Churchill Downs CEO on Kentucky Derby Weekend, F1 Returns to Miami

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2:11Bloomberg Business of Sports from Bloomberg Radio. This is the Bloomberg Business of Sports, where we explore the big money issues in the world of sports. I'm Michael Barr, Vanessa Perdomo, and Randall Williams are out on assignment. Pour them there in Miami for the Formula One race. We'll be talking about the Miami Grand Prix with Team Principal from Haas, and then later we'll speak with the CEO of Zumba. That's straight ahead on the Bloomberg Business of Sports. But first, let's go racing. Horse racing, that is. Ahead of the Kentucky Derby, Vanessa and I spoke with Bill Karstangian. He is the CEO of Churchill Downs Incorporated.

2:52He told us about how they have evolved the event beyond just the race and how he walked us through the renovation plans. Let's listen in on that conversation now with Bill Karstangian, CEO of Churchill Downs. Bill, welcome to the Bloomberg Business of Sports. Oh, my. It's a busy week for you guys at Church Hill Downs. Oh, my goodness. They're running the Kentucky Derby, Bill. There's a lot that goes into it. Take us through that, please. Well, first, thanks for having me on the show. It's great to be here. It's always great to talk to you guys. So, yeah, this is always a busy time, but also it's an exciting time.

3:33Wherever you go in this community, not just the racetrack, everybody is fired up in Louisville, Kentucky. So whether you're in the airport or at the schools or in a restaurant, wherever you go, there's this sort of holiday energy to the place. Everybody's rhythm is tied into this event. And when you're a part of it, like I'm fortunate enough to be, that keeps you fired up all week. Bill, you guys obviously have more going on than just the Kentucky Derby. You have events going on every single day of the week leading up to the race. On Friday, the Kentucky Oaks is going to be pushed into prime time, right, for the first time in a long time.

4:15Tell us about that decision and about the decision just to have things leading up to the Derby every day. Yeah, so Friday, as you mentioned, it's a very famous race called the Kentucky Oaks. And a lot of people don't realize this about this race. It's the three-year-old race for the Phillies. So the Derby is an open race, a three-year-old race for Phillies or Colts. But predominantly, it is male horses that enter that race. But the Phillies, the female horses, have a race all for themselves. It's the day before on Friday. And it's actually the fourth most bet race in the United States. It's the Kentucky Derby's number one by far.

4:58And then it's Preakness, Belmont Stakes, and then the Kentucky Oaks race. So the Oaks is huge within this region of the country, and it's huge amongst racing fans across the country. But NBC saw some of the pageantry and some of the show that has become the Oaks. We have well over 100 ,000 people that show up on the track for that day. Most are dressed in pink. Pink is the official color to support women's health-related issues. So NBC has seen all that, seen how it's built. and they approached us about moving at the prime time. It had been run in the six o 'clock hour, moving at the prime time on NBC because they thought it's a good enough spectacle and event where they wanted to take it across the country, much like we do the Derby.

5:44So really for the first time ever, the race will be run in prime time, post times 8.40, just right in the middle of that prime time hour. And our media partner, NBC, feels very strongly we can build this like the Derby has become, where we sort of blow through all these barriers of regional interest, of industry interest, and reach all of America to create potentially an event that can be as impactful potentially as the Derby at some point in the near future. Michael, I love it. Not just women's sports are on the rise, but women's horses are on the rise also i love that we're talking to bill carstandard he is the ceo of churchill downs incorporated twin spires the app if you're not at churchill downs you can bet on the race is this a shameless plug yes it is from me tell us more about this app because i have used it many times well first of all i appreciate that plug i really do um so i'm gonna back up for one second on that app to make a broader point, which is wagering on horse racing in the United States, whether you do it at the track or you do it online, is subject to a congressional federal law different than any other sport.

7:05So sports wagering, on the other hand, if you're betting on the New York Giants or NBA or hockey or baseball, that's all a state by state legal paradigm. But horse racing has a federal law, and that just has to do with the long history of betting on horse racing in the United States. So the relevance of that is that's why Twin Spires, an app devoted entirely to wagering online on horse racing, has been out there for a while, longer than sports wagering. It just takes wagers on horse racing, and we've had a lot of time to build it, a lot of time to perfect it, and we have a lot of loyal customers that when they want to place a bet on a horse race, They like to do it on Twin Spires because we have lots of tools and lots of, you know, lots of functions and features that make it easier and more enriching and experience.

7:56So that's what the app's been. It's a very profitable app and it's all homegrown here at Churchill Downs. We built it up from scratch, and it's been a wonderful journey for those of us who were a part of it, because now it's a very large, successful division of our company. Yeah, you don't even see OTBs anymore, Vanessa. A lot of them are gone because of apps like this, because they're very efficient. Yeah, absolutely. And as we're on the subject of, you know, gaming and gambling for horse racing and things like that, I want to ask a little bit about historical racing machines and how much of that is part of the business is not necessarily, I guess, gambling in the same way.

