive a license to
conduct slot machine gaming.

We have agreements with other racetracks for the distribution of racing content through both the import of other
racetracks’ signals for wagering at our properties and the export of our racing signal for wagering at other
racetracks’ facilities. From time to time, we are unable to reach agreements on terms acceptable to us. As a
result, we may be unable to distribute our racing content to other locations or to receive other racetracks’ racing
content for wagering at our racetracks. The inability to distribute our racing content could have a material
adverse impact on our business.

Horseracing is an inherently dangerous sport and our racetracks are subject to personal injury litigation
Personal injuries to jockeys may occur during races or daily workouts. We carry jockey accident insurance at
each of our racetracks to cover such injuries; however, there are certain exclusions to our insurance coverage, and
we are still subject to litigation from injured participants. We renew our insurance policies on an annual basis.
The cost of coverage may become so high that we may need to further reduce our policy limits or agree to certain
exclusions from our coverage. Our results may be affected by the outcome of litigation, as this litigation could be
costly and time consuming and could divert our management and key personnel from our business operations.

Our business depends on utilizing and providing totalisator services
Our customers utilize information provided by United Tote and other totalisator companies that accumulates
wagers, records sales, calculates payoffs and displays wagering data in a secure manner to patrons who wager on

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our horseraces. The failure to keep technology current could limit our ability to serve patrons effectively, limit
our ability to develop new forms of wagering and/or affect the security of the wagering process, thus affecting
patron confidence in our product. A perceived lack of integrity in the wagering systems could result in a decline
in bettor confidence and could lead to a decline in the amount wagered on horseracing. A totalisator system
failure could cause a considerable loss of revenue if betting machines are unavailable for a significant period of
time or during an event with high betting volume.

United Tote also has licenses and contracts to provide totalisator services to a significant number of racetracks,
OTBs and other pari-mutuel wagering businesses. Its totalisator systems provide wagering data to the industry in
a secure manner. Errors by United Tote technology or personnel may subject us to liabilities, including financial
penalties under our totalisator service contracts which could have a material adverse impact on our business.

Inclement weather and other conditions may affect our ability to conduct live racing
We conduct our racing business at three thoroughbred racetracks: Churchill Downs, Fair Grounds and Arlington;
and, through separate joint ventures and equity investments, at three harness racetracks: Miami Valley, Ocean
Downs, and Saratoga Harness. A significant portion of our racing revenue is generated during the Kentucky Oaks
and Kentucky Derby week. If a business interruption were to occur and continue for a significant length of time
at any of our racetracks, particularly one occurring at Churchill Downs at a time that would affect the Kentucky
Oaks or Kentucky Derby, it could have a material adverse impact on our business.

Since horseracing is conducted outdoors, unfavorable weather conditions, including extremely high and low
temperatures, heavy rains, high winds, storms, tornadoes and hurricanes, could cause events to be canceled and/
or attendance to be lower, resulting in reduced wagering. Our operations are subject to reduced patronage,
disruptions or complete cessation of operations due to weather conditions, natural disasters and other casualties.
If a business interruption were to occur due to inclement weather and continue for a significant length of time at
any of our racetracks, it could have a material adverse impact on our business.

Our racing business faces significant competition, and we expect competition levels to increase
All of our racetracks face competition from a variety of sources,
including spectator sports and other
entertainment and gaming options. Competitive gaming activities include traditional and Native American
casinos, VLTs, state-sponsored lotteries and other forms of legalized and non-legalized gaming in the U.S. and
other jurisdictions.

All of our racetracks face competition in the simulcast market. In 2017, approximately 37,000 thoroughbred
horse races were conducted in the United States. We hosted approximately 2,200 races, or about 5.9% of the
total. As a content provider, we compete for wagering dollars in the simulcast market with other racetracks
conducting races at or near the same times as our races. As a racetrack operator, we also compete with other
racetracks running live meets at or near the same time as our horse races. In recent years, this competition has
increased as more states have allowed additional, automated gaming activities, such as slot machines at
racetracks with mandatory purse contributions.

Competition from web-based businesses presents additional challenges for our racing business. Unlike most
online and web-based gaming companies, our racetracks require significant and ongoing capital expenditures for
both continued operations and expansion. Our racing business also faces significantly greater operating costs
compared to costs borne by online and web-based gaming companies. Our racing business cannot offer the same
number of gaming options as online and Internet-based gaming companies. These companies may divert
wagering dollars from pari-mutuel wagering venues, such as our racetracks. Our inability to compete
successfully with these competitors could have a material adverse impact on our business.

Our racing operations are highly regulated, and changes in the regulatory environment could adversely affect
our business
Our racing business is subject to extensive state and local regulation, and we depend on continued state approval
of legalized gaming in states where we operate. Our wagering and racing facilities must meet the licensing
requirements of various regulatory authorities, including authorities in Kentucky, Illinois, Louisiana, Florida,

Ohio, Maryland and New York. To date, we have obtained all governmental licenses, registrations, permits and
approvals necessary for the operation of our racetracks. However, we may be unable to maintain our existing
licenses. The failure to attain such licenses in the future or the loss of or material change in our racing business
licenses, registrations, permits or approvals may materially limit the number of races we conduct, and could have
a material adverse impact on our business.

In addition to licensing requirements, state regulatory authorities can have a significant impact on the operation
of our business. In Illinois, the IRB has the authority to designate racetracks as “host track” for the purpose of
receiving host track revenue generated during periods when no racetrack is conducting live races. Racetracks that
are designated as “host track” obtain and distribute out of state simulcast signals for the State of Illinois. Under
Illinois law, the “host track” is entitled to a larger portion of commissions on the related pari-mutuel wagering.
Should Arlington cease to be a “host track”, the loss of hosting revenue could have an adverse impact on our
business. Arlington is statutorily entitled to recapture as revenue monies that are otherwise payable to Arlington’s
purse account. These statutorily or regulatory established revenue sources are subject to change every legislative
session, and a reduction or elimination of any of these revenue sources could have an adverse impact on our
business.

We are also subject to a variety of other rules and regulations, including zoning, environmental, construction and
land-use laws and regulations governing the serving of alcoholic beverages. If we are not in compliance with
these laws, it could have a material adverse impact on our business.

Our racing business experiences significant seasonal fluctuations in operating results and a decrease in live
racing days may adversely impact our business

We experience significant fluctuations in quarterly and annual operating results due to seasonality and other
factors. We have a limited number of live racing days at our racetracks, and the number of live racing days varies
from year to year. The number of live racing days may be adversely impacted by factors including inclement
weather, our ability to negotiate certain agreements with industry groups (in particular groups working on behalf
of horsemen), jockey walkouts and other negotiation issues with independent contractors, and contagious equine
disease. The number of live racing days we are able to offer directly affects our results of operations. A
significant decrease in the number of live racing days and/or live races offered during our Kentucky Oaks and
Kentucky Derby week could have a material adverse impact on our business.

Risks Related to Our Casino Business

Our casino business faces significant competition from brick-and-mortar casinos and other gaming and
entertainment alternatives, and we expect competition levels to increase

Our casinos operate in a highly competitive industry with a large number of participants, some of which have
financial and other resources that are greater than our resources. Our casino operations face competition from
Native American casinos, VLTs, state-sponsored lotteries and other forms of legalized gaming in the U.S. and
other jurisdictions. Increased competition in the New York area could provide additional competitive pressure.
We do not enjoy the same access to the gaming public or possess the advertising resources that are available to
state-sponsored lotteries or other competitors which may adversely affect our ability to compete effectively with
them. Legislators in Florida continue to debate the expansion of Florida gaming to include Las Vegas-style
destination resort casinos. Such casinos may be subject to taxation rates lower than the current gaming taxation
structure. Should such legislation be enacted, it could have a material adverse impact on our business.

The gaming industry also faces competition from a variety of sources for discretionary consumer spending
including spectator sports and other entertainment and gaming options. Web-based interactive gaming and
wagering is growing rapidly and affecting competition in our industry as federal regulations on web-based
activities are clarified. We anticipate that competition will continue to grow in the web-based interactive gaming
and wagering channels because of ease of entry and such increased competition may have an adverse impact on
our business.

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Our casino business is highly regulated and changes in the regulatory environment could adversely affect our
business

Our casino operations exist at the discretion of the states where we conduct business, and are subject to extensive
state and local regulation. Like all gaming operators in the jurisdictions in which we operate, we must
periodically apply to renew our gaming licenses or registrations and have the suitability of certain of our
directors, officers and employees approved. While we have obtained all governmental licenses, registrations,
permits and approvals currently necessary for the operation of our gaming facilities, we cannot be certain that we
will be able to obtain such renewals or approvals in the future, or that we will be able to obtain future approvals
that would allow us to expand our gaming operations.

Regulatory authorities also have input into important aspects of our operations, including hours of operation,
location or relocation of a facility, numbers and types of machines and loss limits. Regulators may also levy
substantial fines against or seize our assets or the assets of our subsidiaries or the people involved in violating
gaming laws or regulations. Any of these events could have an adverse impact on our business. The high degree
of regulation in the gaming industry is a significant obstacle to our growth strategy.

The development of new casino venues and the expansion of existing facilities is costly and susceptible to
delays, cost overruns and other uncertainties

We may decide to develop, construct and open hotels, casinos or other gaming venues in response to
opportunities that may arise. Future development projects and acquisitions may require significant capital
commitments, the incurrence of additional debt, the incurrence of contingent liabilities and an increase in
amortization expense related to intangible assets which could have a material adverse impact on our business.

The concentration and evolution of the slot machine manufacturing industry or other technological
conditions could impose additional costs on us

The majority of our gaming revenue is attributable to slot and video poker machines operated by us at our
casinos and wagering facilities. It is important for competitive reasons that we offer the most popular and
up-to-date machine games with the latest technology to our guests. In recent years, the prices of new machines
have escalated faster than the rate of inflation. In recent years, slot machine manufacturers have frequently
refused to sell slot machines featuring the most popular games, instead requiring participating lease arrangements
in order to acquire the machines. Participation slot machine leasing arrangements typically require the payment
of a fixed daily rental. Such agreements may also include a percentage payment of coin-in or net win. Generally,
a participating lease is substantially more expensive over the long term than the cost to purchase a new machine.
For competitive reasons, we may be forced to purchase new slot machines or enter into participating lease
arrangements that are more expensive than the costs associated with the continued operation of our existing slot
machines.

We materially rely on a variety of hardware and software products to maximize revenue and efficiency in our
operations. Technology in the gaming industry is developing rapidly, and we may need to invest substantial
amounts to acquire the most current gaming and hotel technology and equipment in order to remain competitive
in the markets in which we operate. We rely on a limited number of vendors to provide video poker and slot
machines and any loss of our equipment suppliers could impact our operations. Ensuring the successful
implementation and maintenance of any new technology acquired is an additional risk.

Our business may be adversely affected by legislation prohibiting tobacco smoking.

Legislation in various forms to ban indoor tobacco smoking in public places has been enacted or introduced in
many states and local jurisdictions, including in or near jurisdictions in which we operate. The smoking bans and
restrictions have negatively impacted our business in New Orleans, where the New Orleans City Council
unanimously approved an ordinance prohibiting smoking in casinos, bars and restaurants beginning in 2015. The
enactment of similar legislation in other areas where we operate may adversely affect our business.

Risks Related to Our TwinSpires Business

Our mobile and online wagering business is highly regulated and changes in the regulatory environment
could adversely affect our business

TwinSpires.com, our mobile and online wagering business, accepts advance deposit wagers from customers of
certain states who set up and fund an account from which they may place wagers via telephone, mobile device or
through the Internet. The mobile and online wagering business is heavily regulated, and laws governing advance
deposit wagering vary from state to state. Some states have expressly authorized advance deposit wagering by
residents, some states have expressly prohibited pari-mutuel wagering and/or advance deposit wagering and other
states have expressly authorized pari-mutuel wagering but have neither expressly authorized nor expressly
prohibited residents of the state from placing wagers through advance deposit wagering hubs located in different
states. We believe that a mobile and online wagering business may open accounts on behalf of and accept
wagering instructions from residents of states where pari-mutuel wagering is legal and where providing wagering
instructions to advance deposit wagering businesses in other states is not expressly prohibited by statute,
regulations, or other governmental restrictions. However, state attorneys general, regulators, and other law
enforcement officials may interpret state gaming laws, federal statutes, constitutional principles, and doctrines,
and the related regulations in a different manner than we do. In the past, certain state attorneys general and other
law enforcement officials have expressed concern over the legality of interstate advance deposit wagering.

Our expansion opportunities with respect to advance deposit wagering may be limited unless more states amend
their laws or regulations to permit advance deposit wagering. Conversely, if states take affirmative action to
make advance deposit wagering expressly unlawful, this could have a material adverse impact on our business.
Previously existing advance deposit wagering regulations in Illinois expired on December 31, 2012, and we
ceased accepting wagers from Illinois residents in January 2013 until Illinois advance deposit wagering
regulations were extended in June 2013. We ceased accepting wagers from Texas residents in September 2013
due to the enforcement of an existing Texas law prohibiting advance deposit wagering. Regulatory and
legislative processes can be lengthy, costly and uncertain. We may not be successful in lobbying state legislatures
or regulatory bodies to obtain or renew required legislation, licenses, registrations, permits and approvals
necessary to facilitate the operation or expansion of our mobile and online wagering business. From time to time,
the United States Congress has considered legislation that would either inhibit or restrict Internet gambling in
general or inhibit or restrict the use of certain financial instruments, including credit cards, to provide funds for
advance deposit wagering.

Many states have considered and are considering interactive and Internet gaming legislation and regulations
which may inhibit our ability to do business in such states. Anti-gaming conclusions and recommendations of
other governmental or quasi-governmental bodies could form the basis for new laws, regulations, and
enforcement policies that could have a material adverse impact on our business. The extensive regulation by both
state and federal authorities of gaming activities also can be significantly affected by changes in the political
climate and changes in economic and regulatory policies. Such effects could have a material adverse impact to
the success of our advance deposit wagering operations.

Our mobile and online wagering business faces strong competition and we expect competition levels to
increase

Our mobile and online wagering business is sensitive to changes and improvements to technology and new
products and faces strong competition from other web-based interactive gaming and wagering businesses. Our
ability to develop, implement and react to new technology and products for our mobile and online wagering
business is a key factor in our ability to compete with other advance deposit wagering businesses. Some of our
competitors may have greater resources than we do. We anticipate increased competition in our mobile and
online business from various other forms of online gaming.

Our inability to retain our core customer base or our failure to attract new customers could harm our business

We utilize technology and marketing relationships to retain current customers and attract new customers. If we
are unable to retain our core customer base through robust content offerings and other popular features, if we lose

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customers to our competitors, or if we fail to attract new customers, our businesses would fail to grow or would
be adversely affected.

Our mobile and online wagering business is subject to a variety of U.S. and foreign laws, many of which are
unsettled and still developing and which could subject us to claims or otherwise harm our business

We are subject to a variety of laws in the United States and abroad, including laws regarding gaming, consumer
protection and intellectual property that are continuously evolving and developing. The scope and interpretation
of the laws that are or may be applicable to us are often uncertain and may be conflicting. Laws relating to the
liability of providers of online services for activities of users and other third parties are currently being tested by
a number of claims, including actions based on invasion of privacy and other torts, unfair competition, copyright
and trademark infringement, and other theories. It is also likely that as our business grows and evolves we will
become subject to laws and regulations in additional jurisdictions.

If we are not able to comply with these laws or regulations or if we become liable under these or new laws or
regulations, we could be directly harmed, and we may be forced to implement new measures to reduce our
exposure to this liability. This may require us to expend substantial resources or to modify our online services
which could harm our business. The increased attention focused upon liability issues as a result of lawsuits and
legislative proposals could harm our reputation or otherwise impact the growth of our business.

Failure to comply with laws requiring us to block access to certain individuals, based upon geographic
location, may result in legal penalties or impairment to our ability to offer our mobile and online wagering
products, in general

Individuals in jurisdictions in which online real money gaming is illegal may nonetheless seek to engage our
online real money gaming products. While we take steps to block access by individuals in such jurisdictions,
those steps may be unsuccessful. In the event that individuals in jurisdictions in which online real money gaming
is illegal engage our online real money gaming systems, we may be subject to criminal sanctions, regulatory
penalties, the loss of existing or future licenses necessary to offer online real money gaming or other legal
liabilities, any one of which could have a material adverse impact on our businesses. Gambling laws and
regulations in many jurisdictions require gaming industry participants to maintain strict compliance with various
laws and regulations. If we are unsuccessful in blocking access to our online real money gaming products by
individuals in a jurisdiction where such products are illegal, we could lose or be prevented from obtaining a
license necessary to offer online real money gaming in a jurisdiction in which such products are legal.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2.

PROPERTIES

We own the following real property:

•

Arlington International Race Course in Arlington Heights, IL

Oxford Casino in Oxford, ME

Riverwalk Casino in Vicksburg, MS

Calder Casino in Miami Gardens, FL

Fair Grounds Slots and VSI and Fair Grounds Race Course in New Orleans, LA

We lease the following facilities:

•

Churchill Downs Racetrack in Louisville, KY

Arlington—We lease ten OTBs in Illinois.

Fair Grounds—We lease ten OTBs in Louisiana.

•

Harlow’s Casino in Greenville, MS—We lease the land on which the casino is located.

TwinSpires.com and Bloodstock Research Information Services in Lexington, KY

United Tote in Louisville, KY; San Diego, CA and Portland, OR

Corporate and TwinSpires headquarters in Louisville, KY

In 2002, as part of financing improvements to the Churchill facility, we transferred title of the Churchill Downs
facility to the City of Louisville, Kentucky and leased back the facility. Subject to the terms of the lease, we can
re-acquire the facility at any time for $1.00.

LEGAL PROCEEDINGS

ITEM 3.
In addition to the matters described below, we are also involved in ordinary routine litigation matters which are
incidental to our business.

Louisiana Environmental Protection Agency Non-Compliance Issue
On December 6, 2013, we received a notice from the EPA regarding alleged CAFO non-compliance at Fair
Grounds. We are currently in discussions with the EPA regarding potential remedial actions relating to alleged
CAFO non-compliance at Fair Grounds and expect to incur certain capital expenditures to upgrade these facilities
to resolve this issue.

Louisiana Horsemens’ Purses Class Action Suit
On April 21, 2014, John L. Soileau and other individuals filed a Petition for Declaratory Judgment, Permanent
Injunction, and Damages-Class Action styled John L. Soileau, et. al. versus Churchill Downs Louisiana
Horseracing, LLC, Churchill Downs Louisiana Video Poker Company, LLC (Suit No. 14-3873) in the Parish of
Orleans Civil District Court, State of Louisiana (the “District Court”). The petition defined the “alleged plaintiff
class” as quarter-horse owners, trainers and jockeys that have won purses at the “Fair Grounds Race Course &
Slots” facility in New Orleans, Louisiana since the first effective date of La. R.S. 27:438 and specifically since
2008. The petition alleged that Churchill Downs Louisiana Horseracing, L.L.C. and Churchill Downs Louisiana
Video Poker Company, L.L.C. (“Fair Ground Defendants”) have collected certain monies through video draw
poker devices that constitute monies earned for purse supplements and all of those supplemental purse monies
have been paid to thoroughbred horsemen during Fair Grounds’ live thoroughbred horse meets. La. R.S. 27:438
requires a portion of those supplemental purse monies to be paid to quarter-horse horsemen during Fair Grounds’
live quarter-horse meets. The petition requested that the District Court declare that Fair Grounds Defendants
violated La. R.S. 27:438, issue a permanent and mandatory injunction ordering Fair Grounds Defendants to pay
all future supplements due to the plaintiff class pursuant to La. R.S. 27:438, and to pay the plaintiff class such
sums as it finds to reasonably represent the value of the sums due to the plaintiff class. On August 14, 2014, the
plaintiffs filed an amendment to their petition naming the Horsemen’s Benevolent and Protective Association
1993, Inc. (“HBPA”) as an additional defendant and alleging that HBPA is also liable to plaintiffs for the
disputed purse funds. On October 9, 2014, HBPA and Fair Grounds Defendants filed exceptions to the suit,
including an exception of primary jurisdiction seeking referral
to the Louisiana Racing Commission. By
Judgment dated November 21, 2014, the District Court granted the exception of primary jurisdiction and referred
the matter to the Louisiana Racing Commission. On January 26, 2015, the Louisiana Fourth Circuit Court of
Appeals denied the plaintiffs’ request for supervisory review of the Judgment. On August 24, 2015, the Louisiana
Racing Commission ruled that the plaintiffs did not have standing or a right of action to pursue the case. On
September 18, 2015, the plaintiffs filed a Petition for Appeal of Administrative Order Dismissing Case for No
Right of Action in the District Court seeking a reversal of the Louisiana Racing Commission’s ruling. On
July 13, 2016, the plaintiffs filed their brief with the District Court and Fair Grounds Defendants filed its brief on
August 12, 2016. A hearing was held at the District Court on September 15, 2016 and the District Court affirmed
the Louisiana Racing Commission’s ruling. The plaintiffs filed an appeal with the Louisiana Fourth Circuit Court
of Appeals on December 7, 2016. By Order dated August 23, 2017, the Louisiana Fourth Circuit Court of
Appeals dismissed the plaintiffs’ appeal without prejudice because the District Court’s Judgment did not contain
the necessary decretal language. To correct this deficiency, the District Court entered an Amended Judgment on

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September 19, 2017. On December 11, 2017, the plaintiffs appealed the Amended Judgment to the Louisiana
Fourth Circuit Court of Appeals, which has not yet issued a ruling.

Pennsylvania Advance Deposit Wagering Suit

On September 3, 2016, the Company filed a lawsuit in the Commonwealth Court of Pennsylvania styled
Churchill Downs Incorporated and Churchill Downs Technology Initiatives Company v. The Commonwealth of
Pennsylvania, acting by and through the Department of Revenue; Eileen H. McNulty, Secretary of Revenue of
the Commonwealth of Pennsylvania, and her successors in office; Bruce Beemer, Attorney General of the
Commonwealth of Pennsylvania, and his successors in office; The Pennsylvania State Horse Racing
Commission; Corinne Sweeney; Thomas J. Ellis; C. Edward Rogers, Jr.; Russell B. Jones Jr.; Michele C. Ruddy,
Salvatore M. De Bunda, and Russell C. Redding,
in their Official Capacity as Commissioners of the
Pennsylvania State Horse Racing Commission, and their successors in office (Docket No. 476 MD 2016)
challenging the constitutionality of a Pennsylvania law granting each Pennsylvania racetrack a local monopoly
over all wagers placed by telephone or through the Internet by Pennsylvania residents located within a 35-mile
radius of the track, as well as requiring out-of-state advance deposit wagering companies to pay initial and annual
license fees. On October 30, 2017, the Governor of Pennsylvania signed the gaming bill HB 271 into law, which,
among other things, addressed the two issues raised in this lawsuit by removing the 35-mile radius restriction and
reducing the annual license fees. Given gaming bill HB 271 achieved all goals of the lawsuit, the Company filed
a discontinuance to voluntarily terminate the lawsuit on November 6, 2017 and the lawsuit was discontinued on
November 8, 2017.

The Kentucky Horse Racing Commission, et al. v. The Family Trust Foundation of Kentucky, Inc.

In 2010, all Kentucky racetracks and the Kentucky Horse Racing Commission (the “KHRC” and, together with
the Kentucky racetracks, the “Joint Petitioners”) sought a declaration from the Franklin Circuit Court (the
“Court”) that: (i) the KHRC’s historical racing regulations are valid under Kentucky law, and (ii) operating
historical racing machines pursuant to a license issued by KHRC would not run afoul of any criminal gaming
statutes. The Family Trust Foundation of Kentucky, Inc. intervened, and the Court subsequently granted
summary judgment to the Joint Petitioners holding that the KHRC’s historical racing regulations are valid under
Kentucky law. Following an appeal to the Kentucky Court of Appeals, in February 2014 the Supreme Court of
Kentucky affirmed the Court’s decision that the regulations are valid under Kentucky law, but remanded the case
to the Court to determine whether operation of historical racing machines that were licensed during the pendency
of the litigation constitute pari-mutuel wagering. The Court held a trial during the week of January 8, 2018 to
determine whether the games from one of the historical racing machine manufacturers (Encore) are pari-mutuel,
and the Court set a post-trial briefing schedule for the parties. The Court is expected to render a decision during
the second or third quarter of 2018. Although the Court ordered, on August 24, 2017, that this pending litigation
only directly involves the historical racing machine games presently in use, and any future historical racing
machine games proposed by the Company would not be included in the pending case, the ruling could impact
how we design our future games and could affect the underlying economics and technology of historical racing
machines.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER

MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market for Common Stock

Our common stock is traded on the NASDAQ Global Market under the symbol CHDN. As of February 16, 2018,
there were approximately 2,760 shareholders of record.

The following table sets forth the high and low closing sale prices, as reported by the NASDAQ Global Market,
and dividend declaration information for our common stock during the last two years:

Quarter Ended

First Quarter
Second Quarter
Third Quarter
Fourth Quarter

Dividends

2017

2016

High

Low

High

Low

$160.00
$186.05
$208.55
$239.50

$141.00
$154.60
$178.85
$204.25

$148.18
$149.05
$151.48
$157.15

$121.56
$118.76
$121.75
$131.70

Since joining the NASDAQ exchange in 1993, we have declared and paid cash dividends on an annual basis at
the discretion of our Board of Directors. The payment and amount of future dividends will be determined by the
Board of Directors and will depend upon, among other things, our operating results, financial condition, cash
requirements and general business conditions at the time such payment is considered. We declared a dividend of
$1.52 in December 2017, which was paid in January 2018, and we declared a dividend of $1.32 in December of
2016, which was paid in January 2017.

Issuer Purchases of Common Stock

The following table provides information with respect to shares of common stock that we repurchased during the
quarter ended December 31, 2017:

Period

10/1/17-10/31/2017
11/1/17-11/30/2017
12/1/17-12/31/2017

Total

Total Number of
Shares
Purchased

Average Price
Paid Per Share

978
48
41,246

42,272

$
$
$

208.30
213.45
232.70

232.11

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs

Approximate
Dollar Value of
Shares That May
Yet Be Purchased
under the Plans or
Programs
(in millions)(1)

— $
—
—

—

78.3
78.3
78.3

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(1) On April 25, 2017, the Board of Directors of the Company approved a new common stock repurchase
program of up to $250.0 million. The repurchase program has no time limit and may be suspended or
discontinued at any time.

Shareholder Return Performance Graph

The following performance graph and related information shall not be deemed “soliciting material” nor to be
“filed” with the SEC, nor shall such information be incorporated by reference into any future filings under the
Securities Act of 1933 or the Securities Exchange Act of 1934, each as amended, except to the extent we
specifically incorporate it by reference into such filing.

The following graph depicts the cumulative total shareholder return, assuming reinvestment of dividends, for the
periods indicated for our Common Stock compared to the S&P 500 Index and the Russell 2000 Index. We
consider the Russell 2000 Index to be our most comparable industry peer group index.

$400

$350

$300

s
r
a

l
l

o
D

$250

$200

$150

$100

$50

12/31/12

12/31/13

12/31/14

12/31/15

12/31/16

12/31/17

Period Ending

Churchill Downs Inc.

