The partnership between the two publicly traded companies will begin as what is essentially a white label. DraftKings (Nasdaq: DKNG) will offer pari-mutuel thoroughbred wagering provided by TwinSpires, the online gaming arm of Churchill Downs (Nasdaq: CHDN). DK Horse will launch as a separate app, with a wallet distinct from the DraftKings sportsbook, iGaming and fantasy product. The company plans to merge them at a later date.
Financial details were not announced. The deal is a 60-40 revenue share, according to someone familiar with the terms, with Churchill Downs receiving 60% of revenue from wagers taken through DK Horse, and DraftKings keeping 40%.
DraftKings CEO Jason Robins said in a statement that due to the structure, he expects DK Horse to be “immediately profitable.” That will likely matter to DraftKings investors, as the public markets continue to sour on companies operating under heavy quarterly losses.
For DraftKings, the partnership is an opportunity to expand its offering—providing horse racing odds to existing customers, while potentially attracting new ones. It also provides another entry into states that don’t allow online sportsbooks. TwinSpires operates in 21 states—more than the DraftKings mobile sportsbook or iGaming product—and DK Horse will match that footprint, giving users in some states an opportunity to join the DraftKings system before the core product arrives.
For Churchill Downs, it’s an opportunity to scale its betting offerings. TwinSpires will continue as a standalone app but will also now be accessible as a part of the DraftKings network, which had 1.6 million unique paying users, as of its last quarterly earnings report.
The partnership is a gradual step toward the combination of traditional sports betting and wagering on horse races—two similar endeavors that have been largely kept separate due to historical legal precedent, incumbent businesses and state-by-state regulation.
Churchill Downs originally planned to bridge the gap in the other direction by adding sports betting and iGaming inside TwinSpires, but it abandoned that effort earlier this year after incurring tens of millions in losses. Other sportsbooks and media companies have also invested in horse racing betting. Fox Sports owns 25% of NYRA Bets with an option to eventually buy more; Flutter, FanDuel’s parent, owns TVG.
TwinSpires is an advance deposit wagering (ADW) platform, the online version of horse-racing gambling, which was long dominated by wagers placed at the track or off-track betting houses, known as OTBs. The handle for legal gambling on horse racing in America has stagnated recently around $11 billion per year. New York state, for reference, saw $1.3 billion in sports wagers just in September.
DraftKings has a market cap of $6.5 billion as of Monday’s close, with the stock down 49% in the past 12 months. Churchill Downs has a market cap of $8.3 billion, and the stock is down 1.3% in the past 12 months.