8:38But tell me about that and how that along with the app and all these other ways to get into horse racing. It's grown your business. Sure. So historical horse racing machines are a gambling device that looks a lot like a slot machine and is very similar to a slot machine experience. And it goes back to this point I was making about sports wagering that in this country, gambling is a state by state thing. So every state's different. Every state has different rules, allows different products, has a different history around gambling that changes how they deal with gambling in the present day. So there are a number of states, including Kentucky, where it didn't have traditional Las Vegas slot machines, but it allows a product called historical racing machines that look and feel pretty similar.

9:31And that is a business that in and of itself is a successful business functioning a lot like a casino business. But also that's a paradigm under which purses for the horses are built. So when these folks race their horses, they've raised these horses. They have a huge expense in delivering these horses to the racetrack to win races. So they want to win a lot of money when they take their horses to the track. And the question is, where do you get the money? Where do you get the purse money that the horses compete for and win? If you run in the derby, you're running for a$5 million purse. Where does the$5 million come from?

10:12Some of it comes from a piece of just the wagering on horse racing itself. And some of them, depending on the state you're talking about, but let's take Kentucky. Some of it comes from a piece of the historical racing machines that people play in several facilities across the state. So it's a two-pronged business model. HRMs help Churchill Downs as a separate business unit in the sense that it functions similarly to a casino, but also HRMs help the entire horse industry because a portion of the revenue from those flows into the purse account. And that's the money the horses win when they win races at Churchill Downs Racetrack.

10:54Talking to Bill Karstangian, CEO of Church Hill Downs. You guys, last year, you guys were working on a$900 million expansion, but it was stopped last year because of construction costs and tariffs. Where does the status now on that? Yeah, we decided to rethink that project. We announced it last year right before the first rounds of tariffs were announced in our country. And we saw immediately that there was going to be a bunch of disruption potentially to the supply chain for construction. So we immediately said, let's put the brakes on this and let's break that$900 million project into more bite-sized projects where we had much more visibility and control over the immediate expenses to build out the project.

11:43So the most major project we're working on right now came out of that larger project. It's a$285 million project called Victory Run to convert an older area of the track that is around the beginning of the first turn of the track to convert it into a modern grandstand-esque addition to our track with suites and boxes and dining areas. And I think we learned that that's the best way for us to announce and do projects. Do them in chunks where people will see the fruition of those projects in two to three years. Not discuss it as generational projects that will take five to ten years, but keep it to two to three year projects where people can digest the cost and appreciate the vision behind the project and know that it's a short period before they realize it.

12:38So we haven't really missed a beat. We just decided to reimagine and break it down into chunks. So is the overall goal still around a$900 million renovation or what else can be expected? Are you looking at the other, What will be the other chunks to add to the next expansion after Victory Run? So starting with Victory Run, it's already under construction and it'll be completed by 2028. We'll evaluate that and see what we learn and see if we spot any differences and changing tastes or preferences of our customers. And then we'll announce the next project from there. But certainly some of the elements of the$900 million project will be present in everything we do because you can see the places on the track that are outdated or undeveloped yet.

13:30And that's where there's opportunity to improve and reimagine older spots of the track and build on and create new spaces where there currently isn't much development around the track. And even though we've been around for 152 years and we have this historic facility, there's still a lot of opportunity, both in terms of some open space and redoing existing older space to have impactful projects. That was Bill Carstangian, CEO of Churchill Downs Incorporated. Up next, Vanessa and Randall spoke with Ayo Komatsu, team principal for Haas Formula One team. That's straight ahead on Bloomberg Business of Sports.

14:15I'm Michael Barr for Vanessa Pernomo and Randall Williams. You're listening to the Bloomberg Business of Sports from Bloomberg Radio around the world.

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15:50Do that with Acrobat. Want to stop searching for files and finally get everyone on the same page? Do that, do that, do that with Acrobat. Learn more at adobe.com slash do that with Acrobat. This is Bloomberg Business of Sports from Bloomberg Radio. This is the Bloomberg Business of Sports where we explore the big money issues in the world of sports. I'm Michael Barr. Vanessa Perdomo and Randall Williams are out in Miami this week covering the Formula One. Miami Grand Prix. Lucky bunnies. But before they headed down south, they caught up with the Haas team principal, Ayo Komatsu, a head of the Grand Prix.

16:31He gave them the lowdown on how they've been finding success with the new car and how they navigate being a small team amongst racing giants. Let's listen in to the conversation with Ayo Komatsu, Haas F1 team principal. Ayo, thanks for joining the Bloomberg Business of Sports. We're so excited to have you here, especially made time for us right before the Miami Grand Prix. We super appreciate it. So we just want to dive right into it. Obviously, the biggest topic of this season is all the new rule changes and everything new with the car. It seems to be working out pretty well for you guys. Can you tell me a little bit about how you guys have handled the new changes and why it's working for you guys as well?