Russell 2000 Index

S&P 500 Index

Churchill Downs Inc.
Russell 2000 Index
S&P 500 Index

12/31/2012

12/31/2013

12/31/2014

12/31/2015

12/31/2016

12/31/2017

$100.00
$100.00
$100.00

$136.26
$138.82
$132.39

$146.35
$145.62
$150.51

$219.00
$139.19
$152.59

$234.87
$168.85
$170.84

$365.63
$193.58
$208.14

ITEM 6.

SELECTED FINANCIAL DATA

(In millions, except per common share data)

2017(a)(b)

2016(b)(c)

2015(b)

2014(b)

2013(d)

Years Ended December 31,

Operations:
Net revenue
Operating income
Income from continuing operations, net of tax
Income (loss) from discontinued operations, net of tax

Net income
Net income from continuing operations per common

Basic
Diluted

Balance sheet data at period end:
Total assets
Total debt
Total liabilities
Shareholders’ equity
Shareholders’ equity per common share
Other Data:
Cash flows from operating activities
Capital maintenance expenditures
Capital project expenditures
Dividends declared per common share
Common stock repurchases

$ 882.6
$ 145.7
$ 122.4
18.1

$ 822.4
$ 798.6
$ 172.5 $ 126.3
70.8
$
(5.6)

96.7
11.4

$ 798.3
$ 103.4
56.9
$
(10.5)

$ 779.0
90.1
$
55.0
$
(0.1)

$ 140.5

$ 108.1

65.2

46.4

54.9

$
$

7.76
7.64

$
$

5.83
5.74

$
$

4.08
4.03

$
$

3.28
3.24

$
$

3.13
3.07

$2,359.4
1,129.2
1,719.1
640.3
$ 41.55

$ 218.2
33.3
83.6
1.52
$
$ 179.5

$2,254.4
921.7
1,569.4
685.0
$ 41.56

$ 226.8
30.9
23.8
1.32
27.6

$
$

$2,277.4
781.8
1,660.2
617.2
$ 37.18

$ 264.5
31.1
12.4
1.15
$
$ 138.1

$2,356.3
764.1
1,656.3
700.0
$ 40.06

$ 141.6
22.7
31.8
1.00
61.6

$
$

$1,352.3
369.2
647.5
704.8
$ 39.27

$ 144.9
16.9
31.8
0.87
$
$ —

The selected financial data presented above is subject to the following information:

(a) 2017 includes a $21.7 million impairment of tangible and intangible assets and a $20.7 million loss on
extinguishment of debt. 2017 also includes a $57.7 million income tax benefit resulting primarily from the
re-measurement of our net deferred tax liabilities as a result of the Tax Act.

(b) Due to the Big Fish Transaction, Big Fish Games is accounted for as discontinued operations from the date

of acquisition on December 16, 2014 through December 31, 2017.

(d) The results from Oxford are included from the date of acquisition on July 17, 2013 through December 31,

2013.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

The following discussion and analysis of our consolidated financial condition and results of operations should be
read in conjunction with our audited consolidated financial statements and related notes included in
“Item 8-Financial Statements and Supplemental Data”.

Our Business
Executive Overview

We are an industry-leading racing, gaming and online entertainment company anchored by our iconic flagship
event—The Kentucky Derby. We are a leader in brick-and-mortar casino gaming with approximately 10,000
gaming positions in eight states, and we are the largest, legal online account wagering platform for horseracing in
the U.S. We were organized as a Kentucky corporation in 1928, and our principal executive offices are located in
Louisville, Kentucky.

On November 29, 2017, the Company entered into the Stock Purchase Agreement to sell its mobile gaming
subsidiary, Big Fish Games to the Purchaser. On January 9, 2018, the Company completed the Big Fish
Transaction. The Purchaser paid an aggregate consideration of $990.0 million in cash in connection with the
Transaction, subject
to customary adjustments for working capital and indebtedness and certain other
adjustments as set forth in the Stock Purchase Agreement. As described in further detail in Part II, Item 8.
Financial Statements and Supplemental Data, the Company has presented Big Fish Games as held for sale and
discontinued operations in the accompanying Consolidated Financial Statements and related notes.

Our management monitors a variety of key indicators to evaluate our business results and financial condition.
These indicators include changes in net revenue, operating expense, operating income, earnings per share,
outstanding debt balance, operating cash flow and capital spend.

Our consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting
principles (“GAAP”). We also use non-GAAP measures, including EBITDA (earnings before interest, taxes,
depreciation and amortization) and Adjusted EBITDA. We believe that the use of Adjusted EBITDA as a key
performance measure of results of operations enables management and investors to evaluate and compare from
period to period our operating performance in a meaningful and consistent manner. Our chief operating decision
maker utilizes Adjusted EBITDA to evaluate segment performance, develop strategy and allocate resources.
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, or more meaningful
than, net income (as determined in accordance with GAAP) as a measure of our operating results.

Effective January 1, 2017, certain revenue previously included in our Corporate segment was deemed by
management to be more closely aligned with our TwinSpires segment. The Company has not allocated corporate
and other certain expenses to Big Fish Games consistent with the discontinued operations presentation in the
accompanying Consolidated Statements of Comprehensive Income. Accordingly, the prior year amounts were
reclassified to conform to this presentation.

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

Adjusted EBITDA includes our portion of the EBITDA from our equity investments.

Adjusted EBITDA excludes:

•

Transaction expense, net which includes:

•

Acquisition and disposition related charges, including fair value adjustments related to earnouts
and deferred payments; and

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

•

Stock-based compensation expense;

•

Asset impairments;

Gain on Calder land sale;

Calder exit costs;

Loss on extinguishment of debt; and

Other charges, recoveries and expenses

For segment reporting, Adjusted EBITDA includes intercompany revenue and expense totals that are eliminated
in the Consolidated Statements of Comprehensive Income. See the Reconciliation of Comprehensive Income to
Adjusted EBITDA included in this section for additional information.

Business Highlights
In 2017, we continued to take steps to position ourselves for sustainable value creation over the long term.

• We delivered growth in revenue and record net income, diluted EPS, and Adjusted EBITDA.

•

Net revenue grew 7.3% to $882.6 million;

Net income grew 30.0% to $140.5 million;

Diluted net income per share grew 36.6% to $8.77; and

Adjusted EBITDA grew 9.6% to $366.5 million.

•

Our Kentucky Derby and Oaks week set all time-records for attendance and all sources handle. We
announced two capital projects during 2017 reflecting our commitment to grow this iconic event, to
expand the Derby capacity and pricing, and to enhance customer experiences.

Our wholly-owned Casino properties delivered strong organic growth from successful marketing and
promotional activities. Our Casino equity investments also had strong performance. On January 3,
2017, we acquired an effective 62.5% equity interest in the casino and racetrack at Ocean Downs in
Maryland.

Our TwinSpires.com handle grew to $1.3 billion, up 16.9% compared to 2016 as we outpaced the
industry growth by 15.3 percentage points. Our TwinSpires.com handle represented 11.8% of all pari-
mutuel industry handle in 2017, up 1.6 percentage points from 2016.

On November 29, 2017, the Company entered into the Stock Purchase Agreement to sell its mobile
gaming subsidiary, Big Fish Games to Aristocrat Technologies, Inc. (the “Purchaser”). On January 9,
2018, the Company completed the Big Fish Transaction and the Purchaser paid the Company an
aggregate consideration of $990.0 million in cash.

• We redeemed our $600.0 million 5.375% Senior Notes due in 2021 and issued $500.0 million 4.75%
Senior Notes due in 2028 in December 2017. In addition, we re-financed our 2014 Senior Secured
Credit Agreement (the “2014 Credit Agreement”) into a new $700.0 million revolving credit facility
(the “Revolver”) and a $400.0 million Senior Secured Term Loan B due 2024 (the “Term Loan B”)
(collectively, the “2017 Credit Agreement”) in December 2017.

• We maintained our focus on cost reductions across all properties and continued to be disciplined in our

maintenance and project capital expenditures.

We accomplished these initiatives while returning approximately $212.4 million to shareholders through
dividends and share repurchases in 2017 and completed $500.0 million of additional share repurchases with a
portion of the proceeds from the Big Transaction on February 12, 2018.

As we look to 2018 and beyond, we remain committed to delivering long-term sustainable growth and strong
financial results for our shareholders. We have strong cash flow and a solid balance sheet that supports organic
growth as well as other strategic acquisitions and investment opportunities that will create additional long-term
value for our shareholders in the coming years.

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Our Operations
We manage our operations through five continuing operations segments: Racing, Casino, TwinSpires, Other
Investments and Corporate. Due to the Big Fish Transaction, our Big Fish Games segment is now included as a
discontinued operation.

Refer to Item 1. Business for more information on our operating segments and a description of our competition
and government regulations and potential legislative changes that affect our business.

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

(in millions)

Net revenue
Operating income
Operating income margin
Net income
Adjusted EBITDA

Years Ended December 31,

2017

2016

2015

‘17 vs. ‘16
Change

‘16 vs. ‘15
Change

$882.6
145.7

$822.4
172.5

$798.6
126.3

$ 60.2
(26.8)

16.5% 21.0% 15.8%

140.5
366.5

108.1
334.5

65.2
302.5

32.4
32.0

$23.8
46.2

42.9
32.0

Year Ended December 31, 2017, Compared to the Year Ended December 31, 2016

•

Our net revenue increased $60.2 million driven by a $34.0 million increase from TwinSpires due to a
34.8% increase in active players and 16.9% increase in handle, a $17.7 million increase from Casino
due to successful marketing and promotional activities, a $6.2 million increase in Racing primarily due
to a strong Kentucky Derby and Oaks week performance, and a $2.3 million increase from Other
Investments.

Our operating income decreased $26.8 million driven by a $23.7 million gain on Calder land sale in
2016 that did not recur in 2017, a $21.7 million impairment of our i-Gaming and intangible assets
associated with TwinSpires and Arlington recorded in the fourth quarter of 2017, a $3.8 million
increase in other expenses primarily due to the elimination of our Bluff contingent liability in 2016 that
did not recur in 2017, a $3.7 million increase in selling, general and administrative expense, and a
$0.2 million increase from other sources. Partially offsetting these decreases were an $11.7 million
increase from our Casino segment performance, a $10.5 million increase at TwinSpires driven by an
increase in active players and handle growth, a $1.7 million decrease in our Calder exit costs, a
$1.4 million increase from Racing and a $1.0 million increase from Other Investments.

Our net income increased $32.4 million due to a $70.6 million decrease in our income tax provision
primarily driven by a $57.7 million provisional benefit recorded in the fourth quarter of 2017 primarily
for the re-measurement of our net deferred tax liabilities associated with the Tax Act signed into law on
December 22, 2017, which reduced the maximum federal corporate income tax rate from 35% to 21%
effective January 1, 2018, an $8.1 million increase in equity in income of unconsolidated investments
due to our acquisition of an effective 62.5% interest in Ocean Downs, a $6.7 million increase in income
from discontinued operations, net of tax related to Big Fish Games, and a $0.1 million increase from
other sources. Partially offsetting these increases were a $26.8 million decrease in operating income, a
$20.7 million loss on extinguishment of debt in 2017, and a $5.6 million increase in interest expense
associated with higher outstanding debt balances.

Our Adjusted EBITDA increased $32.0 million driven by a $20.2 million increase in Casino due to our
unconsolidated investments and organic growth at certain properties, an $8.2 million increase from
TwinSpires due to an increase in active players and increase in handle, a $4.8 million increase from
Racing driven by a strong Kentucky Derby and Oaks week performance, and a $1.0 million increase
from Other Investments. Partially offsetting these increases were a $1.9 million decrease from Big Fish
Games primarily due to an increase in personnel and related benefits expense and a $0.3 million
decrease from Corporate.

Year Ended December 31, 2016, Compared to the Year Ended December 31, 2015

•

Our net revenue increased $23.8 million driven primarily by a $20.5 million increase from TwinSpires
due to a 13.7% increase in handle, a $3.1 million increase in Racing due to a strong Kentucky Derby
and Oaks week performance and a $0.2 million net increase in other sources of revenue.

Our operating income increased $46.2 million driven by a $23.7 million gain on sale of Calder excess
land, an $11.4 million decrease in Calder exit costs, a $9.2 million increase from TwinSpires primarily
from handle growth, a $5.3 million increase in Racing due to a strong Kentucky Derby and Oaks week,
and a $2.3 million benefit associated with the elimination of our Bluff contingent liability in 2016.
Partially offsetting these improvements was a $3.8 million increase in selling, general and
administrative expense, a $1.7 million increase in Corporate expenses, and a $0.2 million decrease
from other sources.

Our net income increased $42.9 million driven by a $46.2 million increase in operating income, a
$17.0 million increase in income from discontinued operations, net of tax related to Big Fish Games, a
$6.2 million increase in income from our equity investments and a $0.5 million increase from other
sources. Partially offsetting these increases were a $15.1 million increase in net interest expense
associated with higher outstanding debt balances, a $6.1 million increase in our income tax provision
primarily from higher operating income from our segments and $5.8 million gain in 2015 from the sale
of our remaining investment
in HRTV LLC, which operated a horse racing television network
(“HRTV”).

Our Adjusted EBITDA increased $32.0 million driven by a $10.9 million increase in Casino as a result
of our MVG and SCH investments, as well as organic growth and operational efficiencies within
certain owned properties, a $10.7 million increase from Big Fish Games driven by the growth in our
casual and mid-core free-to-play games, a $7.9 million increase from Racing primarily associated with
Churchill Downs, and a $6.7 million increase from TwinSpires as a result of handle growth. Partially
offsetting these increases were a $4.0 million increase in Corporate expenses driven primarily by a
non-recurring 2015 benefit associated with our deferred compensation program and a $0.2 million
decline from our Other Investments.

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Financial Results by Segment

Net Revenue by Segment

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

(in millions)

Racing:

Churchill Downs
Arlington
Fair Grounds
Calder

Total Racing

Casino:

Oxford Casino
Calder Casino
Harlow’s Casino
Riverwalk Casino
Fair Grounds Slots
VSI
Saratoga

Total Casino

TwinSpires
Other Investments
Corporate
Eliminations

Net Revenue

Years Ended December 31,

2017

2016

2015

‘17 vs. ‘16
Change

‘16 vs. ‘15
Change

$172.7
63.5
37.9
2.5

$165.2
60.8
39.5
2.6

$158.9
59.5
41.1
2.7

276.6

268.1

262.2

90.8
85.4
50.0
48.2
36.5
38.3
1.3

84.6
79.1
48.4
46.1
36.9
36.9
0.8

80.4
77.4
49.0
49.8
39.0
36.9
0.4

350.5
256.7
23.7
—
(24.9)

332.8
222.9
20.8
—
(22.2)

332.9
202.2
20.1
—
(18.8)

7.5
2.7
(1.6)
(0.1)

8.5

6.2
6.3
1.6
2.1
(0.4)
1.4
0.5

17.7
33.8
2.9
—
(2.7)

6.3
1.3
(1.6)
(0.1)

5.9

4.2
1.7
(0.6)
(3.7)
(2.1)
—
0.4

(0.1)
20.7
0.7
—
(3.4)

$882.6

$822.4

$798.6

60.2

23.8

Year Ended December 31, 2017, Compared to the Year Ended December 31, 2016

•

Racing revenue increased $8.5 million driven by a $7.5 million increase at Churchill Downs primarily
from a successful Kentucky Derby and Oaks week performance and a $2.7 million increase at
Arlington driven by an increase in handle and admissions. Partially offsetting these increases were a
$1.6 million decrease in Fair Grounds revenue primarily due to the impact of a contagious equine
disease outbreak which quarantined horses causing limited field sizes in the first quarter of 2017 and a
$0.1 million decrease from other sources.

Casino revenue increased $17.7 million driven by a $6.3 million increase in Calder, a $6.2 million
increase at Oxford, a $2.1 million increase at Riverwalk, a $1.6 million increase at Harlow’s, a
$1.4 million increase in VSI, and a $0.1 million increase from other sources, all of which resulted from
successful marketing and promotional activities.

TwinSpires revenue increased $33.8 million primarily due to a 34.8% increase in active players and
handle growth of $185.7 million, or 16.9%.

Other Investments revenue increased $2.9 million due to increased equipment sales and higher
totalisator fees from new customers at United Tote.

Eliminations increased $2.7 million driven primarily by higher Churchill Downs intercompany revenue
from increased wagering by TwinSpires customers on Kentucky Derby and Oaks week.

Year Ended December 31, 2016, Compared to the Year Ended December 31, 2015

•

Racing revenue increased $5.9 million due to a $6.3 million increase at Churchill Downs primarily due
to a successful Kentucky Derby and Oaks week and a $1.3 million increase at Arlington due to an

additional 37 host days during 2016 as compared to 2015. Partially offsetting these increases was a
decrease of $1.7 million primarily at Fair Grounds driven by five fewer race days.

Casino revenue decreased $0.1 million due to a $3.7 million decrease at Riverwalk resulting from a
loss of market share within an overall declining market, a $2.1 million decrease at Fair Grounds Slots
as it maintained market share despite a decline in the overall New Orleans gaming market associated
with stronger competition from the Mississippi Gulf Coast gaming market, and a $0.6 million decrease
at Harlow’s due to a declining market which was negatively impacted by adverse weather conditions
during 2016. Partially offsetting these decreases were a $4.2 million increase in Oxford due to
successful promotional activities,
favorable weather conditions and strong local economy, a
$1.7 million increase at Calder Casino due to growth in the overall market as well as successful
marketing and promotional activities, and a $0.4 million increase at Saratoga from a full year of
management fee revenue in 2016.

TwinSpires revenue increased $20.7 million primarily due to a 23.3% increase in active players who
were acquired from marketing efforts primarily during big horse racing events. Handle growth of
$131.8 million, or 13.7%, outpaced the U.S. thoroughbred industry performance by 13.1 percentage
points.

Other Investments revenue increased $0.7 million at United Tote due to incremental international
equipment sales and higher totalisator fees from new customers.

Eliminations increased $3.4 million driven primarily by higher Churchill Downs intercompany revenue
from increased wagering by TwinSpires customers on Kentucky Derby and Oaks week.

•

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Additional Statistical Data by Segment

The following tables provide additional statistical data for our segments:

Racing and TwinSpires(1)

($ in millions)

Racing

Churchill Downs
Race days
Total handle
Net pari-mutuel revenue
Commission %

Arlington

Race days
Total handle
Net pari-mutuel revenue
Commission %

Fair Grounds
Race days
Total handle
Net pari-mutuel revenue
Commission %

Total Racing

Race days
Total handle
Net pari-mutuel revenue
Commission %

TwinSpires

Total handle
Net pari-mutuel revenue
Commission %

Eliminations(2)

Total handle
Net pari-mutuel revenue

Total

Handle
Net pari-mutuel revenue
Commission %

Years Ended December 31,

2017

2016

2015

70
$ 614.9
63.1
$
10.3%

70
$ 593.7
61.5
$
10.4%

70
$ 585.2
60.9
$
10.4%

71
$ 385.3
49.9
$
13.0%

74
$ 375.2
48.2
$
12.8%

77
$ 373.8
46.0
$
12.3%

83
$ 274.5
28.1
$
10.2%

78
$ 289.5
29.3
$
10.1%

83
$ 296.9
30.4
$
10.2%

224
$1,274.7
$ 141.1

222
$1,258.4
$ 139.0

230
$1,255.9
$ 137.3

11.1%

11.0%

10.9%

$1,282.6
$ 234.8

$1,096.9
$ 201.8

$ 965.1
$ 183.6

18.3%

18.4%

19.0%

$ (148.8)
$ (18.8)

$ (128.4)
$ (16.6)

$ (106.0)
$ (14.0)

$2,408.5
$ 357.1

$2,226.9
$ 324.2

$2,115.0
$ 306.9

14.8%

14.6%

14.5%

(1) Total handle and net pari-mutuel revenue generated by Velocity are not included in total handle and net

pari-mutuel revenue from TwinSpires.com.

(2) Eliminations include the elimination of intersegment transactions.

Casino Activity

Certain key operating statistics specific to the gaming industry are included in our statistical data for our Casino
segment. Our slot facilities report slot handle as a volume measurement, defined as the gross amount wagered or
cash and tickets placed into slot machines in the aggregate for the period cited. Net gaming revenue includes slot
and table games revenue and is net of customer freeplay; however, it excludes other ancillary property revenue
such as food and beverage, ATM, hotel and other miscellaneous revenue.

(in millions)

Oxford Casino
Slot handle
Net slot revenue
Net gaming revenue

Riverwalk Casino
Slot handle
Net slot revenue
Net gaming revenue

Harlow’s Casino

Slot handle
Net slot revenue
Net gaming revenue

Calder Casino
Slot handle
Net slot revenue
Net gaming revenue

Fair Grounds Slots and Video Poker

Slot handle
Net slot revenue
Net gaming revenue

Total net gaming revenue

Consolidated Operating Expense

Years Ended December 31,

2017

2016

2015

$ 828.2
68.9
86.3

$ 616.2
41.1
46.0

$ 553.3
43.5
47.3

$1,191.7
81.8
81.7

$ 411.4
35.5
73.6

$ 774.0
64.9
80.4

$ 485.6
38.7
43.7

$ 535.1
42.0
45.7

$1,044.7
75.8
75.7

$ 405.5
35.8
72.5

$ 722.6
62.1
76.5

$ 522.2
42.5
47.2

$ 538.6
42.6
46.4

$ 986.2
74.4
74.3

$ 417.1
38.0
74.7

$ 334.9

$ 318.0

$ 319.1

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

(in millions)

Taxes & purses
Content expense
Salaries & benefits
Selling, general and administrative expense
Depreciation and amortization
Marketing & advertising expense
Impairment of tangible and other intangible assets
Calder land sale
Calder exit costs
Other, net
Other operating expense

Total expense

Percent of revenue

Years Ended December 31,

2017

2016

2015

‘17 vs. ‘16
Change

‘16 vs. ‘15
Change

$197.1
117.8
116.8
83.1
56.0
24.8
21.7

$186.7
103.0
112.0
79.4
58.4
23.1
—
— (23.7)
2.5
0.8
(2.3)
1.5
110.8
117.3

$184.1
95.3
109.9
75.6
58.0
23.0
—
—
13.9
—
112.5

10.4
14.8
4.8
3.7
(2.4)
1.7
21.7
23.7
(1.7)
3.8
6.5

2.6
7.7
2.1
3.8
0.4
0.1
—
(23.7)
(11.4)
(2.3)
(1.7)

$736.9

$649.9

$672.3

87.0

$ (22.4)

83%

79%

84%

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Year Ended December 31, 2017, Compared to the Year Ended December 31, 2016
Significant items affecting comparability of consolidated operating expense include:

•

Taxes and purses increased $10.4 million driven by a $5.2 million increase in taxes for our casinos
associated with an increase in slot handle, a $3.1 million increase in pari-mutuel taxes for TwinSpires
due to the increase in handle and a $2.1 million increase from other sources.

Content expense increased $14.8 million driven by the 34.8% increase in active players and 16.9%
increase in handle growth at TwinSpires.

Salaries and benefits expense increased $4.8 million primarily driven by additional personnel cost and
related benefits.

Selling, general and administrative expense increased $3.7 million driven primarily by a $2.7 million
increase in stock-based compensation expense and $2.5 million from other sources. Partially offsetting
these increases was a $1.5 million decrease associated with 2016 expense from potential federal tax
penalties from untimely submission of informational returns which did not recur in 2017.

Depreciation and amortization expense decreased $2.4 million driven primarily by a decrease at
Harlow’s associated with fully amortized intangible assets.

• Marketing and advertising expense increased $1.7 million driven by increased spend in the TwinSpires

segment associated with an increase in active players and handle growth.

•

Impairment of tangible and intangible assets increased $21.7 million driven by a $13.7 million
non-cash impairment charge related to certain i-Gaming assets, a $4.7 million non-cash impairment
charge related to our Bluff trademark, and a $3.3 million non-cash impairment charge related to our
Illinois Horseracing Equity Trust.

Gain on Calder land sale decreased $23.7 million from the 2016 sale of 61 acres of excess land at
Calder, which represented proceeds of $25.6 million less the book value of $1.9 million.

Calder exit costs decreased $1.7 million driven by lower costs associated with the grandstand
demolition.

Other, net increased $3.8 million driven by a $2.3 million benefit recognized in 2016 related to the
elimination of a contingent liability established in 2012 for the acquisition of Bluff and a $1.5 million
increase relating to our acquisition of BetAmerica in April 2017.

Other operating expense includes utilities, maintenance, food and beverage costs, property taxes and
insurance and other operating expense. Other operating expense increased $6.5 million primarily
driven by a $2.2 million increase in TwinSpires processing expense related to handle growth, a
$1.6 million increase in insurance and property taxes, a $0.7 million increase in utilities, and a
$2.0 million increase related to other expenses.

Year Ended December 31, 2016, Compared to the Year Ended December 31, 2015
Significant items affecting comparability of consolidated operating expense include:

•

Taxes and purses increased $2.6 million due to a $1.1 million increase in casino gaming taxes as a
result of casino revenue growth at Oxford, a $0.9 million increase in purses primarily associated with
37 additional host days at Arlington and a $0.6 million increase in pari-mutuel taxes primarily related
to TwinSpires.

Content expense increased $7.7 million due to a $7.1 million increase in third-party pari-mutuel
content fees at TwinSpires associated with an increase in handle and a $0.6 million increase in other
expense.

Salaries and benefits expense increased $2.1 million primarily due to a $1.6 million increase in contract
services related to Churchill Downs and a $0.5 million increase from other sources.

•

Selling, general and administrative expense increased $3.8 million primarily due to a $1.5 million
expense within our Casino segment arising from potential tax penalties associated with the untimely
submission of certain informational tax returns, a $0.8 million increase in stock-based compensation
expense, a $0.6 million increase in professional fees, and an increase of $0.9 million in employee
benefits for severance.

Gain on Calder land sale increased $23.7 million from the sale of 61 acres of excess land at Calder,
which represents proceeds of $25.6 million less the book value $1.9 million.

Calder exit costs decreased $11.4 million due to the 2015 non-cash impairment of $12.7 million to
reduce the net book value of Calder’s grandstand and ancillary facilities to zero, partially offset by an
increase in ongoing grandstand demolition costs of $1.3 million during 2016 compared to 2015.

Other, net decreased $2.3 million due to a benefit recognized in 2016 related to the elimination of a
contingent liability established in 2012 for the acquisition of Bluff.

Other operating expense decreased $1.7 million in 2016. Other operating expense includes utilities,
maintenance, food and beverage costs, property taxes and insurance and other operating expense. The
decrease in other operating expenses was driven by a $4.0 million decrease in our insurance and
property primarily from the cessation of pari-mutuel racing and demolition of property at Calder and
$0.1 million decrease from other sources. Partially offsetting the decrease was a $1.7 million increase
in corporate deferred compensation expense and a $0.7 million increase in TwinSpires third party
processing expense related to handle growth.

