CHURCHILL DOWNS INC, S-3/A, 1999-07-19

CHURCHILL DOWNS INC
S-3/A, 1999-07-19
RACING, INCLUDING TRACK OPERATION

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 15, 1999

REGISTRATION NO. 333-79031
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

--------------------------

AMENDMENT NO. 2
TO
FORM S-3

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

--------------------------

CHURCHILL DOWNS INCORPORATED

(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
KENTUCKY 61-0156015
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>

700 CENTRAL AVENUE
LOUISVILLE, KENTUCKY 40208
(502) 636-4400

(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

--------------------------

THOMAS H. MEEKER, PRESIDENT
CHURCHILL DOWNS INCORPORATED
700 CENTRAL AVENUE
LOUISVILLE, KENTUCKY 40208
(502) 636-4400

(Name, address, including zip code, and telephone number, including area code,
of agent for service)

--------------------------

COPIES TO:

<TABLE>
<S> <C> <C>
ROBERT A. HEATH, ESQ. WILLIAM R. KUNKEL, ESQ. HOWARD L. SHECTER, ESQ.
WYATT, TARRANT & COMBS SKADDEN, ARPS, SLATE, MORGAN, LEWIS & BOCKIUS LLP
2800 CITIZENS PLAZA MEAGHER & FLOM (ILLINOIS) 101 PARK AVENUE
LOUISVILLE, KENTUCKY 40202 333 WEST WACKER DRIVE NEW YORK, NEW YORK 10178
(502) 562-7201 CHICAGO, ILLINOIS 60606 (212) 309-6000
(312) 407-0700
</TABLE>

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.

--------------------------

If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box: / /

If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: / /

If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

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<PAGE>
2,000,000 SHARES

[LOGO]
COMMON STOCK
$29.00 PER SHARE

--------------------------------------------------------------------------
Churchill Downs Incorporated is offering 2,000,000 shares of common stock with
this prospectus. This is a firm commitment underwriting.

The common stock is listed on the Nasdaq National Market under the symbol
"CHDN." On July 14, 1999, the last reported sale price of the common stock on
the Nasdaq National Market was $30.00 per share.

INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 13.

<TABLE>
<CAPTION>
PER SHARE TOTAL
----------- -------------
<S> <C> <C>
Price to the public........................................ $ 29.00 $ 58,000,000
Underwriting discount...................................... $ 1.52 $ 3,045,000
Proceeds to Churchill Downs................................ $ 27.48 $ 54,955,000
</TABLE>

Churchill Downs has granted an over-allotment option to the underwriters. Under
this option, the underwriters may elect to purchase a maximum of 300,000
additional shares from Churchill Downs within 30 days following the date of this
prospectus to cover over-allotments. At the request of Churchill Downs, the
underwriters have reserved up to 300,000 shares of common stock offered with
this prospectus for sale at the public offering price to directors and officers
of Churchill Downs. See "Underwriting."
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
CIBC WORLD MARKETS
LEHMAN BROTHERS
J.C. BRADFORD & CO.
J.J.B. HILLIARD, W.L. LYONS, INC.

The date of this prospectus is July 15, 1999

<PAGE>
[Collage of color photos related to Churchill Downs, including the paddock area
of the Churchill Downs racetrack, the bugler, the twin spires, the Churchill
Downs racetrack, patrons at the Churchill Downs racetrack, the grounds at the
Churchill Downs racetrack, the starting gate at the Churchill Downs racetrack,
the flowers at the Churchill Downs racetrack.]

[Gatefold picture of the horses finishing the 1999 Kentucky Derby at the
Churchill Downs racetrack, with the grandstand in the background.]
<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
Forward-Looking Statements................................................................................. 3
Prospectus Summary......................................................................................... 4
Risk Factors............................................................................................... 13
Use of Proceeds............................................................................................ 20
Capitalization............................................................................................. 21
Unaudited Pro Forma Condensed Consolidated Financial Statements............................................ 22
Selected Consolidated Financial Information................................................................ 33
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 35
Business................................................................................................... 44
Management................................................................................................. 56
Principal Shareholders..................................................................................... 60
Certain Relationships and Related Transactions............................................................. 62
Description of Capital Stock............................................................................... 63
Underwriting............................................................................................... 65
Legal Matters.............................................................................................. 67
Experts.................................................................................................... 67
Where You Can Find More Information........................................................................ 68
Index to Financial Statements.............................................................................. F-1
</TABLE>

------------------------

As used in this prospectus, the term "Churchill Downs" means Churchill Downs
Incorporated and its subsidiaries, unless the context indicates a different
meaning, and the term "common stock" means Churchill Downs' common stock. Unless
otherwise stated, all information contained in this prospectus assumes no
exercise of the over-allotment option granted to the underwriters. All share and
per share information is adjusted to reflect our 2 for 1 stock split in March
1998. Industry information contained in this prospectus is based on published
industry sources that we believe are reliable.

The underwriters are offering the shares subject to various conditions and may
reject all or part of any order. The shares should be ready for delivery on or
about July 20, 1999, against payment in immediately available funds.

------------------------

FORWARD-LOOKING STATEMENTS

Information set forth in this prospectus under the captions "Prospectus
Summary," "Risk Factors," "Use of Proceeds," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and "Business"
contain various "forward-looking statements" within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. These statements represent our judgment concerning the future and are
subject to risks and uncertainties that could cause our actual operating results
and financial condition to differ materially. Forward-looking statements are
typically identified by the use of terms such as "may," "will," "expect,"
"anticipate," "estimate," and similar words, although some forward-looking
statements are expressed differently. Although we believe that the expectations
reflected in such forward-looking statements are reasonable, we can give no
assurance that such expectations will prove to be correct. Important factors
that could cause actual results to differ materially from our expectations are
set forth under the caption "Risk Factors" and elsewhere in this prospectus.

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PROSPECTUS SUMMARY

THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED IN OTHER PARTS OF THIS PROSPECTUS.
YOU SHOULD READ THIS SUMMARY TOGETHER WITH THE MORE DETAILED INFORMATION
REGARDING CHURCHILL DOWNS AND THE COMMON STOCK BEING SOLD IN THIS OFFERING AND
OUR FINANCIAL STATEMENTS AND ACCOMPANYING NOTES THAT APPEAR ELSEWHERE IN THIS
PROSPECTUS.

THE COMPANY

We are a leading pari-mutuel horse racing company and a leading provider of live
racing programming content for the growing simulcast wagering market. We
currently simulcast our races to over 1,000 locations in 41 states and nine
countries. From 1993 to 1997, simulcast wagering in the United States grew at a
compound annual rate of 11.9% to approximately $11.9 billion, representing 77%
of the total amount wagered on horse racing. We believe that quality live racing
is the basis for building our branded simulcast product. We intend to strengthen
our position as a leading provider of programming content through product
enhancements and strategic acquisitions of quality racetracks.

We operate four racetracks and four remote simulcast wagering facilities that
accept wagers on our races as well as on races simulcast from other locations.
Our flagship operation, the Churchill Downs racetrack, has conducted
Thoroughbred racing since 1875 and is the internationally known home of the
Kentucky Derby. In 1999, the 125th annual Kentucky Derby had an attendance of
151,000 and received wagers of more than $57.0 million. This Derby was the
highest wagered and the second best attended (second only to the 100th annual
Kentucky Derby) individual horse racing event in United States history. We have
expanded our portfolio of racetracks by developing Hoosier Park in 1994 and by
acquiring Ellis Park in April 1998 and Calder Race Course in April 1999. The
following chart details our live racing products and the amounts wagered on
those products both on-track and at simulcast facilities.

OUR LIVE RACING PRODUCTS

<TABLE>
<CAPTION>
1998
NUMBER 1998 TOTAL AMOUNT
OF 1998 LIVE RACING WAGERED
LOCATION RACING DATES SEASON (IN MILLIONS)
------------------ --------------- --------------------- ---------------
<S> <C> <C> <C> <C>
Churchill Downs Racetrack.......... Louisville, KY 71 April 25 - June 28; $ 549
November 1 - 28

Calder Race Course................. Miami, FL 173 May 23, 1998 - $ 543
January 2, 1999

Ellis Park......................... Henderson, KY 61 June 29 - September 7 $ 138

Hoosier Park....................... Anderson, IN 153 April 17 - November $ 79
28
</TABLE>

THE HOLLYWOOD PARK ACQUISITION

On May 5, 1999, we entered into a definitive agreement with Hollywood Park, Inc.
to acquire the Hollywood Park Race Track and the Hollywood Park Casino in
Inglewood, California, for $140.0 million. Consummation of the acquisition is
subject to several conditions, including receipt of regulatory approvals. We
will acquire approximately 240 acres of land upon which the racetrack and casino
are located. We will lease the Hollywood Park Casino to Hollywood Park, Inc.
under a ten-year lease with one ten-year renewal option. The lease provides for
annual rent of $3.0 million, subject to adjustment during the renewal period.
The transaction is expected to close on August 31, 1999.

4
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Hollywood Park Race Track is one of southern California's premier tracks and is
a three-time host of the Breeders' Cup. The track conducts racing from late
April to mid-July and from mid-November to late December. In 1999, the track
will host 97 racing days. The acquisition of Hollywood Park Race Track will
expand our simulcast programming with a complementary schedule of racing dates
and times. The track currently simulcasts its races to more than 1,000 locations
in 40 states and four countries. In 1998, the total amount wagered on races
simulcast from Hollywood Park was $764.9 million.

THE PARI-MUTUEL HORSE RACING INDUSTRY

In pari-mutuel wagering, all wagers are placed in a common pool. The pari-mutuel
operator retains as revenue a pre-determined percentage of the total amount
wagered, and the balance is distributed to the winning patrons. In 1997,
wagering on pari-mutuel horse racing totaled approximately $15.4 billion in the
United States and approximately $100.0 billion worldwide. Between 1993 and 1997,
the total amount wagered on horse racing in the United States grew at a compound
annual rate of 2.8%. The main driver of this growth has been simulcast wagering,
which allows the video signal of a live racing event to be transmitted to a
remote location where patrons can wager in the same pari-mutuel pool as patrons
at the racetrack. Between 1993 and 1997, simulcast wagering grew at a compound
annual rate of 11.9%, from approximately $7.6 billion to approximately $11.9
billion. In 1997, simulcast wagering accounted for approximately 77% of the
total amount wagered on pari-mutuel horse racing in the United States.

BUSINESS STRATEGY

We plan to grow our business by focusing on three related initiatives:

PROMOTE AND ENHANCE THE QUALITY OF OUR LIVE RACING PRODUCTS. Our key asset is
the quality of the races we conduct. For example, we believe that the Kentucky
Derby and other races at the Churchill Downs racetrack are among the premier
horse races in the United States. We intend to maintain and enhance the quality
of our races by offering high purse levels to attract the best available horses,
trainers and jockeys, providing superior customer service, adding amenities, and
making strategic capital improvements to our track properties.

SUPPORT AND EXPAND OUR PREMIER, BRANDED SIMULCAST RACING PRODUCT. We believe
that we provide horse racing's premier simulcast product. We currently offer 217
days of live racing programming through four separate signals. We plan to expand
our programming content to show live races year-round, during the day and
evening, through a single video signal marketed under the Churchill Downs brand
name. Because remote wagering locations import signals from multiple sources, a
single video signal offers convenience and reduced operating costs. As part of
our branding strategy, we intend to use enhanced supporting graphics and data
feeds to make our programs more appealing to consumers. We believe that the
combination of expanded programming, simulcast bundling and improved production
quality will allow us to increase our share of the growing simulcast wagering
market. We also believe that our branded simulcast product will be especially
well-suited for the in-home wagering market as this market develops.

LEAD THE CONSOLIDATION AND DEVELOPMENT OF THE THOROUGHBRED INDUSTRY. The
Thoroughbred racing industry is highly fragmented, with few pari-mutuel
operators controlling more than two racetracks. We have strategically
accumulated a portfolio of four racetracks and plan to selectively acquire more.
Our acquisition strategy is to target racetracks whose races either are of
sufficient quality to enhance the value of our branded simulcast package or
provide critical racing dates or times to expand our simulcast programming
content. In addition, we may seek to acquire the rights to simulcast races
conducted at other tracks. We also intend to further develop the industry by
pursuing the integration of video lottery terminals or similar gaming devices at
our racetrack facilities. Currently, we are working with members of the Kentucky
horse racing industry to develop a plan to operate video lottery

5
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terminals exclusively at Kentucky's racetracks. The integration of alternative
gaming devices will allow us to broaden our patron base and provide us with an
additional source of revenue and purse money.

LIVE RACING PRODUCTS

CHURCHILL DOWNS RACETRACK

- The Churchill Downs facility is one of the premier horse racetracks in the
nation and the internationally known home of the Kentucky Derby.
Attendance at the 1999 Kentucky Derby was approximately 151,000, making it
the best attended live horse racing event in the United States. Wagering
on the Kentucky Derby in 1999 totaled more than $57.0 million,
representing the largest amount ever wagered on an individual race in the
United States.

- The Churchill Downs racetrack has hosted the Breeders' Cup, an annual day
of racing for determining Thoroughbred champions, an unprecedented four
times, in 1988, 1991, 1994 and 1998.

- In 1998, races at the Churchill Downs racetrack were simulcast to
approximately 900 sites throughout the United States and to nine other
countries. The Kentucky Derby was simulcast to over 1,000 sites worldwide.
The total amount wagered on races simulcast from the Churchill Downs
racetrack in 1998, excluding the Breeders' Cup, was $421.2 million.

- The average daily purse at the Churchill Downs racetrack in 1998 was
approximately $437,000, which we believe ranks our average daily purses
among the top five in the United States.

CALDER RACE COURSE

- Calder Race Course's racing season extends from late May to early January,
significantly expanding our simulcast programming schedule.

- Calder Race Course has a strong presence in the important south Florida
market and annually hosts "The Festival of the Sun," Florida's richest day
in racing.

- In 1998, Calder Race Course's races were simulcast to 525 sites. The total
amount wagered on races simulcast from Calder Race Course in 1998 was
$355.7 million.

ELLIS PARK RACE COURSE

- With its racing meet immediately following the spring meet at the
Churchill Downs racetrack, Ellis Park's racing dates complement Churchill
Downs' racing schedule.

- Ellis Park's races were simulcast to 485 sites, an increase of 37% since
we acquired the racetrack in April 1998. The total amount wagered on races
simulcast from Ellis Park in 1998 was $116.7 million.

HOOSIER PARK

- We own a 77% interest in Hoosier Park, Indiana's only horse racing
facility. Hoosier Park has entered into a management contract with us
under which we have day-to-day control of the racetrack and its related
simulcast operations.

- Hoosier Park's racing schedule consists primarily of evening races,
enabling us to expand the hours of our simulcast programming.

- In 1998, Hoosier Park's Thoroughbred races were simulcast to 220 sites.
The total amount wagered on all races simulcast from Hoosier Park in 1998
was $62.7 million.

6
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SIMULCAST FACILITIES

In addition to conducting live horse races, we operate facilities for simulcast
wagering at our racetracks and at other locations. The Churchill Downs racetrack
and Calder Race Course offer simulcast wagering only during the days when they
conduct live races, while Ellis Park and Hoosier Park offer year-round simulcast
wagering. Our premier simulcast wagering facility, the Louisville Sports
Spectrum, uses state-of-the-art audio and video facilities to offer simulcast
wagering when the Churchill Downs racetrack is not conducting live races. We
also operate three simulcast wagering facilities in Indiana and have a 50%
interest in four small simulcast wagering facilities in Kentucky. These
facilities offer simulcast wagering year-round.

IN-HOME WAGERING

In conjunction with ODS Entertainment, a subsidiary of AT&T, we are
participating in the development of the first in-home, interactive television
wagering system in the United States. The system is currently being tested in
Kentucky and is expected to be launched nationwide with the introduction of the
Television Games Network in the second half of 1999. We expect this new cable
television channel to eventually offer 24-hour-a-day programming primarily
consisting of live racing simulcasts, with in-home, interactive wagering offered
to residents of the states that permit account wagering. We have entered into an
agreement to include our Churchill Downs racetrack simulcast products as part of
the Television Games Network's programming content and expect to include our
other simulcast products in the future. As the originator of the live racing
signal, we will receive a simulcast fee on in-home wagers placed on our races.

OTHER RACING-RELATED INTERESTS

As part of our commitment to excellence in horse racing, we provide year-round
training facilities for trainers and horses at the Churchill Downs racetrack,
Louisville Sports Spectrum, Calder Race Course and Kentucky Horse Center in
Lexington, Kentucky. We also own a 24% interest in the Kentucky Downs racetrack
located in Franklin, Kentucky. In January 1999, we acquired a 60% stake in
Charlson Broadcast Technologies, which provides simulcast graphic software and
video services to racetracks and simulcast wagering facilities. We also have a
30% interest in NASRIN Services, a telecommunications provider for the
pari-mutuel and simulcasting industries. Our other racing-related interests
include a 35% stake in EquiSource, which assists in the group purchasing of
supplies and services for the horse racing industry.

------------------------

Churchill Downs was organized as a Kentucky corporation in 1928. Our principal
executive offices are located at Churchill Downs, 700 Central Avenue,
Louisville, Kentucky 40208. Our telephone number is (502) 636-4400. Our web site
address is www.kentuckyderby.com.

7
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THE OFFERING

<TABLE>
<S> <C>
Common stock to be offered by Churchill Downs.......... 2,000,000 shares(1)

Common Stock to be outstanding after this offering..... 9,525,041 shares(1)(2)

Use of proceeds........................................ To repay outstanding indebtedness.

Nasdaq National Market symbol.......................... CHDN
</TABLE>

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(1) Excludes 300,000 shares of common stock that we will sell if the
underwriters exercise their over-allotment option in full.

(2) Based on 7,525,041 shares of common stock outstanding on July 14, 1999.

DIVIDEND POLICY

We have historically paid dividends on our common stock. In 1998, we paid an
annual dividend of $0.50 per share on our common stock. We cannot assure that we
will continue to pay dividends in the future.

8
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED THREE-MONTH PERIOD ENDED THREE-MONTH PERIOD ENDED
DECEMBER 31, 1998 MARCH 31, 1998 MARCH 31, 1999
----------------------------- ----------------------------- -----------------------------
PRO FORMA PRO FORMA PRO FORMA
PRO FORMA(1) AS ADJUSTED(2) PRO FORMA(1) AS ADJUSTED(2) PRO FORMA(3) AS ADJUSTED(4)
------------- -------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Net revenues.................. $ 317,951 $ 317,951 $ 24,996 $ 24,996 $ 25,707 $ 25,707
Operating income (loss)....... 38,174 38,174 (7,973) (7,973) (9,525) (9,525)
Net earnings (loss)
attributable to common
shareholders................ 12,032 14,916 (7,785) (7,057) (8,677) (7,950)
Earnings (loss) per common
share:
Basic....................... $ 1.60 $ 1.57 $ (1.04) $ (0.74) $ (1.15) $ (0.83)
------------- -------------- ------------- -------------- ------------- --------------
------------- -------------- ------------- -------------- ------------- --------------
Diluted..................... $ 1.58 $ 1.55 $ (1.04) $ (0.74) $ (1.15) $ (0.83)
------------- -------------- ------------- -------------- ------------- --------------
------------- -------------- ------------- -------------- ------------- --------------
Weighted average shares
outstanding:
Basic....................... 7,520 9,520 7,517 9,517 7,525 9,525
Diluted..................... 7,599 9,599 7,517 9,517 7,525 9,525
OTHER DATA:
Pari-mutuel wagering:
On-track(5)................. $ 552,029 $ 552,029 $ 2,991 $ 2,991 $ 3,105 $ 3,105
Import simulcasting(6)...... 648,964 648,964 166,425 166,425 166,918 166,918
Export simulcasting(7)...... 1,721,318 1,721,318 11,413 11,413 11,915 11,915
------------- -------------- ------------- -------------- ------------- --------------
Total pari-mutuel wagering.... $ 2,922,311 $ 2,922,311 $ 180,829 $ 180,829 $ 181,938 $ 181,938
------------- -------------- ------------- -------------- ------------- --------------
------------- -------------- ------------- -------------- ------------- --------------
Net pari-mutuel wagering
revenue(8).................. $ 106,892 $ 106,892 $ 7,359 $ 7,359 $ 7,535 $ 7,535
EBITDA(9)..................... 53,407 53,407 (4,053) (4,053) (5,440) (5,440)
</TABLE>

<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
-------------------------------
PRO FORMA
PRO FORMA(10) AS ADJUSTED(11)
-------------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Total assets..................................................................... $ 371,698 $ 371,698
Working capital (deficiency)..................................................... (5,666) (5,666)
Long-term debt................................................................... 252,807 198,664
Shareholders' equity............................................................. 62,250 116,393
</TABLE>

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(1) Amounts reflect the pro forma effects on our statement of earnings and other
data of the acquisitions of Ellis Park, Calder Race Course and Hollywood
Park, assuming that these transactions occurred on January 1, 1998. The data
do not purport to represent what our results of operations would have been
had the transactions occurred on that date and are not necessarily
indicative of our future operating results. The data should be read in
conjunction with "Use of Proceeds" and "Unaudited Pro Forma Condensed
Consolidated Financial Statements" and the notes thereto included elsewhere
in this prospectus.

(2) Amounts reflect the pro forma effects on our statement of earnings and other
data of the acquisitions of Ellis Park, Calder Race Course and Hollywood
Park, as adjusted for the application

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of net proceeds from the issuance of 2,000,000 shares of common stock of
Churchill Downs from this offering at $29.00 per share, assuming that these
transactions occurred on January 1, 1998. The data do not purport to
represent what our results of operations would have been had the
transactions occurred on that date and are not necessarily indicative of our
future operating results. The data should be read in conjunction with "Use
of Proceeds" and "Unaudited Pro Forma Condensed Consolidated Financial
Statements" and the notes thereto included elsewhere in this prospectus.

(3) Amounts reflect the pro forma effects on our statement of earnings and other
data of the acquisitions of Calder Race Course and Hollywood Park, assuming
that these transactions occurred on January 1, 1998. The data do not purport
to represent what our results of operations would have been had the
transactions occurred on that date and are not necessarily indicative of our
future operating results. The data should be read in conjunction with "Use
of Proceeds" and "Unaudited Pro Forma Condensed Consolidated Financial
Statements" and the notes thereto included elsewhere in this prospectus.