17:08Well, that was really tough. It's the biggest regulation change I've experienced in 23 years of my F1 career. You know, sometimes the changes happen, big changes happen on the chassis side. or on the engine stroke PU side, but never together. So we knew this year was going to be a huge challenge. And then it's not like last year we gave up on last year's development. So last year we had to do this parallel development. And then, as you might know, we are the smallest team. So I just knew this year was going to be a very, very tough challenge. But we really focused on the basics, you know, the milestones.

17:40We got to get the car built at a certain point, hit the ground running here, just learning every time. I said reliability. and then the fact that we need to send the car out maximize running time because every time we run the car every lap we are learning something because it's so new everything is brand new not just hardware in terms of software how to get best out of a hybrid engine that was so new so I think we've done those basics really well pre-season so we had three tests one in Barcelona two in Bahrain we got most out of it we understood the car much better so I think that's why we could get most out of what we got in the first three races and then of course we knew that since it's such a brand new car, reliability would be an issue.

18:21Like you saw in which race was it? China? Both McLaren had to be pushed off the grid. They couldn't even start the race. And then two other cars couldn't start the race. So we got to be there to take those moment opportunities. We shouldn't be the one retiring. So I think we've done those basics. That's why we're in a very good position at the moment. But the competition is so tough. So from here, it's going to be a very different challenge, I think. It's interesting, you mentioned all of the changes in terms of like the engine stuff and things like that. There are also some teams that have struggled with it as well.

18:51Yes. What do you think enabled you all to sort of roll with the punches and really take this in stride, even though it's probably been very difficult behind the scenes? No, basics, focusing on basics. Because we just knew like, you know, normally the bigger the regulation changes are, right? More struggle small teams have. Because by definition, we don't have as much resources as the bigger teams like a Ferrari, Mercedes. or even Williams, they have more than 1 ,000 people. Audi, they have more than 1 ,000 people. Aston Martin, 1 ,200. So they are much bigger than us. So for us, you know, we are 400 people, right?

19:26Less than, way less than half. So we got to really focus on the basics. So, and then also, like, before you go to the circuit, other bigger teams have so many tools to be able to understand the car. Some of it we don't have. So it was really important that we maximize our pre-season track time, nine days of testing to understand the car, understand the regulation. So really focusing on the basics, I think gave us a good foundation. I mean, like you said, you learn a lot from every single time the car goes out, every single race. And you said going forward, you think it's even going to keep changing for you guys and the competition is just going to get harder.

20:05Tell me how you're focusing on the rest of the year and what you've learned from the first couple of races. Yeah, focusing on the rest of the year. I mean, I don't know if you know, but there's a slight modification regulation ahead of this weekend's Miami Grand Prix. So heading on to Miami, it's called what we call the sprint weekend. So you have one practice session, then in the afternoon goes straight into sprint, so it's qualifying. So you have an hour and a half to really understand this tweak in the regulation, modification in the regulation to get best out of it. So that's a challenge. but also then like now because everything is so brand new on the chassis side if you remember last year competitions were really really close to each other because it was the last year of the stable regulation so everybody developed the cars to the nth degree so within one tenth of a second there was like more than 10 cars right but this year gaps are much bigger but that will get reduced so quickly because people will learn from each other understand the regulation better so it's what we call a development war.

21:02So I'm sure in Miami, you will see so many teams, vast majority of teams, bringing a big change to the car. So that's going to be the challenge from now to the end of the year. Who can develop faster? Who can make a big performance gains? It's also important to note that this season has been a little bit abnormal because of the war in Iran. Three races have been either postponed or canceled. We'll see if they get put back on the calendar. What have you done with this time off? Yeah, you call it time off, but it's not a time off. Yes, it's a really sad that these conflicts are happening and then ended up in the two race cancellation.

21:35But of course, safety is the most important thing. And then as it happened, April, we didn't have any race to attend. And then you call it break, but it's a break in terms of not having a travel overseas, let's say long haul travel. But going back to our discussion about us being a small team and the biggest challenge of the huge regulation change, everybody's been flat out, more than flat out, really stretched. If we talk about the size of the teams, 400 people versus 1 ,200 people, simplistically speaking, in our team, one person needs to play three different roles to be equal. So to sustain that from last half of last year to first three races has been a stretch, really pushing everybody to limit.