Corporate Allocated Expense

The table below presents Corporate allocated expense included in the Adjusted EBITDA of each of the operating
segments, excluding corporate stock-based compensation:

(in millions)

Racing
Casino
TwinSpires
Other Investments
Corporate allocated expense

Years Ended December 31,

2017

2016

2015

‘17 vs. ‘16
Change

‘16 vs. ‘15
Change

(6.1)
(7.5)
(5.5)
(1.5)
20.6

(6.0)
(6.9)
(5.4)
(1.6)
19.9

(6.6)
(8.4)
(5.0)
(0.5)
20.5

(0.1) $
(0.6)
(0.1)
0.1
0.7

0.6
1.5
(0.4)
(1.1)
(0.6)

Total Corporate allocated expense

$ — $ — $ — $ — $ —

Adjusted EBITDA

We believe that the use of Adjusted EBITDA as a key performance measure of the results of operations enables
management and investors to evaluate and compare from period to period our operating performance in a
meaningful and consistent manner. 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, or more meaningful than, net income (as determined in accordance with GAAP) as a measure of our operating
results.

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Effective January 1, 2017, certain revenue previously included in our Corporate segment was deemed by
management to be more closely aligned with our TwinSpires segment. Due to the Big Fish Transaction, the
Company has presented Big Fish Games as held for sale and discontinued operations in the accompanying
Consolidated Financial Statements and related notes. The Company has not allocated corporate and other certain
expenses to Big Fish Games consistent with the discontinued operations presentation in the accompanying
Consolidated Statements of Comprehensive Income. Accordingly, the prior year amounts were reclassified to
conform to this presentation.

(in millions)

Racing
Casino
TwinSpires
Other Investments
Corporate(a)

Adjusted EBITDA from continuing operations

Big Fish Games

Adjusted EBITDA

Year Ended December 31,

2017

2016

2015

‘17 vs. ‘16
Change

‘16 vs. ‘15
Change

84.5
146.0
64.4
3.7
(12.4)

286.2
80.3

79.7
125.8
56.2
2.7
(12.1)

252.3
82.2

71.8
114.9
49.5
2.9
(8.1)

231.0
71.5

4.8
20.2
8.2
1.0
(0.3)

33.9
(1.9)

$ 366.5

$ 334.5

$ 302.5

32.0

7.9
10.9
6.7
(0.2)
(4.0)

21.3
10.7

32.0

(a) The Corporate segment includes corporate and other certain expenses of $3.6 million in 2017, $3.1 million
in 2016 and $3.0 million in 2015 that have not been allocated to Big Fish Games as a result of the Big Fish
Transaction and the Big Fish Games segment reported as held for sale and discontinued operations in the
accompanying Consolidated Financial Statements and related notes.

Year Ended December 31, 2017, Compared to the Year Ended December 31, 2016

•

Racing Adjusted EBITDA increased $4.8 million due to a $4.5 million increase at Churchill Downs
primarily from a successful Kentucky Derby and Oaks week performance and a $1.7 million increase
at Arlington driven by increased handle and admissions. Partially offsetting these increases were a
$0.7 million decrease at Fair Grounds primarily from a contagious equine disease which quarantined
horses causing limited fields and remediation expenses and a $0.7 million decrease from Calder due to
increased expenses.

Casino Adjusted EBITDA increased $20.2 million driven by a $5.1 million increase from our wholly-
owned properties, including a $2.1 million increase at our Mississippi properties, a $1.9 million
increase at Oxford, and a $1.3 million increase at Calder, all of which resulted from successful
marketing and promotional activities, partially offset by a $0.2 million decrease from all other wholly-
owned properties combined. Also contributing to the increase was a $15.1 million increase in our
equity investments, which was partially attributable to the addition of Ocean Downs in January 2017.

TwinSpires Adjusted EBITDA increased $8.2 million driven by the 34.8% increase in active players
and handle growth of 16.9%.

Other Investments increased $1.0 million driven primarily by incremental international equipment sales
and higher totalisator fees from new customers of United Tote.

Big Fish Games Adjusted EBITDA decreased $1.9 million driven by an $8.0 million decrease in
revenue less platform and developments fees and a $5.3 million increase in expense related to
increased headcount and associated benefits and bonuses. These decreases were partially offset by an
$11.4 million decrease in user acquisition spending.

Year Ended December 31, 2016, Compared to the Year Ended December 31, 2015

•

Racing Adjusted EBITDA increased $7.9 million due to a $5.2 million increase at Churchill Downs in
profitability from the Kentucky Derby and Oaks week driven by increased ticket sales revenue,

increased media revenue and record attendance, a $1.8 million increase at Calder from reduced
property taxes and insurance savings from the cessation of pari-mutuel operations, a $0.8 million
increase at Arlington on higher pari-mutuel revenue associated with 37 additional host days during
2016, a $0.8 million increase at Churchill Downs from non-Kentucky Derby and Oaks week handle
increases during the racing meets and a $0.6 million increase from a decrease in corporate allocated
expense. Partially offsetting these improvements was a $1.3 million decrease at Fair Grounds from a
decline in revenue associated with five fewer live race days in 2016 and unfavorable development of
general liability insurance claims.

Casino Adjusted EBITDA increased $10.9 million driven by a $5.1 million increase at Saratoga from a
full year of management fee revenue and equity income, a $3.3 million increase at MVG from higher
equity income driven primarily by market share growth and higher net revenue from successful
promotional activities, a $2.7 million increase at Oxford from a strong regional gaming market and
higher market share combined with operational expense efficiencies, a $1.7 million increase at Calder
from the implementation of successful marketing and promotional campaigns and a $1.4 million
decrease in corporate expense allocated to the Casino segment. Partially offsetting these improvements
was a $2.0 million decrease at our Mississippi properties due to overall market revenue declines and
aggressive local promotional activity and a $1.3 million decrease at Fair Grounds Slots and VSI as
strong competition from the Mississippi Gulf Coast gaming market negatively impacted the New
Orleans gaming market.

TwinSpires Adjusted EBITDA increased $6.7 million driven by a $7.3 million favorable impact of
increased wagering, net of content costs, associated with handle growth of 13.7% and a 23.3% increase
in active players, a $1.0 million increase at Velocity driven by handle growth of 7.2% and a
$0.5 million increase in other TwinSpires income. These increases were partially offset by a
$0.6 million increase in net taxes and purses, which included the benefit of a $1.7 million Pennsylvania
tax refund in 2016, and a $1.5 million increase in marketing and advertising costs primarily associated
with the addition and retention of customers acquired during Kentucky Derby and Oaks week.

Corporate Adjusted EBITDA decreased $4.0 million driven by a $1.3 million benefit in 2015 related to
deferred compensation expense which did not recur in 2016, a $0.9 million increase in salary expense,
a $0.9 million increase in professional expense, a $0.6 million decrease in expenses allocated to the
other operating segments, and a $0.3 million increase in expenses from other sources.

Big Fish Games Adjusted EBITDA increased $10.7 million driven by a $72.5 million increase in
revenue primarily from our casual and mid-core free-to-play growth, partially offset by a $36.3 million
increase in platform and developer fees, a $20.2 million increase in user acquisition fees and a
$5.3 million increase in other expenses.

•

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Reconciliation of Comprehensive Income to Adjusted EBITDA

Years Ended December 31,

2017

2016

2015

‘17 vs. ‘16
Change

‘16 vs. ‘15
Change

(in millions)

Comprehensive income
Foreign currency translation, net of tax
Net change in pension benefits, net of tax

Net income
Additions—continuing operations:
Depreciation and amortization
Interest expense
Loss on extinguishment of debt
Income tax (benefit) provision

Additions—discontinued operations:

Depreciation and amortization
Income tax provision

$ 140.4
0.1
—

$ 107.5
(0.2)
0.8

140.5

108.1

56.0
49.3
20.7
(19.9)

41.1
5.1

58.4
43.7
—
50.7

50.2
9.3

64.7
0.5
—

65.2

58.0
28.6
—
44.6

51.7
2.3

EBITDA

292.8

320.4

250.4

Adjustments to EBITDA—continuing operations:

Selling, general and administrative:

Stock-based compensation expense
Other charges
Other income, expense:

Interest, depreciation and amortization expense

related to equity investments
Other charges and recoveries, net

Impairment of tangible and other intangible assets
Gain on Calder land sale
Calder exit costs
Other, net

Adjustments to EBITDA—discontinued operations:

Stock-based compensation expense
Transaction expense, net

Total adjustments to EBITDA

16.0
1.2

16.7
—
21.7
—
0.8
1.5

11.1
4.7

73.7

13.3
2.5

12.5
—

10.0
0.5
—
(23.7)
2.5
(2.4)

5.6
5.8

14.1

8.5
(5.8)
—
—
13.9
—

1.3
21.7

52.1

32.9
0.3
(0.8)

32.4

(2.4)
5.6
20.7
(70.6)
—
(9.1)
(4.2)

(27.6)

2.7
(1.3)

6.7
(0.5)
21.7
23.7
(1.7)
3.9

5.5
(1.1)

59.6

42.8
(0.7)
0.8

42.9

0.4
15.1
—
6.1
—
(1.5)
7.0

70.0

0.8
2.5

1.5
6.3
—
(23.7)
(11.4)
(2.4)

4.3
(15.9)

(38.0)

Adjusted EBITDA

$ 366.5

$ 334.5

$ 302.5

32.0

Consolidated Balance Sheet

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

(in millions)

Total assets
Total liabilities
Total shareholders’ equity

Years Ended December 31,

2017

2016

$ 2,359.4
1,719.1
640.3

$ 2,254.4
1,569.4
685.0

‘17 vs. ‘16
Change

$ 105.0
149.7
(44.7)

•

Total assets increased $105.0 million driven by a $47.4 million increase in property and equipment, net
due to our capital project and maintenance expenditures partially offset by depreciation expense, a
$32.2 million increase in investments in unconsolidated affiliates primarily due to the acquired interest
of Ocean Downs, a $28.0 million increase in income tax receivable related to estimated payments in
2017, and a $16.1 million increase in goodwill due to the acquisition of BetAmerica. Partially
offsetting these increases were a $13.6 million decrease in escrow receivable related to the Calder land
sale from the fourth quarter of 2016 and a $5.1 million decrease in all other assets.

•

Total liabilities increased $149.7 million driven by a $207.5 million increase in long-term debt
primarily due to share repurchases, a $11.5 million increase in deferred revenue primarily due to
advance sales revenue associated with the 2018 Kentucky Derby and Oaks, a $4.6 million increase in
accounts payable primarily due to simulcast payables, and a $5.6 million increase in all other liabilities.
Partially offsetting these increases were a $35.5 million decrease in non-current
liabilities of
discontinued operations held for sell primarily due to a decrease in deferred income tax associated with
the Tax Act, a $24.6 million decrease in deferred income tax primarily due to the Tax Act and a
$19.4 million decrease in current liabilities of discontinued operations held for sell primarily due to a
decrease in the Big Fish Games earnout liability.

Total shareholders’ equity decreased $44.7 million driven by $190.9 million in repurchases of common
stock and $23.6 million from our annual dividend declared. Partially offsetting these decreases were
$140.5 million in current year net income, $27.1 million in stock-based compensation, $2.1 million in
issuance of common stock, and a $0.1 million change in other equity components.

Liquidity and Capital Resources

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

(in millions)

Cash Flows from:

Operating activities
Investing activities
Financing activities

Year Ended December 31,

2017

2016

2015

‘17 vs. ‘16
Change

‘16 vs. ‘15
Change

$ 218.2
(153.6)
(59.5)

$ 226.8
(50.7)
(201.9)

$ 264.5
(65.5)
(190.6)

(8.6)
$
(102.9)
142.4

$(37.7)
14.8
(11.3)

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.

Year Ended December 31, 2017, Compared to the Year Ended December 31, 2016

•

Cash provided by operating activities decreased $8.6 million driven by a $28.0 million increase to
income tax receivable related to estimated payments in 2017, a $15.1 million increase in accounts
receivable primarily driven by Big Fish Games platform fees and a $6.3 million increase in other
operating activities. Partially offsetting these decreases were a $23.5 million decrease in gain on sale of
assets from the Calder land sale in 2016 and a $17.3 million decrease in Big Fish Games earnout
payments. 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 increased $102.9 million driven by $59.8 million in higher capital
project expenditures primarily related to projects at Churchill Downs and the hotel at Oxford, a
$16.0 million increase in equity investment due to Ocean Downs, a $24.2 million increase for the
acquisition of BetAmerica, and a $2.9 million increase from other investing activities.

Cash used in financing activities decreased $142.4 million primarily driven by a $230.1 million
reduction in the Big Fish Games earnout payment, a $75.9 million increase in net borrowings and
repayments under long-term debt obligations, and a $26.4 million increase as a result of the 2016 Big
Fish Games deferred payment. Partially offsetting these decreases were a $151.9 million increase in
stock repurchases, a $16.1 increase related to the call premium on the redemption of our 2021 Senior
Notes, a $13.0 million increase in debt issuance costs, and a $9.0 million increase from other financing
activities.

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Year Ended December 31, 2016, Compared to the Year Ended December 31, 2015

•

Cash provided by operating activities decreased $37.7 million driven by a $39.6 million decrease in the
change in deferred revenue associated with Big Fish Games which benefited 2015, and a $19.7 million
decrease in the fair value of the Big Fish Games earnout payment in related to 2015 earnout milestones.
Partially offsetting these decreases were a $19.2 million increase in Kentucky Derby and Oaks deferred
revenue related primarily to the timing of advanced ticket sales for the 2017 events and $2.4 million
increase in other cash flows.

Cash used in investing activities decreased $14.8 million driven by the $12.0 million in net proceeds
from the Calder land sale and the $24.5 million prior year SCH payment for the 25% equity investment
for Saratoga’s New York facility. Partially offsetting these decreases were an $11.4 million increase in
capital project expenditures primarily related to Churchill Downs, $6.0 million of prior year proceeds
related to the sale of our remaining investment in HRTV and a $4.3 million increase in all other
investing activities.

Cash used in financing activities increased $11.3 million driven by $300.0 million associated with our
2015 tack-on unsecured notes offering and a $261.9 outflow in 2016 related to the payment of the Big
Fish Games earnout liability. Partially offsetting these increases were a $420.3 million change in net
repayments under our 2014 Credit Agreement, $108.6 million less in common stock repurchase activity
and $21.7 million in other financing activities.

Credit Facilities and Indebtedness

The following table presents our debt outstanding, bond premium and debt issuance costs:

(in millions)

2017 Credit Agreement:

Term Loan B due 2024
Revolving Credit Facility
Swing line of credit

Total 2017 Credit Agreement

2014 Credit Agreement:

Senior Secured Credit Facility due 2021
Term Loan A due 2021
Swing line of credit

Total Senior Secured Credit Facility

2028 Senior Notes
2021 Senior Notes

Total debt

Current maturities of long-term debt

Total debt, net of current maturities

Bond premium and debt issuance costs, net

Net debt

2017 Credit Agreement

Years Ended
December 31,

2017

2016

‘17 vs.
‘16
Change

$ 400.0
239.0
3.0

$ — $ 400.0
— 239.0
3.0
—

642.0

— 642.0

— 135.0
— 179.3
13.2
—

(135.0)
(179.3)
(13.2)

— 327.5

500.0

— 600.0

(327.5)
— 500.0
(600.0)

1,142.0
4.0

1,138.0
(12.8)

927.5
14.2

913.3
(5.8)

214.5
(10.2)

224.7
(7.0)

$1,125.2

$907.5

$ 217.7

On December 27, 2017, we entered into the 2017 Credit Agreement with a syndicate of lenders. The 2017 Credit
Agreement replaced the 2014 Credit Agreement. The 2017 Credit Agreement provides for the Revolver and
Term Loan B. Included in the maximum borrowing of $700.0 million under the Revolver is 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 2017 Credit Amendment is secured by substantially all assets of the Company.

The Revolver bears interest at LIBOR plus a spread as determined by the Company’s consolidated total net
leverage ratio and the Term Loan B bears interest at LIBOR plus 200 basis points.

The 2017 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 2017
Credit Agreement also contains financial covenants providing for maintenance of a maximum consolidated
secured net leverage ratio and maintenance of a minimum consolidated interest coverage ratio. The Company
was in compliance with all applicable covenants in the 2017 Credit Agreement at December 31, 2017. At
December 31, 2017, the financial ratios under our 2017 Credit Agreement were as follows:

Interest coverage ratio
Consolidated total secured net leverage ratio

Actual

Requirement

6.8 to 1.0 > 2.5 to 1.0
1.8 to 1.0 < 4.0 to 1.0

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 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 December 31, 2017, the Company’s commitment fee rate was 0.25%.

As a result of the Company’s 2017 Credit Agreement, the Company capitalized $1.6 million of debt issuance
costs associated with the Revolver which will be amortized as interest expense over the next 5 years. The
Company also capitalized $5.1 million of deferred financing costs associated with the Term Loan B which will
be amortized as interest expense over the next 7 years.

2014 Credit Agreement

The Company used the proceeds from the 2017 Credit Agreement to repay in full and terminate the 2014 Credit
Agreement. The 2014 Credit Agreement provided for a maximum aggregate commitment of $500.0 million,
consisting of a Senior Secured Credit Facility and Term Loan A. In conjunction with the repayment of all
outstanding borrowings under the 2014 Credit Agreement, the Company expensed approximately $0.4 million of
debt issuance costs relating to the Term Loan A in the fourth quarter of 2017, which is included in loss on
extinguishment of debt in the accompanying Consolidated Statements of Comprehensive Income.

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 “2028 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 2028 Senior Notes were issued at par, with interest payable on January 15th and July 15th
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 2028
Senior Notes.

The 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 “Guarantors”), and U.S Bank
National Association, as trustee. The Company may redeem some or all of the 2028 Senior Notes at any time
prior to January 15, 2023, at a price equal to 100% of the principal amount of the 2028 Senior Notes redeemed
plus an applicable make-whole premium. On or after such date the Company may redeem some or all of the 2028
Senior Notes at redemption prices set forth in the 2028 Indenture. In addition, at any time prior to January 15,
2021, the Company may redeem up to 40% of the aggregate principal amount of the 2028 Senior Notes at a
redemption price equal to 104.75% of the principal amount thereof with the net cash proceeds of one or more
equity offerings provided that certain conditions are met. The terms of the 2028 Indenture, among other things,

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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) and enter into transactions with affiliates.

In connection with the issuance of the 2028 Senior Notes, the Company and the 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 December 27, 2017.

2021 Senior Notes

The 2021 Senior Notes were comprised of 5.375% Senior Unsecured Notes that mature on December 15, 2021,
which were issued in an initial offering of $300.0 million in aggregate principal amount at par, completed on
December 16, 2013, and an additional offering of $300.0 million in aggregate principal amount at 101%,
completed on December 16, 2015. Interest on the 2021 Senior Notes was payable on June 15th and December
15th of each year.

The Company used the proceeds from the 2017 Credit Agreement and the 2028 Senior Notes to refinance the
2021 Senior Notes and to pay related fees and expenses. The 2021 Senior Notes were redeemed at a price equal
to the principal amount thereof and the applicable “make-whole” premium, $16.1 million, which is included in
loss on extinguishment of debt in the accompanying Consolidated Statements of Comprehensive Income. In
conjunction with the redemption of the 2021 Senior Notes, the Company wrote off $6.3 million of deferred
financing costs and incurred a benefit of $2.0 million related to the bond premium, both of which are included in
loss on extinguishment of debt in the accompanying Consolidated Statements of Comprehensive Income.

Contractual Obligations

Our commitments to make future payments as of December 31, 2017, are estimated as follows:

(in millions)

2018

2019-2020

2021-2022 Thereafter

Total

Dividends
Big Fish Games earnout
Big Fish Games deferred payment
Revolving Credit Facility
Interest on Revolving Credit Facility(1)
Term Loan B
Interest on Term Loan B(1)
Senior Unsecured Notes
Interest on 2028 Senior Notes
Operating leases

$ 23.7
34.2
28.4
—
8.5
4.0
14.4
—
24.0
5.2

$ — $ — $

—
—
—
17.0
8.0
28.4
—
47.5
8.1

—
—
242.0
16.9
8.0
27.8
—
47.5
5.3

— $
—
—
—
—
380.0
124.6
500.0
119.7
3.2

23.7
34.2
28.4
242.0
42.4
400.0
195.2
500.0
238.7
21.8

Total

$142.4

$109.0

$347.5

$1,127.5

$1,726.4

(1)

Interest includes the estimated contractual payments under our Senior Secured Credit Facility assuming no
change in the weighted average borrowing rate of 3.47%, which was the rate in place as of December 31,
2017.

As of December 31, 2017, we had approximately $2.9 million of unrecognized tax benefits. As of December 31,
2017, the fair value of the Big Fish Games earnout liability is $34.2 million and the fair value of the Big Fish
Games deferred payment to the founders was $28.4 million, both of which were paid on January 3, 2018.

Our Critical Accounting Policies

Our financial statements have been prepared in conformity with GAAP and are based upon certain critical
accounting policies. These policies may require management to make estimates, judgments and assumptions that
we believe are reasonable based on our historical experience, contract terms, observance of known trends in our
Company and the industry as a whole and information available from other outside sources. Our estimates affect

the reported amounts of assets and liabilities and related disclosures of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual
results may differ from those initial estimates.

Our critical accounting policies are:

•

revenue recognition;

goodwill and indefinite intangible assets; and

property and equipment.

Our significant accounting policies and recently adopted accounting policies are more fully described in Note 2
to the Notes to Consolidated Financial Statements included in Item 8. Financial Statements and Supplemental
Data of this Annual Report on Form 10-K.

Revenue recognition
Racing and TwinSpires
Racing and TwinSpires revenue is generated by pari-mutuel wagering on live and simulcast racing content.
Additionally, we generate revenue through sponsorships, admissions, television rights, concessions, programs
and parking.

Our Racing and TwinSpires revenue and income are influenced by our racing calendar. Therefore, revenue and
operating results for any interim quarter are not generally indicative of the revenue and operating results for the
year and may not be comparable with results for the corresponding period of the previous year. We historically
have had fewer live racing days during the first quarter of each year, and the majority of our live racing revenue
occurs during the second quarter with the running of the Kentucky Oaks and Kentucky Derby.

Pari-mutuel revenue is recognized upon occurrence of the live race that is presented for wagering and after that
live race is made official by the respective state’s racing regulatory body. Other operating revenue such as
sponsorships, admissions, television rights, concessions, programs and parking revenue are recognized once
delivery of the product or service has occurred.

Live racing handle includes patron wagers made on live races at our racetracks and also wagers made on
imported simulcast signals by patrons at our racetracks during live meets. Import simulcasting handle includes
wagers on imported signals at our racetracks when the respective tracks are not conducting live racing meets, at
our OTBs and through our advance deposit wagering providers throughout the year. Export handle includes all
patron wagers made on live racing signals sent to other tracks, OTBs and advance deposit wagering providers.
Advance deposit wagering consists of patron wagers through an advance deposit account. We retain as revenue a
pre-determined percentage or commission on the total amount wagered, and the balance is distributed to the
winning patrons.

Casino
Casino revenue represents net casino wins, which is the difference between casino wins and losses. Other
operating revenue, such as concession revenue, is recognized once delivery of the product or service has
occurred.

Big Fish Games
Our Big Fish Games segment, which we sold in the Big Fish Transaction on January 9, 2018, derives its revenue
from the sale of in-app purchases within our free-to-play games and sales of our premium paid games. We offer
social casino and casual and mid-core free-to-play games that customers can play at no cost. Customers can
purchase virtual currency that can be used to buy virtual items to enhance the game playing experience. These
games are distributed primarily through third party mobile platform providers, including but not limited to, Apple
and Google.

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the user is fixed or determinable and collectability is reasonably assured. Determining whether and when some of
these criteria have been satisfied requires judgments that may have a significant impact on the timing and amount
of revenue we report in each period. For the purpose of determining when the service has been provided to the
player, we have determined that an implied obligation exists to the paying user to continue to make available the
purchased virtual goods within the game over the estimated life of the virtual goods. For casino games, the life of
the virtual goods is estimated to be the time period over which virtual goods are consumed, approximating three
days. For all other casual games, the average playing period of paying players of approximately four months
represents our best estimate of the average life of virtual goods. The proceeds from the sale of virtual goods are
recorded as deferred revenue and recognized as revenue over the estimated life of the virtual goods.

Premium game revenue is derived from our PC subscription business, the Big Fish Game Club, and from the sale
of individual games on PC, Mac and mobile devices. Subscribers receive a game credit each month with
subscription. The value of the game credit is recognized when a customer redeems the game credit.

We record breakage revenue related to outstanding premium game credits. For credits that are subject to
expiration, breakage revenue is recorded when the credits have legally expired. Breakage revenue is recorded for
game credits with no legal expiration when we have determined the likelihood of redemption is remote based on
historical game credit redemption patterns.

We estimate revenue from digital storefronts, such as Apple and Google, in the current period when reasonable
estimates of these amounts can be made. The digital storefronts provide reliable interim preliminary sale
reporting data within a reasonable time frame following the end of each month which, when validated against our
internal data, allows us to make reasonable estimates of revenue and therefore to recognize revenue during the
reporting period. Determination of the appropriate amount of revenue recognized involves judgments and
estimates that we believe are reasonable, but it is possible that actual results may differ from our estimates. When
we receive the final reports, to the extent not received within a reasonable time frame following the end of each
month, we record any differences between estimated revenue and actual revenue in the reporting period when we
determine the actual amounts. Historically, the revenue on the final revenue report has not differed significantly
from the reported revenue for the period.

We evaluate our digital storefront agreements in order to determine whether or not we are acting as the principal
or as an agent when selling our games which we consider in determining if revenue should be reported gross or
net. We primarily use digital storefronts for distributing our social casino and casual free-to-play games. Key
indicators that we evaluate in order to reach this determination include:

•

the terms and conditions of our contracts with the digital storefronts;

the party responsible for billing and collecting fees from the end-users, including the resolution of
billing disputes;

whether we are paid a fixed percentage of the arrangement’s consideration or a fixed fee for each
game;

whether the party which sets the pricing with the end-user has the credit risk and provides customer
support; and

the party responsible for the fulfillment of the game and that determines the specifications of the game.

Based on the evaluation of the above indicators, we have determined that we are generally acting as a principal
and are the primary obligor to end-users for games distributed through digital storefronts; therefore, we recognize
revenue related to these arrangements on a gross basis.

Goodwill and indefinite intangible assets
We perform an annual review for impairment of goodwill and indefinite-lived intangible assets each fiscal year,
or more frequently if events or changes in circumstances indicate that the carrying value may not be recoverable.
Adverse industry or economic trends, lower projections of profitability, or a sustained decline in our market
capitalization, among other items, may be indications of potential impairment issues which are triggering events
requiring the testing of an asset’s carrying value for recoverability.

Goodwill and intangible assets can or may be required to be tested using a two-step impairment test. Evaluations
of possible impairment utilizing the two-step approach require us to estimate, among other factors, forecasts of
future operating results, revenue growth, EBITDA margin, tax rates, capital expenditures, depreciation, working
capital, weighted average cost of capital, long-term growth rates, risk premiums, terminal values and fair market
values of our reporting units and assets. The goodwill impairment test is subject to uncertainties arising from
such events as changes in competitive conditions, the current general economic environment, material changes in
growth rate assumptions that could positively or negatively impact anticipated future operating conditions and
cash flows, changes in the discount rate and the impact of strategic decisions. If any of these factors were to
materially change, such change may require a reevaluation of our goodwill. Changes in estimates or the
application of alternative assumptions could produce significantly different results.

Our slots gaming rights and casinos’ trade names are considered indefinite-lived intangible assets that do not
require amortization based on our future expectations to operate our gaming facilities and use the trade names
indefinitely, and our historical experience in renewing these intangible assets at minimal cost with various state
gaming commissions. These indefinite intangible assets are tested annually, or more frequently, if indicators of
impairment exist, by comparing the fair value of the recorded assets to the carrying amount. If the carrying
amount of the slots gaming rights and trade name intangible assets exceed fair value, an impairment loss is
recognized.