(4) Amounts reflect the pro forma effects on our statement of earnings and other
data of the acquisitions of Calder Race Course and Hollywood Park, as
adjusted for the application of net proceeds from the issuance of 2,000,000
shares of common stock of Churchill Downs from this offering at $29.00 per
share, assuming that these transactions occurred on January 1, 1998. The
data do not purport to represent what our results of operations would have
been had the transactions occurred on that date and are not necessarily
indicative of our future operating results. The data should be read in
conjunction with "Use of Proceeds" and "Unaudited Pro Forma Condensed
Consolidated Financial Statements" and the notes thereto included elsewhere
in this prospectus.

(5) Wagers placed at (a) our tracks both on races at the tracks and on
simulcasts to our tracks when our tracks are hosting races and (b) the
Louisville Sports Spectrum on Kentucky Oaks Day, Kentucky Derby Day and the
day after Kentucky Derby Day.

(6) Wagers on simulcasts from other tracks placed at our facilities when our
facilities are not hosting races.

(7) Wagers placed at other facilities on simulcasts of our races.

(8) Net pari-mutuel wagering revenue equals total net revenues realized from
pari-mutuel wagering less pari-mutuel taxes, purses paid to owners and
simulcast fees paid to other racetracks.
Following is a summary of net pari-mutuel wagering revenue by location:

<TABLE>
<CAPTION>
THREE-MONTH THREE-MONTH
YEAR ENDED PERIOD ENDED PERIOD ENDED
DECEMBER 31, 1998 MARCH 31, 1998 MARCH 31, 1999
----------------- --------------- ---------------
<S> <C> <C> <C>
Churchill Downs........................... $ 22,700 $ 1,788 $ 1,530
Hoosier Park.............................. 6,840 3,074 3,101
Ellis Park................................ 5,575 426 739
Calder Race Course........................ 32,253 544 567
Hollywood Park............................ 39,524 1,527 1,598
-------- ------ ------
Total................................... $ 106,892 $ 7,359 $ 7,535
-------- ------ ------
-------- ------ ------
</TABLE>

(9) EBITDA represents earnings before provision for income taxes, depreciation,
amortization and interest expense less interest income. EBITDA is presented
because management believes that some investors use EBITDA as a measure of
an entity's ability to service its debt. EBITDA should not be considered as
an alternative to, or more meaningful than, net income (as determined in

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<PAGE>
accordance with GAAP) as a measure of our operating results or cash flows
(as determined in accordance with GAAP) or as a measure of our liquidity.

(10) Amounts reflect the pro forma effects on our balance sheet data of the
acquisitions of Calder Race Course and Hollywood Park assuming that these
transactions occurred on March 31, 1999. The data do not purport to
represent what our financial position would have been had the transactions
occurred on that date and are not necessarily indicative of our future
financial position. The data should be read in conjunction with "Unaudited
Pro Forma Condensed Consolidated Financial Statements" and the notes thereto
included elsewhere in this prospectus.

(11) Amounts reflect the pro forma effects on our balance sheet data of the
acquisitions of Calder Race Course and Hollywood Park as adjusted for the
application of net proceeds from the issuance of 2,000,000 shares of our
common stock from this offering at $29.00 per share, assuming that these
transactions occurred on March 31, 1999. The data do not purport to
represent what our financial position would have been had the transactions
occurred on that date and are not necessarily indicative of our future
financial position. The data should be read in conjunction with "Use of
Proceeds" and "Unaudited Pro Forma Condensed Consolidated Financial
Statements" and the notes thereto included elsewhere in this prospectus.

11
<PAGE>
SUMMARY CONSOLIDATED SELECTED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THREE-MONTH PERIOD
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------------------ ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ------------ ---------- ----------
(UNAUDITED)
STATEMENT OF EARNINGS DATA:
Net revenues....................... $ 66,419 $ 92,434 $ 107,859 $ 118,907 $ 147,300 $ 15,385 $ 17,663
Operating income (loss)............ 9,861 10,305 12,315 14,405 17,143 (2,770) (4,797)
Net earnings (loss) attributable to
common shareholders.............. 6,166 6,203 8,072 9,149 10,518 (1,569) (3,010)
Earnings (loss) per common share:
Basic............................ $ 0.82 $ 0.82 $ 1.08 $ 1.25 $ 1.41 $ (0.21) $ (0.40)
---------- ---------- ---------- ---------- ------------ ---------- ----------
---------- ---------- ---------- ---------- ------------ ---------- ----------
Diluted.......................... $ 0.82 $ 0.82 $ 1.08 $ 1.25 $ 1.40 $ (0.21) $ (0.40)
---------- ---------- ---------- ---------- ------------ ---------- ----------
---------- ---------- ---------- ---------- ------------ ---------- ----------
Weighted average shares
outstanding:
Basic............................ 7,557 7,568 7,446 7,312 7,460 7,317 7,525
Diluted.......................... 7,557 7,569 7,448 7,321 7,539 7,317 7,525
OTHER DATA:
Pari-mutuel wagering:
On-track(1)...................... $ 143,800 $ 148,519 $ 147,015 $ 149,227 $ 165,207 $ -- $ --
Import simulcasting(2)........... 108,875 212,316 252,638 262,451 296,809 79,773 87,027
Export simulcasting(3)........... 150,838 241,726 417,407 463,966 600,666 -- --
---------- ---------- ---------- ---------- ------------ ---------- ----------
Total pari-mutuel wagering......... $ 403,513 $ 602,561 $ 817,060 $ 875,644 $ 1,062,682 $ 79,773 $ 87,027
---------- ---------- ---------- ---------- ------------ ---------- ----------
---------- ---------- ---------- ---------- ------------ ---------- ----------
Net pari-mutuel wagering
revenue(4)....................... $ 21,095 $ 32,489 $ 36,508 $ 37,998 $ 46,433 $ 4,862 $ 5,369
EBITDA(5).......................... 13,363 15,100 17,802 19,289 23,230 (1,494) (2,850)
</TABLE>

<TABLE>
<CAPTION>
AS OF MARCH 31,
1999
-------------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets................................................................................. $ 126,978
Working capital (deficiency)................................................................. (8,353)
Long-term debt............................................................................... 21,807
Common shareholders' equity.................................................................. 62,250
</TABLE>

- --------------------------

(1) Wagers placed at (a) our tracks both on races at the tracks and on
simulcasts to our tracks when our tracks are hosting races and (b) the
Louisville Sports Spectrum on Kentucky Oaks Day, Kentucky Derby Day and the
day after Kentucky Derby Day.

(2) Wagers on simulcasts from other tracks placed at our facilities when our
facilities are not hosting races.

(3) Wagers placed at other facilities on simulcasts of our races.

(4) Net pari-mutuel wagering revenue equals total net revenues realized from
pari-mutuel wagering less pari-mutuel taxes, purses paid to owners and
simulcast fees paid to other racetracks.

(5) EBITDA represents earnings before provision for income taxes, depreciation,
amortization and interest expense less interest income. EBITDA is presented
because management believes that some investors use EBITDA as a measure of
an entity's ability to service its debt. EBITDA should not be considered as
an alternative to, or more meaningful than, net income (as determined in
accordance with GAAP) as a measure of our operating results or cash flows
(as determined in accordance with GAAP) or as a measure of our liquidity.

12
<PAGE>
RISK FACTORS

YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS BEFORE DECIDING TO INVEST IN
OUR COMMON STOCK. THE MOST SIGNIFICANT RISKS AND UNCERTAINTIES WE FACE ARE
DESCRIBED BELOW, BUT THEY ARE NOT THE ONLY ONES. ADDITIONAL RISKS AND
UNCERTAINTIES THAT ARE NOT PRESENTLY KNOWN TO US, THAT WE CURRENTLY DEEM
IMMATERIAL OR THAT ARE SIMILAR TO THOSE FACED BY OTHER COMPANIES IN OUR INDUSTRY
OR BUSINESS IN GENERAL MAY ALSO IMPAIR OUR BUSINESS OPERATIONS.

IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCURS, OUR BUSINESS, FINANCIAL CONDITION
AND RESULTS OF OPERATIONS COULD BE MATERIALLY AND ADVERSELY AFFECTED. IN THIS
CASE, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY LOSE ALL
OR PART OF YOUR INVESTMENT. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN FORWARD-LOOKING STATEMENTS CONTAINED IN THIS PROSPECTUS AS
A RESULT OF VARIOUS RISKS, INCLUDING THOSE DISCUSSED BELOW AND ELSEWHERE IN THIS
PROSPECTUS. PLEASE REFER TO "FORWARD-LOOKING STATEMENTS" ON PAGE 3.

THE SIGNIFICANT COMPETITION WE FACE FROM OTHER GAMING AND ENTERTAINMENT
OPERATIONS COULD DECREASE OUR REVENUES AND PROFITS.

We operate in a highly competitive industry. We compete for patrons with other
sports, entertainment and gaming operations, including land-based, riverboat and
cruise ship casinos, and state lotteries. Competition in the gaming industry is
likely to increase due to limited opportunities for growth in new markets. If we
lose customers for any reason, including the factors discussed below, our
revenues and profits may decrease.

CHALLENGES FACING HORSE RACING. Nationally, fewer patrons are attending and
wagering at live horse races. We believe this decline has resulted primarily
from competing forms of entertainment and gaming and from an increasing
unwillingness of customers to travel a significant distance to racetracks, in
part due to the availability of off-track wagering. Because of the decline in
on-track attendance and wagering, racetracks increasingly rely on simulcasting
and off-track wagering. The industry-wide focus on simulcasting and off-track
wagering has increased competition among racetracks for outlets for their live
races. A decline in consumer interest in horse racing, a continued decrease in
on-track attendance and wagering or increased competition in the simulcast
wagering market could lower our revenues and profits.

RIVERBOAT AND CRUISE SHIP CASINOS. We directly compete with the riverboat
and cruise ship casinos that operate near our wagering facilities. There are
currently four Indiana-based and one Illinois-based riverboat casinos on the
Ohio River bordering Kentucky. Indiana has recently approved a license for an
additional riverboat casino to be located approximately 70 miles from our
facilities in Louisville. In November 1998, the world's largest riverboat
casino, RDI/Caesars, began operating approximately 10 miles from the Churchill
Downs racetrack and Louisville Sports Spectrum. Since the opening of
RDI/Caesars, the total amount wagered at Louisville Sports Spectrum has been
less than it was during the corresponding period the preceding year. The effect
of RDI/Caesars on attendance and wagers at the Churchill Downs racetrack is not
yet known because RDI/Caesars opened during the last week of our 1998 fall
racing meet and our 1999 spring meet recently ended, and because RDI/Caesars has
been temporarily closed during part of our spring meet. Independent industry and
academic studies suggest, however, that the Churchill Downs racetrack could
experience a material adverse impact on attendance and wagers when the
RDI/Caesars riverboat opens to full capacity and establishes itself in the
market. Our Merrillville Sports Spectrum has also been adversely affected by
casino riverboats operating in Indiana on Lake Michigan and in Illinois near
Chicago. Calder Race Course faces competition from Miami-area cruise ships that
permit off-shore gambling. Increased competition from casinos operating in our
markets could lower our revenues and profits.

LAND-BASED CASINOS. Several Native American tribes in Florida have
expressed interest in opening casinos in southern Florida which could compete
with Calder Race Course. Recently, the Pokagon

13
<PAGE>
Band of the Potawatomi Indian Tribe expressed interest in establishing a
land-based casino in northeastern Indiana or southwestern Michigan. The State of
Michigan has approved the Pokagon Band's proposal to develop a casino in New
Buffalo, Michigan, which is approximately 45 miles from our Merrillville
facility. In addition, in May 1999 the governor of Kentucky proposed that
consideration be given to passing enabling legislation and adopting a
constitutional amendment to authorize up to 14 land-based casinos in Kentucky.
Increased competition from these casinos could lower our revenues and profits.

STATE LOTTERIES. We face significant competition from state lotteries.
State lotteries benefit from numerous distribution channels, ranging from
supermarkets to convenience stores, and from frequent and extensive advertising
campaigns. We do not have the same access to the gaming public or the
advertising resources available to state lotteries.

ON-LINE AND INTERNET BETTING. We face significant competition from gaming
companies that operate on-line and Internet-based gaming services. These
services allow patrons to wager on a wide variety of sporting events from home.
Unlike most on-line and Internet-based gaming companies, our business requires
significant and ongoing capital expenditures for both its continued operation
and expansion. We cannot offer the same number of gaming options as on-line and
Internet-based gaming companies. We also face significantly greater costs in
operating our business compared to these gaming companies. The inability to
compete successfully with on-line and Internet-based gaming companies could
lower our revenues and profits.

OUR GAMING ACTIVITIES ARE EXTENSIVELY REGULATED.

LICENSING. The operation of gaming facilities is subject to extensive state
and local regulation. We depend on continued state approval of legalized gaming
in states where we operate. Our wagering and racing facilities must meet the
licensing requirements of various regulatory authorities, including the Kentucky
Racing Commission, the Indiana Horse Racing Commission and the Florida
Department of Business and Professional Regulation Division of Pari-Mutuel
Wagering. As part of this regulation, licenses to conduct live horse racing and
to participate in simulcast wagering are granted annually. The Churchill Downs
racetrack and Ellis Park compete with the other racetracks in Kentucky for
racing dates. Although state law requires that the Kentucky Racing Commission
consider and seek to preserve each racetrack's customary live race dates, there
can be no guarantee that the number of racing days each track receives, or the
dates in which racing can occur, will not vary from year to year.

In Florida, the Division of Pari-Mutuel Wagering approves annual licenses for
Thoroughbred, Standardbred and Quarter Horse races. Tax laws in Florida
currently discourage the three Miami-area racetracks in Florida from applying
for licenses for race dates outside of their traditional racing season, which
currently do not overlap. Effective July 1, 2001, a new tax structure will
eliminate this deterrent. Accordingly, Calder Race Course may face direct
competition from other Florida racetracks in the future. This competition could
lower our revenues and our profits.

Hoosier Park is currently the only facility licensed to conduct live horse
racing in Indiana. The Indiana Horse Racing Commission has the authority to
grant additional licenses to conduct live horse racing. If additional licenses
are granted, the number of live racing days allocated to Hoosier Park could be
reduced, or we could compete directly with the new tracks depending on their
location. Additional licensed facilities would also compete with our off-track
wagering facilities and would receive a portion of the subsidy we currently
receive from the admission fee charged on Indiana riverboats. Any reduction in
the number of live racing dates or the presence of a new track in Indiana could
significantly limit the number of races we conduct and could significantly lower
our revenues and profits.

14
<PAGE>
To date, we have obtained all governmental licenses, registrations, permits and
approvals necessary for the operation of our gaming facilities. However, we may
be unable to maintain our existing licenses. The loss of our licenses,
registrations, permits or approvals may materially limit the number of races we
conduct and could lower our revenues and profits.

EFFECT ON OUR BUSINESS STRATEGY. Any expansion of our gaming operations
will likely require various additional licenses, registrations, permits and
approvals. The approval process can be time-consuming and costly, and there is
no assurance of success. The high degree of regulation of the gaming industry is
a significant impediment to our growth strategy, especially in the areas of
interactive home wagering and wagering over the Internet. Interactive home
wagering may currently be conducted in only eight states. Unless more states
change their laws to permit wagering over the telephone, our expansion
opportunities in this market will be limited. Wagering over the Internet is also
subject to extensive legal restriction. The Internet Gambling Prohibition Act is
currently pending before the United States Senate. The Act would impose criminal
penalties for conducting wagering over the Internet. Although the Act currently
excludes some forms of interactive wagering on horse racing, it does not permit
Internet-based wagering. This restriction limits our opportunities for growth in
this market and allows us to pursue Internet-based wagering only in foreign
markets. The results from expansion in foreign markets would be substantially
less than if Internet-based wagering were permitted in the United States. The
opening of new wagering facilities may also depend on our ability to secure the
required state and local licenses, permits and approvals, which in some
jurisdictions may be limited in number or require legislative relief from
existing laws or voter approval.

NATIONAL GAMBLING IMPACT STUDY COMMISSION. Congress established a National
Gambling Impact Study Commission to study comprehensively the social and
economic impact of gambling in the United States. The National Commission
reported its findings and conclusions, together with recommendations for
legislative and administrative actions, on June 18, 1999. In its report, the
National Commission concluded that the gambling industry should be closely
regulated and recommended "a pause in the expansion of gambling," including in
the area of Internet gaming, to allow time for assessment of the costs and
benefits of the industry. Although the recommendations of the National
Commission could result in the enactment of new laws or the adoption of new
regulations which could adversely impact Churchill Downs and the gaming industry
in general, we are unable at this time to determine the ultimate effect of the
recommendations.

TAXATION. We believe that the prospect of raising significant additional
revenue is one of the primary reasons that jurisdictions permit legalized
gaming. As a result, gaming companies are subject to significant taxes and fees
in addition to normal federal, state and local income taxes. We currently pay a
significant amount of gaming related taxes and fees. These taxes and fees could
increase at any time. From time to time, legislators have proposed the
imposition of a federal tax on gross gaming revenues. Any additional taxes could
materially lower the profitability of the taxed operations.

HOOSIER PARK DEPENDS ON A SUBSIDY FROM RIVERBOAT CASINO ADMISSIONS IN INDIANA.

The Indiana horse racing industry currently receives a $0.65 subsidy from each
$3.00 admission ticket to Indiana riverboat casinos. Hoosier Park benefits from
this subsidy in a variety of different ways. Indiana law requires that this
subsidy be spent as follows: 40% for purse expenses; 30% for racetrack
operators; 20% for breed development; and 10% for approved advertising costs. As
the only racetrack in Indiana, Hoosier Park receives all of the subsidy
allocated to purse expenses, racetrack operators and advertising costs. In 1998,
the amount of the racetrack operator subsidy allocated to Hoosier Park was
approximately $6.7 million. If the Indiana Horse Racing Commission grants a
license for an additional racetrack, our portion of the direct subsidy would be
reduced. The Indiana legislature has considered reducing or eliminating the
subsidy. It is likely that additional legislation seeking to reduce or eliminate
the subsidy will be brought before the legislature in the future. Any reduction
in the subsidy or the

15
<PAGE>
approval of additional racetracks could significantly reduce the funding from
the subsidy for our operations at Hoosier Park and potentially reduce the number
of live racing dates that we could support or cause a complete and permanent
shutdown of the facility.

WE MAY NOT BE ABLE TO ATTRACT QUALITY HORSES AND TRAINERS.

To provide high quality horse racing, we must attract the country's top horses
and trainers by offering competitive purses. Our success in attracting the top
horses and trainers largely depends on our ability to offer competitive purses.
The number of top horses available for racing is affected by a range of factors,
including the market for race horses and the number of foals born each year. Any
decline in the number of suitable race horses could prevent us from attracting
top horses and trainers and may require us to reduce the number of live races we
present. A reduction in suitable race horses could force us to increase the size
of our purses or other benefits we offer, to conduct fewer races or to accept
horses of a lower quality.

WE MAY NOT BE ABLE TO EXECUTE OUR ACQUISITION STRATEGY.

We intend to pursue an aggressive growth strategy, largely through acquisitions.
The expansion of our operations through acquisitions depends on numerous
factors, including our ability to identify potential acquisition targets, to
negotiate acceptable acquisition terms and to obtain the necessary financing. In
pursuing our growth strategy, we will compete for acquisition targets with
gaming companies with significantly greater capital resources. We may be unable
to identify additional acquisition candidates, obtain the necessary financing or
successfully bid for any potential acquisition target. Any failure to
successfully execute our acquisition strategy could prevent us from achieving
our strategic business initiatives.

WE MAY EXPERIENCE DIFFICULTY INTEGRATING ACQUIRED BUSINESSES AND MANAGING OUR
OVERALL GROWTH.

The integration into our operations of acquired businesses will require a
significant dedication of management resources and an expansion of our
information systems. This dedication may distract us from day-to-day business.
These acquisitions have significantly expanded, and are expected to continue to
expand, our operations. We may not be able to manage effectively the larger
operations. We plan to continue pursuing expansion opportunities. We will face
continuing challenges in managing and integrating other gaming operations that
we may acquire in the future, particularly in identifying and recruiting
talented managers for our new facilities. These factors may result in less
efficient and more costly operations as well as a failure of management to focus
on important issues.

WE MAY NOT BE ABLE TO COMPLETE EXPANSION PROJECTS ON TIME, ON BUDGET OR AS
PLANNED.

We may seek to further develop our racetracks and possibly expand our other
gaming properties. Numerous factors, including regulatory and financial
constraints, could cause us to alter, delay or abandon our existing plans. We
may not successfully complete any currently contemplated or future expansion
projects. If we proceed to develop our facilities, we face numerous risks that
could require substantial changes to our plans, including time frames or
projected budgets. These risks include the ability to secure all required
permits and the resolution of potential land use issues, as well as risks
typically associated with any construction project, including possible shortages
of materials or skilled labor, unforseen engineering or environmental problems,
work stoppages, weather interference and unanticipated cost overruns. Even if
completed, our expansion projects may not be successful.

16
<PAGE>
WE EXPERIENCE SIGNIFICANT SEASONAL FLUCTUATIONS IN OPERATING RESULTS.

We experience significant fluctuations in quarterly and annual operating results
due to seasonality and other factors. We have a limited number of live racing
days at our racetracks, and the number of live racing days varies from year to
year. The number of live racing days we have directly affects our operating
results. A significant decrease in the number of live races could materially
lower our revenues and profits. Our live racing schedule also dictates that we
earn a substantial portion of our net earnings in the second quarter of each
year, when the Kentucky Derby and the Kentucky Oaks races usually are run on the
first weekend in May. In 1998, these races accounted for approximately 16% of
on-track pari-mutuel wagering at the Churchill Downs racetrack and 27% of total
on-track attendance at the Churchill Downs racetrack.

OUR BUSINESS DEPENDS ON PROVIDERS OF TOTALISATOR SERVICES.

In purchasing and selling our pari-mutuel wagering products, our customers
depend on information provided by United Tote Company and AmTote International.
These totalisator companies provide the computer systems that accumulate wagers,
record sales, calculate payoffs and display wagering data. United Tote and
AmTote are two of only three vendors that provide this service in North America.
The loss of United Tote or AmTote as a provider of this critical service would
decrease competition and could result in an increase in the cost to obtain these
services. Additionally, the failure of totalisator companies to keep their
technology current could limit our ability to serve patrons effectively or
develop new forms of wagering. Because of the highly specialized nature of these
services, replicating these totalisator services would be expensive.

