The Misfits: Churchill Downs Incorporated (CHDN)

A rare market-beating investment in an industry where the reputation for success is vastly overstated.

William Tasker: The Liverpool and National Steeplechase at Aintree, 1843, oil on canvas (Yale Center for British Art)

Gaming and casinos have a reputation for profitability that doesn’t necessarily match the results. Colloquialisms like “the house always wins” give the image of casinos as a can’t-fail business model. I don’t doubt the unit economics of a blackjack table or a slot machine, and a few gaming and casino companies have been able to string together several years of good results.

Over the long term, though, gaming companies fail to live up to their reputation as can’t fail investments.

With one exception: Churchill Downs Incorporated (NASDAQ: CHDN). Over the past 30 years it is one of the very few companies associated with casinos or gaming to produce a market-beating result.

There is an adage in the gaming business that iconic properties matter. If you build the fanciest and best ammenitied building, people will flock to it like lemmings. Well, there is probably no other gaming facility in the world as iconic as Churchill Downs, it just isn’t typically thought of in that way.

Here’s why Churchill Downs has something that no other gaming company will ever be able to lay claim to, how it has created value from that position, and whether or not this type of performance can continue.

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