Property and equipment

We have a significant investment in long-lived property and equipment. Property and equipment are recorded at
cost. Judgments are made in determining the estimated useful lives of assets, the salvage values to be assigned to
assets and if or when an asset has been impaired. The accuracy of these estimates affects the amount of
depreciation expense recognized in the financial results and whether to record a gain or loss on disposition of an
asset.

We review the carrying value of our property and equipment used in our operations whenever events or
circumstances indicate that the carrying value of an asset may not be recoverable from estimated future
undiscounted cash flows expected to result from its use and eventual disposition. Adverse industry or economic
trends, lower projections of profitability, or a significant adverse change in legal factors or in the business
climate, among other items, may be indications of potential impairment issues. If the undiscounted cash flows
exceed the carrying value, no impairment is indicated. If the undiscounted cash flows do not exceed the carrying
value, an impairment is recorded based on the fair value of the asset.

There are three generally accepted approaches available in developing an opinion of value: 1) the cost approach,
which is the price a prudent investor would pay to produce or construct a similar new item; 2) the market
approach, which is typically used for land valuations by analyzing recent sales transactions of similar sites; and
3) the income approach, which is based on a discounted cash flow model using the estimated future results of the
relevant reporting unit discounted using our weighted-average cost of capital and market indicators of terminal
year free cash flow multiples. If necessary, we solicit third-party valuation expertise to assist in the valuation of
our assets. We apply the most indicative approach to the overall valuation, or in some cases, a weighted analysis
of any or all of these methods. The determination of fair value uses accounting judgments and estimates,
including market conditions, and the reliability is dependent upon the availability and comparability of the
market data uncovered, as well as the decision making criteria used by marketing participants when evaluating a
property. Changes in estimates or application of alternative assumptions could produce significantly different
results.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risks arising from adverse changes in:

•

general economic trends;

interest rate and credit risk; and

foreign currency exchange risk.

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General economic trends

Our business is sensitive to consumer confidence and reductions in consumers’ discretionary spending, which
may result from challenging economic conditions, unemployment levels and other changes in the economy.
Demand for entertainment and leisure activities is sensitive to consumers’ disposable incomes, which can be
adversely affected by economic conditions and unemployment levels. This could result in fewer patrons visiting
our racetracks, gaming and wagering facilities, and online wagering sites and/or may impact our customers’
ability to wager with the same frequency and to maintain wagering levels.

Interest rate and credit risk

Our primary exposure to market risk relates to changes in interest rates. At December 31, 2017, we had
$642.0 million outstanding under our 2017 Credit Agreement, which bears interest at LIBOR based variable
rates. We are exposed to market risk on variable rate debt due to potential adverse changes in these rates.
Assuming the outstanding balance of the debt facility remains constant, a one-percentage point increase in the
LIBOR rate would reduce net income and cash flows from operating activities by $6.4 million.

Foreign currency exchange risk

Our exposure to foreign currency exchange risk historically was related to Big Fish Games. As a result of the Big
Fish Transaction, our foreign currency exposure is not material.

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

CHURCHILL DOWNS INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
for the years ended December 31,

(in millions, except per common share data)

2017

2016

2015

Net revenue:

Racing
Casino
TwinSpires
Other Investments

Total net revenue

Operating expense:

Racing
Casino
TwinSpires
Other Investments
Corporate
Selling, general and administrative expense
Impairment of tangible and other intangible assets
Gain on Calder land sale
Calder exit costs
Other, net

Total operating expense

Operating income
Other income (expense):
Interest expense
Loss on extinguishment of debt
Equity in income of unconsolidated investments
Miscellaneous, net

Total other expense

Income from continuing operations before provision for income taxes
Income tax benefit (provision)

Income from continuing operations, net of tax
Income (loss) from discontinued operations, net of tax

Net income

Net income (loss) per common share data - basic:

Continuing operations
Discontinued operations

Net income per common share - basic

Net income (loss) per common share data - diluted:

Continuing operations
Discontinued operations

Net income per common share - diluted

Weighted average shares outstanding:

Basic
Diluted

Other comprehensive loss:

Foreign currency translation, net of tax
Change in pension benefits, net of tax

Other comprehensive loss

Comprehensive income

257.3
350.5
255.6
19.2

882.6

192.5
247.3
170.2
17.8
2.0
83.1
21.7
—
0.8
1.5

736.9

145.7

(49.3)
(20.7)
25.5
1.3

(43.2)

102.5
19.9

122.4
18.1

140.5

7.76
1.15

8.91

7.64
1.13

8.77

15.7
16.0

(0.1)
—

(0.1)

251.1
332.8
221.6
16.9

822.4

187.7
241.3
146.7
16.5
1.8
79.4
—
(23.7)
2.5
(2.3)

649.9

172.5

(43.7)
—
17.4
1.2

(25.1)

147.4
(50.7)

96.7
11.4

108.1

5.83
0.69

6.52

5.74
0.68

6.42

16.4
16.8

0.2
(0.8)

(0.6)

140.4

107.5

248.0
332.9
201.1
16.6

798.6

189.9
241.1
135.4
16.3
0.1
75.6
—
—
13.9
—

672.3

126.3

(28.6)
—
11.2
6.5

(10.9)

115.4
(44.6)

70.8
(5.6)

65.2

4.08
(0.33)

3.75

4.03
(0.32)

3.71

17.2
17.6

(0.5)
—

(0.5)

64.7

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The accompanying notes are an integral part of the consolidated financial statements.

CHURCHILL DOWNS INCORPORATED
CONSOLIDATED BALANCE SHEETS
December 31,

(in millions)

Current assets:

ASSETS

Cash and cash equivalents
Restricted cash
Accounts receivable, net of allowance for doubtful accounts of $3.6 in 2017 and $3.5 in 2016
Receivable from escrow
Income taxes receivable
Other current assets
Current assets of discontinued operations held for sale

Total current assets

Property and equipment, net
Investment in and advances to unconsolidated affiliates
Goodwill
Other intangible assets, net
Other assets
Long-term assets of discontinued operations held for sale

Total assets

Current liabilities:

LIABILITIES AND SHAREHOLDERS’ EQUITY

Accounts payable
Purses payable
Account wagering deposit liabilities
Accrued expense
Deferred revenue
Current maturities of long-term debt
Dividends payable
Current liabilities of discontinued operations held for sale

Total current liabilities

Long-term debt (net of current maturities and loan origination fees of $5.1 in 2017 and $0.5 in

2016)

Notes payable (including premium of $2.5 in 2016 and net of debt issuance costs of $7.7 in 2017

and $7.8 in 2016)

Deferred revenue
Deferred income taxes
Other liabilities
Non-current liabilities of discontinued operations held for sale

Total liabilities

Commitments and contingencies
Shareholders’ equity:

Preferred stock, no par value; 0.3 shares authorized; no shares issued or outstanding
Common stock, no par value; 50.0 shares authorized; 15.4 shares issued and outstanding in

2017 and 16.5 in 2016

Retained earnings
Accumulated other comprehensive loss

Total shareholders’ equity

2017

2016

51.7
31.2
49.6
—
35.6
18.9
69.1

256.1
608.0
171.3
317.6
169.4
13.6
823.4

45.3
34.3
56.6
13.6
7.6
17.8
70.8

246.0
560.6
139.1
301.5
174.0
9.9
823.3

$ 2,359.4

$ 2,254.4

54.1
12.5
24.0
75.8
70.9
4.0
23.7
188.2

453.2

49.5
12.5
25.0
73.2
64.3
14.2
21.8
207.6

468.1

632.9

312.8

492.3
29.3
40.6
16.0
54.8

594.7
24.4
63.2
13.9
92.3

1,719.1

1,569.4

—

7.3
634.3
(1.3)

640.3

116.5
569.7
(1.2)

685.0

Total liabilities and shareholders’ equity

$ 2,359.4

$ 2,254.4

The accompanying notes are an integral part of the consolidated financial statements.

CHURCHILL DOWNS INCORPORATED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
for the years ended December 31, 2017, 2016 and 2015

(in millions, except per common share data)

Amount

Common Stock

Accumulated
Other
Comprehensive
Loss

Total
Shareholders’
Equity

Retained
Earnings

Balance, December 31, 2014
Net income
Issuance of common stock
Tax windfall from stock-based

compensation

Repurchase of common stock
Issuance of restricted stock awards, net of

forfeitures

Stock-based compensation
Cash & stock unit dividends, $1.15 per share
Foreign currency translation adjustment, net

of ($0.2) tax

17.5 $

262.3 $

—

3.5

437.9 $
65.2

(0.1) $

(1.1)

0.2

5.5
(151.1)

—
13.8

Balance, December 31, 2015

16.6

134.0

Net income
Issuance of common stock
Repurchase of common stock
Issuance of restricted stock awards, net of

forfeitures

Stock-based compensation
Cash & stock unit dividends, $1.32 per share
Foreign currency translation adjustment, net

of ($0.1) tax

Change in pension benefits, net of ($0.5) tax

0.1
(0.3)

0.1

2.6
(39.0)

—
18.9

Balance, December 31, 2016

16.5

116.5

Net income
Issuance of common stock
Repurchase of common stock
Issuance of restricted stock awards, net of

forfeitures

Stock-based compensation
Cash & stock unit dividends, $1.52 per share
Foreign currency translation, net of less than

($0.1) tax

—
(1.2)

0.1

2.1
(138.4)

—
27.1

Balance, December 31, 2017

15.4 $

7.3 $

634.3 $

(19.3)

483.8
108.1

(22.2)

569.7
140.5

(52.5)

(23.4)

700.1
65.2
3.5

5.5
(151.1)

—
13.8
(19.3)

(0.5)

617.2
108.1
2.6
(39.0)

—
18.9
(22.2)

0.2
(0.8)

685.0
140.5
2.1
(190.9)

—
27.1
(23.4)

(0.1)

640.3

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(0.5)

(0.6)

0.2
(0.8)

(1.2)

(0.1)

(1.3) $

The accompanying notes are an integral part of the consolidated financial statements.

CHURCHILL DOWNS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31,

(in millions)

Cash flows from operating activities:

Net income
Adjustments to reconcile net income to net cash provided by operating

activities:

2017

2016

2015

140.5

108.1

65.2

Depreciation and amortization
Game software development amortization
Acquisition expenses, net
Gain on sale of equity investments
Earnings from equity investments, net
Distributed earnings from equity investments
Stock-based compensation
Deferred income taxes
Loss on impairment of assets
Loss on extinguishment of debt
(Gain) loss on sale of assets
Big Fish Games earnout payment
Big Fish Games deferred payment
Other

Increase (decrease) in cash resulting from changes in operating assets and

liabilities, net of business acquisitions:

Other current assets and liabilities
Game software development
Income taxes
Deferred revenue
Other assets and liabilities

Net cash provided by operating activities

Cash flows from investing activities:
Capital maintenance expenditures
Capital project expenditures
Receivable from escrow
Acquisition of businesses, net of cash acquired
Investment in joint ventures
Proceeds from sale of assets
Other

Net cash used in investing activities

Cash flows from financing activities:

Proceeds from borrowings under long-term debt obligations
Repayments of borrowings under long-term debt obligations
Call premium on 2021 Senior Notes
Debt issuance costs
Repurchase of common stock
Payment of dividends
Common stock issued
Big Fish Games earnout payment
Big Fish Games deferred payment
Tax refund payments to Big Fish Games equity holders
Other

Net cash used in financing activities

Net increase (decrease) in cash and cash equivalents
Effect of exchange rate changes on cash
Cash and cash equivalents, beginning of year

Cash and cash equivalents, end of year

97.1
17.5
3.9
—
(25.5)
18.0
27.1
(65.0)
21.7
20.7
0.1
(2.4)
—
1.7

(10.4)
(22.1)
(27.4)
17.2
5.5

218.2

(33.3)
(83.6)
13.6
(24.2)
(24.0)
—
(2.1)

(153.6)

2,050.4
(1,835.8)
(16.1)
(14.4)
(190.9)
(21.5)
2.1
(31.8)
—
—
(1.5)

(59.5)

5.1
0.5
48.7

54.3

108.6
17.2
3.4
—
(17.4)
15.6
18.9
35.4
—
—
(23.6)
(19.7)
(2.0)
2.0

(10.2)
(22.1)
(6.6)
17.9
1.3

226.8

(30.9)
(23.8)
(13.6)
—
(8.0)
25.6
—

(50.7)

727.1
(588.4)
—
(1.4)
(39.0)
(19.1)
2.2
(261.9)
(26.4)
(0.4)
5.4

(201.9)

(25.8)
—
74.5

48.7

109.7
9.7
34.7
(5.8)
(11.2)
15.2
13.8
(3.4)
—
—
0.3
—
—
4.6

(15.3)
(19.8)
28.5
38.3
—

264.5

(31.1)
(12.4)
—
(0.9)
(25.0)
0.2
3.7

(65.5)

1,004.2
(985.8)
—
(4.6)
(147.6)
(17.4)
1.2
—
(28.5)
(17.7)
5.6

(190.6)

8.4
(1.8)
67.9

74.5

The accompanying notes are an integral part of the consolidated financial statements.

CHURCHILL DOWNS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
for the years ended December 31,

(in millions)

2017

2016

2015

Supplemental disclosures of cash flow information:
Cash paid during the period for:

Interest
Income taxes

Schedule of non-cash investing and financing activities:

Dividends payable
Property and equipment additions included in accounts payable and

accrued expense

Repurchase of common stock in payment of income taxes on
stock-based compensation included in accrued expense

47.7
75.9

40.0
32.4

25.2
41.5

23.7

21.8

19.1

9.6

1.3

4.2

6.4

1.5

3.6

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The accompanying notes are an integral part of the consolidated financial statements.

Churchill Downs Incorporated
Notes to Consolidated Financial Statements

1. DESCRIPTION OF BUSINESS

Churchill Downs Incorporated (the “Company”, “we”, “us”, “our”) is an industry-leading racing, gaming and
online entertainment company anchored by our iconic flagship event—The Kentucky Derby. We are a leader in
brick-and-mortar casino gaming with approximately 10,000 gaming positions in eight states, and we are the
largest, legal online account wagering platform for horseracing in the U.S. We were organized as a Kentucky
corporation in 1928, and our principal executive offices are located in Louisville, Kentucky.

On November 29, 2017, the Company entered into a definitive Stock Purchase Agreement (the “Stock Purchase
Agreement”) to sell its mobile gaming subsidiary, Big Fish Games, Inc., a Washington corporation (“Big Fish
Games”), to Aristocrat Technologies, Inc., a Nevada corporation (the “Purchaser”), an indirect, wholly owned
subsidiary of Aristocrat Leisure Limited, an Australian corporation (the “Big Fish Transaction”). On January 9,
2018, pursuant to the Stock Purchase Agreement, the Company completed the Big Fish Transaction. The
Purchaser paid an aggregate consideration of $990.0 million in cash in connection with the Big Fish Transaction,
subject to customary adjustments for working capital and indebtedness and certain other adjustments as set forth
in the Stock Purchase Agreement.

the criteria for held for sale and
The Big Fish Games segment and related Big Fish Transaction meet
discontinued operation presentation. Accordingly,
the Consolidated Statements of Comprehensive Income,
Consolidated Balance Sheets, and the notes to financial statements reflect the Big Fish Games segment as
discontinued operations for all periods presented. Unless otherwise specified, disclosures in these consolidated
financial statements reflect continuing operations only. The Consolidated Statements of Cash Flows includes
both continuing and discontinued operations. Refer to Note 3, Discontinued Operations, for further information
on the discontinued operations relating to the Big Fish Transaction.

We conduct our business through our operating segments and report our net revenue and operating expense
associated with our operating segments in our accompanying Consolidated Statements of Comprehensive
Income. Our operating segments, all of which are included in continuing operations with the exception of Big
Fish Games, are defined as follows:

Racing: primarily commissions earned on wagering at our racetracks, off-track betting facilities (“OTBs”),
simulcast fees earned from other wagering sites, and operations including admissions, sponsorships and
licensing rights, food and beverage services and alternative uses of our pari-mutuel facilities.

Casino: slot machines, table games, video poker ancillary food and beverage services and hotel and other
miscellaneous operations. In addition, we include our 50% joint venture in Miami Valley Gaming (“MVG”),
our 25% equity investment in Saratoga Casino Holdings LLC (“SCH”), and an effective 62.5% equity
investment in Ocean Downs.

TwinSpires: mobile and online pari-mutuel wagering business on TwinSpires.com, high dollar wagering by
international customers (“Velocity”) and horseracing statistical data generated by our information business
that provides data information and processing services to the equine industry.

Other Investments: pari-mutuel wagering systems for racetracks and other investments.

Corporate: other revenue and general and administrative expense not allocated to our other operating
segments.

Big Fish Games: social casino, casual and mid-core free to play, and premium paid games for PC, Mac, and
mobile devices. Refer to Note 3, Discontinued Operations, for further information relating to the Big Fish
Transaction.

Churchill Downs Incorporated
Notes to Consolidated Financial Statements

2. SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries.
All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

Our financial statements have been prepared in conformity with U.S. generally accepted accounting principles
(“GAAP”) and are based upon certain critical accounting policies. These policies may require management to
make estimates, judgments and assumptions that we believe are reasonable based on our historical experience,
contract terms, observance of known trends in our Company and the industry as a whole and information
available from other outside sources. Our estimates affect the reported amounts of assets and liabilities and
related disclosures of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expense during the reporting period. Actual results may differ from those initial
estimates. Our most critical estimates relate to revenue recognition, goodwill and other intangible assets, and
property and equipment.

Reclassifications

We have reclassified certain items in the accompanying Consolidated Financial Statements for prior years to be
comparable with 2017 classifications. Effective January 1, 2017, certain revenue previously included in our
Corporate segment was deemed by management to be more closely aligned with our TwinSpires segment. The
prior year amounts were reclassified to conform to this presentation.

There was no impact from these reclassifications on net income or cash flows.

Revenue Recognition

Racing and TwinSpires

Racing and TwinSpires revenue is generated by pari-mutuel wagering on live and simulcast racing content.
Additionally, we generate revenue through sponsorships, admissions, television rights, concessions, programs
and parking.

Pari-mutuel revenue is recognized upon occurrence of the live race that is presented for wagering and after that
live race is made official by the respective state’s racing regulatory body. Other operating revenue from
sponsorships, admissions, television rights, concessions, programs and parking are recognized once delivery of
the product or service has occurred.

Live racing handle includes patron wagers made on live races at our racetracks and also wagers made on
imported simulcast signals by patrons at our racetracks during live meets. Import simulcasting handle includes
wagers on imported signals at our racetracks when the respective tracks are not conducting live racing meets, at
our OTBs and through our advance deposit wagering providers throughout the year. Export handle includes all
patron wagers made on live racing signals sent to other tracks, OTBs and advance deposit wagering providers.
Advance deposit wagering consists of patron wagers through an advance deposit account. The pari-mutuel
revenue earned in 2017 approximated 18.3% of handle for the TwinSpires segment and 11.1% of handle for the
Racing segment.

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Deferred revenue includes advance sales related to the Kentucky Oaks and Kentucky Derby races and other
advance billings on racing events. Revenue from these advance billings are recognized when the related event
occurs. Deferred revenue also includes advance sales of Personal Seat Licenses (“PSLs”) and luxury suites. PSLs
represent the ownership of a specific seat for the Kentucky Oaks, Kentucky Derby and, in certain cases,
Breeders’ Cup races at Churchill Downs Racetrack (“Churchill Downs”) and have a contractual life between one
and thirty years.

Revenue from PSLs is recognized when the Kentucky Oaks, Kentucky Derby and Breeders’ Cup races occur on a
ratable basis over the term of the contract. Luxury suites are sold for specific racing events as well as for a
predetermined contractual term. Revenue related to the sale of luxury suites is recognized when the related event
occurs.

Casino

Casino revenue represents net casino wins which is the difference between casino wins and losses. Other
operating revenue, such as concession revenue, is recognized once delivery of the product or service has
occurred.

Big Fish Games

Big Fish Games revenue is primarily derived from the sale of in-app purchases within our free-to-play games and
sales of our premium paid games. We offer social casino and casual and mid-core free-to-play games that
customers can play at no cost. Customers can purchase virtual currency that can be used to buy virtual items to
enhance the game playing experience. These games are distributed primarily through third party mobile platform
providers, including but not limited to, Apple and Google.

The proceeds from the sale of virtual goods are initially recorded as deferred revenue and recognized as revenue
when persuasive evidence of an arrangement exists, the service has been provided to the user, the price paid by
the user is fixed or determinable, and collectability is reasonably assured. Determining whether and when some
of these criteria have been satisfied requires judgments that may have a significant impact on the timing and
amount of revenue we report in each period. For the purpose of determining when the service has been provided
to the player, we have determined that an implied obligation exists to the paying user to continue to make
available the purchased virtual goods within the game over the estimated life of the virtual goods. For social
casino games, the life of the virtual goods is estimated to be the time period over which virtual goods are
consumed, approximating three days. For all other casual games, the average playing period of paying players of
approximately four months represents our best estimate of the average life of virtual goods. The proceeds from
the sale of virtual goods are recorded as deferred revenue and recognized as revenue over the estimated life of the
virtual goods.

Premium game revenue is derived from our PC subscription business, the Big Fish Game Club and from the sale
of individual games on PC, Mac and mobile devices. Subscribers receive a game credit each month with their
subscription. The value of the game credit is recognized when a customer redeems the game credit.

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Notes to Consolidated Financial Statements

estimates that we believe are reasonable, but it is possible that actual results may differ from our estimates. When
we receive the final reports, to the extent not received within a reasonable time frame following the end of each
month, we record any differences between estimated revenue and actual revenue in the reporting period when we
determine the actual amounts. Historically, the revenue on the final revenue report has not differed significantly
from the reported revenue for the period.

We evaluate our digital storefront agreements in order to determine whether or not we are acting as the principal
or as an agent when selling our games, which we consider in determining if revenue should be reported gross or
net. We primarily use digital storefronts for distributing our social casino and casual free-to-play games. Key
indicators that we evaluate in order to reach this determination include:

•

the terms and conditions of our contracts with the digital storefronts;

the party responsible for billing and collecting fees from the end-users, including the resolution of
billing disputes;

whether we are paid a fixed percentage of the arrangement’s consideration or a fixed fee for each
game;

whether the party which sets the pricing with the end-user has the credit risk and provides customer
support; and

the party responsible for the fulfillment of the game and that determines the specifications of the game.

Based on the evaluation of the above indicators, we have determined that we are generally acting as a principal
and are the primary obligor to end-users for games distributed through digital storefronts; and therefore, we
recognize revenue related to these arrangements on a gross basis.

Goodwill and Indefinite Intangible Assets

During 2017, the Company changed its annual goodwill and indefinite-lived impairment testing date from
March 31 to April 1 of each year. As a result, the annual impairment tests were performed as of March 31, 2017
and April 1, 2017. The change was made to better align with our forecasting process and to provide the Company
with additional time to complete our annual goodwill and indefinite-lived intangible impairment testing in
advance of our quarterly reporting. The Company believes this change in measurement date, which represents a
change in method of applying an accounting principle, is preferable under the circumstances. The resulting
change in accounting principle related to changing the annual impairment testing date did not delay, accelerate,
or avoid an impairment charge.

We perform an annual review for impairment of goodwill and indefinite-lived intangible assets each fiscal year,
or more frequently if events or changes in circumstances indicate that the carrying value may not be recoverable.
Adverse industry or economic trends, lower projections of profitability, or a sustained decline in our market
capitalization, among other items, may be indications of potential impairment issues, which are triggering events
requiring the testing of an asset’s carrying value for recoverability. Goodwill is allocated and evaluated for
impairment at the reporting unit level, which is defined as an operating segment or one level below an operating
segment, referred to as a component. We are required to aggregate the components of an operating segment into
one reporting unit if they have similar economic characteristics.

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Goodwill and intangible assets can or may be required to be tested using a two-step impairment test. An entity
may assess qualitative factors to determine whether it is necessary to complete the two-step impairment test using
a more likely than not criteria. If an entity believes it is more likely than not that the fair value of a reporting unit
is greater than its carrying value, including goodwill, the two-step process can be bypassed. Qualitative factors
financial
include macroeconomic conditions,
performance, among others. These factors require significant judgments and estimates, and application of

industry and market conditions, cost

factors and overall

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Notes to Consolidated Financial Statements

alternative assumptions could produce significantly different results. Evaluations of possible impairment utilizing
the two-step approach require us to estimate, among other factors, forecasts of future operating results, revenue
growth, EBITDA margin, tax rates, capital expenditures, depreciation, working capital, weighted average cost of
capital, long-term growth rates, risk premiums, terminal values and fair market values of our reporting units and
assets. Changes in estimates or the application of alternative assumptions could produce significantly different
results.

Our slots gaming rights and casinos’ trade names are considered indefinite-lived intangible assets that do not
require amortization based on our future expectations to operate our gaming facilities and use the trade names
indefinitely and our historical experience in renewing these intangible assets at minimal cost with various state
gaming commissions. These indefinite lived intangible assets are tested annually, or more frequently,
if
indicators of impairment exist, by comparing the fair value of the recorded assets to their carrying amount. If the
carrying amount of the slots gaming rights and trade name intangible assets exceed fair value, an impairment loss
is recognized.

Property and Equipment
We have a significant investment in long-lived property and equipment. Property and equipment are recorded at
cost. Judgments are made in determining the estimated useful lives of assets, the salvage values to be assigned to
assets and if or when an asset has been impaired. The accuracy of these estimates affects the amount of
depreciation expense recognized in the financial results and whether to record a gain or loss on disposition of an
asset.

We review the carrying value of our property and equipment to be held and used in our operations whenever
events or changes in circumstances indicate that the carrying value of an asset may not be recoverable from
estimated future undiscounted cash flows expected to result from its use and eventual disposition. Adverse
industry or economic trends, lower projections of profitability, or a significant adverse change in legal factors or
issues. If the
in the business climate, among other items, may be indications of potential
undiscounted cash flows exceed the carrying value, no impairment is indicated. If the undiscounted cash flows do
not exceed the carrying value, an impairment is recorded based on the fair value of the asset.

impairment

There are three generally accepted approaches available in developing an opinion of value: 1) the cost approach,
which is the price a prudent investor would pay to produce or construct a similar new item; 2) the market
approach, which is typically used for land valuations by analyzing recent sales transactions of similar sites; and
3) the income approach, which is based on a discounted cash flow model using the estimated future results of the
relevant reporting unit discounted using our weighted-average cost of capital and market indicators of terminal
year free cash flow multiples. If necessary, we solicit third-party valuation expertise to assist in the valuation of
our assets. We apply the most indicative approach to the overall valuation, or in some cases, a weighted analysis
of any or all of these methods. The determination of fair value uses accounting judgments and estimates,
including market conditions and the reliability is dependent upon the availability and comparability of the market
data uncovered, as well as the decision making criteria used by market participants when evaluating a property.
Changes in estimates or application of alternative assumptions could produce significantly different results.

Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets as
follows: 10 to 40 years for grandstands and buildings, 2 to 10 years for equipment, 2 to 10 years for furniture and
fixtures and 10 to 20 years for tracks and other improvements.