WE MAY BE HELD RESPONSIBLE FOR CONTAMINATION, EVEN IF WE DID NOT CAUSE THE
CONTAMINATION.

Our business is subject to a variety of federal, state and local governmental
laws and regulations relating to the use, storage, discharge, emission and
disposal of hazardous materials. In addition, environmental laws and regulations
could hold us responsible for the cost of cleaning up hazardous materials
contaminating real property that we own or operate or properties at which we
have disposed of hazardous materials, even if we did not cause the
contamination. We believe that we are currently in compliance with the
applicable environmental laws and have no material cleanup obligations. However,
if we fail to comply with environmental laws or if contamination is discovered,
a court or government agency could impose severe penalties or restrictions on
our operations or assess us with the costs of taking remedial actions.

WE FACE YEAR 2000 ISSUES.

Many computer systems, software products and other business systems with
embedded chips or processors use only two digits to represent the year. As a
result, they may be unable to accurately process some data before, during or
after the year 2000. Business and governmental entities are at risk for possible
miscalculations or system failures causing disruptions in their operations. This
is commonly known as the "Year 2000" problem, and it can arise at any point in
our business and financial systems.

Our business operations depend on the Year 2000 readiness of outside parties,
including our simulcast customers and infrastructure suppliers. Our pari-mutuel
operations rely upon software systems provided by outside suppliers. We have no
alternative system to handle pari-mutuel wagering if these systems fail. Our
simulcast operations and in-home wagering systems depend upon telecommunication
service providers. The failure of these and other systems, which we did not
design, to be Year 2000 ready may significantly disrupt or even shut down our
operations.

17
<PAGE>
We have reviewed our business systems, including our computer systems, and are
querying our customers and vendors about their progress in identifying and
addressing problems that their computer systems may face in correctly
interrelating and processing date information as the year 2000 approaches and is
reached. However, we can give no assurance that we will identify all such Year
2000 problems in our computer systems or those of our customers and vendors in
advance of their occurrence or that we will be able to successfully remedy any
problems that are discovered. Our expenses in identifying and addressing such
problems, or the expenses or liabilities to which we may become subject as a
result of such problems, could be significant.

You should read "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for more information on Year 2000 issues.

WE DEPEND ON KEY PERSONNEL.

We are highly dependent on the services of Thomas H. Meeker, President and Chief
Executive Officer, and Robert L. Decker, Executive Vice President and Chief
Financial Officer. If we lose the services of either of these individuals, our
operations could be disrupted. We have entered into employment agreements with
Messrs. Meeker and Decker.

OUR STOCK PRICE IS VOLATILE.

The market price of our stock has been volatile and may continue to be volatile.
Fluctuations in our operating profits, our announcement of new wagering and
gaming opportunities, the passage of legislation affecting racing or gaming and
developments affecting the racing or gaming industries generally may have
significant effects on the market price of our stock. Moreover, the historical
daily volume of shares of our stock traded has been low, so relatively small
changes in daily trading volume may significantly affect our stock price. In
addition, publicly-held racing companies have experienced price and trading
volume fluctuations that are often unrelated to the particular company's
financial conditions or operating results. A shift in market valuations of
publicly-held racing or gaming companies could adversely affect the market price
of our common stock, regardless of our financial condition or operating results.

THE SUBSTANTIAL NUMBER OF SHARES THAT WILL BE ELIGIBLE FOR SALE IN THE NEAR
FUTURE MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK.

Sales of a substantial number of shares of our common stock in the public market
following this offering could adversely affect the market price of our common
stock. The number of shares of common stock available for sale in the public
market is limited by restrictions under federal securities laws and under
lock-up agreements that our shareholders who are directors, officers or related
persons have entered into with the underwriters. These agreements restrict these
shareholders from selling, pledging or otherwise disposing of their shares for a
period of 180 days after the date of this prospectus without the prior written
consent of CIBC World Markets. In addition, one of our shareholders, who has
executed a lock-up agreement, has the right to require us to register the
200,000 shares of our common stock it owns. CIBC World Markets may, however, in
its sole discretion, release all or any portion of the common stock from the
restrictions of these lock-up agreements.

18
<PAGE>
CERTAIN PROVISIONS OF OUR CHARTER, OUR BYLAWS AND OTHER FACTORS MAY INHIBIT
TAKEOVERS.

Several factors could inhibit an acquisition of Churchill Downs by a third
party. Our amended and restated articles of incorporation provide that the board
of directors is to consist of three approximately equal classes of directors, of
which one class is elected annually. Directors on our board each serve for a
term of three years. This staggered term structure hinders the ability to
acquire control through a proxy contest. Our bylaws limit a shareholder's right
to call special meetings. The bylaws also require advance notice of shareholder
nominations for directors and shareholder proposals to be considered at our
annual meeting. These provisions in the articles and bylaws limit the ability of
shareholders to take actions that would facilitate an acquisition of Churchill
Downs. We also have a shareholder rights plan. This plan is designed to
discourage third parties from trying to acquire Churchill Downs without the
consent of its board of directors. All of these factors may make it more
difficult for a third person to acquire, or may discourage a third party from
trying to acquire, our stock. This could limit the price that some investors
might be willing to pay for our common stock.

19
<PAGE>
USE OF PROCEEDS

The net proceeds to us from the sale of the 2,000,000 shares of common stock
that we are offering are estimated to be approximately $54.1 million ($62.4
million if the underwriters exercise their over-allotment option in full) at
$29.00 per share and after deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by us.

We intend to use the net proceeds of this offering to pay down our new $250.0
million revolving bank credit facility, which we drew on to acquire Calder in
April 1999 and plan to draw on to acquire Hollywood Park. The new revolving bank
facility accrues interest at LIBOR plus 75 to 250 basis points, depending on our
leverage ratio and other conditions, and matures in 2004.

The new bank credit facility may be used for the acquisition of businesses that
complement ours, for general corporate purposes or for working capital. As of
July 14, 1999, the total amount drawn on this facility was $100.0 million. After
allocating the net proceeds of this offering, our new bank facility will have
additional availability of up to $204.1 million. We expect to use approximately
$142.0 million of this amount in connection with the acquisition of Hollywood
Park.

20
<PAGE>
CAPITALIZATION

The following table sets forth our capitalization:

- on an actual basis as of March 31, 1999;

- on a pro forma basis to reflect the acquisitions of Calder and Hollywood
Park and our new credit agreement; and

- on a pro forma as adjusted basis to reflect the acquisition of Calder and
Hollywood Park, our new credit agreement, the issuance of 2,000,000 shares
of common stock offered by this prospectus and the application of the
estimated net proceeds of this offering at $29.00 per share and after
deducting estimated underwriting discounts and commissions and our
estimated offering expenses.

This table should be read in conjunction with our consolidated financial
statements and the related notes thereto included elsewhere in this prospectus.
See "Unaudited Pro Forma Condensed Consolidated Financial Statements," "Use of
Proceeds" and "Description of Capital Stock."

<TABLE>
<CAPTION>
MARCH 31, 1999
-------------------------------------
<S> <C> <C> <C>
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
(UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- -----------
(IN THOUSANDS)

Long-term debt............................................................ $ 21,807 $ 252,807 $ 198,664
----------- ----------- -----------
Shareholders' equity:
Preferred stock, no par value per share; 250,000 shares authorized; none
issued................................................................ -- -- --
Common stock, no par value per share; 20,000,000 shares authorized;
7,525,041 shares issued and outstanding; 9,525,041 shares issued and
outstanding, as adjusted.............................................. 8,927 8,927 63,070
Retained earnings......................................................... 53,589 53,589 53,589
Other..................................................................... (266) (266) (266)
----------- ----------- -----------
Total shareholders' equity.............................................. 62,250 62,250 116,393
----------- ----------- -----------
Total capitalization.................................................... $ 84,057 $ 315,057 $ 315,057
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

21
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following unaudited pro forma condensed balance sheet was derived from our
unaudited consolidated balance sheet and the unaudited balance sheets of Calder
Race Course, Inc. ("Calder") and Tropical Park, Inc. ("Tropical") (which
together comprise Calder Race Course) and Hollywood Park Race Track and Casino
("Hollywood Park") as of March 31, 1999. The unaudited pro forma condensed
statements of earnings for the three-month periods ended March 31, 1999 and 1998
were derived from our unaudited consolidated statements of earnings and the
unaudited statements of income of Calder, Tropical and Hollywood Park for the
three-month periods ended March 31, 1999 and 1998 and of Racing Corporation of
America (Ellis Park) for the three-month period ended March 31, 1998. The
unaudited pro forma condensed statements of earnings for the year ended December
31, 1998 were derived from our audited consolidated statement of earnings for
the year ended December 31, 1998, the audited statements of earnings of Calder,
Tropical and Hollywood Park for the year ended December 31, 1998 and the
unaudited statement of earnings of Ellis Park for the period from January 1,
1998 through April 21, 1998. The unaudited pro forma financial statements
reflect the pro forma effects of the acquisitions of Ellis Park, Calder,
Tropical and Hollywood Park, and our new credit agreement, as adjusted to
reflect the effect of the offering of the shares in this prospectus. These
unaudited pro forma financial statements give effect to the acquisitions, the
new credit agreement and this offering as if they had occurred on January 1,
1998 for the statements of earnings and as of March 31, 1999 for the balance
sheet. The statements do not purport to represent what our results of operations
or financial position actually would have been if the acquisitions, the new
credit agreement and the offering had occurred on or as of such dates and are
not necessarily indicative of future operating results or financial position.
The unaudited pro forma consolidated financial statements are based upon, and
should be read in conjunction with, the audited annual financial statements and
the unaudited interim financial statements of Churchill Downs, Calder, Tropical
and Hollywood Park, and the notes thereto included elsewhere in this prospectus.

The acquisitions of Ellis Park, Calder Race Course and Hollywood Park have been
accounted for using the purchase method of accounting. Under the purchase method
of accounting, the purchase price is allocated to the fair value of the tangible
and identifiable intangible assets acquired and liabilities assumed. The pro
forma adjustments related to the Calder Race Course and Hollywood Park
acquisitions are based on preliminary assumptions of the allocation of the
purchase price and are subject to revision once appraisals, evaluations and
other studies of the fair value of the assets acquired and liabilities assumed
are completed. Actual purchase accounting adjustments related to the Calder Race
Course and Hollywood Park acquisitions may differ from the pro forma adjustments
presented in this prospectus.

22
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1999

<TABLE>
<CAPTION>
CALDER RACE COURSE HOLLYWOOD
---------------------------------------- PARK
PRO FORMA --------
HISTORICAL(1) ADJUSTMENTS
CHURCHILL DOWNS ---------------------- AND
HISTORICAL CALDER TROPICAL ELIMINATIONS(1) HISTORICAL(1)
--------------- ----------- -------- --------------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $ 12,590 $ 1,832 $ 5,408 $ -- $ 2,717
Accounts receivable........................ 8,402 430 501 -- 9,979
Due from affiliate......................... -- -- 4,671 (4,671)(3) --
Other current assets....................... 3,325 734 -- -- 3,624
--------------- ----------- -------- ------- --------
Total current assets..................... 24,317 2,996 10,580 (4,671) 16,320
Other assets............................... 5,427 1,585 245 -- 1,153
Property, plant and equipment, net......... 85,827 17,935 1,684 24,659(4) 74,194
Intangibles, net of amortization........... 11,407 -- -- 48,204(5) 19,151
2,500(6)
--------------- ----------- -------- ------- --------
Total assets............................. $126,978 $ 22,516 $12,509 $70,692 $110,818
--------------- ----------- -------- ------- --------
--------------- ----------- -------- ------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable........................... $ 11,330 $ 318 $ 133 $ -- $ 3,971
Accrued liabilities........................ 5,308 2,212 758 -- 13,290
Due to affiliate........................... -- 4,671 -- (4,671)(3) --
Dividends payable.......................... -- -- -- -- --
Income tax payable......................... -- -- -- -- 15,689
Deferred revenue........................... 15,462 -- -- -- --
Long-term debt, current portion............ 570 -- -- -- 43
--------------- ----------- -------- ------- --------
Total current liabilities................ 32,670 7,201 891 (4,671) 32,993
Long term liabilities:
Due to parent.............................. -- 22,911 16,587 (39,498)(7) --
Long-term debt, due
after one year........................... 21,237 -- -- 91,997(8) 228
Other liabilities.......................... 3,810 1,154 -- -- --
Deferred income taxes...................... 7,011 3,691 2,543 (6,460)(9) 4,889
9,371(10)
--------------- ----------- -------- ------- --------
Total liabilities........................ 64,728 34,957 20,021 50,739 38,110
--------------- ----------- -------- ------- --------
Shareholders' equity:
Common stock............................... 8,927 167 6 (173)(11) --
Retained earnings (accumulated deficit).... 53,589 (51,907) (26,563) 78,470(11) 72,707
Additional paid in capital................. -- 39,299 19,045 (58,344)(11) 1
Deferred compensation costs................ (201) -- -- -- --
Notes receivable for common stock.......... (65) -- -- -- --
--------------- ----------- -------- ------- --------
Total shareholders' equity............... 62,250 (12,441) (7,512) 19,953 72,708
--------------- ----------- -------- ------- --------
Total liabilities and shareholders'
equity................................. $126,978 $ 22,516 $12,509 $70,692 $110,818
--------------- ----------- -------- ------- --------
--------------- ----------- -------- ------- --------

PRO FORMA
PRO FORMA PRO FORMA AS ADJUSTED
ADJUSTMENTS AND CHURCHILL CHURCHILL
ELIMINATIONS(1) DOWNS DOWNS(2)
--------------- ---------- ------------

<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $(2,717)(12)
(2,997)(13) $ 16,833 $ 16,833
Accounts receivable........................ (9,979)(12) 9,333 9,333
Due from affiliate......................... -- -- --
Other current assets....................... (3,424)(12) 4,259 4,259
------- ---------- ------------
Total current assets..................... (19,117) 30,425 30,425
Other assets............................... (1,153)(12) 7,257 7,257
Property, plant and equipment, net......... (4,556)(12)
61,965(14) 261,708 261,708
Intangibles, net of amortization........... (19,151)(12)
10,197(15) 72,308 72,308
------- ---------- ------------
Total assets............................. $28,185 $ 371,698 $ 371,698
------- ---------- ------------
------- ---------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable........................... $(3,971)(12) $ 11,781 $ 11,781
Accrued liabilities........................ (13,290)(12) 8,278 8,278
Due to affiliate........................... -- -- --
Dividends payable.......................... -- -- --
Income tax payable......................... (15,689)(12) -- --
Deferred revenue........................... -- 15,462 15,462
Long-term debt, current portion............ (43)(12) 570 570
------- ---------- ------------
Total current liabilities................ (32,993) 36,091 36,091
Long term liabilities:
Due to parent.............................. -- -- --
Long-term debt, due
after one year........................... 138,775(13) 252,237 198,094
Other liabilities.......................... -- 4,964 4,964
Deferred income taxes...................... (4,889)(12) -- --
-- 16,156 16,156
------- ---------- ------------
Total liabilities........................ 100,893 309,448 255,305
------- ---------- ------------
Shareholders' equity:
Common stock............................... -- 8,927 63,070
Retained earnings (accumulated deficit).... (72,707)(16) 53,589 53,589
Additional paid in capital................. (1)(16) -- --
Deferred compensation costs................ -- (201) (201)
Notes receivable for common stock.......... -- (65) (65)
------- ---------- ------------
Total shareholders' equity............... (72,708) 62,250 116,393
------- ---------- ------------
Total liabilities and shareholders'
equity................................. $28,185 $ 371,698 $ 371,698
------- ---------- ------------
------- ---------- ------------
</TABLE>

- ------------------------

(1) Adjustments give pro forma effect to the Calder Race Course and Hollywood
Park acquisitions and Churchill Downs' new credit agreement as if these
transactions had occurred on March 31, 1999.

(2) Amounts reflect pro forma Churchill Downs' balances, as adjusted to record
the sale of the 2,000,000 shares of common stock at $29.00 per share and
the application of the estimated gross proceeds of $58.0 million, net of
estimated commissions and offering expenses payable by Churchill Downs of
$3.9 million in the aggregate. If the underwriters exercise their
over-allotment option in full the net proceeds of the offering

23
<PAGE>

and the corresponding reduction in outstanding debt will be increased by
$8.2 million from the amounts reflected above. See "Use of Proceeds" and
"Capitalization."

(3) To eliminate the intercompany balances between Calder and Tropical.

(4) To record the revaluation of acquired property, plant and equipment of
Calder and Tropical to its estimated fair value.

(5) To record the excess of the purchase price of Calder and Tropical over the
fair value of tangible and identifiable intangible net assets acquired.

(6) To record deferred financing costs associated with Churchill Downs' new
credit agreement.

(7) To eliminate liabilities of Calder and Tropical that were not assumed by
Churchill Downs.

(8) To record the borrowings on Churchill Downs' line of credit necessary to
finance the purchase price of Calder and Tropical of $86.0 million plus a
working capital adjustment of $2.9 million, related acquisition costs of
$600,000 and deferred financing costs of $2.5 million associated with
Churchill Downs' new credit agreement.

(9) To record the elimination of income taxes payable of Calder and Tropical
not assumed in the acquisition.

(10) To record the revaluation of the deferred tax assets and liabilities of
Calder and Tropical based on the revaluation of assets acquired and
liabilities assumed.

(11) To eliminate the historical equity accounts of Calder and Tropical.

(12) To eliminate assets and liabilities of Hollywood Park that were not
acquired or assumed by Churchill Downs in the transaction.

(13) To record the use of cash of $3.0 million and borrowings of $139.0 million
on Churchill Downs' line of credit necessary to finance the purchase price
of Hollywood Park of $140.0 million plus estimated acquisition costs of
$2.0 million and to eliminate historical long-term debt of $228,000 of
Hollywood Park not assumed by Churchill Downs.

(14) To record the revaluation of acquired property, plant and equipment of
Hollywood Park to its estimated fair value.

(15) To record the excess of the purchase price of Hollywood Park over the fair
value of tangible and identifiable intangible net assets acquired.

(16) To eliminate the historical equity accounts of Hollywood Park.

24
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 1999

<TABLE>
<CAPTION>
CALDER RACE COURSE
------------------------------------------------------------------
CHURCHILL HISTORICAL(1) PRO FORMA PRO FORMA
DOWNS ----------------- ADJUSTMENTS AND WITH CALDER
HISTORICAL CALDER TROPICAL ELIMINATIONS(1) RACE COURSE
---------- ------- ---------- --------------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net revenues.............................. $ 17,663 $ 612 $ 1,184 $ -- $ 19,459
---------- ------- ---------- --------------- ---------------
Operating expenses:
Purses.................................. 5,872 -- 499 -- 6,371
Other direct expenses................... 13,285 2,217 551 (54)(3)
58(4) 16,057
---------- ------- ---------- --------------- ---------------
19,157 2,217 1,050 4 22,428
---------- ------- ---------- --------------- ---------------
Gross profit (loss)................... (1,494) (1,605) 134 (4) (2,969)
Selling, general and administrative
expenses................................ 3,130 569 185 -- 3,884
Amortization Expense...................... 173 -- -- 301(5) 474
---------- ------- ---------- --------------- ---------------

Operating income (loss)............... (4,797) (2,174) (51) (305) (7,327)
---------- ------- ---------- --------------- ---------------
Other income (expense)
Interest income......................... 147 26 65 -- 238
Interest expense........................ (435) )(387 (280) (1,145)(6) (2,247)
Rental income........................... -- 101 15 (54)(3) 62
Miscellaneous income.................... 44 -- -- -- 44
---------- ------- ---------- --------------- ---------------
(244) )(260 (200) (1,199) (1,903)
Earnings (loss) before income tax
provision (benefit)..................... (5,041) (2,434) (251) (1,504) (9,230)
Federal and state income tax provision
(benefit)............................... (2,031) (1,080) (110) (481)(7) (3,702)
---------- ------- ---------- --------------- ---------------
Net earnings (loss)....................... $ (3,010) $ (1,354) $ (141) $ (1,023) $ (5,528)
---------- ------- ---------- --------------- ---------------
---------- ------- ---------- --------------- ---------------
Earnings (loss) per common share
Basic................................... $ (0.40) $ (0.73)
---------- ---------------
---------- ---------------
Diluted................................. $ (0.40) $ (0.73)
---------- ---------------
---------- ---------------
Weighted average shares outstanding
Basic................................... 7,525 7,525
Diluted................................. 7,525 7,525

HOLLYWOOD PARK
---------------------------- PRO FORMA
PRO FORMA PRO FORMA AS ADJUSTED
ADJUSTMENTS AND CHURCHILL CHURCHILL
HISTORICAL(1) ELIMINATIONS(1) DOWNS DOWNS(2)
---------- --------------- ---------- -----------

<S> <C> <C> <C> <C>
Net revenues.............................. $19,489 $(14,025)(8)
784(9) $ 25,707 $ 25,707
---------- --------------- ---------- -----------
Operating expenses:
Purses.................................. -- -- 6,371 6,371
Other direct expenses................... 19,622 (11,177)(8)
(250)(10)
(560)(11) 23,692 23,692
---------- --------------- ---------- -----------
19,622 (11,987) 30,063 30,063
---------- --------------- ---------- -----------
Gross profit (loss)................... (133) (1,254) (4,356) (4,356)
Selling, general and administrative
expenses................................ 1,543 (796)(8) 4,631 4,631
Amortization Expense...................... 64(12) 538 538
---------- --------------- ---------- -----------
Operating income (loss)............... (1,676) (522) (9,525) (9,525)
---------- --------------- ---------- -----------
Other income (expense)
Interest income......................... -- -- 238 238
Interest expense........................ (5) (2,640)(13) (4,892) (3,680)
Rental income........................... -- -- 62 62
Miscellaneous income.................... -- -- 44 44
---------- --------------- ---------- -----------
(5) (2,640) (4,548) (3,336)
Earnings (loss) before income tax
provision (benefit)..................... (1,681) (3,162) (14,073) (12,861)
Federal and state income tax provision
(benefit)............................... (588) (1,106)(14) (5,396) (4,911)
---------- --------------- ---------- -----------
Net earnings (loss)....................... $(1,093) $ (2,056) $ (8,677) $ (7,950)
---------- --------------- ---------- -----------
---------- --------------- ---------- -----------
Earnings (loss) per common share
Basic................................... $ (1.15) $ (0.83)
---------- -----------
---------- -----------
Diluted................................. $ (1.15) $ (0.83)
---------- -----------
---------- -----------
Weighted average shares outstanding
Basic................................... 7,525 9,525
Diluted................................. 7,525 9,525
</TABLE>

25
<PAGE>
(1) Adjustments necessary to give pro forma effect to the Calder Race Course
and Hollywood Park acquisitions and Churchill Downs' new credit agreement
as if these transactions had occurred on January 1, 1998. Historical
statement of earnings information is based on the unaudited financial
statements for the three month period ended March 31, 1999.

