TDN Q&A With CDI Chairman R. Alex Rankin

Insurance executive R. Alex Rankin's introduction to the Thoroughbred business came in 1982 when he bought a single broodmare and founded Upson Downs Farm in Goshen, Kentucky.

On Apr. 24, 2018, he took the helm as the newly elected chairman of the board of directors of Churchill Downs Inc. (CDI), the largest racing-related corporation in America.

In the three-plus decades in between, Rankin became increasingly involved in the industry, including serving as president and board member of the Kentucky Thoroughbred Association, president and director of the Kentucky Derby Museum, director of Breeders' Cup Limited, and director of Kentucky Thoroughbred Owners and Breeders. He has been an independent director at CDI since 2008, and was voted into The Jockey Club in 2016.

Rankin recently spoke via phone with TDN to detail his aspirations for Churchill Downs, the GI Kentucky Derby, and CDI's other Thoroughbred properties. Rankin also discussed the corporation's image, and how he envisions his role in changing some Thoroughbred industry perceptions about it. An edited transcript follows.

TDN: That's a great story about how you started as a one-horse farm. How might your experience in building a breeding and racing operation from bottom up dovetail into your new corporate role?

AR: Learning the farm business from the bottom up, and knowing what it takes to have employees that love horses, I think will be of benefit. We've always felt if you've got happy employees, you've got happy horses, and that sort of thing can transfer over. And then getting into working as a director of the Kentucky Thoroughbred Association gave me valuable experience in understanding horsemen's issues, which is an offshoot of the breeding business. And I've seen a lot of horse insurance and farm insurance, so it's kind of a full circle. CDI's business appears to be a top-down business. But it's really bottom-up if you think about it.

TDN: What is the biggest upside to the corporation and what are the biggest challenges it faces?

AR: The biggest advantage right now is we have an incredible and exceptional management team that has been with the company for a number of years and understands racing as a core activity. And the Kentucky Derby is obviously an iconic asset that is very unique to a public corporation. We have diversified the business over the last 15 years through great acquisitions and great sales of businesses, and now we've kind of come back to the core.

The challengers are those that face any public corporation. As a public company, we need to continue to grow and find new ways to be efficient while striving to have an entertainment product that is second to none. So that's the day-to-day challenge in our business–maintaining a great culture and a momentum of growth, not only in financial results, but in the results of how our patrons and all our constituencies perceive us.

TDN: To many people in the sport, there are things they believe to be sacrosanct about the Derby that should never change. But in order to avoid being left behind in any endeavor there has to be change. Can you give examples of both that are important?

AR: We've recently made changes with the qualifying points system and the European and Japanese invites to try to bring the international eye on the Derby and to also try to capture some of the wagering opportunities in those markets. So those could be viewed by traditionalists as maybe a little “out there.” But I think more to your point, you have to change the event in the context of 2018 and beyond, because you can't keep running the event like it was when it began. Matt Winn [who ran Churchill Downs from 1902 to 1949] was an innovator in his time, and we want to be innovators in our time. Our management team thinks about that all the time, that “push and pull” with what do we change at the margins so the event continues to be relevant and exciting.

TDN: One shift that doesn't seem too far off is a prime-time Derby under the lights. Will it be a reality any time soon?

AR: I don't think that is a front-of-mind issue right now. I think night racing on its own has been a great thing for our meets, and also for the Breeders' Cup. But for the Derby today, I would say that's not on the docket to consider.

TDN: Since 2000 CDI has put north of $125 million into its flagship plant, and the $60 million historical racing facility Derby City Gaming is set to open later this year. Please detail the short- and long-term visions for the Louisville properties.

AR: We just purchased a lot of property on the perimeter of the racetrack and expanded the footprint immensely all the way around, which should allow us to change the experience from a parking perspective and coming in and going out on big days. It's going to be more fan-friendly. We've expanded the property adjacent to the backstretch, which is going to give us all sorts of options, although we don't yet have any explicit plans. And then Derby City Gaming is on the old Sports Spectrum property, which before that was the old Louisville Downs harness track, about three miles away. We think that's going to be an incredibly productive facility. The purse allocations that it will generate for Churchill Downs will allow us to close the gap [compared to other gaming-enhanced tracks]. We need more quality racing, and good purses draw quality, as you know.

TDN: How about other Thoroughbred holdings? As CDI has expanded its portfolio, it's been accused of acquiring racetracks merely to gain footholds in the gaming industry, then the racing aspects are treated like a necessary evil. Are these valid criticisms?