Income Taxes
We use estimates and judgments for financial reporting to determine our current tax liability and deferred taxes.
In accordance with the liability method of accounting for income taxes, we recognize the amount of taxes
payable or refundable for the current year and deferred tax assets and liabilities for the future tax consequences of
events that have been recognized in the consolidated financial statements or tax returns.

Churchill Downs Incorporated
Notes to Consolidated Financial Statements

Adjustments to deferred taxes are determined based upon the changes in differences between the book basis and
tax basis of our assets and liabilities and measured using enacted tax rates we estimate will be applicable when
these differences are expected to reverse. Changes in current tax laws, enacted tax rates or the estimated level of
taxable income or non-deductible expense could change the valuation of deferred tax assets and liabilities and
affect the overall effective tax rate and tax provision.

When tax returns are filed, it is highly certain that some positions taken will be sustained upon examination by
the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount
of the position that will be ultimately sustained. The benefit of a tax position is recognized in the financial
statements in the period during which, based on all available evidence, management believes it is more likely
than not that the position will be sustained upon examination, including the resolution of appeals or litigation
processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet
the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than
50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the
benefits associated with the tax positions taken that exceeds the amount measured as described above is reflected
as a liability for unrecognized tax benefits in the accompanying Consolidated Balance Sheets, along with any
associated interest and penalties that would be payable to the taxing authorities upon examination.

Cash and Cash Equivalents

We consider investments with original maturities of three months or less that are readily convertible to cash to be
cash equivalents. We have, from time to time, cash in the bank in excess of federally insured limits. Under our
cash management system, checks issued but not yet presented to banks that would result in negative bank
balances when presented are classified as a current liability in the accompanying Consolidated Balance Sheets.

Restricted Cash and Account Wagering Deposit Liabilities

Restricted cash represents amounts due to horsemen for purses, stakes and awards as well as customer deposits
collected for advance deposit wagering. Account wagering deposit liabilities consist of deposits received from
TwinSpires.com and Velocity customers to be used to fund wagering through the TwinSpires players’ accounts.

Allowance for Doubtful Accounts Receivable

We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our
customers to make required payments. The allowance is maintained at a level considered appropriate based on
historical experience and other factors that affect our expectation of future collectability. Uncollectible accounts
receivable are written off against the allowance for doubtful accounts receivable when management determines
that the probability of payment is remote and collection efforts have ceased.

Game Software Development

Game software development costs for Big Fish Games includes costs for internally developed and purchased
third party software for free-to-play games and premium game software purchased from third parties.

Costs associated with internally developed online only free-to-play game software are capitalized according to
the accounting guidance governing computer software developed or obtained for internal use. Costs associated
with internally developed free-to-play game software that allows the user to access content in both an online and
offline mode are capitalized as game software development once technological feasibility of the software has
been established.

Any costs incurred during the preliminary project stage are expensed; costs incurred during the application
development stage are capitalized as game software development and costs incurred during the post-
implementation/operation stage are expensed. Any costs incurred prior to the establishment of technological
feasibility are expensed when incurred as research and development costs.

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Once the software is placed in operation, we amortize the capitalized software cost as an operating expense over
its estimated economic useful life, which is typically 18 months to three years. In addition, enhancements to
existing games that increase the functionality of the game are capitalized as game software development and
amortized as an operating expense over the game’s estimated economic useful life, which is typically 18 months.

Purchased third party free-to-play game software is capitalized as game software development and amortized,
once placed into service, over the game’s estimated economic useful life, which is typically 18 months.

Purchased third party software for premium games is capitalized as game software development, and amortized,
once placed into service, over the game’s estimated economic useful life, which is typically 12 months.

Internal Use Software and Research & Development

Internal use software costs for TwinSpires and Big Fish Games software are capitalized in property and
equipment, in accordance with accounting guidance governing computer software developed or obtained for
internal use. Once the software is placed in operation, we amortize the capitalized software over its estimated
economic useful life, which is generally three years.

We capitalized internal use software in accordance with accounting guidance governing computer software
developed or obtained for internal use primarily related to TwinSpires of approximately $7.2 million in 2017,
$6.7 million in 2016, and $8.9 million in 2015. We incurred amortization expense of approximately $6.3 million
in 2017, $6.0 million in 2016, and $6.2 million in 2015 for projects which had been placed in service. Capitalized
internal use software is classified as equipment and included in property and equipment, net in the accompanying
Consolidated Balance Sheets.

Research and development expenditures are expensed as incurred. We recognized research and development
expense of $39.6 million in 2017, $39.0 million in 2016, and $39.4 million in 2015 specific to Big Fish Games,
which is included in discontinued operations in the accompanying Consolidated Statements of Comprehensive
Income.

Fair Value of Assets and Liabilities

We adhere to a hierarchy for ranking the quality and reliability of the information used to determine fair values.
Assets and liabilities that are carried at fair value are classified and disclosed in one of the following three
categories: Level 1: Unadjusted quoted market prices in active markets for identical assets or liabilities; Level 2:
Unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical
or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable
for the asset or liability; and Level 3: Unobservable inputs for the asset or liability. We endeavor to utilize the
best available information in measuring fair value. Financial assets and liabilities are classified based on the
lowest level of input that is significant to the fair value measurement.

Investments in and Advances to Unconsolidated Affiliates

We have investments in unconsolidated affiliates accounted for under the equity method. Under the equity
method, carrying value is adjusted for our share of the investees’ income and losses, amortization of certain basis
differences as well as capital contributions to and distributions from these companies. Distributions in excess of
equity method income are recognized as a return of investment and recorded as investing cash inflows in the
accompanying Consolidated Statements of Cash Flows. We classify income and losses as well as gains and
impairments related to our investments in unconsolidated affiliates as a component of other income (expense) in
the accompanying Consolidated Statements of Comprehensive Income.

We evaluate our investments in unconsolidated affiliates for impairment whenever events or changes in
circumstances indicate that
the carrying value of the investment may have experienced an “other-than-
temporary” decline in value. If such conditions exist, we compare the estimated fair value of the investment to its

Churchill Downs Incorporated
Notes to Consolidated Financial Statements

carrying value to determine if an impairment is indicated and determine whether the impairment is “other-than-
temporary” based on an assessment of all relevant factors, including consideration of our intent and ability to
retain our investment until the recovery of the unrealized loss. We estimate fair value using a discounted cash
flow analysis based on estimated future results of the investee.

Debt Issuance Costs and Loan Origination Fees
Debt issuance costs and loan origination fees associated with our term debt, revolver, and notes payable are
amortized as interest expense over the term of each respective financial instrument. Debt issuance costs and loan
origination fees associated with our term debt and notes payable are presented as a direct deduction from the
carrying amount of the related liability. Debt issuance costs and loan origination fees associated with our
revolver are presented as an asset.

Casino and Pari-mutuel Taxes
We recognize casino and pari-mutuel tax expense based on the statutory requirements of the state and local
jurisdictions in which we conduct business. Individual states and local jurisdictions set tax rates which range
from 1.5% to 46% of net casino revenue and from 0.5% to 10% of the total pari-mutuel handle wagered by
patrons.

Purse Expense
We recognize purse expense based on the statutorily or contractually determined amount of revenue that is
required to be paid out in the form of purses to the qualifying finishers of horseraces run at our racetracks in the
period in which wagering occurs. We incur a liability for all unpaid purses to be paid out.

Self-insurance Accruals
We are self-insured up to certain limits for costs associated with general liability, workers’ compensation and
employee health coverage, and we purchase insurance for claims that exceed our self-insurance retention or
deductible levels. We record self-insurance reserves that include accruals of estimated settlements for known
claims (“Case Reserves”), as well as accruals of third-party actuarial estimates for claims incurred but not yet
reported (“IBNR”). Case Reserves represent estimated liabilities for unpaid losses, based on a claims
administrator’s estimates of future payments on individual reported claims, including allocated loss adjustment
expense, which generally include claims settlement costs such as legal fees. IBNR includes the provision for
unreported claims, changes in case reserves and future payments on reopened claims.

Key variables and assumptions include, but are not limited to, loss development factors and trend factors such as
changes in workers’ compensation laws, medical care costs and wages. These loss development factors and trend
factors are developed using our actual historical losses. It is possible that reasonable alternative selections would
produce materially different reserve estimates. We believe the estimates of future liability are reasonable based
upon this methodology; however, changes in key variables and assumptions, or generally in health care costs,
accident frequency and severity could materially affect the estimate for these reserves.

Advertising and Marketing
We expense the costs of general advertising, marketing and associated promotional expenditures at the time the
costs are incurred. We incurred advertising and marketing expense reported in continuing operations of
approximately $24.8 million in 2017, $23.1 million in 2016, and $23.0 million in 2015. We incurred advertising
and marketing expense reported in discontinued operations of approximately $116.6 million in 2017,
$127.9 million in 2016, and $107.7 million in 2015.

Stock-Based Compensation
All stock-based payments to employees and directors, including grants of employee stock options and restricted
stock, are recognized as compensation expense over the service period based on the fair value on the date of

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grant. For awards that have a graded vesting schedule, we recognize expense on a straight-line basis for each
separately vesting portion of the award. We recognize forfeitures of awards as incurred.

Computation of Net Income per Common Share

Net income per common share is presented for both basic earnings per common share (“Basic EPS”) and diluted
earnings per common share (“Diluted EPS”). Basic EPS is based upon the weighted average number of common
shares outstanding during the period, excluding unvested restricted stock and stock options held by employees.
Diluted EPS is based upon the weighted average number of common and potential common shares outstanding
during the period. Potential common shares result from the assumed exercise of outstanding stock options as well
as unvested restricted stock, the proceeds of which are then assumed to have been used to repurchase outstanding
common stock using the treasury stock method. For periods in which we report a net loss, all potential common
shares are considered anti-dilutive and are excluded from calculations of Diluted EPS. For periods in which we
report net income, potential common shares with exercise prices in excess of our average common stock fair
value for the related period are considered anti-dilutive and are excluded from calculations of Diluted EPS.

Common Stock Share Repurchases

From time-to-time, we repurchase shares of our common stock under share repurchase programs authorized by
our Board of Directors. Share repurchases constitute authorized but unissued shares under the Kentucky laws
under which we are incorporated. Additionally, our common stock has no par or stated value. Accordingly, we
record the full value of share repurchases, upon the trade date, against common stock on our Consolidated
Balance Sheets except when to do so would result in a negative balance in such common stock account. In such
instances, on a reporting period basis, we record the cost of any further share repurchases as a reduction to
retained earnings. Due to the large number of share repurchases of our common stock over the past several years
our common stock balance frequently will be zero at the end of any given reporting period. Refer to Note 12,
Shareholders’ Equity, for additional information on our share repurchases.

Recent Accounting Pronouncements—effective in 2018

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update
(“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which provides a five-step analysis
of transactions to determine when and how revenue is recognized. The core principle is that a company should
recognize revenue in a manner that depicts the transfer of promised goods or services to customers in an amount
that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
We will adopt the new revenue standard in 2018 using the modified retrospective method. The application of the
new standard will result in cumulative effect adjustments being recognized through opening retained earnings on
January 1, 2018.

While we are continuing to assess all potential impacts of the new revenue standard, we have identified the
following areas of impact:

(i) The first area relates to accounting for breakage revenue for the outstanding premium game club
credits for Big Fish Games; however, due to the Big Fish Transaction, this will not have an impact on
our revenues prospectively. Currently, Big Fish Games records breakage revenue for outstanding
premium game credits when the credits have legally expired. Under the new standard, Big Fish Games
will be required to recognize the expected breakage related to outstanding premium game club credits
as revenue in proportion to the pattern of game club credits redeemed by customers.

(ii) The second area relates to accounting for loyalty points under our various rewards programs which are
earned by customers at our casinos. Our accumulated loyalty points are redeemable for free
complimentaries, including free game play, food and beverage. The estimated liability for unredeemed
points is currently accrued based on expected redemption rates and the estimated costs of the services

Churchill Downs Incorporated
Notes to Consolidated Financial Statements

or merchandise to be provided. Under the new standard, we will defer the standalone selling price of
the complimentaries until the future revenue transaction occurs. Although the exact amount of the
increase to our point liabilities has not yet been determined, we do not anticipate it will result in a
significant cumulative effect adjustment nor a significant impact on our revenues prospectively.

(iii) The third area relates to our presentation of accounts receivable and deferred revenue related to
advanced billings in our Racing segment. Under the current standard, we recognize an accounts
receivable asset and related deferred revenue liability at the time of billing. The new standard requires
recognition of an accounts receivable asset and related deferred revenue liability when we have a right
to consideration under the contract. This change will not result in a cumulative adjustment upon
adoption or timing of revenue recognition.

Another aspect of Topic 606 the Company is currently evaluating is whether we are acting as the principal or as
the agent in determining if revenue should be reported gross or net in our Racing and TwinSpires segments based
on the terms of our contracts and governing laws. Currently, we report commissions and simulcast fees and
certain pari-mutuel taxes paid on a gross basis. Any changes related to principal versus agent determination
would only impact the presentation of net revenue and expense and there would be no cumulative effect
adjustment nor any impact on net income or cash flows prospectively.

Under the new revenue standard, entities also are required to disaggregate revenue into categories that depict how
economic factors affect the nature, amount, timing and uncertainty of revenue and cash flows. See Note 20,
Segment Information, for the disaggregation of our revenue under the current accounting standards in effect for
each of the three years in the period ended December 31, 2017. Upon adoption of the new revenue standard, we
to disaggregate our revenues consistently with the disaggregation reflected in Note 20, Segment
expect
Information. We are currently evaluating the new revenue standard’s disclosure requirements, beyond the
requirement to disaggregate revenue. We are also assessing the impact of the new revenue standard on our
internal controls over financial reporting.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows: Restricted Cash. The new
standard requires that the statement of cash flows explain the change during the period of cash, cash equivalents,
and amounts generally described as restricted cash. Entities will also be required to reconcile the cash, cash
equivalents, and restricted cash in the statement of cash flows to the balance sheet and disclose the nature of the
restrictions on restricted cash. The guidance will become effective in 2018 and is to be applied at the beginning
of the earliest comparative period of financial statements using the retrospective method. Currently, our
statement of cash flows reconciles total cash and cash equivalents to the balance sheet. While we are continuing
to assess all potential impacts of the standard, we will be required to reconcile total cash, cash equivalents, and
restricted cash from our statement of cash flows to the balance sheet.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows: Classification of Certain Cash
Receipts and Cash Payments. The new guidance is intended to reduce diversity in practice in how certain
transactions are classified in the statement of cash flows. The guidance will become effective in 2018 and is to be
applied at the beginning of the earliest comparative period of financial statements using the retrospective method.
We do not expect a material impact to our statement of cash flows as a result of this new standard.

In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation: Scope of Modification
Accounting, which provides clarity about which changes to the terms or conditions of a share-based payment
award require an entity to apply modification accounting for stock compensation expense. The guidance will
become effective in 2018 and is to be applied prospectively. We will assess the impact of the new accounting
guidance as necessary for future transactions.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations: Clarifying the Definition of a
Business, in an effort to clarify the definition of a business with the objective of adding guidance to assist entities

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Notes to Consolidated Financial Statements

with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or
businesses. The guidance will become effective in 2018 and is to be applied prospectively. We will assess the
impact of the new accounting guidance as necessary for future transactions.

Recent Accounting Pronouncements—effective in 2019 or thereafter

In February 2016, the FASB issued ASU No. 2016-02, Leases, which requires companies to generally recognize
on the balance sheet operating and financing lease liabilities and corresponding right-of-use assets. As currently
issued, ASU 2016-02 will be effective in 2019 with earlier adoption permitted, and is to be applied at the
beginning of the earliest comparative period in the financial statements using a modified retrospective approach.
We are currently evaluating the impact of our pending adoption of this new standard, and we currently expect
that most of our operating lease commitments will be subject to the new standard and recognized as operating
lease liabilities and right-of-use assets upon our adoption of ASU 2016-02.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging: Targeted Improvements to
Accounting for Hedging Activities, which makes more financial and nonfinancial hedging strategies eligible for
hedge accounting. The new guidance is intended to more closely align hedge accounting with entities’ risk
management strategies, simplify the application of hedge accounting, and increase transparency as to the scope
and results of hedging programs. The new standard is effective in 2019 with early adoption permitted in any
interim or annual period prior to 2019. We are currently evaluating the timing of our adoption and impact of the
new accounting guidance on our financial statements and related disclosures.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses, which introduces a
new model for recognizing credit losses on financial instruments based on an estimate of current expected credit
losses. The new model will apply to: (1) loans, accounts receivable, trade receivables, and other financial assets
measured at amortized cost, (2) loan commitments and certain other off-balance sheet credit exposures, (3) debt
securities and other financial assets measured at fair value through other comprehensive income, and
(4) beneficial interests in securitized financial assets. The guidance will become effective in 2020, and is to be
applied through a modified retrospective approach during the year of adoption. We are assessing the impact of
the new accounting guidance and currently cannot estimate the financial statement impact of adoption.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other: Simplifying the Test for
Goodwill Impairment. This new guidance simplifies the accounting for goodwill impairments by removing step
two from the goodwill impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value,
an impairment loss shall be recognized in an amount equal to that excess. The new guidance is effective in 2020
with early adoption permitted for any goodwill impairment test performed between January 1, 2017 and
January 1, 2020, and is to be applied prospectively. We are currently evaluating the timing of our adoption and
impact of the new accounting guidance on our financial statements and related disclosures.

3. DISCONTINUED OPERATIONS

On January 9, 2018, pursuant to the Stock Purchase Agreement entered into on November 29, 2017, the
Company completed the Big Fish Transaction. The Purchaser paid an aggregate consideration of $990.0 million
in cash in connection with the Big Fish Transaction, subject to customary adjustments for working capital and
indebtedness and certain other adjustments as set forth in the Stock Purchase Agreement.

Churchill Downs Incorporated
Notes to Consolidated Financial Statements

The following table presents the financial results of Big Fish Games included in “Income (loss) from
discontinued operations, net of tax”:

(in millions)

Net revenue
Operating expenses
Selling, general and administrative expense
Research and development
Transaction expense, net

Total operating expense

Operating income (loss)
Other expense
Income (loss) from discontinued operations before provision for income taxes
Income tax provision
Income (loss) from discontinued operations, net of tax

Years Ended December 31,

2017

2016

2015

$ 466.0
369.0
27.8
39.6
4.7
441.1
24.9
(1.7)
23.2
(5.1)
$ 18.1

$ 486.2
398.9
20.9
39.0
5.8
464.6
21.6
(0.9)
20.7
(9.3)
$ 11.4

$ 413.7
340.1
15.2
39.4
21.7
416.4
(2.7)
(0.6)
(3.3)
(2.3)
$ (5.6)

The following table presents the major classes of assets and liabilities presented as held for sale related to the Big
Fish Transaction as of December 31, 2017 and 2016:

(in millions)

Current assets:

ASSETS

Cash and cash equivalents
Accounts receivable
Game software development, net
Other current assets

Current assets of discontinued operations held for sale

Property and equipment, net
Game software development, net
Goodwill
Other intangible assets, net
Other assets

Long-term assets of discontinued operations held for sale

Total assets

LIABILITIES

Current liabilities:

Accounts payable
Accrued expense
Deferred revenue
Big Fish Games deferred payment
Big Fish Games earnout liability

Current liabilities of discontinued operations held for sale

Deferred income taxes
Other liabilities

Non-current liabilities of discontinued operations held for sale

Total liabilities

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2017

2016

2.6
42.9
6.9
16.7
69.1
16.4
13.5
530.7
238.8
24.0
823.4
892.5

5.5
35.0
85.1
28.4
34.2
188.2
47.6
7.2
54.8
243.0

3.4
24.7
9.6
33.1
70.8
13.8
6.3
530.7
271.7
0.8
823.3
894.1

3.7
26.9
81.3
27.8
67.9
207.6
90.0
2.3
92.3
299.9

Churchill Downs Incorporated
Notes to Consolidated Financial Statements

Stock-Based Compensation

As part of the Big Fish Transaction, the vesting dates for all outstanding unvested restricted stock awards,
restricted stock unit awards, and performance share units awards (collectively the “Stock Awards”) for certain
Big Fish Games’ employees were accelerated to vest on the closing date. Most of these Stock Awards would not
the related stock-based
have vested prior to the closing date of the Big Fish Transaction. Therefore,
compensation expense previously recognized through the modification date was reduced to zero and a new fair
value of the Stock Award was established on the date of the announcement of the Big Fish Transaction. The
expense will be amortized during the period from the date of the announcement to the closing of the Big Fish
Transaction. The incremental stock-based compensation expense recognized during 2017 due to the acceleration
of vesting was $3.4 million, which is included in income (loss) from discontinued operations, net of tax in the
accompanying Consolidated Statements of Comprehensive Income.

Total stock-based compensation expense related to Big Fish Games, which includes the accelerated vesting of the
Stock Awards and stock options associated with the Company’s employee stock purchase plan, was
$11.1 million in 2017, $5.6 million in 2016, and $1.3 million in 2015. The Company expects to recognize
$3.5 million of remaining stock-based compensation expense related to Big Fish Games in the first quarter of
2018.

Fair Value of Liabilities

We endeavor to utilize the best available information in measuring fair value. Financial assets and liabilities are
classified based on the lowest level of input that is significant to the fair value measurement. The following
tables present our liabilities measured at fair value on a recurring basis related to our discontinued operations and
liabilities held for sale:

(in millions)

Big Fish Games deferred payments
Big Fish Games earnout liability

Total

Level 3

December 31, 2017 December 31, 2016

28.4
34.2

62.6

27.8
67.9

95.7

The following table presents the change in fair value of our instruments classified within Level 3 related to our
discontinued operations and liabilities held for sale:

(in millions)

Balance as of December 31, 2016

Payments
Change in fair value

Balance as of December 31, 2017

Fair Value Measurements Using Significant Unobservable
Inputs (Level 3)

Big Fish Games
Deferred Payments

Big Fish Games
Earnout Liability

Total

27.8
—
0.6

28.4

67.9
(34.2)
0.5

34.2

95.7
(34.2)
1.1

62.6

On March 27, 2017, the Company amended the Agreement and Plan of Merger associated with the Company’s
acquisition of Big Fish Games dated as of December 16, 2014, to extend the deferral of the earnout consideration
payable and the Big Fish Games’ founder deferred payment on December 15, 2017 to January 3, 2018. The
estimated fair value of the Big Fish Games deferred payment and earnout liability as of December 31, 2017 was
equal to the cash paid on January 3, 2018. The increase in fair values of the Big Fish Games deferred payment
and earnout liability of $1.1 million in 2017, $5.7 million in 2016 and $21.7 million in 2015 is included in
discontinued operations in the accompanying Consolidated Statements of Comprehensive Income.

Churchill Downs Incorporated
Notes to Consolidated Financial Statements

4. ACQUISITION

On April 24, 2017, we completed the acquisition of certain assets of BAM Software and Services, LLC
(“BetAmerica”), which has not had a material impact on our results of operations, financial condition or cash
flows. The Company has not included other disclosures regarding BetAmerica because the acquired business is
immaterial to our business.

5. ACCOUNTS RECEIVABLE

Accounts receivable is comprised of the following:

(in millions)

Trade receivables
Derby-related receivables
Simulcast and mobile and online wagering receivables
Other receivables

Allowance for doubtful accounts

Total

As of December 31,

2017

2016

5.5
22.3
20.5
4.9

53.2
(3.6)

49.6

7.0
27.1
21.0
5.0

60.1
(3.5)

56.6

We recognized bad debt expense of $1.2 million in 2017, $1.1 million in 2016 and $0.9 million in 2015.

6. PROPERTY AND EQUIPMENT

Property and equipment is comprised of the following:

(in millions)

Grandstands and buildings
Equipment
Tracks and other improvements
Land
Furniture and fixtures
Construction in progress
Artwork

Accumulated depreciation

Total

As of December 31,

2017

2016

439.8
286.7
177.9
131.7
60.3
23.5
2.2

410.5
258.3
157.3
117.5
54.4
26.7
2.1

1,122.1
(514.1)

1,026.8
(466.2)

608.0

560.6

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Depreciation expense was $49.1 million in 2017, $49.1 million in 2016 and $47.6 million in 2015 and is
classified in operating expense in the accompanying Consolidated Statements of Comprehensive Income.

During the fourth quarter of 2017, the Company recorded a $13.7 million non-cash impairment charge related to
certain i-Gaming assets included in our TwinSpires segment. The impairment was due to a change in the
Company’s planned usage of these assets.

On November 8, 2016, we completed the sale of 61 acres of excess, undeveloped land at Calder for which we
received total proceeds of $25.6 million. We recognized a gain of $23.7 million on the sale of the Calder land,
which is included in operating expenses in the accompanying Consolidated Statements of Comprehensive
Income.

Churchill Downs Incorporated
Notes to Consolidated Financial Statements

The Company received proceeds from the Calder land sale of $25.6 million, of which $14.0 million was placed
in a qualified intermediary trust for the purchase of previously identified real property. We utilized the entire
escrow amount during 2017, resulting in a zero balance at December 31, 2017, compared to our $13.6
million receivable from the qualified intermediary trust at December 31, 2016 included in our accompanying
Consolidated Balance Sheets.

7. CALDER EXIT COSTS
The Company has an agreement with The Stronach Group (“TSG”) that expires on December 31, 2020 under
which we permit TSG to operate and manage Calder’s racetrack and certain other racing and training facilities
and to provide live horseracing under Calder’s racing permits. During the term of the agreement, TSG pays
Calder a racing services fee and is responsible for the direct and indirect costs of maintaining the racing
premises, including the training facilities and applicable barns, and TSG receives the associated revenue from the
operation.

Based on our assessment of potential alternative uses of the Calder property, we razed the barns that were not
associated with the TSG agreement and commenced the demolition of the grandstand and certain ancillary
facilities. The Company recognized Calder exit costs of $0.8 million in 2017, $2.5 million in 2016, and
$13.9 million in 2015 in our accompanying Consolidated Statements of Comprehensive Income related to
demolition costs for the removal of the grandstand. The Calder exit costs recognized in 2015 included a non-cash
impairment charge of $12.7 million to reduce the net book value of the grandstand assets to zero.

Refer to Note 6, Property and Equipment, for the description of the gain on the Calder land sale of $23.7 million.

8. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES
Summarized below is financial information for our equity investments:

(in millions)

Assets
Current assets
Property and equipment, net
Other assets, net

Total assets

Liabilities and Members’ Equity
Current liabilities
Long-term debt
Other liabilities
Members’ equity

Total liabilities and members’ equity

(in millions)

Net revenue
Operating and SG&A expense
Depreciation and amortization

Operating income
Interest and other expense, net

Net income

December 31,

2017

2016

$ 64.5
234.6
236.5

$ 38.8
198.0
165.0

$535.6

$401.8

$100.3
110.1
0.1
325.1

$ 77.5
69.2
0.1
255.0

$535.6

$401.8

Years Ended December 31,

2017

2016

2015

$303.3
204.9
25.9

$216.1
142.8
18.5

$195.2
137.2
15.2

72.5
(8.5)

54.8
(6.9)

42.8
(6.2)

$ 64.0

$ 47.9

$ 36.6

Churchill Downs Incorporated
Notes to Consolidated Financial Statements

Miami Valley Gaming Joint Venture

We own a 50% interest in MVG, which has a harness racetrack and video lottery terminal (“VLT”) gaming
facility in Lebanon, Ohio. Delaware North Companies Gaming & Entertainment Inc. (“DNC”) owns the
remaining 50% interest in this entity.