(2) Amounts reflect pro forma Churchill Downs' balances, as adjusted to record
the effects of the assumed repayment of outstanding debt of $54.1 million
from the net proceeds of this offering and the reduction of the interest
rate from 7.45% to 6.95% due to this offering in accordance with provisions
of the credit agreement, including (i) the reduction in estimated quarterly
interest expense of $1.3 million, (ii) the increase in the estimated
quarterly commitment fee expense of $51,000 and (iii) the related decrease
in the income tax benefit of $485,000 based on our estimated federal and
state income tax rate of 40%. If the underwriters exercise their over-
allotment option in full the net proceeds of the offering and the
corresponding reduction in outstanding debt will be increased by $8.2
million and the interest rate on the outstanding debt will be reduced by
.25% from the amounts reflected above.

(3) To eliminate intercompany rental income and expense between Calder and
Tropical.

(4) To record the estimated increase in depreciation expense as a result of the
revaluation of the acquired Calder and Tropical property, plant and
equipment to its fair value and estimated useful lives.

(5) To record estimated amortization over 40 years of the excess of the Calder
Race Course purchase price over the fair value of net assets acquired of
$48.2 million.

(6) To record the estimated incremental interest expense using an average 7.45%
interest rate on borrowings of $92.0 million necessary to finance the
Calder Race Course acquisition and fund deferred financing costs, including
amortization expense of $125,000 related to deferred financing costs of
$2.5 million over 5 years.

(7) To record the income tax effect of the estimated increase in depreciation
and incremental interest expense resulting from the Calder Race Course
acquisition at our estimated federal and state income tax rate of 40%.

(8) To eliminate the historical results of operations of Hollywood Park Casino,
which will not be operated by Churchill Downs under the terms of the
transaction.

(9) To record $750,000 in rental income and $34,000 in admissions revenue
related to the lease by Churchill Downs of the Hollywood Park Casino to
Hollywood Park, Inc. under the terms of the transaction.

(10) To eliminate historical depreciation expense on Hollywood Park assets not
acquired by Churchill Downs in the transaction.

(11) To record the estimated decrease in depreciation expense as a result of
the revaluation of the acquired Hollywood Park property, plant and
equipment to its fair value and estimated useful lives.

(12) To record estimated amortization over 40 years of the excess of the
Hollywood Park purchase price over the fair value of net assets acquired
of $10.2 million.

(13) To record the estimated incremental interest expense using an average
7.45% interest rate on borrowings of $142.0 million necessary to finance
the Hollywood Park acquisition.

(14) To record the income tax effect of the pro forma adjustments related to
the acquisition of Hollywood Park at Hollywood Park's historical tax rate
of 35% for the three month period.

26
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 1998

<TABLE>
<CAPTION>
CALDER RACE COURSE
-----------------------
ELLIS PARK
--------------------------------------------
CHURCHILL PRO FORMA HISTORICAL(2)
DOWNS PRO FORMA WITH -----------------------
HISTORICAL HISTORICAL(1) ADJUSTMENTS(1) ELLIS PARK CALDER TROPICAL
---------- ------------- -------------- ----------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net revenues............. $ 15,385 $1,556 $ -- $ 16,941 $ 565 $ 1,219
---------- ------ ----- ----------- ---------- ----------
Operating expenses:
Purses................. 5,374 396 -- 5,770 -- 502
Other direct
expenses............. 10,625 1,546 144(4) 12,315 2,018 449
---------- ------ ----- ----------- ---------- ----------
15,999 1,942 144 18,085 2,018 951
---------- ------ ----- ----------- ---------- ----------
Gross profit
(loss)............. (614) (386) (144) (1,144) (1,453) 268
Selling, general and
administrative
expenses............... 2,134 226 -- 2,360 483 171
Amortization Expense..... 22 -- 40(5) 62 -- --
---------- ------ ----- ----------- ---------- ----------
Operating income
(loss)............. (2,770) (612) (184) (3,566) (1,936) 97
---------- ------ ----- ----------- ---------- ----------
Other income (expense)
Interest income........ 189 -- -- 189 13 74
Interest expense....... (104) (12) (301)(6) (417) (480) (342)
Rental income.......... -- -- -- -- 76 15
Miscellaneous income... 117 -- -- 117 -- --
---------- ------ ----- ----------- ---------- ----------
202 (12) (301) (111) (391) (253)
Earnings (loss) before
income tax benefit..... (2,568) (624) (485) (3,677) (2,327) (156)
Federal and state income
tax benefit............ (999) (204) (224)(7) (1,427) (924) (61)
---------- ------ ----- ----------- ---------- ----------
Net earnings (loss)...... (1,569) (420) (261) (2,250) (1,403) (95)
Dividends on preferred
stock.................. -- -- -- -- 14 --
---------- ------ ----- ----------- ---------- ----------
Net earnings (loss)
attributable to common
shareholders........... $ (1,569) $ (420) $(261) $ (2,250) $ (1,417) $ (95)
---------- ------ ----- ----------- ---------- ----------
---------- ------ ----- ----------- ---------- ----------
Earnings (loss) per
common share
Basic.................. $ (0.21) $ (0.30)
---------- -----------
---------- -----------
Diluted................ $ (0.21) $ (0.30)
---------- -----------
---------- -----------
Weighted average shares
outstanding
Basic.................. 7,317 200 7,517
Diluted................ 7,317 200 7,517

<CAPTION>
HOLLYWOOD

PRO FORMA PARK
WITH ELLIS ----------
PRO FORMA PARK AND
ADJUSTMENTS AND CALDER RACE
ELIMINATIONS(2) COURSE HISTORICAL(2)
--------------- ----------- ----------

<S> <C> <C> <C>
Net revenues............. $ -- $ 18,725 $18,688

--------------- ----------- ----------
Operating expenses:
Purses................. -- 6,272 --
Other direct
expenses............. (32)(8) 14,815 19,530
65(9)

--------------- ----------- ----------
33 21,087 19,530
--------------- ----------- ----------
Gross profit
(loss)............. (33) (2,362) (842)
Selling, general and
administrative
expenses............... -- 3,014 1,557
Amortization Expense..... 301(10) 363
--------------- ----------- ----------
Operating income
(loss)............. (334) (5,739) (2,399)
--------------- ----------- ----------
Other income (expense)
Interest income........ -- 276 --
Interest expense....... (990)(11) (2,229) (6)
Rental income.......... (32)(8) 59 --
Miscellaneous income... -- 117 --
--------------- ----------- ----------
(1,022) (1,777) (6)
Earnings (loss) before
income tax benefit..... (1,356) (7,516) (2,405)
Federal and state income
tax benefit............ (422)(12) (2,834) (883)
--------------- ----------- ----------
Net earnings (loss)...... (934) (4,682) (1,522)
Dividends on preferred
stock.................. -- 14 --
--------------- ----------- ----------
Net earnings (loss)
attributable to common
shareholders........... $ (934) $ (4,696) $(1,522)
--------------- ----------- ----------
--------------- ----------- ----------
Earnings (loss) per
common share
Basic.................. $ (0.62)
-----------
-----------
Diluted................ $ (0.62)
-----------
-----------
Weighted average shares
outstanding
Basic.................. 7,517
Diluted................ 7,517

PRO FORMA
PRO FORMA PRO FORMA AS ADJUSTED
ADJUSTMENTS AND CHURCHILL CHURCHILL
ELIMINATIONS(2) DOWNS DOWNS(3)
--------------- --------- -----------

Net revenues............. $(13,211)(13)
794(14) $ 24,996 $ 24,996
--------------- --------- -----------
Operating expenses:
Purses................. 6,272 6,272
Other direct
expenses............. (11,106)(13)
(287)(15)
(518)(16) 22,434 22,434
--------------- --------- -----------
(11,911) 28,706 28,706
--------------- --------- -----------
Gross profit
(loss)............. (506) (3,710) (3,710)
Selling, general and
administrative
expenses............... (735)(13) 3,836 3,836
Amortization Expense..... 64(17) 427 427
--------------- --------- -----------
Operating income
(loss)............. 165 (7,973) (7,973)
--------------- --------- -----------
Other income (expense)
Interest income........ -- 276 276
Interest expense....... (2,639)(18) (4,874) (3,662)
Rental income.......... -- 59 59
Miscellaneous income... -- 117 117
--------------- --------- -----------
(2,639) (4,422) (3,210)
Earnings (loss) before
income tax benefit..... (2,474) (12,395) (11,183)
Federal and state income
tax benefit............ (907)(19) (4,624) (4,140)
--------------- --------- -----------
Net earnings (loss)...... (1,567) (7,771) (7,043)
Dividends on preferred
stock.................. -- 14 14
--------------- --------- -----------
Net earnings (loss)
attributable to common
shareholders........... $ (1,567) $ (7,785) $ (7,057)
--------------- --------- -----------
--------------- --------- -----------
Earnings (loss) per
common share
Basic.................. $ (1.04) $ (0.74)
--------- -----------
--------- -----------
Diluted................ $ (1.04) $ (0.74)
--------- -----------
--------- -----------
Weighted average shares
outstanding
Basic.................. 7,517 9,517
Diluted................ 7,517 9,517
</TABLE>

27
<PAGE>
(1) The Ellis Park acquisition occurred on April 21, 1998, and the results of
operations of Ellis Park have been included in the historical statement of
earnings of Churchill Downs since that date. The pro forma Ellis Park
adjustments give effect to the Ellis Park acquisition and Churchill Downs'
new credit agreement as if these transactions had occurred on January 1,
1998. Historical Ellis Park statement of earnings information is based on
the unaudited financial statements for the three-month period ended March
31, 1998.

(2) Adjustments necessary to give pro forma effect to the Calder Race Course
and Hollywood Park acquisitions and Churchill Downs' new credit agreement
as if these transactions had occurred on January 1, 1998. Historical
statements of earnings information is based on the unaudited financial
statements for the three month period ended March 31, 1998.

(3) Amounts reflect pro forma Churchill Downs' balances, as adjusted to record
the effects of the assumed repayment of outstanding debt of $54.1 million
from the net proceeds of this offering and the reduction in the interest
rate from 7.45% to 6.95% due to this offering in accordance with the
provisions of the credit agreement, including (i) the reduction in
estimated quarterly interest expense of $1.3 million, (ii) the increase in
the estimated quarterly commitment fee expense of $51,000 and (iii) the
related decrease in the income tax benefit of $484,000 based on our
estimated federal and state income tax rate of 40%. If the underwriters
exercise their over-allotment option in full the net proceeds of the
offering and the corresponding reduction in outstanding debt will be
increased by $8.2 million and the interest rate on the outstanding debt
will be reduced by .25% from the amounts reflected above.

(4) To record additional depreciation expense for the three-month period ended
March 31, 1998 as a result of the revaluation of the Ellis Park plant and
equipment to its fair value and estimated useful lives.

(5) To record estimated amortization over 40 years for the three-month period
ended March 31, 1998 of the excess of the Ellis Park purchase price over
the fair value of net assets acquired of $6.4 million.

(6) To record the estimated incremental interest expense using an average of
7.45% interest rate on borrowings of $16.2 million necessary to finance the
Ellis Park acquisition.

(7) To adjust historical Ellis Park tax benefit and to record the income tax
effect of the estimated increase in depreciation and incremental interest
expense resulting from the Ellis Park acquisition at our estimated federal
and state income tax rate of 40%.

(8) To eliminate intercompany rental income and expense between Calder and
Tropical.

(9) To record the estimated increase in depreciation expense as a result of the
revaluation of the acquired Calder and Tropical property, plant and
equipment to its fair value and estimated useful lives.

(10) To record estimated amortization over 40 years of the excess of the Calder
Race Course purchase price over the fair value of net assets acquired of
$48.2 million.

(11) To record the estimated incremental interest expense using an average
7.45% interest rate on borrowings of $92.0 million necessary to finance
the Calder Race Course acquisition and fund deferred financing costs,
including amortization expense of $125,000 related to deferred financing
costs of $2.5 million over 5 years.

(12) To record the income tax effect of the estimated increase in depreciation
and incremental interest expense resulting from the Calder Race Course
acquisition at our estimated federal and state income tax rates of 40%.

(13) To eliminate the historical results of operations of Hollywood Park
Casino, which will not be operated by Churchill Downs under the terms of
the transaction.

28
<PAGE>
(14) To record $750,000 in rental income and $44,000 in admissions revenue
related to the lease by Churchill Downs of Hollywood Park Casino to
Hollywood Park, Inc. under the terms of the transaction.

(15) To eliminate historical depreciation expense on Hollywood Park assets not
acquired by Churchill Downs in the transaction.

(16) To record the estimated decrease in depreciation expense as a result of
the revaluation of the acquired Hollywood Park property, plant and
equipment to its fair value and estimated useful lives.

(17) To record estimated amortization over 40 years of the excess of the
Hollywood Park purchase price over the fair value of net assets acquired
of $10.2 million.

(18) To record the estimated incremental interest expense using an average
7.45% interest rate on borrowings of $142.0 million necessary to finance
the Hollywood Park acquisition.

(19) To record the income tax effect of the pro forma adjustments related to
the acquisition of Hollywood Park at Hollywood Park's historical rate of
36.7% for the three month period.

29
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1998

<TABLE>
<CAPTION>
CALDER RACE COURSE
-----------------------
ELLIS PARK
--------------------------------------------
CHURCHILL PRO FORMA HISTORICAL(2)
DOWNS PRO FORMA WITH ELLIS -----------------------
HISTORICAL HISTORICAL(1) ADJUSTMENTS(1) PARK CALDER TROPICAL
---------- ------------- -------------- ----------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net revenues.................. $147,300 $1,972 $ -- $149,272 $ 49,974 $21,356
---------- ------ ----- ----------- ---------- ----------
Operating expenses:
Purses...................... 50,193 491 -- 50,684 23,347 9,655
Other direct expenses....... 68,896 2,062 221(4) 71,179 16,858 6,535
---------- ------ ----- ----------- ---------- ----------
119,089 2,553 221 121,863 40,205 16,190
---------- ------ ----- ----------- ---------- ----------
Gross profit (loss)....... 28,211 (581) (221) 27,409 9,769 5,166
Selling, general and
administrative expenses..... 10,815 269 -- 11,084 2,424 930
Amortization Expense.......... 253 -- 28(5) 281 -- --
---------- ------ ----- ----------- ---------- ----------
Operating income (loss)... 17,143 (850) (249) 16,044 7,345 4,236
---------- ------ ----- ----------- ---------- ----------
Other income (expense)
Interest income............. 680 -- -- 680 165 174
Interest expense............ (896) (9) (427)(6) (1,332) (1,867) (1,347)
Rental income............... -- -- -- -- 1,011 70
Miscellaneous income........ 342 -- -- 342 -- --
---------- ------ ----- ----------- ---------- ----------
126 (9) (427) (310) (691) (1,103)
Earnings (loss) before income
tax provision............... 17,269 (859) (676) 15,734 6,654 3,133
Federal and state income tax
provision................... 6,751 -- (603)(7) 6,148 2,641 1,221
---------- ------ ----- ----------- ---------- ----------
Net earnings (loss)........... $ 10,518 $ (859) $ (73) $ 9,586 $ 4,013 $ 1,912
Dividends on preferred
stock....................... -- -- -- -- 38 --
---------- ------ ----- ----------- ---------- ----------
Net earnings (loss)
attributable to common
shareholders................ $ 10,518 $ (859) $ (73) $ 9,586 $ 3,975 $ 1,912
---------- ------ ----- ----------- ---------- ----------
---------- ------ ----- ----------- ---------- ----------
Earnings (loss) per common
share
Basic....................... $ 1.41 $ 1.27
---------- -----------
---------- -----------
Diluted..................... $ 1.40 $ 1.26
---------- -----------
---------- -----------
Weighted average shares
outstanding
Basic....................... 7,460 60 7,520
Diluted..................... 7,539 60 7,599

<CAPTION>
HOLLYWOOD

PRO FORMA PARK
WITH ELLIS ----------
PRO FORMA PARK AND
ADJUSTMENTS AND CALDER RACE
ELIMINATIONS(2) COURSE HISTORICAL(2)
--------------- ----------- ----------

<S> <C> <C> <C>
Net revenues.................. $ -- $220,602 $114,751

------- ----------- ----------
Operating expenses:
Purses...................... 83,686 --
Other direct expenses....... (803)(8) 97,082
234(9) 94,003

------- ----------- ----------
(569) 177,689 97,082
------- ----------- ----------
Gross profit (loss)....... 569 42,913 17,669
Selling, general and
administrative expenses..... -- 14,438 6,677
Amortization Expense.......... 1,205(10) 1,486
------- ----------- ----------
Operating income (loss)... (636) 26,989 10,992
------- ----------- ----------
Other income (expense)
Interest income............. -- 1,019 --
Interest expense............ (4,097)(11) (8,643) (23)
Rental income............... (803)(8) 278 --
Miscellaneous income........ -- 342 --
------- ----------- ----------
(4,900) (7,004) (23)
Earnings (loss) before income
tax provision............... (5,536) 19,985 10,969
Federal and state income tax
provision................... (1,732)(12) 8,278 4,791
------- ----------- ----------
Net earnings (loss)........... $ (3,804) $ 11,707 $ 6,178
Dividends on preferred
stock....................... -- 38 --
------- ----------- ----------
Net earnings (loss)
attributable to common
shareholders................ $ (3,804) $ 11,669 $ 6,178
------- ----------- ----------
------- ----------- ----------
Earnings (loss) per common
share
Basic....................... $ 1.55
-----------
-----------
Diluted..................... $ 1.54
-----------
-----------
Weighted average shares
outstanding
Basic....................... 7,520
Diluted..................... 7,599

PRO FORMA
PRO FORMA PRO FORMA AS ADJUSTED
ADJUSTMENTS AND CHURCHILL CHURCHILL
ELIMINATIONS(2) DOWNS DOWNS(3)
--------------- --------- -----------

Net revenues.................. $(54,442)(13)
$ 33,887(16)
(39)(16)
3,192(14) $317,951 $317,951
--------------- --------- -----------
Operating expenses:
Purses...................... 33,887(16) 117,573 117,573
Other direct expenses....... (45,530)(13)
(1,001)(15)
(2,078)(17) 142,476 142,476
--------------- --------- -----------
(14,722) 260,049 260,049
--------------- --------- -----------
Gross profit (loss)....... (2,680) 57,902 57,902
Selling, general and
administrative expenses..... (3,128)(13) 17,987 17,987
Amortization Expense.......... 255(18) 1,741 1,741
--------------- --------- -----------
Operating income (loss)... 193 38,174 38,174
--------------- --------- -----------
Other income (expense)
Interest income............. 39(16) 1,058 1,058
Interest expense............ (10,556)(19) (19,222) (14,416)
Rental income............... -- 278 278
Miscellaneous income........ -- 342 342
--------------- --------- -----------
(10,517) (17,544) (12,738)
Earnings (loss) before income
tax provision............... (10,324) 20,630 25,436
Federal and state income tax
provision................... (4,509)(20) 8,560 10,482
--------------- --------- -----------
Net earnings (loss)........... $ (5,815) $ 12,070 $ 14,954
Dividends on preferred
stock....................... -- 38 38
--------------- --------- -----------
Net earnings (loss)
attributable to common
shareholders................ $ (5,815) $ 12,032 $ 14,916
--------------- --------- -----------
--------------- --------- -----------
Earnings (loss) per common
share
Basic....................... $ 1.60 $ 1.57
--------- -----------
--------- -----------
Diluted..................... $ 1.58 $ 1.55
--------- -----------
--------- -----------
Weighted average shares
outstanding
Basic....................... 7,520 9,520
Diluted..................... 7,599 9,599
</TABLE>

30
<PAGE>
(1) The Ellis Park acquisition occurred on April 21, 1998, and the results of
operations of Ellis Park have been included in the historical statement of
earnings of Churchill Downs since that date. The pro forma Ellis Park
adjustments give effect to the Ellis Park acquisition and Churchill Downs'
new credit agreement as if these transactions had occurred on January 1,
1998. Historical Ellis Park statement of earnings information is based on
the unaudited financial statements for the period from January 1, 1998 to
April 21, 1998.

(2) Adjustments necessary to give pro forma effect to the Calder Race Course
and Hollywood Park acquisitions and Churchill Downs' new credit agreement
as if these transactions had occurred on January 1, 1998. Historical
statement of earnings information is based on the financial statements for
the year ended December 31, 1998.

(3) Amounts reflect pro forma Churchill Downs' balances, as adjusted to record
the effects of the assumed repayment of outstanding debt of $54.1 million
from the net proceeds of this offering and the reduction of the interest
rate from 7.45% to 6.95% due to this offering in accordance with provisions
of the credit agreement, including (i) the reduction in estimated annual
interest expense of $5.0 million, (ii) the increase in the estimated annual
commitment fee expense of $203,000 and (iii) the related increase in the
income tax provision of $1.9 million based on our estimated federal and
state income tax rate of 40%. If the underwriters exercise their over-
allotment option in full the net proceeds of the offering and the
corresponding reduction in outstanding debt will be increased by $8.2
million and the interest rate on the outstanding debt will be reduced by
.25% from the amounts reflected above.

(4) To record additional depreciation expense from January 1, 1998 through
April 21, 1998 as a result of the revaluation of the Ellis Park property,
plant and equipment to its fair value and estimated useful lives.

(5) To record estimated amortization over 40 years from January 1, 1998 through
April 21, 1998 of the excess of the Ellis Park purchase price over the fair
value of net assets acquired of $6.4 million.

(6) To record the estimated incremental interest expense using an average 7.45%
interest rate on borrowings of $16.2 million necessary to finance the Ellis
Park acquisition.

