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For a chance of winning Saturday's Kentucky Derby, gamblers can put money on a thoroughbred named California Chrome, the favorite with 14-1 odds. The smarter bet: Invest in the track itself.
Churchill Downs, owner of the eponymous racetrack that will host the 140th Kentucky Derby, has been an unlikely winner in recent years. Industry-wide horse wagering fell from $15 billion in 2002 to $11 billion in 2012 as a younger generation looked to other forms of entertainment, according to Cameron McKnight, an analyst with Wells Fargo. But over the same period, wagering during Derby weekend rose from about $150 million to $230 million, he said.
Shares of the company have also performed well, rising 136 percent since the start of 2010.
While Derby wagering has held up well, it only accounts for about 20 percent of profits for the weekend. So even if the race is hit by a rainstorm and fewer gamblers put down money, investors probably have little reason to worry.
The real key to the Derby's performance is its status as the Super Bowl of horse racing. The event attracts a similar crowd of the rich and famous for a three-day weekend of revelry in Louisville, Ky., where the local airport becomes crowded with private jets.
Such an audience has been willing to pay top dollar for premium tickets in enclaves with names like "Mansion" and "Millionaires Row." Those sales are usually booked well in advance of Derby Weekend, some several years beforehand. They also contribute to the majority of profits for the event.
With so many seats regularly selling out, it's easy for the company to increase revenue by simply adding space and amenities. Churchill Downs is in the process of adding 2,400 seats and upgrading 20,000 in a venue that holds more people than any NFL stadium.