Since both we and DNC have participating rights over MVG, and both must consent to MVG’s operating,
investing and financing decisions, we account for MVG using the equity method.

The joint venture’s long-term debt consists of a $50.0 million secured note payable from MVG payable quarterly
over 6 years through August 2019 at a 5.0% interest rate for which it has funded $33.3 million in principal
repayments. We received distributions from MVG of $17.0 million in 2017, $15.0 million in 2016 and
$15.0 million in 2015.

Our accompanying Consolidated Statements of Comprehensive Income include our 50% share of MVG’s net
income as follows:

(in millions)

Years Ended December 31,

2017

2016

2015

Equity in income of unconsolidated investments

16.7

14.2

10.6

SHRI Equity Investment

On October 2, 2015, we completed the acquisition of a 25% equity investment in Saratoga Casino Holdings LLC
(“SCH”) which owns Saratoga Casino and Raceway (“Saratoga’s New York facility”) in Saratoga Springs, New
York, for $24.5 million from Saratoga Harness Racing, Inc. (“SHRI”). Saratoga’s New York facility has a casino
with approximately 1,700 VLTs, a 1/2-mile harness racetrack with a racing simulcast center, and three dining
facilities. Saratoga’s New York facility has a 50% interest in a joint venture with DNC to manage the Gideon
Putnam Hotel and Resort. We signed a five-year management agreement with SCH to manage Saratoga’s New
York facility for which we receive management fee revenue.

On July 6, 2016, Saratoga’s New York facility completed a significant expansion which included a 117-room
hotel, additional dining facilities and a 3,000 square-foot multi-functional event space.

On November 21, 2016, we completed the acquisition of a 25% equity investment in Saratoga Casino Black
Hawk in Black Hawk, Colorado (“Saratoga’s Colorado facility”) for $6.5 million from SHRI. Saratoga’s
Colorado facility has a casino with approximately 600 slot machines, seven table games, three lounges and two
dining facilities.

Our investment in SCH recorded under the equity method includes our share of the basis difference between the
fair value of property and equipment and definite-lived intangible assets of $3.7 million and $2.7 million,
respectively. These basis differences are charged to expense over the remaining estimated useful lives of the
property and equipment and intangible assets and are recorded as a component of equity in income of
unconsolidated investments. Basis differences related to non-depreciable assets, such as land and indefinite lived-
intangible assets, are not being amortized.

Ocean Downs

In August 2016, we signed a limited liability company operating agreement with Saratoga Casino Holdings LLC
(“SCH”), with each entity having a 50% interest, and formed Old Bay Gaming and Racing LLC (“Old Bay”).
The Old Bay agreement provides both the Company and SCH equal participating rights, and both entities must
consent to Old Bay’s operating, investing and financing decisions.

On January 3, 2017, Old Bay acquired all of the equity interests of Ocean Enterprise 589 LLC, Ocean Downs
LLC and Racing Services LLC (collectively, “Ocean Downs”). The Company’s portion of the initial equity

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Churchill Downs Incorporated
Notes to Consolidated Financial Statements

investment in Ocean Downs was $24.0 million. Ocean Downs, located near Ocean City, Maryland, owns and
operates VLTs and table games at the Casino at Oceans Downs and conducts harness racing at Ocean Downs
Racetrack. The Company’s 25% interest in SCH provides an additional 12.5% interest in Ocean Downs, resulting
in an effective 62.5% interest in Ocean Downs. Since both the Company and SCH have participating rights and
both must consent to Old Bay’s operating, investing and financing decisions, the Company accounts for Ocean
Downs using the equity method of accounting.

9. GOODWILL
Goodwill is comprised of the following:
(in millions)

Balances as of December 31, 2016

Additions

Balances as of December 31, 2017

Racing

Casino

TwinSpires

Total

51.7
—

51.7

117.7
—

117.7

132.1
16.1

148.2

301.5
16.1

317.6

In 2017, we established goodwill of $16.1 million related to the BetAmerica acquisition. There were no changes
to goodwill from December 31, 2015 to December 31, 2016.

We performed our annual goodwill and indefinite-lived intangible impairment analysis as of March 31, 2017 and
again as of April 1, 2017, and no adjustment to the carrying value of goodwill or indefinite-lived intangible assets
was required. We assessed goodwill by performing step one fair value calculations on a quantitative basis for
each reporting unit. We concluded that the fair values of our reporting units exceeded their carrying value and
therefore step two of the assessment was not required.

10. OTHER INTANGIBLE ASSETS
Other intangible assets are comprised of the following:

(in millions)

Definite-lived intangible assets:
Customer relationships
Favorable contracts
Other
Table games license
Slots gaming license

Indefinite-lived intangible assets:

Trademarks
Slots gaming rights
Illinois Horseracing Equity

Trust

Other

Total

December 31, 2017

December 31, 2016

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Amount

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Amount

16.7
11.0
7.1
2.7
2.3

(10.6) $
(6.8)
(1.5)
(0.6)
(1.1)

6.1
4.2
5.6
2.1
1.2

27.1
11.0
3.7
2.7
2.3

(22.4) $
(6.2)
(1.0)
(0.4)
(1.1)

4.7
4.8
2.7
2.3
1.2

39.8

(20.6) $

19.2

46.8

(31.1) $

15.7

21.2
128.9

—
0.1

25.7
128.9

3.3
0.4

169.4

174.0

In 2017, we established definite-lived intangible assets of $4.7 million for customer relationships and
$3.4 million for other intangibles related to the BetAmerica acquisition.

Amortization expense for definite-lived intangible assets was approximately $6.8 million in 2017, $9.4 million in
2016 and $10.5 million in 2015 and is classified in operating expense. We submitted payments of $2.3 million

Churchill Downs Incorporated
Notes to Consolidated Financial Statements

for 2017 and 2016 for annual license fees for Calder Casino, which are being amortized to expense over the
annual license period.

Indefinite-lived intangible assets consist primarily of trademarks and state gaming licenses in Maine, Mississippi
and Louisiana.

We performed our annual indefinite-lived intangible asset impairment analysis for 2017 which included an
assessment of qualitative and quantitative factors to determine whether it is more likely than not that the fair
values of the indefinite-lived intangible assets are less than the carrying amounts.

During the fourth quarter of 2017, the Company recorded a $4.7 million non-cash impairment charge related to
our Bluff acquisition ($4.5 million for a trademark and $0.2 million related to customer relationships), which is
included in our TwinSpires segment, and a $3.3 million non-cash impairment charge related to our Illinois
Horseracing Equity Trust, which is included in our Racing segment. These impairments were due to changes in
the business climate in the fourth quarter of 2017 that resulted in projected future cash flows being less than
carrying value.

Future estimated aggregate amortization expense on existing definite-lived intangible assets for each of the next
five fiscal years is as follows (in millions):

Years Ended
December 31,

Estimated
Amortization
Expense

2018
2019
2020
2021
2022

$4.8
2.1
1.9
1.8
1.8

Future estimated amortization expense does not include additional payments of $2.3 million in 2018 and in each
year thereafter for the ongoing amortization of future expected annual Florida slots gaming license fees not yet
incurred or paid.

11. INCOME TAXES

Components of the provision for income taxes are as follows:

(in millions)

Current provision:
Federal
State and local

Deferred (benefit) provision:

Federal
State and local
Foreign

Years Ended December 31,

2017

2016

2015

$ 29.5
3.0

$33.6
3.3

$33.3
3.2

32.5

36.9

36.5

12.7
(53.0)
0.8
1.1
(0.2) —

(52.4)

13.8

6.0
2.1
—

8.1

$(19.9) $50.7

$44.6

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Churchill Downs Incorporated
Notes to Consolidated Financial Statements

Income from operations before provision for income taxes were as follows:

(in millions)

Domestic
Foreign

Years Ended December 31,

2017

2016

2015

102.2 $
0.3

102.5 $

146.4
1.0

147.4

114.1
1.3

115.4

Our income tax (benefit) expense is different from the amount computed by applying the federal statutory
income tax rate to income before taxes as follows:

(in millions)

Federal statutory tax on earnings before income taxes
State income taxes, net of federal income tax benefit
Non-deductible officer’s compensation
Change in enacted tax rates
Windfall deduction from equity compensation
Other

Years Ended December 31,

2017

2016

2015

35.9
2.5
4.7
(57.7)
(5.2)
(0.1)

51.6
4.0
2.3
0.1
(4.9)
(2.4)

(19.9) $

50.7

40.4
2.0
2.0
0.7
—
(0.5)

44.6

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law. The Tax Act
significantly revises the U.S. corporate income tax by, among other things, lowering the statutory corporate tax
rate from 35% to 21%, eliminating certain deductions, imposing a one-time tax on accumulated earnings of
foreign subsidiaries as of 2017, introducing new tax regimes, and changing how foreign earnings are subject to
U.S. tax. The Tax Act also enhanced and extended through 2026 the option to claim accelerated depreciation
deductions on qualified property. As a result of the Tax Act, the Company’s deferred tax assets and liabilities
have been re-measured at December 22, 2017, using the maximum U.S. federal tax rate of 21%. The impact of
this balance sheet re-measurement was $56.9 million of future tax benefits recognized by the Company in the
fourth quarter of 2017. In addition to the future tax benefit recognized by the Company due to the reduced federal
tax rate, the Company recognized $0.8 million of tax benefits in relation to the mandatory deemed repatriation of
its foreign earnings and profits pursuant to the Tax Act in combination with the reversal of deferred tax liabilities
that had been maintained on foreign earnings.

In accordance with Staff Accounting Bulletin No. 118 (“SAB 118”), the Company has made estimates for certain
provisions of the Tax Act which are considered to be incomplete. The accounting for these estimates will be
finalized during a one-year measurement period following the enactment of the Tax Act. The following is a list
of sections of the Tax Act for which we have made an estimate:

• We have estimated the impact of non-deductible officer’s compensation and recognized provisional tax
expense of $4.7 million. This estimate considers certain performance compensation plans to be
tax-deductible due to their establishment before enactment of the Tax Act. We are continuing our
consideration of the new rules and any additional information that needs to be acquired for this section
of the Tax Act.

• We have made a reasonable estimate of tax depreciation, providing a $19.7 million provisional tax
benefit which includes the accelerated cost recovery allowance granted by the Tax Act effective
September 27, 2017. However, our inventory of capital expenditures requires further analysis to
finalize the deductibility allowed by the Tax Act.

Churchill Downs Incorporated
Notes to Consolidated Financial Statements

• We have made a reasonable estimate of the tax consequences of mandatory deemed repatriation
required by the Tax Act and recorded provisional tax expense of $0.9 million. We are continuing to
evaluate certain applications related to this section of the Tax Act and the application of ASC 740.

• We have re-measured our deferred taxes as of December 22, 2017 at a reduced corporate tax rate of
21% and recognized a provisional future tax benefit of $56.9 million. While we are able to make a
reasonable estimate of this impact, it may be affected by other elements of the Tax Act including, but
not limited to capital expensing and non-deductible officer’s compensation.

Components of our deferred tax assets and liabilities are as follows:

(in millions)

Deferred tax assets:

Deferred compensation plans
Deferred income
Allowance for uncollectible receivables
Deferred liabilities
Net operating losses and credit carryforward

Deferred tax assets

Valuation allowance

Net deferred tax asset

Deferred tax liabilities:

Intangible assets in excess of tax basis
Property and equipment in excess of tax basis
Equity investments in excess of tax basis
Other

Deferred tax liabilities

Net deferred tax liability

As of December 31,

2017

2016

6.5
4.7
0.8
2.1
5.1

19.2
(0.2)

19.0

29.2
22.4
6.8
1.2

59.6

10.7
4.3
1.2
3.0
8.1

27.3
(0.4)

26.9

41.2
34.8
11.1
3.0

90.1

(40.6) $

(63.2)

As of December 31, 2017, we have federal net operating loss carryforwards of $9.6 million which were acquired
in conjunction with the acquisition of Youbet.com. The utilization of these losses, which expire between 2023
and 2030, is limited on an annual basis pursuant to Internal Revenue Code (“IRC”) § 382. We believe that we
will be able to fully utilize all of these losses. In addition, we have $2.1 million of state net operating losses,
$0.5 million of which was acquired in conjunction with the acquisitions of Youbet.com. These losses, which
expire between 2028 and 2030, may be subject to annual limitations similar to IRC § 382. We have recorded a
valuation allowance of $0.2 million against the state net operating losses due to the fact that it is unlikely that we
will generate income in certain states which is necessary to utilize the assets.

The Internal Revenue Service has completed audits through 2012. Tax years 2014 and after are open to
examination. State and local tax years open for examination vary by jurisdiction.

As of December 31, 2017, we had approximately $2.9 million of total gross unrecognized tax benefits. If the total
gross unrecognized tax benefits were recognized, there would be a $2.8 million effect to the annual effective tax
rate. We anticipate a decrease in our unrecognized tax positions of approximately $0.2 million during the next
twelve months primarily due to the expiration of statutes of limitation.

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Churchill Downs Incorporated
Notes to Consolidated Financial Statements

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
(in millions)

2017

2016

Balance as of January 1

Additions for tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years

Balance as of December 31

2.3 $
0.5
0.3
(0.2)

2.9 $

1.8 $
0.5
0.1
(0.1)

2.3 $

2015

1.5
0.3
0.2
(0.2)

1.8

12. SHAREHOLDERS’ EQUITY
Stock Repurchase Program
On October 28, 2015, our Board of Directors authorized the repurchase of up to $150.0 million of our stock in a
stock repurchase program. This amount included and was not in addition to any unspent amounts remaining
under the prior authorization which would have expired at the end of 2015. 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 had no time limit and may be suspended for periods or
discontinued at any time.

On November 19, 2015, we repurchased approximately 945,000 common shares for $138.1 million in a privately
negotiated transaction with a related party, The Duchossois Group (“TDG”), our largest shareholder. The
aggregate purchase price for the transaction was based on a share price of $146.13, which was the average of the
twenty-day trailing closing price for our common stock through November 18, 2015.

On February 24, 2016, our Board of Directors authorized the repurchase of up to $150.0 million of our common
stock in a stock repurchase program. The new program replaced the prior $150.0 million plan which was in effect
at December 31, 2015 and had unused authorization of $11.9 million. During 2016, we repurchased 211,790
shares of our common stock in conjunction with our stock repurchase program at a total cost of $27.6 million
based on settlement date. We had approximately $122.4 million of repurchase authority remaining under this
program at December 31, 2016 based on settlement date.

On April 25, 2017, the Board of Directors of the Company approved a new common stock repurchase program of
up to $250.0 million. The new program replaced the prior $150.0 million program that was authorized in
February 2016 and had unused authorization of $114.6 million. The new authorized amount included and was not
in addition to any unspent amount remaining under the prior authorization in February 2016. 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. Share repurchases result in the shares being retired, and the cost of the
shares acquired are treated as a reduction from common stock and retained earnings. The repurchase program has
no time limit and may be suspended or discontinued at any time.

On June 9, 2017, we entered into an agreement with an affiliate of TDG to repurchase 1,000,000 shares of the
Company’s common stock for $158.78 per share in a privately negotiated transaction. The aggregate purchase
price was $158.8 million.

For the year ended December 31, 2017, including the repurchase of 1,000,000 shares from TDG, we have
repurchased 1,077,029 shares of our common stock under the April 2017 stock repurchase program at a total cost
of $171.7 million. We had approximately $78.3 million of repurchase authority remaining under this program at
December 31, 2017.

On November 29, 2017, the Board of Directors of the Company approved up to $500.0 million of share
repurchases from the proceeds of the Big Fish Transaction. This amount is in addition to any unspent amounts
remaining under the prior authorization which was in effect at April 25, 2017. Refer to Note 23, Subsequent
Events, for additional information.

Churchill Downs Incorporated
Notes to Consolidated Financial Statements

Shareholder Rights Plan
On March 13, 2008, our Board of Directors approved a shareholder rights plan which expires on March 13, 2018
and granted each shareholder the right, in certain circumstances, to purchase a fraction of a share of Series A
Junior Participating Preferred Stock at the rate of one right for each share of our common stock. If a person or
group, together with its affiliates and associates, become an acquiring person, defined as the beneficial owner of
15% or more of our common stock, each holder of a right (other than the person or group who has become an
acquiring person) will have the right to receive, upon exercise, shares of our common stock having a value equal
to two times the exercise price of the right. Certain persons and transactions are exempted from the definition of
acquiring person. In the event that, at any time following the date such person or group becomes an acquiring
person, (i) we engage in a merger or other business combination transaction in which we are not the surviving
corporation (other than with an entity that acquired the shares pursuant to an offer for all outstanding shares of
common stock that a majority of the independent directors determines to be fair and not inadequate and to
otherwise be in the best interests of us and our shareholders, after receiving advice from one or more investment
banking firms (a “Qualifying Offer”) ), (ii) we engage in a merger or other business combination transaction
(other than with an entity that acquired the shares pursuant to a Qualifying Offer) in which we are the surviving
corporation and our common stock is changed or exchanged, or (iii) 50% or more of our assets, cash flow or
earnings power is sold or transferred, each holder of a right (other than the person or group who has become an
acquiring person) shall thereafter have the right to receive, upon exercise, common stock of the surviving entity
having a value equal to two times the exercise price of the right. At any time after a person or group becomes an
acquiring person, and prior to the acquisition by such person or group of fifty percent (50)% or more of the
outstanding common stock, the Board of Directors may exchange the rights (other than rights owned by such
acquiring person), in whole or in part, for common stock at an exchange ratio of one share of common stock, or
one one-thousandth of a share of preferred stock (or of a share of a class or series of our preferred stock having
equivalent rights, preferences and privileges), per right (subject to adjustment).

13. DIRECTOR AND EMPLOYEE BENEFIT PLANS
Directors and Officers Retirement Plan
We provide eligible executives and directors an opportunity to defer to a future date the receipt of base and bonus
compensation for services as well as director’s fees through the 2005 Deferred Compensation Plan (the “Deferred
Plan”). Our matching contribution on base compensation deferral of executives equals the matching contribution
of our profit-sharing plan with certain limits.

Our directors may elect to invest the deferred director fee compensation into our common stock within the
Deferred Plan. Investments in our common stock are credited as hypothetical shares of common stock based on
the market price of the stock at the time the compensation was earned. Upon the end of the director’s service,
common stock shares are issued to the director.

Other Retirement Plans
We have a profit-sharing plan that covers all employees not otherwise participating in an associated profit-
sharing plan, with three months or more of service. We will match contributions made by employees up to 3% of
the employee’s annual compensation and match at 50% contributions made by the employee up to an additional
2% of compensation with certain limits. We may also contribute a discretionary amount determined annually by
the Board of Directors as well as a year-end discretionary match not to exceed 4% of compensation. Our cash
contribution to the plan was approximately $2.7 million in 2017, $2.5 million in 2016, and $2.5 million in 2015.

We are a member of a noncontributory defined benefit multi-employer retirement plan for all members of the
Pari-mutuel Clerk’s Union of Kentucky and several other collectively bargained retirement plans, which are
administered by unions. Cash contributions are made in accordance with negotiated labor contracts. Retirement
plan expense was $0.6 million in 2017, 2016 and 2015. Our policy is to fund this expense as accrued, and we
currently estimate that future contributions to these plans will not increase significantly from prior years.

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14. TOTAL DEBT
The following table presents our total debt outstanding:

(in millions)

2017 Credit Agreement:

Term Loan B due 2024
Revolving Credit Facility
Swing line of credit

Total 2017 Credit Agreement

2028 Senior Notes

Total debt
Current maturities of long-term debt

As of December 31, 2017

Unamortized Premium, Debt
Issuance Costs and Loan
Origination Fees

Outstanding
Principal

Premium

Issuance Costs
and Fees

Long-Term
Debt, Net

400.0
239.0
3.0

642.0
500.0

1,142.0
4.0

— $
—
—

—
—

5.1
—
—

5.1
7.7

12.8
—

394.9
239.0
3.0

636.9
492.3

1,129.2
4.0

Total debt, net of current maturities

1,138.0

— $

12.8

1,125.2

(in millions)

2014 Credit Agreement:

As of December 31, 2016

Unamortized Premium, Debt
Issuance Costs and Loan
Origination Fees

Outstanding
Principal

Premium

Issuance Costs
and Fees

Long-Term
Debt, Net

Senior Secured Credit Facility due 2021
Term Loan A due 2021
Swing line of credit

Total 2014 Credit Agreement

2021 Senior Notes

Total debt
Current maturities of long-term debt

135.0
179.3
13.2

327.5
600.0

927.5
14.2

Total debt, net of current maturities

913.3

— $
—
—

—
2.5

2.5
—

2.5

— $
0.5
—

0.5
7.8

8.3
—

8.3

135.0
178.8
13.2

327.0
594.7

921.7
14.2

907.5

2017 Credit Agreement
On December 27, 2017, we entered into a senior secured credit agreement (the “2017 Credit Agreement”) with a
syndicate of lenders. The 2017 Credit Agreement replaced the 2014 Credit Agreement. The 2017 Credit
Agreement provides for a $700.0 million senior secured revolving credit facility due 2022 (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 is 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 2017 Credit Agreement is collateralized
by substantially all assets of the Company.

The Revolver bears interest at LIBOR plus a spread as determined by the Company’s net leverage ratio, which
was LIBOR plus 175 points at December 31, 2017. The Term Loan B bears interest at LIBOR plus 200 basis
points.

Churchill Downs Incorporated
Notes to Consolidated Financial Statements

payments, changes in the nature of business, changes in fiscal year, and transactions with affiliates. The 2017
Credit Agreement also contains financial covenants providing for maintenance of a maximum consolidated
secured net leverage ratio (4.0 to 1.0 or 4.5 to 1.0 for the year following any permitted acquisition greater than
$100.0 million) and maintenance of a minimum consolidated interest coverage ratio of 2.5 to 1.0. The Company
was in compliance with all applicable covenants in the 2017 Credit Agreement at December 31, 2017.

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 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 secured
leverage ratio of the Company. For the period ended December 31, 2017, the Company’s commitment fee rate
was 0.25%.

Upon closing of the Big Fish Transaction on January 9, 2018, the Company used a portion of the proceeds to pay
down the $242.0 million balance as of December 31, 2017 on the Revolver.

As a result of the Company’s 2017 Credit Agreement, $5.1 million of debt issuance costs were capitalized
associated with the Term Loan B and will be amortized as interest expense over the respective debt period, or 7
years. The Company also capitalized $1.6 million of debt issuance costs associated with the Revolver which will
be amortized as interest expense over the respective debt period, or 5 years.

2014 Credit Agreement
The Company used the proceeds from the 2017 Credit Agreement to repay in full and terminate the 2014 Credit
Agreement. The 2014 Credit Agreement provided for a maximum aggregate commitment of $500.0 million
consisting of a Senior Secured Credit Facility and Term Loan A. In conjunction with the repayment of all
outstanding borrowings on the 2014 Credit Agreement, the Company expensed approximately $0.4 million of
debt issuance costs relating to the Term Loan A in the fourth quarter of 2017, which is included in loss on
extinguishment of debt in the accompanying Consolidated Statements of Comprehensive Income.

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 “2028 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 2028 Senior Notes were issued at par, with interest payable on January 15th and July 15th
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 2028
Senior Notes.

The 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 “Guarantors”), and U.S Bank
National Association, as trustee. The Company may redeem some or all of the 2028 Senior Notes at any time
prior to January 15, 2023, at a price equal to 100% of the principal amount of the 2028 Senior Notes redeemed
plus an applicable make-whole premium. On or after such date, the Company may redeem some or all of the
2028 Senior Notes at redemption prices set forth in the 2028 Indenture. In addition, at any time prior to
January 15, 2021, the Company may redeem up to 40% of the aggregate principal amount of the 2028 Senior
Notes at a redemption price equal to 104.75% of the principal amount thereof with the net cash proceeds of one
or more equity offerings provided that certain conditions are met. 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

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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) and enter into transactions with affiliates.

2021 Senior Notes

The Company used the proceeds from the 2017 Credit Agreement and 2028 Senior Notes to redeem the 2021
Senior Notes and to pay related fees and expenses. The 2021 Senior Notes were redeemed at a price equal to the
principal amount thereof and the applicable “make-whole” premium, $16.1 million, which is included in loss on
extinguishment of debt in the accompanying Consolidated Statements of Comprehensive Income. The Company
accounted for the redemption of the 2021 Senior Notes as an extinguishment and wrote off $6.3 million of
unamortized debt issuance costs and incurred a benefit of $2.0 million related to the unamortized bond premium,
both of which are included in loss on extinguishment of debt in the accompanying Consolidated Statements of
Comprehensive Income.

Future aggregate maturities of total debt are as follows (in millions):

Years Ended December 31,

2018
2019
2020
2021
2022
Thereafter

Total

4.0
4.0
4.0
4.0
246.0
880.0

$1,142.0

15. OPERATING LEASES

Future minimum operating lease payments on non-cancelable leases are as follows, not including the variable
portion of contingent leases (in millions):

Years Ended December 31,

2018
2019
2020
2021
2022
Thereafter

Total

$ 5.2
4.3
3.8
3.4
1.9
3.2

$21.8

We also lease totalisator equipment, audio/visual equipment and operate certain facilities that are partially
contingent on handle revenue, bandwidth usage or race days. Total annual rent expense for contingent lease
land and facilities, was approximately
payments,

including totalisator equipment, audio/visual equipment,

Churchill Downs Incorporated
Notes to Consolidated Financial Statements

$3.6 million in 2017, $3.4 million in 2016 and $3.5 million in 2015. Our total rent expense for all operating
leases,
lease payments, was $18.3 million in 2017, $18.9 million in 2016, and
$19.7 million in 2015.

including the contingent

In 2002, as part of financing improvements to the Churchill Downs facility, we transferred title of the Churchill
Downs facility to the City of Louisville, Kentucky and leased back the facility. Subject to the terms of the lease,
we can re-acquire the facility at any time for $1.00.

16. STOCK-BASED COMPENSATION PLANS

On December 31, 2017, we had stock-based employee compensation plans as described below. Our total
compensation expense, which includes expense related to restricted stock awards, restricted stock unit awards,
performance share unit awards, stock option awards, and stock options associated with our employee stock
purchase plan was $16.0 million in 2017, $13.3 million in 2016, and $12.5 million in 2015. The income tax
benefit related to stock-based employee compensation expense was $5.5 million in 2017, $4.9 million in 2016,
and $4.5 million in 2015.

2016 Omnibus Stock Incentive Plan

On February 24, 2016, we replaced our previous stock compensation program, the Churchill Downs Incorporated
2007 Omnibus Stock Incentive Plan (the “2007 Incentive Plan”) with a new program, the Churchill Downs
Incorporated 2016 Omnibus Stock Incentive Plan (“the 2016 Incentive Plan”). The 2016 Incentive Plan is
intended to advance our long-term success by encouraging stock ownership among key employees and the Board
of Directors. Awards may be in the form of stock options, stock appreciation rights, restricted stock (“RSA”),
restricted stock units (“RSU”), performance share units (“PSU”), performance units, or performance cash. The
2016 Incentive Plan has a minimum vesting period of one year for awards granted. During 2017, we granted
stock awards under the 2016 Incentive Plan.