(8) To eliminate intercompany rental income and expense between Calder and
Tropical.

(10) To record estimated amortization over 40 years of the excess of the Calder
Race Course purchase price over the fair value of net assets acquired of
$48.2 million.

(11) To record the estimated incremental interest expense using an average
7.45% interest rate on borrowings of $92.0 million necessary to finance
the Calder Race Course acquisition and fund deferred financing costs,
including amortization of $500,000 expense related to deferred financing
costs of $2.5 million over 5 years.

(13) To eliminate the historical results of operations of Hollywood Park
Casino, which will not be operated by Churchill Downs under the terms of
the transaction.

31
<PAGE>
(14) To record $3.0 million in rental income and $192,000 in admissions revenue
related to the lease by Churchill Downs of the Hollywood Park Casino to
Hollywood Park, Inc. under the terms of the transaction.

(15) To eliminate historical depreciation expense on Hollywood Park assets not
acquired by Churchill Downs in the transaction.

(16) To reclassify purse expense and interest income of Hollywood Park to
conform to Churchill Downs' historical presentation of these items.

(17) To record the estimated decrease in depreciation expense as a result of
the revaluation of the acquired Hollywood Park property, plant and
equipment to its fair value and estimated useful lives.

(18) To record estimated amortization over 40 years of the excess of the
Hollywood Park purchase price over the fair value of net assets acquired
of $10.2 million.

(19) To record the estimated incremental interest expense using an average
7.45% interest rate on borrowings of $142.0 million necessary to finance
the Hollywood Park acquisition.

(20) To record the income tax effect of the pro forma adjustments related to
the acquisition of Hollywood Park at Hollywood Park's historical income
tax rate of 43.7% for the year ended December 31, 1998.

32
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION

This selected consolidated financial information as of December 31, 1994, 1995
and 1996 and for the years ended December 31, 1994 and 1995 was derived from our
audited consolidated financial statements not included in this prospectus.
Selected consolidated financial information as of December 31, 1997 and 1998 and
March 31, 1998 and 1999 and for the years ended December 31, 1996, 1997 and 1998
and the three-month period ended March 31, 1998 and 1999 was derived from our
consolidated financial statements and notes thereto included elsewhere in this
prospectus. The following data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and notes thereto, included elsewhere in
this prospectus.

<TABLE>
<CAPTION>
THREE-MONTH PERIOD
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- ----------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
STATEMENT OF EARNINGS DATA:
Net revenues...................... $ 66,419 $ 92,434 $ 107,859 $ 118,907 $ 147,300 $ 15,385 $ 17,663
Operating income (loss)........... 9,861 10,305 12,315 14,405 17,143 (2,770) (4,797)
Net earnings (loss)............... 6,166 6,203 8,072 9,149 10,518 (1,569) (3,010)
Earning (loss) per common share:
Basic........................... $ 0.82 $ 0.82 $ 1.08 $ 1.25 $ 1.41 $ (0.21) $ (0.40)
--------- --------- --------- --------- ----------- --------- ---------
--------- --------- --------- --------- ----------- --------- ---------
Diluted......................... $ 0.82 $ 0.82 $ 1.08 $ 1.25 $ 1.40 $ (0.21) $ (0.40)
--------- --------- --------- --------- ----------- --------- ---------
--------- --------- --------- --------- ----------- --------- ---------
Dividends per common share...... $ 0.25 $ 0.25 $ 0.33 $ 0.50 $ 0.50 $ -- $ --
--------- --------- --------- --------- ----------- --------- ---------
--------- --------- --------- --------- ----------- --------- ---------
Weighted average shares
outstanding:
Basic........................... 7,557 7,568 7,446 7,312 7,460 7,317 7,525
Diluted......................... 7,557 7,569 7,448 7,321 7,539 7,317 7,525
OTHER DATA:
Pari-mutuel wagering:
On-track (1).................... $ 143,800 $ 148,519 $ 147,015 $ 149,227 $ 165,207 $ -- $ --
Import simulcasting (2)......... 108,875 212,316 252,638 262,451 296,809 79,773 87,027
Export simulcasting (3)......... 150,838 241,726 417,407 463,966 600,666 -- --
--------- --------- --------- --------- ----------- --------- ---------
Total pari-mutuel wagering........ $ 403,513 $ 602,561 $ 817,060 $ 875,644 $ 1,062,682 $ 79,773 $ 87,027
--------- --------- --------- --------- ----------- --------- ---------
--------- --------- --------- --------- ----------- --------- ---------
Net pari-mutuel wagering revenue
(4)............................. $ 21,095 $ 32,489 $ 36,508 $ 37,998 $ 46,433 $ 4,862 $ 5,369
EBITDA (5)........................ 13,363 15,100 17,802 19,289 23,230 (1,494) (2,850)
BALANCE SHEET DATA (AT PERIOD
END):
Total assets...................... $ 70,176 $ 77,486 $ 80,729 $ 85,849 $ 114,651 $ 88,255 $ 126,978
Working capital (deficiency)...... (10,131) (10,434) (10,789) (8,032) (7,791) (9,214) (8,353)
Long-term debt.................... 8,683 6,421 2,953 2,713 13,665 2,713 21,807
Shareholders' equity.............. 42,003 46,653 47,781 53,392 65,231 51,823 62,250
</TABLE>

- ------------------------

(2) Wagers on simulcasts from other tracks placed at our facilities when our
facilities are not hosting races.

(3) Wagers placed at other facilities on simulcasts of our races.

(4) Net pari-mutuel wagering revenue equals total net revenues realized from
pari-mutuel wagering less pari-mutuel taxes, purses paid to owners and
simulcast fees paid to other racetracks.

33
<PAGE>
(5) EBITDA represents earnings before provision for income taxes, depreciation,
amortization and interest expense less interest income. EBITDA is presented
because management believes that some investors use EBITDA as a measure of
an entity's ability to service its debt. EBITDA should not be considered as
an alternative to, or more meaningful than, net income (as determined in
accordance with GAAP) as a measure of our operating results or cash flows
(as determined in accordance with GAAP) as a measure of our liquidity.

34
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

YOU SHOULD READ THIS DISCUSSION TOGETHER WITH THE FINANCIAL STATEMENTS AND OTHER
FINANCIAL INFORMATION INCLUDED IN THIS PROSPECTUS.

GENERAL INFORMATION ABOUT OUR BUSINESS

We conduct pari-mutuel wagering on live Thoroughbred, Standardbred and Quarter
Horse horse racing and simulcast signals of races. Additionally, we offer racing
services through our other interests.

We own and operate the Churchill Downs racetrack in Louisville, Kentucky, which
has conducted Thoroughbred racing since 1875 and is internationally known as the
home of the Kentucky Derby. We also own and operate Ellis Park Race Course, a
Thoroughbred racetrack, in Henderson, Kentucky, Calder Race Course, a
Thoroughbred racetrack in Miami, Florida, and Kentucky Horse Center, a
Thoroughbred training center, in Lexington, Kentucky. Additionally, we are the
majority owner and operator of Hoosier Park in Anderson, Indiana, which conducts
Thoroughbred, Quarter Horse and Standardbred horse racing. We conduct simulcast
wagering on horse racing at our four simulcast wagering facilities in
Louisville, Kentucky, and in Merrillville, Fort Wayne and Indianapolis, Indiana,
as well as at our four racetracks.

Because of the seasonal timing of racing meets, revenues and operating results
for any interim quarter are not indicative of the revenues and operating results
for the year and are not necessarily comparable with results for the
corresponding period of the previous year.

Our primary sources of revenue are commissions and fees earned from pari-mutuel
wagering on live and simulcast horse races. Other sources of revenue include
admissions and seating, riverboat admission tax subsidy, concession commissions
primarily for the sale of food and beverages, sponsorship revenues, licensing
rights and broadcast fees.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 1999, COMPARED TO THREE MONTHS ENDED MARCH 31, 1998

NET REVENUES

Net revenues during the three months ended March 31, 1999 increased $2.3 million
(15%) from $15.4 million in 1998 to $17.7 million in 1999. Churchill Downs
racetrack revenues decreased $0.8 million (14%) due primarily to decreases in
the Louisville Sports Spectrum simulcast revenues. Hoosier Park revenues
increased $0.9 million (9%) primarily due to a $0.8 million increase in the
riverboat gross admissions subsidy of which a portion was required to be spent
on purses and marketing expenses. Ellis Park contributed $1.2 million to first
quarter 1999 net revenues as opposed to none in the prior year. Other
operations, including the 1998 acquisition of Kentucky Horse Center, comprised
the remaining $1.0 million of the increase.

OPERATING EXPENSES

Operating expenses increased $3.2 million (20%) from $16.0 million in 1998 to
$19.2 million in 1999. Hoosier Park operating expenses increased $1.2 million
(15%) due primarily to required increases in purses and marketing expenses
related to the riverboat admissions subsidy. Ellis Park incurred 1999 operating
expenses of $1.6 million versus none in the first quarter of 1998. Other
operations, including Kentucky Horse Center, accounted for the remaining $0.4
million of the increase in operating expenses.

35
<PAGE>
GROSS LOSS

Gross loss increased $0.9 million from $0.6 million loss in 1998 to $1.5 million
loss in 1999. Ellis Park accounted for $0.5 million and other operations
contributed $0.3 million of the increase in gross loss.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative ("SG&A") expenses increased by $1.1 million
(53%) from $2.2 million in 1998 to $3.3 million in 1999. SG&A expenses at
Churchill Downs increased $0.4 million (23%) due primarily to increased
corporate staffing and compensation expenses reflecting the Company's
strengthened corporate services to meet the needs of its new business units. The
acquisition of Ellis Park contributed $0.2 million and other operations,
including Kentucky Horse Center, accounted for $0.4 million of the increase in
SG&A expenses.

OTHER INCOME AND EXPENSE

Interest expense increased $0.3 million from $0.1 million in 1998 to $0.4
million in 1999 primarily as a result of borrowings to finance the acquisition
of Ellis Park.

INCOME TAX PROVISION

Our income tax benefit increased by $1.0 million from $1.0 million in 1998 to
$2.0 million in 1999 primarily as the result of an increase in pre-tax loss of
$2.5 million. The effective income tax rate increased from 38.9% in 1998 to
40.3% in 1999 due primarily to non-deductible amortization expense related to
the acquisitions of Ellis Park and Kentucky Horse Center in 1998 and Charlson
Broadcast Technologies in January 1999.

YEAR ENDED DECEMBER 31, 1998, COMPARED TO YEAR ENDED DECEMBER 31, 1997

NET REVENUES

Net revenues increased $28.4 million (24%) from $118.9 million in 1997 to $147.3
million in 1998. The Churchill Downs racetrack revenues increased $3.5 million
(5%) due to increases in simulcast revenues, licensing rights, broadcast
revenues and increased corporate sponsorship of the Kentucky Derby. Hoosier Park
revenues increased $6.2 million (15%) primarily due to increased simulcasting
revenues and a $5.1 million increase in the riverboat gross admissions subsidy,
of which a portion was required to be spent on purses and marketing expenses.
Ellis Park contributed $17.4 million to 1998 net revenues after its acquisition
in the second quarter. Other operations, including Kentucky Horse Center which
we also acquired in the second quarter, comprised the remaining $1.3 million of
the increase.

OPERATING EXPENSES

Operating expenses increased $23.7 million (25%) from $95.4 million in 1997 to
$119.1 million in 1998. The Churchill Downs racetrack operating expenses
increased $1.9 million (3%) due mainly to increased marketing, simulcast,
totalisator and video expenses. Hoosier Park operating expenses increased $5.0
million (14%) due primarily to required increases in purses and marketing
expenses of $2.8 million and $0.8 million, respectively, related to the
riverboat admissions subsidy. Ellis Park increased 1998 operating expenses by
$15.4 million since its acquisition. Other operations, including Kentucky Horse
Center, accounted for the remaining $1.4 million of the increase in operating
expenses.

GROSS PROFIT

Gross profit increased $4.7 million (20%) from $23.5 million in 1997 to $28.2
million in 1998. The Churchill Downs racetrack and Hoosier Park gross profit
increased $1.5 million (9%) and $1.2 million (25%), respectively, for the
reasons described above. The Ellis Park acquisition contributed $2.0 million

36
<PAGE>
to 1998 gross profit. The slight decrease in the gross profit percentage from
19.7% in 1997 to 19.2% in 1998 was due mainly to a lower gross profit percentage
at Ellis Park due to purse increases implemented to improve the quality of
racing at the track.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative ("SG&A") expenses increased by $2.0 million
(22%) from $9.1 million in 1997 to $11.1 million in 1998. SG&A expenses at the
Churchill Downs racetrack increased $1.3 million (19%) due primarily to
increased corporate staffing, compensation and business development expenses.
Hoosier Park SG&A expenses decreased by $0.2 million (9%) due to declines in
professional fees and wages. The acquisition of Ellis Park contributed $0.6
million to the increase in 1998 SG&A expenses. Other operations accounted for
the remaining $0.3 million of the increase. SG&A expenses as a percentage of net
revenues decreased slightly from 7.6% in 1997 to 7.5% in 1998.

OTHER INCOME AND EXPENSE

Interest expense increased $0.6 million from $0.3 million in 1997 to $0.9
million in 1998 as a result of borrowings to finance our second quarter
acquisition of Ellis Park and Kentucky Horse Center.

INCOME TAX PROVISION

Our income tax provision increased by $1.0 million from $5.8 million in 1997 to
$6.8 million in 1998 primarily as the result of an increase in pre-tax earnings
of $2.3 million. The effective income tax rate increased slightly from 38.9% in
1997 to 39.1% in 1998 due primarily to a non-deductible amortization expense
related to the acquisition of Ellis Park and Kentucky Horse Center and increases
in other permanent differences, partially offset by the reversal of the
valuation allowance on certain state income tax net operating loss
carry-forwards.

YEAR ENDED DECEMBER 31, 1997, COMPARED TO YEAR ENDED DECEMBER 31, 1996

NET REVENUES

Net revenues increased $11.0 million (10%) from $107.9 million in 1996 to $118.9
million in 1997. The Churchill Downs racetrack revenues increased $2.8 million
(4%) due primarily to increases in simulcast revenues that were generated as a
result of the new Paddock Pavilion simulcast wagering facility used during live
racing at the Churchill Downs racetrack. Hoosier Park revenues increased $8.2
million (25%) primarily due to increased simulcasting revenues and a $7.9
million increase in the riverboat gross admissions subsidy, of which a portion
is required to be spent on purses and marketing expenses.

OPERATING EXPENSES

Operating expenses increased $8.5 million (10%) from $86.9 million in 1996 to
$95.4 million in 1997. The Churchill Downs racetrack's operating expenses
increased $3.2 million (6%) due mainly to increased purses and wages and also
increased marketing, simulcast and video expenses. Hoosier Park operating
expenses increased $5.3 million (18%) due primarily to increases in purses and
marketing expenses of $3.9 million and $1.0 million, respectively, related to
the riverboat admissions subsidy.

GROSS PROFIT

Gross profit increased $2.5 million (12%) from $21.0 million in 1996 to $23.5
million in 1997. The Churchill Downs racetrack's gross profit decreased $0.4
million (2%) and Hoosier Park gross profit increased $2.9 million (86%) for the
reasons described above. The gross profit percentage increased slightly from
19.5% in 1996 to 19.7% in 1998.

37
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

SG&A expenses increased by $0.4 million (5%) from $8.7 million in 1996 to $9.1
million in 1997. SG&A expenses at the Churchill Downs racetrack increased $0.4
million (11%) due primarily to increased corporate staffing, compensation and
business development expenses. Hoosier Park SG&A expenses decreased by $0.2
million (8%) while SG&A expenses at other operations were up by $0.2 million.

OTHER INCOME AND EXPENSE

Interest income increased $0.2 million from $0.4 million in 1996 to $0.6 million
in 1998 as a result of the additional earnings generated by our short-term cash
investments or cash equivalents. Miscellaneous income decreased $0.4 million
from $0.7 million in 1996 to $0.3 million in 1998 as the result of the gain
recognized on Conseco HPLP's acquisition of 10% of Hoosier Park in 1996.

INCOME TAX PROVISION

Our income tax provision increased by approximately $0.8 million from $5.0
million in 1996 to $5.8 million in 1997 primarily as the result of an increase
in pre-tax earnings of $1.9 million. The effective income tax rate increased
from 38.1% in 1996 to 38.9% in 1997 due primarily to increases in permanent
differences.

SIGNIFICANT CHANGES IN THE BALANCE SHEET MARCH 31, 1999 TO DECEMBER 31, 1998

Accounts receivable balances decreased by $3.6 million in 1999. Churchill Downs
decreased its live meet accounts receivable by $2.9 million through the
collection of 1998 Fall meet receivables.

Prepaid income taxes increased $2.4 million as a result of the estimated income
tax benefit (receivable) associated with the quarterly net loss.

Intangible assets increased $3.0 million as a result of the acquisition of
Charlson Broadcast Technologies during the first quarter of 1999.

The net plant and equipment increase of $2.7 million during 1999 was primarily
due to the acquisition of Charlson Broadcast Technologies and routine capital
spending at our operating units offset by current year depreciation expense.

Accounts payable increased $4.8 million at March 31, 1999 primarily due to
increases in purses payable and other expenses related to simulcast wagering.

Dividends payable decreased $3.8 million at March 31, 1999 due to the payment in
the first quarter of 1999 of dividends of $3.8 million which were declared in
1998.

Deferred revenue increased $7.0 million at March 31, 1999, primarily due to a
$6.5 million increase in corporate sponsor event ticket prices, season box and
membership sales, admissions and future wagering related to the 1999 Kentucky
Derby and Kentucky Oaks race days.

The long-term debt increase of $7.7 million was the result of additional
borrowings on our bank line of credit during the first quarter of 1999,
primarily to fund the acquisition of Charlson Broadcast Technologies.

38
<PAGE>
SIGNIFICANT CHANGES IN THE BALANCE SHEET MARCH 31, 1999 TO MARCH 31, 1998

Intangible assets increased $9.5 million due to the addition of goodwill of $6.5
million recorded for the acquisition of Ellis Park and Kentucky Horse Center and
$3.0 million for the acquisition and formation of Charlson Broadcast
Technologies.

Net plant and equipment increased $22.7 million primarily due to the acquisition
of Ellis Park and the Kentucky Horse Center, Charlson Broadcast Technologies and
routine capital spending at our operating units offset by depreciation expense.

The long-term debt increase of $18.6 million was due to line of credit
borrowings used to fund the acquisitions of Ellis Park and Kentucky Horse Center
during the second quarter of 1998 and Charlson Broadcast Technologies during the
first quarter of 1999.

Deferred income taxes increased by $4.6 million as a result of the recognition
of deferred taxes with the Ellis Park and Kentucky Horse Center acquisition
during the second quarter of 1998.

SIGNIFICANT CHANGES IN THE BALANCE SHEET DECEMBER 31, 1998 TO DECEMBER 31, 1997

The cash and cash equivalent balances at December 31, 1998 of $6.4 million were
$2.9 million lower than December 31, 1997, primarily due to aggregate payments
on our line of credit which we used to fund the acquisition of Ellis Park and
Kentucky Horse Center.

Accounts receivable balances grew by $4.9 million in 1998 due to the increase of
$1.5 million in the Indiana riverboat admissions receivable, an increase of $1.1
million in receivables relating to advanced billing for the Kentucky Derby, a
$1.0 million increase in simulcast and other operating receivables relating to
the Churchill Downs racetrack's Fall race meet and an increase of $0.9 million
in receivables from the Commonwealth of Kentucky relating to purse expense
reimbursements. Additionally, Ellis Park and Kentucky Horse Center accounted for
$0.3 million of overall increases.

Intangible assets increased $6.5 million as a result of the acquisition of Ellis
Park and Kentucky Horse Center.

Plant and equipment increased $25.0 million during 1998, primarily due to the
acquisition of Ellis Park and Kentucky Horse Center which was $22.0 million.
Routine capital spending at our operating units made up the remainder of the
increase. Accumulated depreciation increased $5.5 million for current year
depreciation expense.

We borrowed on our bank line of credit during 1998 primarily for the acquisition
of Ellis Park and Kentucky Horse Center during the second quarter. We made
additional borrowings on the line of credit during the third and fourth quarters
to fund operating expenses.

Deferred income tax liabilities increased to $6.9 million in 1998, an increase
of $4.6 million from 1997 balances, primarily as a result of the acquisition of
Ellis Park and Kentucky Horse Center.

SIGNIFICANT CHANGES IN THE BALANCE SHEET DECEMBER 31, 1997 TO DECEMBER 31, 1996

The cash and cash equivalent balances at December 31, 1997 of $9.3 million were
$1.1 million higher than December 31, 1996, based primarily upon our increased
earnings.

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Accounts receivable at December 31, 1997, increased by $1.9 million due
primarily to the increase in the Indiana riverboat admissions tax receivable
resulting from the additional Indiana riverboats being open for a longer period
of time in 1997 versus 1996.

Other assets at December 31, 1997, increased by $2.3 million due primarily to
our ownership investment in Kentucky Downs.

The cost of plant and equipment increased by $4.5 million due to the
construction of a new on-site simulcast facility at the Churchill Downs
racetrack as well as other routine capital spending. This was offset by
approximately $4.2 million in depreciation expense.

Income taxes payable decreased by $2.3 million in 1997 due primarily to the
timing of estimated tax payments made throughout the year.

LIQUIDITY AND CAPITAL RESOURCES

Our working capital deficiency was $8.4 million and $9.2 million for the
quarters ended March 31, 1999 and March 31, 1998, respectively, and $7.8
million, $8.0 million and $10.8 million for the years ended December 31, 1998,
1997 and 1996, respectively. Our working capital deficiency results from the
nature and seasonality of our business. Cash flows provided by operations were
$7.8 million and $7.3 million for the three months ended March 31, 1999 and
March 31, 1998, respectively. Cash flows provided by operations were $10.8
million, $10.5 million and $15.1 million for the years ended December 31, 1998,
1997 and 1996, respectively. The net increase of $0.3 million in 1998 resulted
from a $1.4 million increase in net earnings and $1.2 million increase in
depreciation and amortization coupled with the timing of accounts receivable,
accounts payable, income taxes payable and deferred revenue balances. Management
believes cash flows from operations and available borrowings during 1999 will be
sufficient to fund our cash requirements for the year, including capital
improvements and the acquisitions of Calder Race Course and Hollywood Park.