22:19So April not having long-haul races or long-haul travel and also not having two races to support has been a big, let's say, stress reliever. But also what that meant was we can focus on some of the fundamentals that we always wanted to focus on and improve, but never had time because we had to keep going racing. So that's what we focused on. So again, the idea was to use this April month to basically build a better foundation so that we can hit the Miami ground running at higher quality. Right. So actually, it almost kind of worked out better for you guys in a way. Well, I don't know. Only Miami and Montreal race will tell because there's always pros and cons.

22:57You know, some people would say, like, you know, we had a great start of the year. We got great momentum. We rather carried on with Bahrain and Saudi. But at the same time, you know, everybody was so stretched out on the edge. So we may not have done very well in Bahrain and Saudi without break. Who knows? But the thing is, it is what it is. It's same for everyone. So you got to look at the opportunity in front of you. OK, how can we turn this situation, which is the same for everybody, to your advantage? How did you prepare your team for that time and how you were going to go through it, go through the break, what you're going to develop?

23:31Because, I mean, that obviously comes from what you want and what you need from the car. But as a leader, how did you go through that time to make sure everyone was, you know, ready? Yeah, but to be honest, like what we need from the car, what we need to do on the technical side, it actually doesn't come from me. We have a great technical team and they all had a great list of things that they wanted to be getting on with. But they couldn't because those people had to support the races. so they have plenty of things to do but then of course we just need to agree as a team what are the priorities what we need to get better before Miami and being a small team that prioritization is the key you know if there's five things you want to do maybe bigger teams can do all five of them but we can't so we really need to focus on what's the single biggest thing we need to do and then looking at timescale looking at where we are which department is stretched more than the other so you've got to pick your battle but it's actually We have a culture of empowerment to each department.

24:25So it's wrong if I have to tell these departments, you need to be focused on this, focused on this. I basically have the, let's say, overview at the top level. But the execution level, those guys know what they need to prioritize. And so one of the things that captivated U.S. audiences is the drama behind the scenes. You think about Drive to Survive, you think about the F1 movie as well. And so now I want to ask you as being someone who's actually in it, and also the first Japanese team principal leading a non-Japanese F1 team, What does it take to lead an F1 team? I don't know if I have an answer to that.

24:56You still have hair on your head for people who are listening out there. So obviously you're not stressed. It's a little grey though. A little grey. No, no, I don't know if I have an answer to that already. I'm learning every day. But it helps the fact that I've been with the team since day one. So I knew the people. I knew we had good people. So it's like, you know, we had good ingredients, but it wasn't kind of put together. So then again, I just focused on listening to people. because as a leader of an organization, the leader is only as good as your people, right? And then I have experts in every department, technical department, human resources, communication, marketing, et cetera.

25:33So I got to listen to those people and then they need to tell me what I can do, what I can facilitate, what kind of environment I need to provide for them to perform better. So that's the key thing for me, really, to be on the ground level, to have an open-door policy, accessible, approachable, then really listen. I mean, Randall did say there too, like about the drama that people love, the F1 movie that people love here. And we're talking about the Miami Grand Prix and we're talking with Haas, obviously the American, one of the American teams, one of the only ones before, you know. Tell me about, you know, what the Miami race did for the US audience and what you've seen over the last few years because of all of the different elements that have been...

26:14No, I think it's incredible. You know, I've been doing Formula One for 23 years and then we used to come racing here in Indianapolis. We've been trying to crack North America for a long, long time, but it never stuck, right? It never stayed. But then back then, I think our audience wasn't so diverse. It's only sort of like hardcore motor racing fans were interested in Formula One. Then you guys had an Oscar. But with Liberty Media taking over in 17, with Netflix, F1 film, we managed to have much more diverse fans, which is great. You know, then now, what, 42 % of the audience is female. And then such young generation.

26:50And then every race we go to, actually, you can see both diverse audience within one race, but also between races, it's very different audiences. Like Melbourne, Australia, our race opener, that's a traditional race. We've been racing there for many, many years. So all the spectators know Formula One very well, but you can see younger, more female fans are there as well. But if you go to China, relatively new Grand Prix, which wasn't popular years ago at all. I remember the first time we went to China, stands were empty. But these days, it's completely sold out. even the sprint on Saturday was totally sold out.

27:21But then if you look at the fans, if you speak to the fans, there's so many young female fans there, and then they see our F1 drivers like a K-pop star. So that wasn't the thing before. So there's so many different ways to enjoy Formula 1 racing. I don't think the traditional audience used to sit on a Sunday, watch the race two hours in front of TV. Then these days, so many people just take it on social media, highlight or just follow drivers drivers and girlfriend wags etc so very very different ways to enjoy formula it's much more entertainment whereas before we are purely focused on let's say sport stroke motor racing so that's why i think it's really appealing to a diverse audience and then we're talking about us we have three races in us austin i would say is more traditional one but miami with mayam being the location amazing weather and the celebrity factor and then again we Las Vegas, I mean, everybody in the world knows what Las Vegas is, what Las Vegas represents.