Restricted Stock, Restricted Stock Units, and Performance Share Units

The 2016 Incentive Plan and the 2007 Incentive Plan (collectively “the 2016 and 2007 Plans”) permit the award
of RSAs or RSUs to directors and key employees, including our officers who are from time to time responsible
for the management, growth and protection of our business. RSAs and RSUs granted to employees under the
2016 and 2007 Plans generally vest either in full upon three years from the date of grant or on a pro-rata basis
over a three year term. RSAs are legally issued common stock at the time of grant, with certain restrictions
placed on them. RSUs granted to employees are converted into shares of our common stock at vesting. The RSUs
granted to directors under the 2016 and 2007 Plans generally vest in full upon one year from the date of grant.
RSUs granted to directors are converted into shares of our common stock at the time of the director’s retirement.
The fair value of RSAs and RSUs that vest solely based on continued service under the 2016 and 2007 Plans is
determined by the product of the number of shares granted and the grant date market price of our common stock.

On September 22, 2015, the Board of Directors approved the adoption of the Executive Long-Term Incentive
Compensation Plan (the “ELTI Plan”), pursuant to which certain named executive officers (“NEOs”) and other
key executives may earn variable equity payouts based upon us achieving certain key performance metrics over a
specified period. The ELTI Plan was adopted pursuant to the 2016 and 2007 Plans, which were previously
approved by our shareholders.

The vesting criteria for the PSU awards granted in 2015, 2016, and 2017 were based on a three year performance
and service period. The two performance criteria were a cumulative Adjusted EBITDA target that was set at the
beginning of the plan performance period for the entire three year period, and a cash flow metric that is the
aggregate of the cash flow targets for the three individual years that is set annually at the beginning of each year.
The cash flow metric is defined as cash flow from operating activities plus distributions of capital from equity
investments less capital maintenance expenditures. The Compensation Committee can make adjustments as it

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may deem appropriate to these metrics. Measurement against these criteria will be determined against a payout
curve which provides up to 200% of performance share units based on the original award.

The PSU awards also include a market condition related to relative total shareholder return (“TSR”). Our TSR
will be ranked versus the companies in the Russell 2000 index and will be calculated based on our relative
placement within the Russell 2000 index. The PSU awards may be adjusted based on the Company’s TSR, by
increasing the PSU awards by 25% if the Company’s TSR is in the top quartile, decreasing the PSU awards by
25% if the Company’s TSR is in the bottom quartile, and providing no change to the PSU awards if the
Company’s TSR is in the middle two quartiles. Once applying any TSR adjustment, the maximum number of
PSUs that can be earned for a performance period is 250% of the original award.

The total compensation cost we will recognize under the PSUs will be determined using the Monte Carlo
valuation methodology, which factors in the value of the TSR market condition when determining the grant date
fair value of the PSU. Compensation cost for each PSU is recognized during the performance and service period
based on the probable achievement of the two performance criteria. The PSUs are converted into shares of our
common stock at the time the PSU award value is finalized.

A summary of the RSUs and PSUs granted to certain NEOs is presented below (units in thousands):

Grant Year

Award Type

Number of
Units
Awarded(1)

2015

2016

2017

RSU

PSU

RSU

PSU

RSU

PSU

Vesting Terms

Majority vest equally over two service periods ending
December 31 of 2016 and 2017
Three year performance and service period ending December 31,
2017
Vest equally over three service periods ending December 31 of
2016, 2017, and 2018
Three year performance and service period ending December 31,
2018
Vest equally over three service periods ending December 31 of
2017, 2018, and 2019
Three year performance and service period ending December 31,
2019

(1) PSUs presented are based on the target number of units for the original PSU grant. If both performance
criteria do not achieve a minimum of 85% of their respective targets, no units will be awarded for the PSU
grant.

A summary of the RSAs granted to certain NEOs and employees and RSUs granted to directors is presented
below (shares/units in thousands):

Grant Year

Award Type

2015

2015
2016

2016
2017

2017

RSA

RSU
RSA

RSU

Number of
Shares/Units
Awarded

137

6
35

8
29

Vesting Terms

Vest over service periods ranging from seven months to three
years
Vest over service period ending in April 2016
Majority vest equally over three service periods ending in January
of 2017, 2018, and 2019
Vest over service period ending in April 2017
Vest equally over three service periods ending in February of
2018, 2019, and 2020
Vest over service period ending in April 2018

Churchill Downs Incorporated
Notes to Consolidated Financial Statements

Activity for our RSAs, RSUs, and PSUs is presented below (shares/units in thousands):

(in thousands, except grant date values)

Balance as of December 31, 2014

Granted
Vested
Canceled/forfeited

Balance as of December 31, 2015

Granted
Vested
Canceled/forfeited

Balance as of December 31, 2016

Granted
Adjustments(1)
Vested
Canceled/forfeited

Market Condition &
Performance-Based Awards

Service Period Awards

Total

Number of
Shares/Units

Weighted
Average
Grant Date
Fair Value

Number of
Shares/Units

Weighted
Average
Grant Date
Fair Value

Number of
Shares/Units

Weighted
Average
Grant Date
Fair Value

85 $
17 $
(85) $
— $

17 $
20 $
— $
— $

37 $
21 $
15 $
(32) $
— $

54.32
153.01
48.31
—

153.01
141.02
—
—

146.57
167.25
153.01
153.01
—

264 $
166 $
(157) $
(5) $

268 $
63 $
(167) $
(4) $

160 $
58 $
— $
(111) $
(1) $

57.07
102.34
65.89
91.14

71.98
134.04
67.61
88.92

110.71
156.92
—
110.38
125.75

349 $
183 $
(242) $
(5) $

285 $
83 $
(167) $
(4) $

197 $
79 $
15 $
(143) $
(1) $

56.40
107.06
57.24
91.14

83.71
135.71
67.61
88.92

111.69
159.75
153.01
119.94
125.75

Balance as of December 31, 2017

41 $

154.78

106 $

136.54

147 $

130.75

(1) Adjustments to number of units awarded for PSUs based on achievement of performance and market

conditions.

The fair value of shares and units vested was $29.6 million in 2017, $24.3 million in 2016, and $28.4 million in
2015.

A summary of total unrecognized stock-based compensation expense related to RSAs, RSUs, and PSUs (based
on current performance estimates), at December 31, 2017 is presented below:

(in millions, except years)

Unrecognized RSA expense
Unrecognized RSU expense
Unrecognized PSU expense

Total

Employee Stock Options

December 31, 2017

Weighted Average
Remaining Vesting
Period (Years)

3.0
2.0
3.4

8.4

1.3
1.3
1.7

1.5

All remaining stock options under the 2007 Incentive Plan were exercised during 2017. No stock options have
been awarded under the 2016 Incentive Plan.

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Activity for our stock options is presented below:

(in thousands, except per average exercise price)

Balance as of December 31, 2014

Granted
Exercises
Canceled/forfeited

Balance as of December 31, 2015

Granted
Exercises
Canceled/forfeited

Balance as of December 31, 2016

Granted
Exercises
Canceled/forfeited

Balance as of December 31, 2017

Number of Shares
Under Option

Weighted Average
Exercise Price

10
$
— $
(1) $
— $

9
$
— $
(5) $
— $

4
$
— $
(4) $
— $

— $

48.63
—
49.95
—

48.37
—
52.58
—

43.74
—
43.74
—

—

The total intrinsic value of stock options exercised was $0.5 million in 2017, $0.4 million in 2016, and
$0.1 million in 2015. Cash received from stock option exercises totaled $0.2 million in 2017, $0.2 million in
2016, and $0.1 million in 2015.

Employee Stock Purchase Plan
Under the Employee Stock Purchase Plan (the “ESP Plan”), we are authorized to sell, pursuant to short-term
stock options, shares of our common stock to our full-time and qualifying part-time employees at a discount from
our common stock’s fair market value. The ESP Plan operates on the basis of recurring, consecutive one-year
periods. Each period commences on August 1 and ends on the following July 31. Compensation expense related
to the ESP Plan was not material for any year included in our accompanying Consolidated Statements of
Comprehensive Income.

17. FAIR VALUE OF ASSETS AND LIABILITIES
We endeavor to utilize the best available information in measuring fair value. Financial assets and liabilities are
classified based on the lowest level of input that is significant to the fair value measurement. Refer to Note 3,
Discontinued Operations, for disclosures relating to our liabilities held for sale. The following tables present our
assets measured at fair value on a recurring basis:

(in millions)

Cash equivalents and restricted cash

Level 1

December 31, 2017 December 31, 2016

31.2

34.3

Our cash equivalents and restricted cash that are held in interest-bearing accounts qualify for Level 1 in the fair
value hierarchy, which includes unadjusted quoted market prices in active markets for identical assets.

The Company previously accrued for a contingent consideration liability in conjunction with the Bluff
acquisition that was based on significant inputs not observed in the market and represent a Level 3 fair value
measurement. The estimate of the contingent consideration liability used an income approach and was based on
the probability of achieving enabling legislation which permits Internet poker gaming and the probability-
weighted discounted cash flows. During the fourth quarter of 2016, the Company eliminated the contingent
liability as the legislation did not pass and thus the contingency period expired in February 2017. Therefore, the
Company recorded a $2.3 million reduction of the liability which was included in other, net, in the accompanying
Consolidated Statements of Comprehensive Income in 2016.

Churchill Downs Incorporated
Notes to Consolidated Financial Statements

We currently have no other assets or liabilities subject to fair value measurement on a recurring basis. Our
$500.0 million par value 2028 Senior Notes are disclosed at fair value which is based on unadjusted quoted
prices for similar liabilities in markets that are not active. The fair value of the 2028 Senior Notes was
$496.8 million at December 31, 2017.

The following methods and assumptions were used in estimating our fair value disclosures for financial
instruments:

Cash equivalents—the carrying amount reported in the balance sheet for cash equivalents approximates our
fair value due to the short-term maturity of these instruments.

Long-term debt: 2017 Credit Agreement and 2014 Credit Agreement—The carrying amounts of the
borrowings under our 2017 Credit Agreement and 2014 Credit Agreement approximate fair value, based
upon current interest rates, representing a Level 2 fair value measurement.

We did not measure any assets at fair value on a non-recurring basis for 2017 and 2016.

18. CONTINGENCIES

We are involved in litigation arising in the ordinary course of conducting business. We carry insurance for
workers’ compensation claims from our employees and general liability for claims from independent contractors,
customers and guests. We are self-insured up to an aggregate stop loss for our general liability and workers’
compensation coverages.

We review all litigation on an ongoing basis when making accrual and disclosure decisions. For certain legal
proceedings, we cannot reasonably estimate losses or a range of loss, if any, particularly for proceedings that are
in the early stages of development or where the plaintiffs seek indeterminate damages. Various factors, including,
but not limited to, the outcome of potentially lengthy discovery and the resolution of important factual questions,
may need to be determined before probability can be established or before a loss or range of loss can be
reasonably estimated. In accordance with current accounting standards for loss contingencies and based upon
information currently known to us, we establish reserves for litigation when it is probable that a loss associated
with a claim or proceeding has been incurred and the amount of the loss or range of loss can be reasonably
estimated. When no amount within the range of loss is a better estimate than any other amount, we accrue the
minimum amount of the estimable loss. To the extent that such litigation against us may have an exposure to a
loss in excess of the amount we have accrued, we believe that such excess would not be material to our
consolidated financial condition, results of operations, or cash flows. Legal fees are expensed as incurred.

If the loss contingency in question is not both probable and reasonably estimable, we do not establish an accrual
and the matter will continue to be monitored for any developments that would make the loss contingency both
probable and reasonably estimable. In the event that a legal proceeding results in a substantial judgment against,
or settlement by us, there can be no assurance that any resulting liability or financial commitment would not have
a material adverse impact on our business.

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Churchill Downs Incorporated
Notes to Consolidated Financial Statements

19. NET INCOME PER COMMON SHARE COMPUTATIONS

The following is a reconciliation of the numerator and denominator of the net income per common share
computations:

(in millions, except per share data)

Numerator for basic net income per common share:
Net income from continuing operations
Net income from continuing operations allocated to participating securities
Net income from discontinued operations

Numerator for basic net income per common share

Years Ended December 31,

2017

2016

2015

$ 122.4
(0.1)
18.1

$ 96.7
(1.0)
11.4

$ 70.8
(0.6)
(5.6)

$ 140.4

$ 107.1

$ 64.6

Numerator for diluted net income from continuing operations per common share

$ 122.4

$ 96.7

$ 70.8

Numerator for diluted net income per common share

$ 140.5

$ 108.1

$ 65.2

Denominator for net income per common share:

Basic
Plus dilutive effect of stock awards
Plus dilutive effect of participating securities

Diluted

Net income (loss) per common share data:

Basic

Diluted

Continuing operations
Discontinued operations

Net income per common share - basic

Continuing operations
Discontinued operations

Net income per common share - diluted

15.7
0.2
0.1

16.0

16.4
0.2
0.2

16.8

17.2
0.1
0.3

17.6

$ 7.76 $ 5.83
$ 0.69
$ 1.15

$ 4.08
$ (0.33)

$ 8.91

$ 6.52

$ 3.75

$ 7.64 $ 5.74
$ 0.68
$ 1.13

$ 4.03
$ (0.32)

$ 8.77

$ 6.42

$ 3.71

20. SEGMENT INFORMATION

We manage our operations through six operating segments, all of which are included in continuing operations
with the exception of Big Fish Games:

•

Racing, which includes Churchill Downs, Arlington International Race Course (“Arlington”), Fair
Grounds Race Course (“Fair Grounds”) and Calder;

Casino, which includes Oxford Casino (“Oxford”), Riverwalk Casino (“Riverwalk”), Harlow’s Casino
(“Harlow’s”), Calder Casino, Fair Grounds Slots, Video Services, LLC (“VSI”), 50% of EBITDA from
our joint venture, MVG, an effective 62.5% of EBITDA from our equity investment in Ocean Downs
and 25% of EBITDA from our equity investment in SCH.

TwinSpires, which includes TwinSpires.com, Fair Grounds Account Wagering, Velocity, BetAmerica,
and Bloodstock Research Information Services;

Other Investments, which includes United Tote and other minor investments;

Corporate, which includes miscellaneous and other revenue, compensation expense, professional fees
and other general and administrative expense not allocated to our other operating segments; and

Churchill Downs Incorporated
Notes to Consolidated Financial Statements

•

Big Fish Games is a global producer and distributor of social casino, casual and mid-core free-to-play
and premium paid games for PC, Mac and mobile devices. Big Fish Games is headquartered in Seattle,
Washington and has a studio location in Oakland, California, with approximately 700 employees. On
November 29, 2017, we entered into a definitive stock purchase agreement to sell Big Fish Games to
the Purchaser in the Big Fish Transaction. On January 9, 2018, we closed the Big Fish Transaction, at
which time Big Fish Games ceased to be an operating segment.

Eliminations include the elimination of intersegment transactions. We utilize non-GAAP measures, including
EBITDA (earnings before interest, taxes, depreciation and amortization) and Adjusted EBITDA. Our chief
operating decision maker utilizes Adjusted EBITDA to evaluate segment performance, develop strategy and
allocate resources. Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization,
adjusted for the following:

Adjusted EBITDA includes our portion of the EBITDA from our equity investments.

Adjusted EBITDA excludes:

•

Transaction expense, net which includes:

•

Acquisition and disposition related charges, including fair value adjustments related to
earnouts and deferred payments; and

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

•

Stock-based compensation expense;

Asset impairments;

Gain on Calder land sale;

Calder exit costs;

Loss on extinguishment of debt; and

Other charges, recoveries and expenses

Effective January 1, 2017, certain revenue previously included in our Corporate segment was deemed by
management to be more closely aligned with our TwinSpires segment. Due to the Big Fish Transaction, the
Company has presented Big Fish Games as held for sale and discontinued operations in the accompanying
Consolidated Financial Statements and these notes. The Company has not allocated corporate and other certain
expenses to Big Fish Games consistent with the discontinued operations presentation in the accompanying
Consolidated Statements of Comprehensive Income. Accordingly, the prior year amounts were reclassified to
conform to this presentation.

We utilize the Adjusted EBITDA metric because we believe the inclusion or exclusion of certain non-recurring
items is necessary to provide a more accurate measure of our core operating results and enables management and
investors to evaluate and compare from period to period our operating performance in a meaningful and
consistent manner. 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. Our calculation of Adjusted EBITDA
may be different from the calculation used by other companies and, therefore, comparability may be limited. For
segment reporting, Adjusted EBITDA includes intercompany revenue and expense totals that are eliminated in
the accompanying Consolidated Statements of Comprehensive Income. We have included Big Fish Games
Adjusted EBITDA information as applicable within this Note due to the fact that Big Fish Games was an
operating segment as of December 31, 2017.

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Churchill Downs Incorporated
Notes to Consolidated Financial Statements

The tables below present net revenue from external customers and intercompany revenue from each of our
operating segments, Adjusted EBITDA by segment and reconciles Comprehensive Income to Adjusted EBITDA:

(in millions)

Net revenue from external customers:

Racing:

Years Ended December 31,

2017

2016

2015

Churchill Downs
Arlington
Fair Grounds
Calder

Total Racing

Casino:

Oxford Casino
Riverwalk Casino
Harlow’s Casino
Calder Casino
Fair Grounds Slots
VSI
Saratoga

Total Casino

TwinSpires
Other Investments
Corporate

Net revenue from external customers

Intercompany net revenue:

Racing:

Churchill Downs
Arlington
Fair Grounds
Calder

Total Racing

TwinSpires
Other Investments
Eliminations

161.3
57.2
36.3
2.5

257.3

90.8
48.2
50.0
85.4
36.5
38.3
1.3

350.5
255.6
19.2
—

155.2
55.3
38.0
2.6

251.1

84.6
46.1
48.4
79.1
36.9
36.9
0.8

332.8
221.6
16.9
—

882.6

822.4

11.4
6.3
1.6
—

19.3
1.1
4.5
(24.9)

10.0
5.5
1.5
—

17.0
1.3
3.9
(22.2)

Intercompany net revenue

— $

151.1
54.4
39.8
2.7

248.0

80.4
49.8
49.0
77.4
39.0
36.9
0.4

332.9
201.1
16.6
—

798.6

7.8
5.1
1.3
—

14.2
1.1
3.5
(18.8)

—

Churchill Downs Incorporated
Notes to Consolidated Financial Statements

Adjusted EBITDA by segment is comprised of the following:

(in millions)

Racing

Casino

TwinSpires

Investments Corporate(a)

Year Ended December 31, 2017

Continuing Operations

Other

Discontinued
Operations

Big Fish
Games

Net revenue
Taxes & purses
Platform & development fees
Marketing & advertising
Salaries & benefits
Content expense
SG&A expense
Research & development
Other operating expense
Other income

276.6
(65.4)
—
(4.9)
(41.7)
(15.2)
(16.8)
—
(48.9)
0.8

350.5
(117.0)
—
(12.1)
(53.2)
—
(22.6)
—
(41.6)
42.0

256.7
(14.7)
—
(8.2)
(9.9)
(125.0)
(12.4)
—
(22.1)
—

23.7
—
—
—
(12.0)
—
(3.3)
—
(5.1)
0.4

— $
—
—
—

—
(12.2)
—
(0.5)
0.3

466.0
—
(167.8)
(116.6)
(27.8)
—
(16.6)
(39.6)
(15.6)
(1.7)

Adjusted EBITDA

84.5

146.0

64.4

3.7

(12.4) $

80.3

(in millions)

Racing

Casino

TwinSpires

Investments Corporate(a)

Year Ended December 31, 2016

Continuing Operations

Other

Discontinued
Operations

Big Fish
Games

Net revenue
Taxes & purses
Platform & development fees
Marketing & advertising
Salaries & benefits
Content expense
SG&A expense
Research & development
Other operating expense
Other income

268.1
(64.2)
—
(4.6)
(40.9)
(15.6)
(16.2)
—
(47.4)
0.5

332.8
(110.9)
—
(12.7)
(50.8)
—
(21.2)
—
(39.1)
27.7

222.9
(11.6)
—
(6.3)
(9.4)
(107.6)
(12.0)
—
(19.8)
—

20.8
—
—
—
(10.9)
—
(3.4)
—
(4.1)
0.3

— $
—
—
—
—
—
(11.7)
—
(0.6)
0.2

486.2
—
(179.9)
(127.9)
(25.0)
—
(15.4)
(39.0)
(15.9)
(0.9)

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Adjusted EBITDA

79.7

125.8

56.2

2.7

(12.1) $

82.2

Churchill Downs Incorporated
Notes to Consolidated Financial Statements

Year Ended December 31, 2015

Continuing Operations

Other

(in millions)

Racing

Casino

TwinSpires

Investments Corporate(a)

Discontinued
Operations

Big Fish
Games

Net revenue
Taxes & purses
Platform & development fees
Marketing & advertising
Salaries & benefits
Content expense
SG&A expense
Research & development
Other operating expense
Other income

262.2
(63.6)
—
(6.1)
(39.2)
(14.6)
(16.6)
—
(50.9)
0.6

332.9
(109.9)
—
(12.4)
(49.7)
—
(24.1)
—
(41.3)
19.4

202.2
(10.6)
—
(4.8)
(9.9)
(97.9)
(11.5)
—
(18.0)
—

20.1
—
—
—
(11.1)
—
(2.5)
—
(3.8)
0.2

Adjusted EBITDA

71.8

114.9

49.5

2.9

— $
—
—
—
—
—
(9.3)
—
1.1
0.1

(8.1) $

413.7
—
(143.6)
(107.7)
(22.3)
—
(13.8)
(39.4)
(14.8)
(0.6)

71.5

100

Churchill Downs Incorporated
Notes to Consolidated Financial Statements

(in millions)

Reconciliation of Comprehensive Income to Adjusted EBITDA:
Comprehensive income
Foreign currency translation, net of tax
Net change in pension benefits, net of tax

Net income
Additions - continuing operations:
Depreciation and amortization
Interest expense
Loss on extinguishment of debt
Income tax (benefit) provision
Additions - discontinued operations:
Depreciation and amortization
Income tax provision

EBITDA

Adjustments to EBITDA - continuing operations:

Selling, general and administrative:

Stock-based compensation expense
Other charges
Other income, expense:

Interest, depreciation and amortization expense related to

equity investments

Other charges and recoveries, net

Impairment of tangible and other intangible assets
Gain on Calder land sale
Calder exit costs
Other, net

Adjustments to EBITDA - discontinued operations:

Stock-based compensation expense
Transaction expense, net

Total adjustments to EBITDA

Adjusted EBITDA

Adjusted EBITDA by segment:

Racing
Casino
TwinSpires
Other Investments
Corporate(a)
Big Fish Games

Adjusted EBITDA

Years Ended December 31,

2017

2016

2015

140.4
0.1
—

140.5

56.0
49.3
20.7
(19.9)

41.1
5.1

107.5
(0.2)
0.8

108.1

58.4
43.7
—
50.7

50.2
9.3

64.7
0.5
—

65.2

58.0
28.6
—
44.6

51.7
2.3

292.8

320.4

250.4

16.0
1.2

16.7
—
21.7
—
0.8
1.5

11.1
4.7

73.7

13.3
2.5

10.0
0.5
—
(23.7)
2.5
(2.4)

5.6
5.8

14.1

12.5
—

8.5
(5.8)
—
—
13.9
—

1.3
21.7

52.1

366.5

334.5

302.5

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84.5
146.0
64.4
3.7
(12.4)
80.3

79.7
125.8
56.2
2.7
(12.1)
82.2

366.5

334.5

71.8
114.9
49.5
2.9
(8.1)
71.5

302.5

101

Churchill Downs Incorporated
Notes to Consolidated Financial Statements

The table below presents information about earnings (losses) from equity investments, net included in our
reported segments:

(in millions)

Casino
Other Investments

The table below presents total asset information for each of our operating segments:

(in millions)

Total assets:
Racing
Casino
TwinSpires
Other Investments
Corporate
Big Fish Games

Years Ended December 31,

2017

2016

2015

$ 25.3
0.2

$ 17.4
—

$ 10.9
0.3

$ 25.5

$ 17.4

$ 11.2

As of December 31,

2017

2016

$ 483.0
679.6
215.9
15.2
73.2
892.5

$ 454.6
628.7
209.9
11.1
56.3
893.8

$2,359.4

$2,254.4

The table below presents total capital expenditures for each of our operating segments:

(in millions)

Capital expenditures:

Racing
Casino
TwinSpires
Other Investments
Corporate
Big Fish Games

Years Ended December 31,

2017

2016

2015

$ 57.8
37.5
9.0
3.4
1.3
7.9

$ 26.1
13.9
7.0
1.0
1.2
5.5

$ 12.3
18.8
4.3
0.8
0.9
6.4

$116.9

$ 54.7

$ 43.5

21. HRTV EQUITY INVESTMENT DIVESTITURE

As part of the TSG agreement related to the cessation of Calder pari-mutuel operations in 2014, we modified our
HRTV, LLC (“HRTV”) operating and ownership agreement with TSG resulting in the divestiture of our interest
in HRTV effective January 2, 2015. In January 2015, we received $6.0 million in proceeds from the sale of the
ownership interest and we recorded a gain of $5.8 million in our Other Investments segment, which is included in
miscellaneous, net in other expense in the accompanying Consolidated Statements of Comprehensive Income.
The HRTV gain has been excluded from Adjusted EBITDA and is included in other charges and recoveries, net
in the reconciliation of Comprehensive Income to Adjusted EBITDA.

102

Churchill Downs Incorporated
Notes to Consolidated Financial Statements

22. RELATED PARTY TRANSACTIONS

Directors and employees may from time to time own or have interests in horses racing at our racetracks. All such
races are conducted under the regulations of each state’s respective regulatory agency, as applicable, and no
director receives any extra or special benefit with regard to having his or her horses selected to run in races or in
connection with the actual running of races. There is no material financial statement impact attributable to
directors who may have interests in horses racing at our racetracks.

In the ordinary course of business, we may enter into transactions with certain of our officers and directors for
the sale of personal seat licenses and suite accommodations at our racetracks, and tickets for our live racing
events. We believe that each such transaction has been on terms no less favorable for us than could have been
obtained in a transaction with a third party, and no such person received any extra or special benefit in
connection with such transactions.

On November 19, 2015, we repurchased approximately 945,000 common shares for $138.1 million in a privately
negotiated transaction with a related party, TDG, our largest shareholder. Additionally, on June 9, 2017, we
entered into an agreement with TDG to repurchase 1,000,000 shares of the Company’s common stock for
$158.78 per share in a privately negotiated transaction. The aggregate purchase price was $158.8 million.

Refer to Note 12, Shareholders’ Equity, for additional information related to the repurchases.

23. SUBSEQUENT EVENTS

Modified Dutch Auction

On November 29, 2017, the Board of Directors of the Company authorized a $500.0 million share repurchase
program in a “modified Dutch auction” tender offer utilizing a portion of the proceeds from the Big Fish
Transaction. The Company completed the tender offer on February 12, 2018, and repurchased 1,886,792 shares
of the Company’s common stock at a purchase price of $265.00 per share with an aggregate cost of
$500.0 million, excluding fees and expenses related to the tender offer.