Cash flows used in investing activities were $5.5 million and $1.1 million for
the three months ended March 31, 1999 and March 31, 1998, respectively. The $5.5
million in 1999 is comprised of the $2.9 million acquisition of a majority
interest in Charlson Broadcast Technologies during the first quarter and $2.6
million in capital spending at our facilities.

Cash flows used in investing activities were $20.8 million, $6.9 million and
$2.6 million for the years ended December 31, 1998, 1997 and 1996, respectively.
The $20.8 million in 1998 is primarily comprised of the cash portion of our
purchase of Ellis Park and Kentucky Horse Center during the second quarter of
1998. The $6.9 million in 1997 primarily represents the acquisition of 24% of
Kentucky Downs during the third quarter of 1997 and additional capital spending
for the construction of a new on-site simulcast facility in Kentucky. Routine
capital spending accounted for a portion of the cash used in investing for 1998
and 1997. The capital additions for all locations, including construction of a
$2.4 million stable area dormitory at the Churchill Downs racetrack, are not
expected to exceed $10.0 million for 1999.

Cash flows provided by (used in) financing activities were $3.9 million and
$(3.7) million for the three months ended March 31, 1999 and March 31, 1998,
respectively. We borrowed $8.0 million and repaid $1.0 million on our line of
credit during 1999 primarily to finance the purchase of Charlson Broadcast
Technologies. In addition, we received a $1.5 million contribution by a minority
interest in our Charlson Broadcast Technologies subsidiary.

Cash flows provided by (used in) financing activities were $7.0 million, $(2.5)
million and $(10.2) million for the years ended December 31, 1998, 1997 and
1996, respectively. We borrowed $22.0 million

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and repaid $11.0 million on our line of credit during 1998 primarily to finance
the purchase of Ellis Park and Kentucky Horse Center. Cash dividends of $3.7
million declared in 1997 were paid to shareholders in 1998 versus $2.4 million
paid in 1997 and declared in 1996.

We had a $100.0 million line-of-credit, of which $89.0 million was available at
December 31, 1998. In connection with our development strategy, we increased our
line of credit under a new revolving loan facility to meet working capital and
other short-term requirements and to provide funding for acquisitions. The new
facility offers a line of credit of $250.0 million and matures in 2004. As of
June 15, 1999, $100.0 million of our new facility was outstanding and up to
$150.0 million remains available to us. Our new facility accrues interest at
LIBOR plus 75 to 225 basis points, depending on our leverage ratio. The credit
facility is secured by substantially all our assets. Under the terms of the
credit facility, we must observe certain financial ratios, and our ability to
incur additional debt is restricted.

IMPACT OF THE YEAR 2000 ISSUE

The "Year 2000 Issue" is the result of computer programs that were written using
two digits rather than four to define the applicable year in date-dependent
systems. If our computer programs with date-sensitive functions are not Year
2000 compliant, they may be unable to distinguish the year 2000 from the year
1900. This could result in system failure or miscalculations leading to a
disruption of business operations.

Some of our mission critical operations are dependent upon computer systems and
applications. These systems are either directly owned and controlled by us or
are provided under contract by third party technology service providers. To
address the Year 2000 issue, we have categorized the Year 2000 issue into four
principal areas.

SYSTEMS OWNED BY CHURCHILL DOWNS

The first area is related to systems that we own. These systems include
application software and dedicated hardware that run our core operations. In
addition, there are numerous applications that provide administrative support
and management reporting functions. We developed some of these applications
internally and purchased others.

To address Year 2000 compliance across this broad category of systems, we have
broken each system down into its most elemental pieces in order to study the
hardware including any embedded chip technology/firmware, the operating systems
and, finally, the applications themselves.

We have identified hardware, including any embedded chip technology/firmware,
that was not Year 2000 compliant and replaced it as part of the routine turnover
of technology capital. The remaining hardware requiring replacement was upgraded
during the first half of 1999. By the end of June 1999, all hardware and
embedded chip technology/firmware that we own was believed to be Year 2000
compliant.

We have checked all operating systems supporting specific applications by
advancing the dates to determine if the date change impacts operating
system-level functionality. As new operating system upgrades are made available
and installed, periodic testing will continue to assure operating system-level
functionality is maintained. In addition, we have contacted the developers of
the operating systems we use and have received assurances as to their
compatibility with the Year 2000 transition.

Application software compliance with the Year 2000 has been certified through a
combination of technical consultation with the software developers and testing.
Applications developed with internal resources have been written with Year 2000
compliance in mind using development tools that are Year

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2000 compliant. We have received technical reports from third parties on Year
2000 compliance for financial reporting, payroll, operations control and
reporting and internal communications applications. We require Year 2000
compliance on any software upgrades.

Based on the schedule outlined above, we expect our owned systems to be Year
2000 compliant prior to the year 2000. We will test the system by advancing
dates to include a majority of the Year 2000 critical dates by the fourth
quarter of 1999. However, even though our planned modifications to internally
owned hardware and software should adequately address Year 2000 issues, there
can be no assurance that unforeseen difficulties will not arise.

TECHNOLOGY SERVICES PROVIDED TO CHURCHILL DOWNS UNDER CONTRACT BY THIRD PARTIES

The second area is services provided to us by third parties. Many of these
services are mission critical and could have a material impact on us should the
systems upon which the services are dependent be unable to function.

The totalisator services provided by United Tote Company and AmTote
International are the most critical to our operations. Totalisator services
include the calculation of amounts wagered and owed to winning ticket holders.
United Tote developed a plan to bring all systems provided to us into Year 2000
compliance during 1998. United Tote and Churchill Downs initiated this plan
during the second quarter of 1998 by undertaking a comprehensive system hardware
and software upgrade that is Year 2000 compliant. We successfully installed the
systems in three phases with the last phase having been completed in October
1998. All on-track, intertrack wagering and hub operations are Year 2000
compliant. We will continue to work closely with United Tote to assure that
future releases and upgrades are Year 2000 compliant by including this provision
as a condition in contracts for future services. Based on its evaluation, the
Company also believes that AmTote, which is utilized by Calder Race Course, is
Year 2000 compliant.

The video services provided by an outside vendor are also important to our
operations. Video services include the capture, production and distribution of
the television signal for distribution to customers located on our premises and
to customers located at remote wagering outlets throughout the nation. We are
working closely with the vendor to ensure the software applications that provide
the graphical enhancements and other distinguishing features to the televised
signal for the Churchill Downs racetrack and Hoosier Park are Year 2000
compliant. The existing software for the graphical enhancements to the
television signal is not Year 2000 compliant. We have contacted the developer of
the software package directly and have received assurances that an upgrade to
the software will be Year 2000 compliant.

We purchase data and statistical information from Equibase for resale to the
public. This information is an essential element of our product and is included
in printed material made available to our customers to assist in their wagering
decisions. Equibase has implemented a Year 2000 remediation plan, which is
expected to be completed by the end of the third quarter of 1999.

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A variety of other smaller and less critical technology service providers are
involved with our product. We have received assurance letters from a majority of
these suppliers and will continue to work to receive assurances from those
remaining.

Because of the nature of our business and its dependence upon key technology
services provided by third parties, we require that all new software and
technology services are Year 2000 compliant. This requirement includes patches,
upgrades and fixes to existing technology services.

In the event that any of our third party service providers do not successfully
and timely achieve Year 2000 compliance, and we are unable to replace them with
alternate service providers, it could result in a delay in providing our core
live racing and simulcasting products to our customers and have a material
adverse effect on our business, financial condition and results of operations.

INDUSTRY-WIDE ISSUES

Because we derive a significant portion of our revenues from customers at other
racing organizations that are confronted with the same technological issues,
including totalisator, video and statistical information services, we have been
actively participating in an industry-wide assessment and remedial efforts to
assure Year 2000 compliance.

FEEDBACK CONTROL SYSTEMS

A variety of the newer control and regulating systems are date sensitive.
Environmental control systems, elevator/escalator systems, fire control and
security systems utilize date-sensitive software/ embedded chip technology for
correct operation. We have systems that perform each of these functions, and we
are identifying if any of these systems employ technology that may not be Year
2000 compliant. We will work closely with manufacturers of these products to
develop a remedial plan to assure Year 2000 compliance if any problems are
identified.

COST AND CONTINGENCY PLANNING

To date, we have incurred costs of less than $25,000 to remediate Year 2000
compliance issues. Our management believes that any future costs to remediate
Year 2000 compliance issues will not be material to our financial position or
results of operations.

We are currently evaluating our most reasonably likely worst-case Year 2000
scenario and are also developing contingency plans as part of our efforts to
identify and correct Year 2000 issues affecting our owned systems as well as
issues involving third party service providers. We intend to complete both the
evaluation of a worst-case Year 2000 scenario and contingency planning in the
third quarter of 1999.

Due to our recent acquisition of Calder Race Course, we will continue to assess
the status of the Company's Year 2000 compliance in regards to the factors
mentioned above and we expect to complete this evaluation in the third quarter.

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BUSINESS

HISTORY OF CHURCHILL DOWNS

We are a leading pari-mutuel horse racing company and a key provider of live
racing programming content for the growing simulcast wagering market. We operate
four racetracks and four off-track wagering facilities that accept wagers on our
races as well as on races import simulcast from other locations. We export
simulcast our races to over 1,000 locations in 41 states and 9 countries. Our
flagship operation, the Churchill Downs racetrack, has conducted Thoroughbred
racing since 1875 and is the internationally known home of the Kentucky Derby.
Churchill Downs was organized as a Kentucky corporation in 1928.

In 1994, we developed Hoosier Park, Indiana's only horse racing facility, in
Anderson, Indiana. Hoosier Park is owned by Hoosier Park, L.P. ("HPLP"), an
Indiana limited partnership formed in 1994, in which we currently own a 77%
interest as the general partner through Anderson Park, Inc. ("Anderson"), a
wholly owned subsidiary of Churchill Downs Management Company ("CDMC"), a wholly
owned subsidiary that oversees the properties we actively manage. The remaining
23% of HPLP is held by unrelated third parties, Pegasus Group, and Conseco HPLP
("Conseco"), which are both limited partners of HPLP. HPLP has entered into a
management agreement with CDMC under which CDMC has operational control of the
day-to-day affairs of Hoosier Park and its related simulcast operations. CDMC
also manages three Sports Spectrum facilities owned by Hoosier Park in Indiana.
The Sports Spectrum facilities conduct simulcast wagering on horse racing
year-round.

In April 1998, we acquired Racing Corporation of America for $22.6 million
including transaction costs. With the purchase of Racing Corporation of America,
we acquired Ellis Park Race Course, a Thoroughbred racetrack in Henderson,
Kentucky, and Kentucky Horse Center, located in Lexington, Kentucky. Both of
these facilities are now managed by CDMC.

In April 1999, we completed the acquisition of the outstanding shares of Calder
and Tropical for $86.0 million plus a $2.9 million net working capital
adjustment. Calder and Tropical each hold a license from the Florida Department
of Business and Professional Regulation Division of Pari-Mutuel Wagering to
conduct live horse races and simulcast wagering at Calder Race Course, located
in Miami, Florida.

OTHER INVESTMENTS. In November 1997, we formed Churchill Downs Investment
Company ("CDIC"), a wholly owned subsidiary, to oversee those investments in
which we participate as an equity investor but do not actively manage the
operations. Among those investments are TrackNet, a telecommunications service
provider for the pari-mutuel and simulcasting industries, and EquiSource, a
procurement business that assists in the group purchasing of supplies and
services for the horse racing industry. In March 1999, TrackNet and Autotote
Corporation formed NASRIN Services to provide telecommunications services to the
horse racing industry. Autotote owns 70% of the new organization, and CDIC owns
the remaining 30%. The new organization will operate under the NASRIN banner and
be managed on a day-to-day basis by Autotote. Currently, neither NASRIN Services
nor EquiSource is a material investment for us.

As a founding member racetrack, we own a 3% interest in ODS Entertainment, a
subsidiary of AT&T. In conjunction with ODS Entertainment, we are participating
in the development of the first in-home interactive television wagering system
in the United States.

We also hold a minority investment in Kentucky Downs, a Franklin, Kentucky,
racetrack that conducts a limited Thoroughbred race meet as well as year-round
simulcast wagering. Turfway Park, a Florence, Kentucky, racetrack, also holds a
minority interest in Kentucky Downs and manages its day-to-day

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operations. In April 1999, Keeneland Association, a Lexington, Kentucky
racetrack, Dreamport, a wholly owned subsidiary of GTECH Corporation, and Dusty
Corporation, a wholly owned subsidiary of Harrah's Entertainment, completed
their acquisition of Turfway Park's racing-related assets. We do not believe
that this will have a material effect on the management of Kentucky Downs. Our
investment in Kentucky Downs is not material to our operations.

In January 1999, we completed the purchase of a 60% ownership interest in
Charlson Broadcast Technologies, a privately held company that provides
simulcast graphic software and video services to racetracks and simulcast
wagering facilities. The cost of the transaction included a purchase price of
$3.1 million and an equity contribution of $2.3 million. The new venture is
expected to be strategically significant to our development of a comprehensive
simulcast product.

THE HOLLYWOOD PARK ACQUISITION

On May 5, 1999, we entered into a definitive agreement with Hollywood Park, Inc.
to acquire the Hollywood Park Race Track and the Hollywood Park Casino in
Inglewood, California, for $140.0 million. Consummation of the acquisition is
subject to several conditions, including the receipt of regulatory approvals. We
will acquire approximately 240 acres of land upon which the racetrack and casino
are located. We will lease the Hollywood Park Casino to Hollywood Park, Inc.
under a ten-year lease with one ten-year renewal option. The lease provides for
annual rent of $3.0 million, subject to adjustment during the renewal period.
The transaction is expected to close on August 31, 1999 and will be funded
through our revolving credit facility.

Hollywood Park Race Track is one of four tracks located in southern California.
The track is located in Inglewood, California, approximately three miles from
the Los Angeles International Airport. The racing facility consists of a
one-and-one-eighths (1 1/8) mile dirt track and a one mile turf track, permanent
grand stands, a training area with a half ( 1/2) mile training track, stabling
for approximately 2,000 horses and other facilities for backstretch personnel.
The facility includes seating for 16,675 people, including a private Turf Club
and Players' Club.

Hollywood Park conducts two live Thoroughbred race meets annually for a total of
approximately 97 racing days. The spring/summer meet is held from late April to
mid-July. The autumn meet runs from mid-November to late December. Hollywood
Park has hosted the Breeders Cup three times, in 1984, 1987 and 1997. Its major
races include the Hollywood Gold Cup, the Matriarch, the Hollywood Derby and the
Hollywood Turf Cup. In addition to hosting live races, Hollywood Park also
conducts simulcast wagering during its live racing meets. Hollywood Park
simulcasts its races to more than 1,000 locations in 40 states and four
countries. In 1998, the total amount wagered on races simulcast from Hollywood
Park was $764.9 million.

The Hollywood Park Casino is a state-of-the-art facility which is open 24 hours
a day, 365 days a year. The casino features more than 150 gaming tables offering
a variety of California approved casino games. Under California gaming law, the
casino is a card club. Thus, it is not authorized to operate slot machines or
video lottery terminals, but instead rents its tables to casino patrons for a
seat fee charged on a per hand basis. The casino also offers facilities for
simulcast wagering.

BUSINESS STRATEGY

We plan to grow our business by focusing on three related initiatives:

PROMOTE AND ENHANCE THE QUALITY OF OUR LIVE RACING PRODUCTS. Our key asset
is the quality of the races we conduct. For example, we believe that the
Kentucky Derby and other races at the

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Churchill Downs racetrack are among the premier horse races in the United
States. We intend to maintain and enhance the quality of our races by
offering high purse levels to attract the best available horses, trainers
and jockeys, providing superior customer service, adding amenities, and
making strategic capital improvements to our track properties.

SUPPORT AND EXPAND OUR PREMIER, BRANDED SIMULCAST RACING PRODUCT. We
believe that we provide horse racing's premier simulcast product. We
currently offer 217 days of live racing programming through four separate
signals. We plan to expand our programming content to show live races
year-round, during the day and evening, through a single video signal
marketed under the Churchill Downs brand name. Because remote wagering
locations import signals from multiple sources, a single video signal offers
convenience and reduced operating costs. As part of our branding strategy,
we intend to use enhanced supporting graphics and data feeds to make the
programs more appealing to consumers. We believe that the combination of
expanded programming, simulcast bundling and improved production quality
will allow us to increase our share of the growing simulcast wagering
market. We also believe that our branded simulcast product will be
especially well-suited for the in-home wagering market as this market
develops.

Our longer-term strategy is to integrate alternative gaming products at our
racetrack facilities. Alternative gaming in the form of video lottery terminals
or similar gaming devices should enable us to compete more effectively with
riverboat, cruise ship and land-based casinos, attract new patrons, and provide
us with an additional source of revenue and purse money. We continue to support
legislation to allow video lottery terminals at our racetrack facilities in
Kentucky. Currently, we are working with members of the Kentucky horse racing
industry to develop a plan to operate video lottery terminals exclusively at
Kentucky's racetracks.

PARI-MUTUEL INDUSTRY OVERVIEW

Forty-one states permit pari-mutuel wagering, which is conducted on events
including horse racing, greyhound racing and jai alai. In 1997, wagering on
pari-mutuel horse racing totaled approximately $15.4 billion in the United
States and approximately $100.0 billion worldwide. Between 1993 and 1997, the
total amount wagered on horse racing in the United States grew at a compound
annual rate of 2.8%. The main driver of this growth has been simulcast wagering,
which allows the video signal of a live racing event to be transmitted to a
remote location where patrons can wager in the same pari-mutuel pool as patrons
at the racetrack. Between 1993 and 1997, simulcast wagering grew at an 11.9%
compound annual rate from approximately $7.6 billion to approximately $11.9
billion. In 1997, simulcast wagering accounted for approximately 77% of the
total amount wagered on pari-mutuel horse racing in the United States.

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HORSE RACING PARI-MUTUEL WAGERING

<TABLE>
<CAPTION>
INCREASE (DECREASE)
1993-1997:
-------------------------
GROSS WAGERING COMPOUND
---------------------------------------------------------- ANNUAL
1993 1994 1995 1996 1997 DOLLARS PERCENT
---------- ---------- ---------- ---------- ---------- ---------- -------------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C>
On-track................ $ 6,138.3 $ 5,640.6 $ 4,628.5 $ 3,838.1 $ 3,469.1 $ (2,669.2) (13.3)%
Simulcasting............ 7,582.7 8,523.0 10,141.8 11,045.8 11,888.1 4,305.4 11.9
---------- ---------- ---------- ---------- ---------- ---------- -----
Total................... $ 13,721.0 $ 14,163.6 $ 14,770.3 $ 14,883.9 $ 15,357.2 $ 1,636.2 2.8%
---------- ---------- ---------- ---------- ---------- ---------- -----
---------- ---------- ---------- ---------- ---------- ---------- -----
</TABLE>

Historically, the main source of revenue for horse racing operations was wagers
placed at a racetrack. In the late 1980s, new technology was introduced that
allowed simulcast signals to be sent to remote wagering locations, and
legislative changes were enacted permitting off-track wagering and simulcasting.
These changes substantially broadened the market for the distribution of live
racing products. Patrons can now place remote wagers at other racetracks,
off-track wagering facilities and casinos. We estimate that the number of
pari-mutuel wagering locations in the United States has grown from approximately
200 racetracks in the mid 1980s to more than 1,000 racetracks and simulcast
wagering facilities. Additionally, eight states now allow in-home wagering on
races through telephone and interactive account wagering systems.

IMPORT AND EXPORT SIMULCASTING

There are two basic types of simulcast wagering: import simulcasting and export
simulcasting. Import simulcasting involves receiving a video signal of a live
race at a remote wagering location. The operator of a remote wagering location
selects live racing signals from racetracks around the country to create a
program of wagering events designed to appeal to its local clientele. In
exchange for receiving the live racing signal, the operator of the remote
wagering location shares a portion of each wager with the originator of the live
racing signal. Generally, 2.0% to 3.5% of the amount wagered is paid to the
originator of the live racing signal as a simulcasting fee.

Export simulcasting involves sending the video signal of a live race to a remote
wagering location. In exchange for exporting the live racing signal, the track
is able to participate in each wager placed at the remote wagering location.
Remote wagering locations are dependent upon importing a quality live racing
product that appeals to their patrons. As a result, the premier tracks have
experienced strong demand for export simulcasting of their live racing signal.
Each racetrack is able to negotiate its export simulcasting fee based upon the
demand for its live racing signal. Generally, the interstate export simulcasting
fee ranges from 2.0% to 3.5% of the wagers placed at the remote wagering
location.

IN-HOME WAGERING

Technological innovations and legislative changes have further opened the
distribution channels for live racing products to include in-home wagering.
Currently, eight states--Connecticut, Kentucky, Maryland, Nevada, New York,
Ohio, Oregon, and Pennsylvania--permit account wagering which allows an
individual to create a wagering account with a licensed pari-mutuel operator,
for the purpose of placing wagers. In 1997, these eight states generated
approximately $6.5 billion, or 36%, of the total pari-mutuel handle in the
United States. ODS Entertainment, a subsidiary of AT&T, has developed an in-home
interactive television wagering system with Churchill Downs' participation. This
system is currently being tested in Kentucky. ODS Entertainment intends to
launch the Television Games Network in the second half of 1999. The Television
Games Network will offer high quality live racing

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video signals in conjunction with its interactive television wagering system.
The Television Games Network signal will eventually be offered in all 50 states,
and the interactive television wagering system will be offered in the eight
states that permit account wagering. We have entered into an agreement to
broadcast our Churchill Downs racetrack simulcast products as part of the
Television Games Network's programming content and expect to also include our
other simulcast products. As the originator of the live racing signal, we will
receive a simulcast fee on in-home wagers placed on our races.

OTHER LEGISLATIVE CHANGES

There are currently six states that permit pari-mutuel operators to install
video lottery terminals or slot machines to augment their live racing and
simulcast wagering. Additionally, Indiana has legislation that permits
pari-mutuel operators to participate in the admission tax collected by riverboat
casino operations located within their state. Generally, these initiatives have
allowed pari-mutuel operators to participate in the economic benefits of the
expansion of alternative forms of gaming across the country in recent years.