AR: There obviously have been times when that criticism has been louder than others. But I think that today, my sense is–and I'm a pretty accessible person who likes to talk to people at all levels of the business–that the perception of Churchill Downs in the Thoroughbred industry today is as good as it's been in a number of years, and I credit the management team for creating a culture that drives that. There has been an emphasis on making certain that we are out in the industry on a full-time basis dealing with perceptions and what the concerns are, and I think that we are better positioned as a company for those efforts.

TDN: But what about the situation at a place like Calder Race Course? There are plenty of angry Florida horsemen who feel like they worked in unison with CDI to gain casino rights, then CDI leased the racing to a competitor while demolishing the grandstand and stables. What would be your message to them?

AR: That was a tough situation. We had two racetracks in close proximity to each other. When Gulfstream decided to run basically year round, eventually the racing product in Florida was going to be damaged significantly [if Gulfstream and Calder raced head to head], and I think any horseman would agree to that. The solution was really to decide where racing should be conducted or consolidated, and that decision got made after a long period of negotiations. The Calder casino still makes purse supplements to racing, so that has not changed. But if both racetracks [had opted to] run at the same time, it becomes a really tough business model for both.

TDN: Please give a status update for CDI's other Thoroughbred tracks.

AR: Arlington Park is a wonderful facility. But racing in Illinois is under some pressure right now. The real regulatory potential is gaming at horse tracks. Unfortunately we have not been able to accomplish any help in that respect from the state of Illinois. But Arlington is performing very well under some tough conditions. There's always the hope that we can get the regulatory situation straightened out to become competitive with all the venues that now have casino gaming.

At the Fair Grounds, we feel it's one of the top East Coast places for the winter horse population to go. We had a good meet there. We're doing some work on the turf course now. Obviously, the ability to have casino gaming there has helped that operation. The Fair Grounds is doing fine, and I think we've seen some resurgence in interest from a horsemen's perspective.

Presque Isle Downs in Pennsylvania will be a good addition to our racetrack lineup, and obviously it has the gaming aspect as well. I can't give you a lot of information right now until we close on the pending sale [likely in the fourth quarter of 2018].

TDN: Should CDI be considered in acquisition mode for other tracks right now?

AR: I would say that with the management team that we have, and the way that they view the world, we're always going to have in our DNA the ability and desire to look at opportunities. It is part of our growth model, and organic growth in our business is very difficult. So I would continue to think it's something we would be active in.

TDN: You're a member of The Jockey Club, which is one of principal driving forces behind the proposed Horseracing Integrity Act that's been kicking around the federal legislature for three years now. A number of major racetracks have indicated their support for independent drug testing and oversight, but CDI is conspicuous in its absence from supporting H.R. 2651. Where do you personally stand on this issue?

AR: I've got an individual hat and a Churchill Downs hat, and they're aligned. We are continuing to work with all our constituents in the industry on this subject. We've made some headway in identifying kind of a list of best practices. And I think that we have been in communication and want to be in continued communication with The Jockey Club on this particular effort.

But Churchill Downs is a racetrack. Fair Grounds is a racetrack. Arlington is a racetrack. And we don't feel like it's our role to set policy. Our role is to listen to our constituencies, and try to help with gaining consensus on this issue. There's no question on anybody's mind at Churchill Downs, or in my mind as a breeder and owner, that integrity and medication uniformity is a good idea. It's just getting to the 'How,' and that's where we are.

TDN: You get the last word to bring up any topic you'd like to close out the interview.

AR: I just want to get back to the question you had about the perception of Churchill Downs within the industry. I think that we as a company understand that we are lucky and honored to have the Kentucky Derby as an asset of the corporation. And this asset is a unique and awesome responsibility, [and we have to] continue to do the right thing by it. And I think that some people have been worried that we are too focused on [the Derby] and not on the industry as a whole.

We know that the Derby does not happen in a vacuum. There are prep races, there are 2-year-old races, there are breeders that supply the horses. A lot of things have to happen to get 20 horses in the starting gate at Churchill Downs on the first Saturday in May. So hopefully, our efforts with being more accessible to the industry and being willing to listen are going to be positives. And I think that's a huge shift in intentionality for our company, because we do not want that perception [of being a corporate behemoth], and we feel we do not deserve that. What the board wants and what management wants is for us to be more accessible and to be a listener and to understand the problems and not be isolationists.

But–we're not always going to do everything everybody wants all of the time. We're probably going to make decisions that people perceive negatively by virtue of us being a public company. But we do think now, in depth, about how these decisions are going to affect the industry as a whole, not just whether they're going to be good for Churchill Downs. It's a two-sided coin for us.

One of the things that we feel very strongly about is this whole idea of having a core open-door policy about how we deal with pretty much the entire Thoroughbred industry. The gaming industry is not coming to us and asking for that. But [horse industry people] do, and they deserve to have somebody to talk to, and they deserve to get their questions answered. And I think it's a big deal. I really do.