Acquisitions

On February 28, 2018, the Company announced it has entered into two separate definitive asset purchase
agreements with Eldorado Resorts, Inc. and certain subsidiaries to acquire substantially all of the assets and
properties used in connection with the operation of Presque Isle Downs & Casino (“Presque Isle”) in Erie,
Pennsylvania, and Lady Luck Casino (“Lady Luck Vicksburg”) in Vicksburg, Mississippi for total aggregate
consideration of approximately $229.5 million, to be paid in cash. The transactions are dependent on usual and
customary closing conditions, including the Company securing gaming licenses from the Pennsylvania Gaming
Control Board and the Mississippi Gaming Commission as well as a racing license from the Pennsylvania State
Horse Racing Commission. The Lady Luck Vicksburg transaction is expected to close in the second quarter of
2018. Closing of the Presque Isle purchase, which is conditioned on the closing of the Lady Luck Vicksburg
transaction, is expected to close in the fourth quarter of 2018.

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103

Churchill Downs Incorporated
Notes to Consolidated Financial Statements

24. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

(in millions, except per common share data)

For the Year Ended December 31, 2017

First Quarter

Second Quarter

Third Quarter Fourth Quarter(a)

Net revenues
Operating income (loss)
Income from continuing operations, net of tax
Income from discontinued operations, net of tax
Net income per common share - basic (c):

Continuing operations
Discontinued operations

Net income per common share - basic

Net income per common share - diluted (c):

Continuing operations
Discontinued operations

Net income per common share - diluted

167.5 $
8.4
2.2
5.1

0.13 $
0.31

0.44 $

0.13 $
0.31

0.44 $

339.3 $
123.3
72.9
5.4

4.52 $
0.34

4.86 $

4.47 $
0.34

4.81 $

196.9 $
26.8
12.9
3.8

0.85 $
0.24

1.09 $

0.84 $
0.24

1.08 $

178.9
(12.8)
34.4
3.8

2.25
0.25

2.50

2.22
0.24

2.46

(in millions, except per common share data)

For the Year Ended December 31, 2016

First Quarter

Second Quarter

Third Quarter Fourth Quarter(b)

Net revenues
Operating income
Income from continuing operations, net of tax
(Loss) income from discontinued operations, net

of tax

Net income (loss) per common share - basic (c):

Continuing operations
Discontinued operations

Net income per common share - basic

Net income (loss) per common share - diluted (c):

Continuing operations
Discontinued operations

Net income per common share - diluted

166.3 $
12.5
7.1

313.3 $
113.6
66.8

181.0 $
14.0
3.4

(4.3)

3.0

5.3

0.43 $
(0.26)

0.17 $

0.42 $
(0.26)

0.16 $

3.97 $
0.19

4.16 $

3.93 $
0.18

4.11 $

0.20 $
0.32

0.52 $

0.20 $
0.32

0.52 $

161.8
32.4
19.4

7.4

1.17
0.45

1.62

1.16
0.44

1.60

(a) Fourth quarter of 2017 includes a $21.7 million impairment of tangible and intangible assets and a
$20.7 million loss on extinguishment of debt. Additionally, fourth quarter of 2017 includes a $57.7 million
income tax benefit resulting primarily from the re-measurement of our net deferred tax liabilities as a result
of the Tax Act.

(b) Fourth quarter of 2016 includes a $23.7 million gain on Calder land sale.
(c) Net income (loss) per common share calculations for each quarter are based on the weighted average
number of shares outstanding during the respective period. Accordingly, the sum of the quarters may not
equal the full-year income (loss) per share.

104

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders
of Churchill Downs Incorporated

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Churchill Downs Incorporated and its
subsidiaries as of December 31, 2017 and 2016, and the related consolidated statements of comprehensive
income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2017,
including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2)
(collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal
control over financial reporting as of December 31, 2017, based on criteria established in Internal Control—
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of the Company as of December 31, 2017 and 2016, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2017 in conformity with accounting
principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in
all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria
established in Internal Control—Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control over
financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing
under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and
on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to
be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are
free of material misstatement, whether due to error or fraud, and whether effective internal control over financial
reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,

105

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accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.

Because of its inherent
internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

limitations,

/s/ PricewaterhouseCoopers LLP
Louisville, Kentucky
February 28, 2018

We have served as the Company’s auditor since 1990.

106

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND

FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in
our reports that we filed under the Securities Exchange Act of 1934, as amended, is recorded, processed,
summarized, and reported within the time periods specified in the Securities and Exchange Commission rules
and forms, and that such information is accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required
disclosures.

As required by the Securities and Exchange Commission Rule 13a-15(e), we carried out an evaluation, under the
supervision and with the participation of management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of
December 31, 2017. Based upon the foregoing, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There has been no change in our internal controls over financial reporting during our most recent fiscal quarter
that has materially affected, or is reasonably likely to materially affect our internal control over financial
reporting. Our process for evaluating controls and procedures is continuous and encompasses constant
improvement of the design and effectiveness of established controls and procedures

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting of
Churchill Downs Incorporated, as defined in Rules 13a-15(f) or 15d-15(f) under the Securities Exchange Act of
1934, as amended. Under the supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of Churchill
Downs Incorporated’s internal control over financial reporting based upon the framework in the Integrated
Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based upon our evaluation under the framework in the Internal Control-Integrated Framework
(2013) management has concluded that Churchill Downs Incorporated’s internal control over financial reporting
was effective as of December 31, 2017.

/s/ William C. Carstanjen

William C. Carstanjen
Chief Executive Officer
February 28, 2018

/s/ Marcia A. Dall
Marcia A. Dall
Executive Vice President and
Chief Financial Officer
February 28, 2018

/s/ Chad E. Dobson
Chad E. Dobson
Vice President and
Chief Accounting Officer
February 28, 2018

The effectiveness of the Company’s internal control over financial reporting as of December 31, 2017 has been
audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their
report which appears herein.

ITEM 9B. OTHER INFORMATION

None.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information with respect to our outside directors, audit committee and Section 16(a) beneficial ownership
reporting compliance is incorporated by reference to the definitive proxy statement on Schedule 14(a) to be filed
with the Securities and Exchange Commission no later than 120 days after December 31, 2017.

We have adopted a Code of Ethics that applies to our Chief Executive Officer, Chief Financial Officer and
corporate website,
of Ethics
principal
www.churchilldownsincorporated.com, under the “Investors” heading and is also available to shareholders upon
request.

officers. This Code

available

financial

our

Executive Officers of the Registrant

Name

Age as of
2/28/2018

Principal Occupation for the Past Five Years
and Position with Churchill Downs Incorporated

William C. Carstanjen

William E. Mudd

Marcia A. Dall

Chief Executive Officer since August 2014; President and Chief Operating
Officer from March 2011 to August 2014.

President and Chief Operating Officer since October 2015; President and
Chief Financial Officer from August 2014 to October 2015; Executive
Vice President and Chief Financial Officer from October 2007 to August
2014.

Executive Vice President and Chief Financial Officer since October 2015;
Executive Vice President and Chief Financial Officer of Erie Indemnity
Company from March 2009 through October 2015.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item with respect to executive compensation is incorporated by reference to the
definitive proxy statement on Form 14(a) to be filed with the Securities and Exchange Commission no later than
120 days after December 31, 2017.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

AND RELATED SHAREHOLDER MATTERS

The information required by this item with respect to security ownership of certain beneficial owners and
management and related shareholder matters is incorporated by reference to the definitive proxy statement on
Form 14(a) to be filed with the Securities and Exchange Commission no later than 120 days after December 31,
2017.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR

INDEPENDENCE

The information required by this item with respect
to certain relationships with our outside directors is
incorporated by reference to the definitive proxy statement on Form 14(a) to be filed with the Securities and
Exchange Commission no later than 120 days after December 31, 2017.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required herein is incorporated by reference from the section of our Proxy Statement titled
“Independent Public Accountants,” pursuant to instruction G(3) of the General Instructions to Form 10-K.

108

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE

PART IV

(a) (1) Consolidated Financial Statements

The following financial statements of Churchill Downs Incorporated for the years ended 2017,
2016 and 2015 are included in Part II, Item 8:

Consolidated Balance Sheets
Consolidated Statements of Comprehensive Income
Consolidated Statements of Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm

(2) Schedule II—Valuation and Qualifying Accounts

All other schedules are omitted because they are not applicable, not significant or not required, or
because the required information is included in the consolidated financial statements or notes
thereto.

(3) For the list of required exhibits, see exhibit index.

(b)

(c)

Exhibits

See exhibit index.

All financial statements and schedules except those items listed under Items 15(a)(1) and
(2) above are omitted because they are not applicable or not required, or because the required
information is included in the consolidated financial statements or notes thereto.

Pages

62
61
63
64
66
105
116

110
110

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109

Numbers

Description

By Reference To

EXHIBIT INDEX

(a)

(b)

(c)

(d)

(e)

Agreement and Plan of Merger, dated as of
November 12, 2014, by and among Churchill
Downs Incorporated, Ocean Acquisition Corp.,
Big Fish Games, Inc., and the securityholders’
agent party thereto

First Amendment
to Agreement and Plan of
Merger, dated as of March 27, 2017, by and
among Churchill Downs Incorporated, Ocean
Acquisition Corp., Big Fish Games, Inc. and the
securityholders’ agent party thereto

Agreement,

Shareholder
of
November 12, 2014, by and between Churchill
Downs Incorporated and Paul J. Thelen

dated

First Amendment
to Shareholder Agreement,
dated as of October 23, 2015, by and between
J.
Churchill Downs
Thelen

Incorporated and Paul

Stock Purchase Agreement,
of
November 29, 2017, by and among Aristocrat
Downs
Technologies,
Incorporated and Big Fish Games, Inc.

Churchill

dated

Inc.,

Exhibit 2.1 to Current Report on Form 8-K
(Commission file number 001-33998)
filed
November 13, 2014**

Exhibit 2.1 to Current Report on Form 8-K
(Commission file number 001-33998) filed on
March 27, 2017

Exhibit 2.2 to Current Report on Form 8-K
filed
(Commission file number 001-33998)
November 13, 2014

Exhibit 10.1 to Current Report on Form 8-K
(Commission file number 001-33998)
filed
November 5, 2015

Exhibit 2.1 to Current Report on Form 8-K
(Commission file number 001-33998) filed on
November 30, 2017**

(a)

Amended and Restated Articles of Incorporation
of Churchill Downs Incorporated, as amended
July 3, 2012

Exhibit 3.1 to Current Report on Form 8-K
filed
(Commission file number 001-33998)
July 10, 2012

(b)

Amended and Restated Bylaws of Churchill
Downs Incorporated, as amended July 3, 2012

Exhibit 3.2 to Current Report on Form 8-K
(Commission file number 001-33998)
filed
July 10, 2012

(a)

Rights Agreement, dated as of March 19, 2008
by and between Churchill Downs Incorporated
and National City Bank

Exhibit 4.1 to Current Report on Form 8-K
(Commission file number 000-01469)
filed
March 17, 2008

(b)

(c)

(d)

Indenture dated as of December 16, 2013 by and
among Churchill Downs
the
guarantors named therein,
and US Bank
National Association

Incorporated,

Exhibit 4.1 to Current Report on Form 8-K
(Commission file number 001-33998)
filed
December 17, 2013.

Rights

Agreement

Registration
dated
December 16, 2013 by and among Churchill
Downs
the guarantors named
therein and the representatives of the initial
purchasers

Incorporated,

Exhibit 4.2 to Current Report on Form 8-K
(Commission file number 001-33998)
filed
December 17, 2013.

First Supplemental
Indenture dated as of
December 15, 2015 among Churchill Downs
Incorporated, the guarantors party thereto and
U.S. Bank National Association, as trustee

Exhibit 4.1 to Current Report on Form 8-K
(Commission file number 001-33998)
filed
December 15, 2015

110

Numbers

Description

By Reference To

(e)

(f)

(g)

Registration Rights Agreement dated as of
December 15, 2015 by and among Churchill
the guarantors party
Downs
thereto and J.P. Morgan Securities LLC

Incorporated,

Indenture dated as of December 27, 2017 by and
among Churchill Downs
the
guarantors party thereto and U.S. Bank National
Association, as trustee

Incorporated,

Registration Rights Agreement dated as of
December 27, 2017 by and among Churchill
the guarantors party
Downs
thereto and J.P. Morgan Securities LLC

Incorporated,

Exhibit 4.2 to Current Report on Form 8-K
(Commission file number 001-33998)
filed
December 15, 2015

Exhibit 4.1 to Current Report on Form 8-K
(Commission file number 001-33998)
filed
December 27, 2017

Exhibit 4.2 to Current Report on Form 8-K
(Commission file number 001-33998)
filed
December 27, 2017

(a)

Churchill Downs Incorporated Amended and
Restated Supplemental Benefit Plan effective
December 1, 1998*

Exhibit 10(a) to Annual Report on Form 10-K
(Commission file number 000-01469) for the
fiscal year ended December 31, 1998

(b)

(c)

(d)

(e)

(f)

Churchill Downs
Option Plan*

Incorporated 2003 Stock

Exhibit 4(e) to the Registration Statement on
Form
number
(Commission
333-106310) filed June 20, 2003

S-8

file

Fourth Amended and Restated Churchill Downs
Incorporated 1997 Stock Option Plan*

Exhibit 10(a) to Quarterly Report on Form 10-Q
(Commission file number 000-01469) for the
fiscal quarter ended June 30, 2002

Churchill Downs Incorporated Amended and
Restated Deferred Compensation Plan for
Employees and Directors*

Exhibit 10(a) to Quarterly Report on Form 10-Q
(Commission file number 000-01469) for the
fiscal quarter ended March 31, 2001

dated
Form of Stockholder’s Agreement
September 8, 2000 among Churchill Downs
Incorporated and Duchossois Industries, Inc.

Annex C to Schedule 14A (Commission file
number 000-01469) filed August 10, 2000

Lease Agreement
of
Louisville, Kentucky and Churchill Downs
Incorporated dated January 1, 2003

the City

between

Exhibit 2.1 to Current Report on Form 8-K
000-01469)filed
(Commission
January 6, 2003

number

file

(g)

Form of Restricted Stock Agreement*

2005 Churchill Downs Incorporated Deferred
Compensation Plan, as amended*

2006 Amendment
Incorporated Deferred Compensation Plan*

to 2005 Churchill Downs

(h)

(i)

(j)

Exhibit 10.1 to Current Report on Form 8-K
filed
(Commission file number 000-01469)
November 30, 2004

Exhibit 10.1 to Current Report on Form 8-K
(Commission file number 000-01469)
filed
June 21, 2005

Exhibit 10.1 to Current Report on Form 8-K
(Commission file number 000-01469)
filed
June 8, 2006

Churchill Downs Incorporated 2007 Omnibus
Stock Incentive Plan*

Exhibit A to Schedule 14A (Commission file
number 000-01469) filed April 30, 2007

111

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Numbers

Description

By Reference To

(k)

(l)

(m)

(n)

(o)

(p)

(q)

(r)

(s)

(t)

(u)

Amendment to Churchill Downs Incorporated
2005 Deferred Compensation Plan Adopted
June 28, 2007*

Exhibit 10(b) to Quarterly Report on Form 10-Q
(Commission file number 000-01469) for the
fiscal quarter ended June 30, 2007

Amended and Restated Terms and Conditions of
Performance Stock Awards Issued Pursuant to
the Churchill Downs
2007
Omnibus Stock Incentive Plan*

Incorporated

Exhibit 10.1 to Current Report on Form 8-K
(Commission file number 001-33998)
filed
December 22, 2008

First Amendment
to the Churchill Downs
Incorporated Amended and Restated Incentive
Compensation
effective
November 14, 2008*

(1997),

Plan

2005 Churchill Downs Incorporated Deferred
Compensation Plan
of
December 1, 2008)*

(As Amended

Exhibit 10 (vv) to Annual Report on Form 10-K
(Commission file number 001-33998) for the
fiscal year ended December 31, 2008

Exhibit 10 (ww) to Annual Report on Form
10-K (Commission file number 001-33998) for
the fiscal year ended December 31, 2008

Churchill Downs
Executive
Severance Policy (Amended Effective as of
November 12, 2008)*

Incorporated

Exhibit 10 (xx) to Annual Report on Form 10-K
(Commission file number 001-33998) for the
fiscal year ended December 31, 2008

Form of Churchill Downs
Restricted Stock Agreement*

Incorporated

Limited Liability Company Agreement of
Miami Valley Gaming & Racing, LLC, dated as
of March 1, 2012, by and among Miami Valley
Gaming & Racing, LLC, Churchill Downs
Incorporated, MVGR, LLC, Delaware North
Companies Gaming & Entertainment, Inc. and
DNC Ohio Gaming, Inc.

Asset Purchase Agreement, dated as of March 1,
2012, by and among Miami Valley Gaming &
Racing LLC; Lebanon Trotting Club,
Inc.;
Miami Valley Trotting, Inc.; Keith Nixon Jr. and
John Carlo

Exhibit 10(LL) to Annual Report on Form 10-K
(Commission file number 001-33998) for the
fiscal year ended December 31, 2011

Exhibit 10.1 to Current Report on Form 8-K
(Commission file number 001-33998)
filed
March 5, 2012

Exhibit 10.2 to Current Report on Form 8-K
filed
(Commission file number 001-33998)
March 5, 2012

Churchill Downs
Annual Incentive Plan*

Incorporated

Executive

Exhibit A to Schedule 14A (Commission file
number 001-33998) filed May 3, 2012

Exhibit B to Schedule 14A (Commission file
number 001-33998) filed May 3, 2012

Exhibit 10.1 to Current Report on Form 8-K
(Commission file number 001-33998)
filed
August 28, 2014

Amendment
Downs
the
Incorporated 2007 Omnibus Stock Incentive
Plan*

Churchill

Form of Executive Change
in Control,
Severance and Indemnity Agreement dated as of
August 27, 2014 by and between Churchill
Downs
Incorporated and Robert L. Evans,
William C. Carstanjen, William E. Mudd, and
Alan K. Tse*

112

Numbers

Description

By Reference To

(v)

(w)

(x)

(y)

(z)

(aa)

(bb)

(cc)

Form of Executive Change
in Control,
Severance and Indemnity Agreement dated as of
February 9, 2015 by and between Churchill
Downs
Incorporated and Robert L. Evans,
William C. Carstanjen, William E. Mudd, and
Alan K. Tse*

in Control,
Form of Executive Change
Severance and Indemnity Agreement dated as of
October 12, 2015 by and between Churchill
Downs Incorporated and Marcia A. Dall*

First Amendment to the Executive Change in
Control, Severance and Indemnity Agreement
by and between Churchill Downs Incorporated
and Robert L. Evans*

Form of Churchill Downs
Restricted Stock Unit Agreement*

Incorporated

Form of Churchill Downs
Performance Share Unit Agreement*

Incorporated

Repurchase

Stock
dated
November 19, 2015, between Churchill Downs
Incorporated and the Duchossois Group, Inc.

Agreement,

First Amendment to Stockholder’s Agreement,
dated November 19, 2015 between Churchill
and The Duchossois
Downs
Group, Inc.

Incorporated

Exhibit 10.1 to Current Report on Form 8-K
(Commission file number 001-33998)
filed
February 12, 2015

Exhibit 10.1 to Current Report on Form 8-K
(Commission file number 001-33998)
filed
July 14, 2015

Exhibit 10.1A to Current Report on Form 8-K
(Commission file number 001-33998)
filed
September 28, 2015

Exhibit 10.1B to Current Report on Form 8-K
filed
(Commission file number 001-33998)
September 28, 2015

Exhibit 10.1 to Current Report on Form 8-K
filed
(Commission file number 001-33998)
November 19, 2015

Exhibit 10.2 to Current Report on Form 8-K
(Commission file number 001-33998)
filed
November 19, 2015

Stock Repurchase Agreement, dated June 9,
2017, between Churchill Downs Incorporated
and CDI Holdings, LLC

Exhibit 10.1 to Current Report on Form 8-K
(Commission file number 001-33998)
filed
June 12, 2017

(dd) Amended

and

Restated

Stockholder’s
Agreement, dated June 9, 2017, between
Churchill Downs
and CDI
Holdings, LLC

Incorporated

Exhibit 10.2 to Current Report on Form 8-K
(Commission file number 001-33998)
filed
June 12, 2017

(ee) Amendment and Restatement Agreement dated
December 1, 2014 with Fourth Amended and
Restated Credit Agreement

Exhibit 4(e) to Annual Report on Form 10-K
(Commission file number 001-33998) for the
fiscal year ended December 31, 2014

(ff)

Amendment No. 1 to the Fourth Amended and
Restated Credit Agreement, dated February 17,
2016

Exhibit 10.1 to Current Report on Form 8-K
(Commission file number 001-33998)
filed
February 18, 2016

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and

(gg) Credit Agreement dated as of December 27,
among Churchill Downs
2017
the subsidiary guarantors party
Incorporated,
thereto,
the lenders party thereto, JPMorgan
Chase Bank, N.A., as administrative agent and
collateral
and PNC Bank, National
Association, as swingline lender

agent

113

Exhibit 4.3 to Current Report on Form 8-K
(Commission file number 001-33998)
filed
December 27, 2017

Numbers

Description

By Reference To

(hh)

(ii)

(jj)

(a)

Form of Churchill Downs
Incorporated
Non-Employee Director Restricted Share Units
Agreement*

Exhibit 10(a) to Quarterly Report on Form 10-Q
(Commission file number 001-33998) for the
fiscal quarter ended June 30, 2016

Exhibit 10.1 to Current Report on Form 8-K
(Commission file number 001-33998)
filed
April 29, 2016

Exhibit B to Schedule 14A (Commission file
number 001-33998) filed March 29, 2016

Exhibit 14 to Annual Report on Form 10-K
(Commission file number 000-01469) for the
fiscal year ended December 31, 2003

Churchill Downs Incorporated 2016 Omnibus
Stock Incentive Plan*

First Amended and Restated Churchill Downs
Incorporated 2000 Employee Stock Purchase
Plan*

Churchill Downs Incorporated Code of Ethics as
of December 31, 2003

Subsidiaries of the Registrant***

PricewaterhouseCoopers LLP,
Consent
Independent Registered Public Accounting
Firm***

Certification
of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002***

(b)

Certification of Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002***

Certification of Chief Executive Officer and
Principal Financial Officer Pursuant
to 18
U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
(furnished pursuant to Rule 13a-14(b))****

101

INS XBRL Instance Document***

101 SCH XBRL

Taxonomy

Extension

Schema

Document***

101 CAL XBRL

Taxonomy

Extension Calculation

Linkbase Document***

101 DEF XBRL

Taxonomy

Extension

Definition

Linkbase Document***

101 LAB XBRL Taxonomy Extension Label Linkbase

Document***

101 PRE XBRL Taxonomy Extension

Presentation

Linkbase Document***

*
**

Management contract or compensatory plan or arrangement.
Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to
furnish supplementally a copy of any omitted schedules to the SEC upon request.

*** Filed herewith.
**** Furnished herewith.

ITEM 16. FORM 10-K SUMMARY
None.

114

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SIGNATURES

CHURCHILL DOWNS INCORPORATED

/s/ William C. Carstanjen

William C. Carstanjen
Chief Executive Officer
(Principal Executive Officer)
February 28, 2018

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ William C. Carstanjen

William C. Carstanjen
Chief Executive Officer
February 28, 2018
(Principal Executive Officer)

/s/ William E. Mudd
William E. Mudd
President and
Chief Operating Officer
February 28, 2018

/s/ Marcia A. Dall
Marcia A. Dall
Executive Vice President and
Chief Financial Officer
February 28, 2018
(Principal Financial and
Accounting Officer)

/s/ G. Watts Humphrey, Jr.

/s/ R. Alex Rankin

/s/ Ulysses L. Bridgeman

G. Watts Humphrey, Jr.
February 28, 2018
(Chairman of the Board)

R. Alex Rankin
February 28, 2018
(Vice Chairman of the Board)

Ulysses L. Bridgeman
February 28, 2018
(Director)

/s/ Craig J. Duchossois

/s/ Richard L. Duchossois

/s/ Robert L. Evans

Craig J. Duchossois
February 28, 2018
(Director)

/s/ Robert L. Fealy

Robert L. Fealy
February 28, 2018
(Director)

Richard L. Duchossois
February 28, 2018
(Director)

Robert L. Evans
February 28, 2018
(Director)

/s/ Douglas C. Grissom

/s/ Daniel P. Harrington

Douglas C. Grissom
February 28, 2018
(Director)

Daniel P. Harrington
February 28, 2018
(Director)

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CHURCHILL DOWNS INCORPORATED
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

(in millions)

Allowance for doubtful accounts:

2017
2016
2015

(in millions)

Deferred income tax asset valuation allowance:

2017
2016
2015

Balance
Beginning
of Year

Charged
to
Expense

Deductions

Balance
End of
Year

3.5
3.8
4.2

1.8
1.5
1.3

(1.7) $
(1.8)
(1.7)

3.6
3.5
3.8

Balance
Beginning
of Year

Additions

Deductions

Balance
End of
Year

0.4
0.9
1.2

— $
—
—

(0.2) $
(0.5)
(0.3)

0.2
0.4
0.9

116

DIRECTORS AND EXECUTIVE OFFICERS

Directors

Executive Officers

William C. Carstanjen
Chief Executive Officer

William E. Mudd
President & Chief Operating Officer

Marcia A. Dall
Executive Vice President &
Chief Financial Officer

Directors Emeriti

Charles W. Bidwill, Jr.
Catesby W. Clay
J. David Grissom
James F. McDonald
Thomas H. Meeker
Carl F. Pollard
Darrell R. Wells

Ulysses L. Bridgeman, Jr.
Owner & President
Manna, Inc. & EJR, Inc.

William C. Carstanjen
Chief Executive Officer
Churchill Downs Incorporated

Craig J. Duchossois
Chief Executive Officer & Chairman
The Duchossois Group, Inc.

Richard L. Duchossois
Founder & Director
The Duchossois Group, Inc.

Robert L. Evans
President, Tenlane Farm, LLC

Robert L. Fealy
Managing Director
Limerick Investments, LLC

Douglas C. Grissom
Managing Director
Madison Dearborn Partners

Daniel P. Harrington
President & CEO
HTV Industries, Inc.

G. Watts Humphrey, Jr.
Chairman of the Board
Churchill Downs Incorporated
President, GWH Holdings, Inc.
Chairman, IPEG
Owner, Shawnee Farm

R. Alex Rankin
Chairman, Sterling G. Thompson Co.
President, Upson Downs Farm, Inc.

Corporate Office
Churchill Downs Incorporated
600 N. Hurstbourne Parkway
Suite 400
Louisville, KY 40222

Stock Information
Churchill Downs Incorporated
is
traded on the NASDAQ
Global Market under the ticker
symbol “CHDN.”

Annual Meeting
The Annual Meeting of Shareholders
will convene at 9:00 a.m. local time
Tues., 4/24 at The Knickerbocker
Hotel, 6 Times Square, New York,
New York 10036.

Transfer Agent and Registrar
American Stock Transfer & Trust
Company, LLC
59 Maiden Lane, Plaza Level
New York, NY 10038
Tel: (877) 715-0510

Other Information
Copies of our 2017 Form 10-K and
other filings with the Securities and
be
Exchange Commission may
obtained
by
without
contacting our corporate office or
through our website:
www.churchilldownsincorporated.com

charge

CHURCHILL DOWNS

INCORPORATED

600 N. Hurstbourne Parkway, Ste. 400
Louisville, Kentucky 40222
Telephone: 502.636.4400
www.churchilldownsincorporated.com