NATIONAL THOROUGHBRED RACING ASSOCIATION

In 1997, the industry formed the National Thoroughbred Racing Association
("NTRA") to promote the horse racing industry. The NTRA brings together the
major participants in the horse racing industry under the leadership of an
experienced management team. The NTRA's board of directors is composed of
representatives from the Thoroughbred Racing Association, the Thoroughbred
Owners of California, the National Horsemen's Benevolent and Protective
Association, the Thoroughbred Horsemen's Association, The Jockey Club, and the
National Thoroughbred Association. NTRA membership includes 69 racetracks
located throughout the United States and in Canada and horsemen's associations
from 26 states. The NTRA has a broad base of financial support from all segments
of the horse racing industry. It has dedicated a budget of more than $22.5
million to increase public exposure to Thoroughbred racing through a variety of
programs, including the expansion of the national advertising campaign that
began in 1998.

LIVE RACING OPERATIONS

We conduct horse races at the Churchill Downs racetrack, Calder Race Course,
Ellis Park and Hoosier Park during each track's respective meets. Our races
produce revenues through pari-mutuel wagering, admissions and seating,
concession commissions, sponsorship revenues, licensing rights and broadcast
fees. The Kentucky Derby and the Kentucky Oaks, both held at the Churchill Downs
racetrack, continue to be our premier racing events.

CHURCHILL DOWNS RACETRACK

Our Churchill Downs facility, located in Louisville, Kentucky, is one of the
premier horse racetracks in the nation and is the internationally known home of
the Kentucky Derby. The Churchill Downs facility consists of approximately 157
acres of land with a one mile oval dirt track, a seven-eighths ( 7/8) mile turf
track, permanent grandstands and a stabling area. The facility includes
clubhouse and grandstand seating for approximately 48,500 persons, a general
admission area, and food and beverage facilities ranging from fast food to
full-service restaurants. The Paddock Pavilion, a state-of-the-art simulcast-
wagering facility designed to accommodate 450 patrons, opened in May 1997. The
site also has a saddling paddock, infield accommodations for groups and special
events, parking areas for the public, and our corporate office facilities. The
backside stable area has barns sufficient to accommodate approximately 1,400
horses, and other facilities for backstretch personnel.

The Churchill Downs racetrack annually conducts two live Thoroughbred race
meets, a Spring Meet from late April through late June and a Fall Meet from late
October through late November. The

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Churchill Downs racetrack has hosted the Breeders' Cup an unprecedented four
times, in 1988, 1991, 1994 and 1998. Breeders' Cup Day races, which feature
$12.5 million in purses, are held annually for the purpose of determining
Thoroughbred champions in eight different events. Racetracks across the United
States compete for the privilege of hosting the Breeders' Cup Day races each
year.

In 1999, attendance of approximately 151,000 people at the Kentucky Derby made
it the best attended live horse racing event in the United States. The
approximately $57.3 million wagered on the Kentucky Derby in 1999 represented
the largest amount ever wagered on an individual race in the United States. The
Kentucky Oaks, which is run the day before the Kentucky Derby, was attended by
over 101,000 people in 1999, making it the second best attended live horse
racing event in the United States. In 1998, the total amount wagered on races
simulcast from the Churchill Downs racetrack, excluding the Breeders' Cup, was
$421.2 million. The average daily purse at the Churchill Downs racetrack in 1998
was approximately $437,000, which we believe ranks our average daily purses
among the top five in the United States. In 1998, races at the Churchill Downs
racetrack were simulcast to approximately 900 sites throughout the United States
and nine countries; the Kentucky Derby was simulcast to over 1,000 sites
worldwide.

To supplement the facilities at the Churchill Downs racetrack, we developed
stabling facilities and a training track at the Louisville Sports Spectrum,
where a portion of the property is used as a Thoroughbred stabling and training
annex. We converted a former Standardbred track into a three-quarter ( 3/4) mile
dirt track, which is used for training Thoroughbreds. The existing barns on the
property were demolished, and we constructed new sprinklered barns sufficient to
accommodate approximately 500 horses. These facilities provide a year-round base
of operation for many horsemen and enable us to attract new horsemen who desire
to race at the Churchill Downs racetrack.

CALDER RACE COURSE

Calder Race Course, one of four Thoroughbred racetracks in Florida, is located
fifteen miles from downtown Miami adjacent to Pro Player Stadium, home to the
Miami Dolphins and the Florida Marlins. The Calder Race Course facility consists
of approximately 220 acres of land, with a one mile dirt track and a
seven-eighths ( 7/8) mile turf track, permanent grand stands, a training area
with a five-eighths ( 5/8) mile training track, a stabling area that
accommodates 1,800 horses and other facilities for backstretch personnel. The
facility includes clubhouse and grandstand seating for approximately 15,000
people, a general admissions area, and food and beverage facilities offering a
wide variety of items.

Calder Race Course conducts two live Thoroughbred race meets annually: the
Calder summer meet from late May through early November and the Tropical fall
meet from early November through early January. Each race meet is permitted
through licenses owned respectively by Calder and Tropical. Calder Race Course's
racing season from late May to early January, significantly expands our
simulcast programming schedule into the fall and winter months. Calder's
signature event, "The Festival of the Sun," is Florida's richest day in
Thoroughbred racing offering approximately $1.5 million in total purse money. In
1998, Calder Race Course's races were simulcast to 525 sites, and the total
amount wagered on races export simulcast from Calder Race Course was $355.7
million.

ELLIS PARK RACE COURSE

We own the Ellis Park racetrack and improvements located in Henderson, Kentucky.
The Ellis Park facility consists of 230 acres of land just north of the Ohio
River with a one-and-one-eighths (1 1/8) mile dirt track, a one mile turf
course, permanent grandstands and a stabling area for 1,290 horses. The facility
includes clubhouse and grandstand seating for 8,000 people, a general admission
area, and food

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and beverage facilities ranging from fast food to full-service restaurants. The
Ellis Park facility also features a saddling paddock, parking areas for the
public and office facilities.

Ellis Park conducts Thoroughbred racing from late June or early July through
Labor Day. These races immediately follow the spring meet at the Churchill Downs
racetrack complementing our racing and simulcast programming schedule. In 1998,
Ellis Park's races were simulcast to 485 sites, an increase of 37% since the
acquisition. The total amount wagered on all races export simulcast from Ellis
Park was $116.7 million.

HOOSIER PARK

Hoosier Park is located in Anderson, Indiana, about 40 miles northeast of
downtown Indianapolis. Hoosier Park leases the land under a long-term lease with
the city of Anderson and owns all of the improvements on the site. The racetrack
facility consists of approximately 110 acres of leased land with a seven-eighths
( 7/8) mile oval dirt track, permanent grandstands and stabling area. The
facility includes seating for approximately 2,400 persons, a general admission
area, and food and beverage facilities ranging from fast food to a full-service
restaurant. The site also has a saddling paddock, parking areas for the public
and office facilities. The stable area has barns sufficient to accommodate 780
horses and other facilities for backstretch personnel.

Hoosier Park conducts live Standardbred racing from mid-April to late August,
live Thoroughbred racing from mid-September to late November and Quarter Horse
racing in late October. Its live racing days consist primarily of evening races,
enabling us to expand the hours of our simulcast programming. In 1998, Hoosier
Park's Thoroughbred races were simulcast to 220 sites, and the total amount
wagered on all races export simulcast from Hoosier Park was $62.7 million.

SIMULCAST FACILITIES

We generate a significant portion of our revenues by sending signals of races
from our racetracks to other facilities and by receiving signals from other
tracks. These revenues are earned through pari-mutuel wagering on signals that
we both import and export.

The Churchill Downs racetrack and Calder Race Course conduct simulcast wagering
only during their race meets, while Ellis Park and Hoosier Park offer year-round
simulcast wagering. The Louisville Sports Spectrum conducts simulcast wagering
when the Churchill Downs racetrack is not conducting a race meet, except for
Kentucky Derby and Kentucky Oaks Days and the immediately following Sunday. The
Indiana Sports Spectrums and the Kentucky Off-Track Betting facilities conduct
simulcast wagering year-round.

LOUISVILLE SPORTS SPECTRUM

We own the real property and improvements known as the Louisville Sports
Spectrum, located in Louisville, Kentucky. Formerly a Standardbred racetrack, we
acquired this property in 1992 and converted it into a simulcast wagering
facility and Thoroughbred training annex. The 100,000-square-foot Louisville
Sports Spectrum is located on approximately 88 acres of land, about seven miles
from the Churchill Downs racetrack.

The Louisville Sports Spectrum provides state-of-the-art audio and visual
technology, seating for approximately 3,000 persons, parking, offices and
related facilities for simulcasting races in Kentucky and throughout the United
States. Seven separate areas were created within the structure to accommodate
the needs of a variety of patrons, from the seasoned handicapper to the novice
player.

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As mentioned above, the Louisville Sports Spectrum also provides a stabling and
training annex for the Churchill Downs racetrack.

INDIANA SPORTS SPECTRUMS

Hoosier Park owns and operates three simulcast wagering facilities in Indiana,
which are branded with the Churchill Downs Sports Spectrum name. These simulcast
wagering facilities provide a statewide distribution system for Hoosier Park's
racing signal and additional simulcast markets for our other races. The Sports
Spectrum at Merrillville, located about 30 miles southeast of Chicago, consists
of approximately 27,300 square feet of space. The Sports Spectrum at Fort Wayne
consists of approximately 15,750 square feet of space. Hoosier Park also leases
space in the Claypool Courts Building in downtown Indianapolis where it operates
the Sports Spectrum at Indianapolis. In October 1998, the Indiana Horse Racing
Commission approved the expansion of this facility from approximately 17,500
square feet to 24,800 square feet. This project, completed in February 1999,
increased capacity by 180 patrons to 630.

Hoosier Park is continuing to evaluate sites for the location of a fourth Sports
Spectrum facility. The State of Indiana has enacted legislation that requires a
county fiscal body to adopt an ordinance permitting simulcast wagering
facilities before such a facility can be located in that county. The county
fiscal body may require in the ordinance that the voters of the county approve
the operation of a simulcast wagering facility in that county. The state
legislation may affect Hoosier Park's ability to locate its fourth facility in
some counties.

KENTUCKY OFF-TRACK BETTING, INC.

In 1992, Churchill Downs and the other Kentucky Thoroughbred racetracks formed
Kentucky Off-Track Betting ("KOTB"), of which we are a 50% shareholder. KOTB's
purpose is to own and operate facilities for simulcasting races and accepting
wagers on such races at locations other than a racetrack. Under Kentucky law, a
KOTB simulcast wagering facility may not be located within 75 miles of an
existing racetrack without the track's consent and in no event within 50 miles
of an existing track. Each KOTB simulcast wagering facility must first be
approved by the Kentucky Racing Commission. Once approved, the simulcast
wagering facility may then be established unless the local government where the
facility is to be located votes to disapprove its establishment. KOTB currently
owns or leases and operates simulcast wagering facilities in Corbin, Maysville,
Jamestown, and Pineville, Kentucky.

IN-HOME WAGERING

In conjunction with ODS Entertainment, a subsidiary of AT&T, Churchill Downs is
participating in the development of the first in-home, interactive television
wagering system in the United States. In-home patrons can wager on races at the
Churchill Downs racetrack and other tracks. We believe such in-home technology
can be used as an efficient delivery system that could increase revenues and
attract new segments of the market to our racetracks.

The second phase of our relationship with ODS Entertainment will be the launch
of the Television Games Network, which is projected to begin in the second half
of 1999. We expect this new cable television channel to eventually offer
24-hour-a-day programming throughout the United States that will be primarily
devoted to developing new fans for racing. Once completed, this would include
interactive wagering from home where permitted by law. We have entered into an
agreement with ODS Entertainment to include our Churchill Downs racetrack
simulcast products as part of the Television Games Network's programming content
and expect to include our other simulcast products in the future. As the
originator of the live racing signal, we will receive a simulcast fee on in-home
wagers placed on our races.

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OTHER SOURCES OF REVENUE

In addition to revenues from live racing and simulcasting, we generate revenues
from additional sources.

RIVERBOAT ADMISSIONS TAX

To compensate for the adverse impact of riverboat competition, the horse racing
industry in Indiana presently receives a $0.65 subsidy per $3.00 admission to
riverboats in the state of which 30% is allocated to Hoosier Park.

KENTUCKY HORSE CENTER

We own the real property and improvements known as the Kentucky Horse Center,
located in Lexington, Kentucky ("KHC"). The KHC is a Thoroughbred training and
boarding facility that we acquired with Ellis Park in April 1998. The facility,
which sits on 245 acres of land, offers a one mile dirt track, a five-eighths
( 5/8) mile training track and stabling for 1,000 horses. Additionally, the KHC
has facilities for meetings and larger special events, including a 920-seat
auditorium known as the Pavillion. The KHC also offers escorted tours of its
training facilities to the public. The KHC's revenues are not material to our
operations at this time.

LICENSING

Kentucky's racetracks, including the Churchill Downs racetrack and Ellis Park,
are subject to the licensing and regulation of the Kentucky Racing Commission
("KRC"), which consists of 11 members appointed by the governor of Kentucky.
Based upon applications submitted by the racetracks in Kentucky, the KRC
annually approves licenses to conduct live Thoroughbred race meets and to
participate in simulcasting. Although to some extent the Churchill Downs
racetrack and Ellis Park compete with other racetracks in Kentucky for the award
of racing dates, state law requires the KRC to consider and seek to preserve
each racetrack's usual and customary live racing dates. Generally, there is no
substantial change from year to year in the racing dates awarded to each
racetrack. The Churchill Downs racetrack conducted live racing from April 25
through June 28, 1998, and from November 1 through November 28, 1998, for a
total of 71 racing days compared to 77 racing days in 1997. Ellis Park conducted
live racing from June 29 through September 7, 1998, for a total of 61 racing
days compared to 55 days in 1997, which was prior to our acquisition of Ellis
Park. For 1999, we received approval from the KRC to conduct live racing at the
Churchill Downs racetrack from April 24 through June 27 and from October 31
through November 27 for a total of 71 days. The KRC granted Ellis Park a total
of 61 live racing days in 1999, running from June 28 through September 6.

The Department of Business and Professional Regulation Division of Pari-Mutuel
Wagering ("DPW") regulates horse racing in Florida. The DPW is responsible for
overseeing the network of state offices located at every pari-mutuel wagering
facility, as well as issuing the permits necessary to operate a pari-mutuel
wagering facility. The DPW also approves annual licenses for Thoroughbred,
Standardbred and Quarter Horse races. In its 1998 racing season, Calder Race
Course conducted live racing from May 23, 1998 through January 2, 1999, for a
total of 173 racing days. The DPW awarded Calder Race Course a total of 170 live
racing dates in 1999.

In Indiana, licenses to conduct live Standardbred and Thoroughbred race
meetings, including Quarter Horse races, and to participate in simulcasting are
approved annually by the Indiana Horse Racing Commission ("IHRC"), which
consists of five members appointed by the Governor of Indiana. The IHRC approves
licenses annually based upon applications submitted by Hoosier Park. Currently,
Hoosier Park is the only facility in Indiana licensed to conduct Standardbred,
Quarter Horse or

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Thoroughbred racing and to participate in simulcasting. Quarter Horse races are
conducted during some Thoroughbred race days. Hoosier Park conducted live racing
from April 17, 1998 through November 28, 1998, for a total of 153 racing days,
including 95 days of Standardbred racing and 58 days of Thoroughbred racing
(which also includes Quarter Horse races). For 1999, Hoosier Park received a
license to conduct racing for a total of 168 racing days, including 103 days of
Standardbred racing and 65 days of Thoroughbred racing. The IHRC has the
authority to grant additional licenses to conduct horse racing. If the IHRC
grants additional licenses, the number of racing days allocated to Hoosier Park
could be reduced or we could compete directly with the new tracks depending on
their locations. Additional licensed facilities would also compete with our
simulcast product and would receive a portion of the subsidy we currently
receive.

COMPETITION

COMPETITION FOR HORSES

North American Thoroughbred sales climbed again in 1998, continuing a trend that
began in 1997. According to The Blood-Horse magazine, expenditures for
Thoroughbred weanlings, yearlings, two year olds and broodmares totaled $816.9
million in 1998 compared to $693.0 million in 1997, which was the previous
record. Since 1995, the number of Thoroughbred foals born each year increased.
These recent increases in Thoroughbred prices and the number of foals are
indicators of a resurgence of the Thoroughbred breeding industry, reversing a
trend of declines from 1986 to 1995. The increase in the number of Thoroughbreds
enables racetracks to increase the number of horses participating in live
racing.

The Churchill Downs racetrack, Ellis Park and Hoosier Park effectively competed
for horses and experienced a high quality of racing in 1998. The Churchill Downs
racetrack offered record average daily purses, which we believe ranks our
average daily purses among the top five in the nation. We believe these purses
attracted many of the country's top horses and trainers. During the Churchill
Downs racetrack's 1998 live race meets, average daily purses reached $437,000.
Purse increases at Hoosier Park in 1998 strengthened both its Thoroughbred and
Standardbred racing programs and created greater demand from horsemen to race at
the Indiana track. In 1998, average daily purses of $198,000 resulted in
competitive race fields for Hoosier Park's Thoroughbred meet, while average
daily purses of $142,000 during its Standardbred meet ranked Hoosier Park second
in the nation in Standardbred purse levels. This trend was also evident at Ellis
Park, where 1998 average daily purses reached $171,000, compared to $164,000 in
1997. Calder Race Course also successfully competed in attracting the top horses
and trainers in 1998, offering average daily purses of $173,000.

COMPETITION FROM OTHER GAMING OPERATIONS

We generally do not directly compete with other racetracks or simulcast
facilities for local patrons due to the geographic separation of facilities or
differences in seasonal timing of meets. Calder Race Course, for example, is in
close proximity to two other racetracks, but the tracks currently do not
directly compete with each other because they offer live races and simulcasting
during different times of the year. However, we compete with other sports,
entertainment and gaming options for patrons for both live racing and
simulcasting. We attempt to attract patrons by providing high quality racing
products in attractive entertainment facilities with fairly priced, appealing
concession services.

The development of riverboat gaming facilities began in Indiana pursuant to
authorizing legislation passed by the State of Indiana in 1993. Illinois had
previously authorized riverboat gaming. There are currently five riverboat
casinos operating on the Ohio River along Kentucky's border--including two in
the southeastern Indiana cities of Lawrenceburg and Rising Sun, one in
southwestern Indiana in Evansville and one at Metropolis, Illinois. The fifth
riverboat casino, licensed to RDI/Caesars, opened

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in November 1998 in Harrison County, Indiana, 10 miles from Louisville.
Admission and handle figures at the Churchill Downs racetrack during the
RDI/Caesars' opening week in November 1998, were not significantly different
from the same period in 1997. However, from December 1998 through April 1999,
when the RDI/Caesars riverboat casino and the Louisville Sports Spectrum were
concurrently open, admission and handle numbers at the Louisville Sports
Spectrum decreased from those numbers for the same period in 1997. At this time,
we cannot determine the extent to which the decrease was due to the new
riverboat casino in the Louisville market or other factors, such as inclement
weather.

The Indiana Gaming Commission voted in September 1998 to grant a license to open
a fifth Indiana riverboat along the Ohio River in Switzerland County, about 70
miles from Louisville. The license holder, Hollywood Park-Boomtown, plans to
build a riverboat casino, hotel and resort complex near Vevay, Indiana.
Hollywood Park estimates the resort will open as early as the third quarter of
2000.

In addition to those riverboats operating along the Ohio River, five riverboat
casinos operate along the Indiana shore of Lake Michigan near our Sports
Spectrum in Merrillville, Indiana. The opening of these Lake Michigan riverboats
adversely impacted our pari-mutuel wagering activities at the Merrillville
facility. Given its proximity to Chicago, the Merrillville Sports Spectrum also
faces competition from off-track wagering facilities and riverboat casinos near
Chicago. We also compete with cruise ship casinos in Florida and state
lotteries.

Additionally, several Native American tribes in Florida have expressed interest
in opening casinos in southern Florida which could compete with Calder Race
Course. Recently, the Pokagon Band of the Potawatomi Indian Tribe has expressed
an interest in establishing a land-based casino in northeastern Indiana or
southwestern Michigan. The State of Michigan has approved the Pokagon Band's
proposal to develop a casino in New Buffalo, Michigan, which is approximately 45
miles from our Merrillville facility. The development of this casino may
negatively impact pari-mutuel wagering activities at Hoosier Park's Indiana
facilities.

SERVICE MARKS

We hold federal service mark registrations on the names "Kentucky Derby,"
"Churchill Downs," "Churchill Downs Sports Spectrum," "Kentucky Oaks,"
"Churchill Charlie" and the distinctive twin spires design in various categories
including entertainment business, apparel, paper goods, printed matter and
housewares and glass. We also have state registrations for "The Festival of the
Sun" and its distinctive design. We license the use of these marks and derive
revenue from such license agreements.

ENVIRONMENTAL MATTERS

In January 1992, we acquired certain assets of Louisville Downs Incorporated,
including the property that is now the Louisville Sports Spectrum, for $5.0
million. We withheld $1.0 million from this amount to offset costs related to
the remediation of environmental contamination associated with underground
storage tanks at the site of the Louisville Sports Spectrum. The $1.0 million
withheld was utilized by December 31, 1997, and additional costs of
investigation and remediation have not yet been conclusively determined. The
sellers have been reimbursed by the State of Kentucky for $985,000 of the cost
of the remediation. The full amount of this reimbursement is now being held in
escrow to pay any further costs of investigation and remediation. In addition to
the $1.0 million withheld, we have obtained an indemnity from the sellers to
cover the full cost of remediation at the property. We believe the cost of
further investigation and remediation should not exceed the amount of funds held
in escrow.

In January 1995, Hoosier Park opened the Churchill Downs Sports Spectrum in
Merrillville, Indiana. The land on which the Merrillville facility is located is
subject to contamination related to prior business operations adjacent to the
property. In conjunction with the purchase, Hoosier Park withheld

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$50,000 from the amount due to the seller to offset costs related to remediation
of the contamination. The contamination on the property has been remediated
under the State of Indiana's voluntary remediation program. The State of Indiana
issued a certificate of completion in April of 1999. The cost of remediation did
not exceed $50,000. In addition to the amount withheld, Hoosier Park has
obtained an indemnity to cover the full cost of remediation from the prior owner
of the property.

The septic system at our Ellis Park facility located in Henderson, Kentucky is
in need of repair. The cost of the repairs is not yet known, but we believe it
will be less than $400,000.

It is not anticipated that we will have any material liability as a result of
compliance with environmental laws with respect to any of our properties.
Compliance with environmental laws has not materially affected the ability to
develop and operate our properties. We are not otherwise subject to any material
compliance costs in connection with federal or state environmental laws.

EMPLOYEES

We employ approximately 660 full-time employees. Due to the seasonal nature of
our live racing business, the number of seasonal and part-time persons employed
varies throughout the year. Peak employment occurs during Kentucky Derby week,
when we employ as many as 2,600 persons. During 1998, average employment per pay
period was approximately 1,000 individuals. Approximately 50% of our employees
are unionized. Union members include some of our pari-mutuel employees,
electricians, carpenters, maintenance workers and valets. The various collective
bargaining agreements covering these employees expire between 1999 and 2002.
Historically, management's relationships with these unions have been good.

OTHER PROPERTIES

The Kentucky Derby Museum Corporation, a tax-exempt organization under Section
501(c)(3) of the Internal Revenue Code of 1986, operates the Kentucky Derby
Museum on property adjacent to the Churchill Downs racetrack.

LEGAL PROCEEDINGS

There are no material pending legal proceedings, other than ordinary routine
litigation incidental to our business, to which we are a party or of which any
of our property is the subject and no such proceedings are known to be
contemplated by governmental authorities.

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MANAGEMENT

The following table provides information with respect to our executive officers
and directors as of July 14, 1999:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
William S. Farish.................................... 60 Chairman of the Board; Director(1)(2)
Thomas H. Meeker..................................... 55 President and Chief Executive Officer; Director(3)
Vicki L. Baumgardner................................. 47 Vice President, Finance and Treasurer
David E. Carrico..................................... 48 Senior Vice President, Sales
Robert L. Decker..................................... 51 Executive Vice President and Chief Financial Officer
John R. Long......................................... 51 Executive Vice President and Chief Operating Officer
Dan L. Parkerson..................................... 57 Senior Vice President, Property Management
Rebecca C. Reed...................................... 42 Senior Vice President, General Counsel and Secretary
Donald R. Richardson................................. 53 Senior Vice President, Racing
Jeffrey M. Smith..................................... 46 President, Churchill Downs Management Company
Karl F. Schmitt, Jr.................................. 46 Senior Vice President, Communications
Andrew G. Skehan..................................... 38 Senior Vice President, Corporate Marketing
Alexander M. Waldrop................................. 42 Senior Vice President and General Manager
G. Watts Humphrey, Jr................................ 55 Director(1)(5)(7)
Arthur B. Modell..................................... 73 Director(1)
Dennis D. Swanson.................................... 61 Director(1)(6)
J. David Grissom..................................... 60 Director(2)(4)
Seth W. Hancock...................................... 49 Director(4)(7)
Frank B. Hower, Jr................................... 70 Director(4)(6)
W. Bruce Lunsford.................................... 51 Director(4)(5)(6)
Charles W. Bidwill, Jr............................... 71 Director(2)(3)
Daniel P. Harrington................................. 43 Director(3)(5)(9)
Carl F. Pollard...................................... 60 Director(2)(3)(5)(7)
Darrell R. Wells..................................... 56 Director(3)(5)(6)

DIRECTORS EMERITI(8)
Catesby W. Clay...................................... 75
Louis J. Herrmann, Jr................................ 79
Stanley F. Hugenberg................................. 81
William T. Young..................................... 81
</TABLE>

- ------------------------

(1) Member of Class I of the directors.

(2) Member of the Executive Committee.

(3) Member of Class III of the directors.

(4) Member of Class II of the directors.

(5) Member of the Audit Committee.

(6) Member of the Compensation Committee.

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(7) Member of the Racing Committee.

(8) Directors emeriti are entitled to attend meetings of the Board of Directors
but do not have a vote on matters presented to the Board. Our bylaws provide
that a director who has turned 72 years of age may not stand for re-election
but assumes director emeritus status as of the annual meeting following the
current term as a director. Notwithstanding this provision, the chairman of
the board may continue to serve as a director past the age of 72.

(9) Under a stock purchase agreement dated March 28, 1998 between Churchill
Downs and TVI Corp., subject to applicable fiduciary duties, we agreed to
re-nominate Mr. Harrington for election as a director at the 1999
shareholders meeting.

WILLIAM S. FARISH has served as a director since 1985 and as our chairman of the
board since 1992. Mr. Farish is president of W.S. Farish & Company, a trust
management company, and is the owner and chief executive officer of Lane's End
Farm, a Thoroughbred breeding and racing operation. Mr. Farish has bred, either
himself or with partners, two horses that have won the Belmont Stakes and one
that has won the Preakness Stakes. Mr. Farish is a steward and vice chairman of
The Jockey Club, chairman of the American Horse Council and a director of
Breeders' Cup Limited and Keeneland Association.

THOMAS H. MEEKER has served as a director since 1995 and as our president and
chief executive officer since 1984. Mr. Meeker serves as a director of Anderson
Park, the Thoroughbred Racing Association of North America, National
Thoroughbred Racing Association, PNC Bank Kentucky, Norton Healthcare, and
Equibase.

VICKI L. BAUMGARDNER has served as our vice president, finance and treasurer
since 1993. Prior to 1993 she served as our controller.

DAVID E. CARRICO has served as our senior vice president, sales since 1996. From
1994 to 1996, he served as our senior vice president, administration. From 1990
to 1994, Mr. Carrico was our vice president of marketing.

ROBERT L. DECKER has served as our executive vice president and chief financial
officer since 1999. From 1997 to 1998, he served as our senior vice president,
finance and development and chief financial officer. From 1993 until 1997, Mr.
Decker was vice president of finance of The Americas Hilton International
Company, a subsidiary of Ladbroke Group, a full service hotel and gaming
enterprise.

JOHN R. LONG has served as executive vice president and chief operating officer
since July 1999. From 1993 until March 1999, Mr. Long served as president and
chief operating officer of Ladbroke/ USA, a subsidiary of the Ladbroke Group.
Previously, he worked as vice president of off-track betting for Ladbroke/USA.

DAN L. PARKERSON has served as our senior vice president, property management,
since 1999. From 1996 to 1998, he served as our senior vice president, live
racing. From 1991 to 1998, Mr. Parkerson was general manager of the Churchill
Downs racetrack.

REBECCA C. REED has served as our senior vice president, general counsel and
secretary since 1999. In 1998, she served as our associate general counsel and
assistant secretary. From 1994 to 1997, Ms. Reed was corporate counsel in our
legal department.

DONALD R. RICHARDSON has served as our senior vice president, racing since 1999.
From 1994 to 1998, he served as our vice president, racing.

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JEFFREY M. SMITH has served as president of Churchill Downs Management Company
since 1993. From 1993 to 1996, he served as our senior vice president, planning
and development.

KARL F. SCHMITT, JR. has served as our senior vice president, communications
since 1998. From 1990 to 1998, he served as our vice president, corporate
communications.

ANDREW G. SKEHAN has served as senior vice president, corporate marketing since
April 1999. From 1998 to 1999 he served with Nabisco Corporation as vice
president/regional director of marketing and new markets in Europe, the Middle
East and Africa. From 1993 to 1998, Mr. Skehan served as general manager of
PepsiCo Restaurants International.

ALEXANDER M. WALDROP has served as our senior vice president and general manager
of the Churchill Downs racetrack since 1999. From 1996 to 1998, he served as our
senior vice president, administration, general counsel and secretary. From 1994
to 1996, Mr. Waldrop was our senior vice president. Mr. Waldrop served as our
general counsel and secretary from 1992 to 1998.

G. WATTS HUMPHREY, JR. has served as a director since 1995. Mr. Humphrey is
president of G.W.H. Holdings, a private investment company. He is the chief
executive officer of The Conair Group, a plastics machinery equipment company,
Metal Tech, NexTech, and GalvTech, metals manufacturing and distribution
companies, and Centria, a manufacturer and erector of metal building systems.
Mr. Humphrey is Chairman--Fourth District, Federal Reserve Bank of Cleveland and
a director of Keeneland Association, and director and treasurer of Breeders' Cup
Limited.

ARTHUR B. MODELL has served as a director since 1985. Mr. Modell is the owner
and president of the Baltimore Ravens Football Company, a professional football
team.

DENNIS D. SWANSON has served as a director since 1996. Mr. Swanson is the
president and general manager of WNBC-TV, a television station, and co-chairman
of NBC Olympics. From January 1986 to May 1996, Mr. Swanson was president of ABC
Sports.

J. DAVID GRISSOM has served as a director since 1979. Mr. Grissom is the
chairman of Mayfair Capital, a private investment firm. He also serves as a
director of Providian Financial Corporation and LG&E Energy Corporation.

SETH W. HANCOCK has served as director since 1973. Mr. Hancock is a partner and
manager of Claiborne Farm, the birth place of nine horses that have won the
Kentucky Derby, and is president of Hancock Farms, a Thoroughbred breeding farm.
Mr. Hancock is also vice president and director of Clay Ward Agency, equine
insurance, and a director of Hopewell Company and Keeneland Association.

FRANK B. HOWER, JR. has served as a director since 1979. Mr. Hower is retired
and formerly was chairman and chief executive officer of Liberty National
Bancorp, and Liberty National Bank and Trust Company of Louisville. Mr. Hower is
a former director of Banc One Kentucky Corporation and Bank One, Kentucky, and
is currently a director of American Life and Accident Insurance Company and
Anthem.

W. BRUCE LUNSFORD has served as a director since 1995. Mr. Lunsford is chairman
of Ventas, a real estate investment trust, and formerly was the chairman,
president and chief executive officer of Vencor, which operates intensive care
hospitals and nursing homes. Mr. Lunsford serves as a director of ResCare,
National City Bank, Kentucky, National City Corporation and the Kentucky
Economic Development Corporation.

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<PAGE>
CHARLES W. BIDWILL, JR. has served as a director since 1982. Mr. Bidwill is
chairman of the board of National Jockey Club, the operator of Sportman's Park
Racetrack, and formerly was president and general manager of National Jockey
Club.

DANIEL P. HARRINGTON has served as a director since 1998. Mr. Harrington is
president and chief executive officer of HTV Industries, a private holding
company with diversified business interests, and formerly was chairman and
president of Ellis Park Race Course.

CARL F. POLLARD has served as a director since 1985. Mr. Pollard is the owner of
Hermitage Farm, a Thoroughbred breeding farm operating in Oldham County,
Kentucky. He was formerly chairman of the board of Columbia Healthcare
Corporation and president and chief operating officer of Humana. Mr. Pollard
serves as a director of Kentucky Derby Museum Corporation, National City Bank,
Kentucky, and Breeders' Cup Limited. Mr. Pollard is a trustee of the
Thoroughbred Owners and Breeders Association.

DARRELL R. WELLS has served as a director since 1985. Mr. Wells is the general
partner of Security Management Company, a private investment management firm,
and serves as a director of First Security Trust Company, Commonwealth
Bankshares, Citizens Financial Corporation, Commonwealth Bank & Trust Company
and Jundt Growth Fund.

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<PAGE>
PRINCIPAL SHAREHOLDERS

The following table sets forth information as of April 15, 1999 regarding the
beneficial ownership of our common stock by:

- each person who is known by us to own more than five percent of our common
stock;

- each named executive officer;

- each director and director emeritus who beneficially owns shares of our
common stock; and

- all of our executive officers and directors as a group.

The number of shares beneficially owned and the percentage of shares
beneficially owned are based on:

- 7,525,041 shares of common stock outstanding as of April 15, 1999; and

- 9,525,041 shares of common stock outstanding upon consummation of this
offering.

Beneficial ownership is determined in accordance with the rules and regulations
of the Securities and Exchange Commission. Shares subject to options that are
exercisable currently or within 60 days following April 15, 1999 are deemed to
be outstanding and beneficially owned by the optionee for the purpose of
computing share and percentage ownership of that optionee. They are not deemed
to be outstanding for the purpose of computing the percentage ownership of any
other person. Except as indicated in the footnotes of this table, and as
affected by applicable community property laws, all persons listed have sole
voting and investment power for all shares shown as beneficially owned by them.
The figures below do not include shares purchased from the up to 300,000 shares
reserved by the underwriters for purchase by our directors and officers.

<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF SHARES
BENEFICIALLY BENEFICIALLY OWNED
OWNED ----------------------------
BEFORE THE BEFORE THE AFTER THE
EXECUTIVE OFFICERS, DIRECTORS AND DIRECTORS EMERITI OFFERING OFFERING OFFERING
- ------------------------------------------------------------ ----------------- ------------- -------------
<S> <C> <C> <C> <C>
Darrell R. Wells(1)(2)...................................... 479,310 6.4% 5.1 %
Charles W. Bidwill, Jr. (3)................................. 440,680 5.9% 4.6 %
Seth W. Hancock(4).......................................... 285,650 3.8% 3.0 %
William T. Young............................................ 229,320 3.1% 2.4 %
W. Bruce Lunsford........................................... 200,060 2.7% 2.1 %
Daniel P. Harrington(5)..................................... 200,000 2.7% 2.1 %
Thomas H. Meeker(6)......................................... 172,313 2.3% 1.8 %
Carl F. Pollard............................................. 143,080 1.9% 1.5 %
William S. Farish........................................... 86,560 1.2% *
Louis J. Herrmann, Jr....................................... 80,130 1.1% *
Catesby W. Clay............................................. 60,580 * *
G. Watts Humphrey, Jr....................................... 36,000 * *
Jeffrey M. Smith(7)......................................... 28,576 * *
Alexander M. Waldrop(8)..................................... 28,382 * *
Dan L. Parkerson(9)......................................... 22,400 * *
J. David Grissom............................................ 20,100 * *
Stanley F. Hugenberg, Jr.................................... 7,340 * *
John W. Barr................................................ 4,000 * *
Frank B. Hower, Jr.......................................... 2,080 * *
Robert L. Decker............................................ 2,000 * *
Arthur B. Modell............................................ 2,000 * *
28 Directors and Executive Officers as a
Group(2)(4)(5)(6)(7)(8)(9)................................ 2,586,640 34.4% 27.2 %
</TABLE>

- ------------------------

* Less than 1% of the outstanding common stock.

(1) Address: 4350 Brownsboro Road, Suite 310, Louisville, Kentucky 40207.

60
<PAGE>
(2) Of the 479,310 shares, Mr. Wells disclaims beneficial ownership of 44,800
shares held by The Wells Foundation, of which he is a trustee, and of
284,880 shares held by The Wells Family Partnership, of which he is the
managing general partner. Mr. Wells shares voting and investment power with
respect to all shares attributed to him in the above table.

(3) Address: 911 Sunset Road, Winnetka, Illinois 60093.

(4) Of the 285,650 shares listed, Mr. Hancock specifically disclaims beneficial
ownership of 158,400 shares owned by the A.B. Hancock, Jr. Marital Trust, of
which he is the trustee, of 18,060 shares owned by the Waddell Walker
Hancock II Trust, of which he is trustee, of 18,060 shares owned by the
Nancy Clay Hancock Trust, of which he is trustee, and of 12,086.66 shares
held by ABC Partnership of which he is general partner.

(5) Mr. Harrington specifically disclaims beneficial ownership of 200,000 shares
held by TVI Corp., of which he is president and chief executive officer.

(6) Includes 144,400 shares issuable under currently exercisable options. Mr.
Meeker shares investment and voting power with respect to 26,908 shares.

(7) Includes 28,000 shares issuable under currently exercisable options.

(8) Includes 28,000 shares issuable under currently exercisable options.

(9) Includes 21,500 shares issuable under currently exercisable options.

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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During the past fiscal year, we did not engage in any transactions in which any
director, officer or greater than five percent shareholder of Churchill Downs
had any material interest, except as described below.

Our directors may from time to time own or share ownership of horses racing at
our tracks. Our races are conducted under the applicable regulations of the
Kentucky Racing Commission, the Indiana Horse Racing Commission and the Florida
Department of Business and Professional Regulation Division of Pari-Mutuel
Wagering. No director receives any extra or special benefit in the selection of
his horses to run in races or in the running of races. Some of our directors
have interests in business entities which contract with us for the purpose of
simulcasting the Kentucky Derby and other races and in the acceptance of
intrastate or interstate wagers on such races. These directors and the entities
in which they have an interest do not receive any extra or special benefit not
shared by all others so contracting with us.

Mr. Charles W. Bidwill, Jr., a director and greater than five percent (5.9%)
shareholder of Churchill Downs, is the Chairman and a 14.36% owner of National
Jockey Club. In 1998, National Jockey Club and Churchill Downs were parties to a
simulcasting contract whereby National Jockey Club was granted the right to
simulcast races at the Churchill Downs racetrack, including the Kentucky Oaks
and the Kentucky Derby. In consideration of these rights, National Jockey Club
paid to us 5.0% of its gross handle on the Kentucky Oaks and the Kentucky Derby
and 3.25% of its gross handle on the other simulcast races. In 1998, National
Jockey Club and Hoosier Park were parties to a simulcasting contract whereby
National Jockey Club was granted the rights to simulcast Hoosier Park's
thoroughbred races. In consideration for these rights, National Jockey Club paid
to Hoosier Park 2.0% to 2.5% of its gross handle on the simulcast races.
National Jockey Club and Hoosier Park were also parties to a simulcasting
contract whereby Hoosier Park was granted the right to simulcast National Jockey
Club's thoroughbred races. In consideration for these rights, Hoosier Park paid
to National Jockey Club 3.0% of its gross handle on the simulcast races.
Similarly, in 1998, National Jockey Club and Calder Race Course were parties to
a simulcasting contract whereby National Jockey Club was granted the rights to
simulcast Calder Race Course's races. In consideration for these rights,
National Jockey Club paid to Calder Race Course 3.0% of the gross handle on the
simulcast races. National Jockey Club and Calder Race Course were also parties
to a simulcasting contract whereby Calder Race Course was granted the right to
simulcast National Jockey Club's Thoroughbred races. In consideration for these
rights, Calder Race Course paid to National Jockey Club 3.0% of its gross handle
on the simulcast races. For 1999, the same or similar contractual relationships
are in place at these facilities and at Ellis Park.

Simulcast contracts are uniform throughout the industry. The rates charged on
our contracts were substantially the same as rates charged to other parties who
contracted to simulcast the same races. National Jockey Club received no extra
or special benefit as a result of our relationship with Mr. Bidwill.

Thomas H. Meeker, President and Chief Executive Officer of Churchill Downs, is
currently indebted to us in the principal amount of $65,000. This amount is
represented by a demand note bearing interest at 8.0% per annum (payable
quarterly) and payable in full upon termination of Mr. Meeker's employment with
us for any reason. This indebtedness arose in connection with Mr. Meeker's
initial employment, pursuant to the terms of which he was granted a loan by us
for the purpose of purchasing our common stock.

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<PAGE>
DESCRIPTION OF CAPITAL STOCK

Our amended and restated articles of incorporation authorize us to issue up to
20,000,000 shares of common stock, no par value per share, and 250,000 shares of
preferred stock, no par value per share. At the June 1999 annual meeting of our
shareholders, our shareholders approved a proposal to increase our authorized
common stock to 50,000,000 shares. As of May 20, 1999, 7,525,041 shares of
common stock were outstanding. The holders of our common stock have the right to
one vote per share on all matters which require their vote, except that in the
election of directors, each holder of common stock has as many votes as results
from multiplying the number of shares held by the shareholder by the number of
directors to be elected. Each common shareholder may divide the total number of
votes the shareholder is entitled to cast among the total number of directors to
be elected, or distribute the votes among any lesser number in any proportions
the holder determines. The board of directors is divided into three
approximately equal classes. Each class serves for a term of three years, with
one class up for election each year. Subject to rights of any preferred
shareholders, common shareholders have the right to receive any dividends that
the board of directors declares. If we liquidate, dissolve or wind up our
business, we will pay our preferred shareholders, if any, before we pay our
common shareholders, subject to the rights of creditors. We will distribute the
remaining available assets to our common shareholders, in proportion to the
number of shares that each common shareholder holds. Shares of common stock are
not redeemable and do not have subscription, conversion or preemptive rights.
There are no redemption or sinking fund provisions available to the common
stock. All outstanding shares of common stock are fully paid and non-assessable.

The board of directors may issue shares of the preferred stock from time to
time, in one or more series, without shareholder approval. The board of
directors determines the designation, relative rights, preferences and
limitations of each series of preferred stock. The issuance of preferred stock
may delay, defer or prevent a change in control of Churchill Downs without
further action by the shareholders. It may also decrease the voting power and
other rights of the holders of common stock and may have the effect of
decreasing the market price of the common stock. At present, there are no shares
of preferred stock outstanding.

Under our shareholder rights plan, which we adopted on March 19, 1998, we
declared a dividend of one preferred stock purchase right for each outstanding
share of common stock and each share of common stock issued after that date. The
rights are transferable with the common stock until they become exercisable. The
rights will not be exercisable until the distribution date described in the
plan. The rights expire on March 19, 2008 unless we redeem them earlier. When a
right becomes exercisable, it entitles the holder to purchase from us 1/1000th
of a share of preferred stock at a purchase price of $80, subject to adjustment
in certain circumstances. Under the rights plan, the plan distribution date will
not occur until any person or group acquires or makes a tender offer for 15% or
more of our outstanding common stock.

Until the plan distribution date, the rights will be evidenced by the
certificates for common stock registered in the names of holders. As soon as
practical following the plan distribution date, we will mail separate
certificates evidencing the rights to common shareholders of record. Until a
right is exercised, the holder has no rights as a shareholder of Churchill
Downs.

If any person or group acquires 15% or more of our common stock, rights holders
will be entitled to buy, for the purchase price, that number of 1/1000ths of a
preferred share equivalent to the number of shares of common stock that at the
time have a market value of twice the purchase price. If we are acquired in a
business combination, rights holders will be entitled to buy, for the purchase
price, that number of shares of the acquiring corporation that, at the time,
have a market value of twice the

63
<PAGE>
purchase price. The board has the right to redeem the rights in certain
circumstances for $0.01 per right, subject to adjustment.

The rights plan is designed to protect our shareholders in the event of
unsolicited offers to acquire Churchill Downs and other coercive takeover
tactics, which, in the board's opinion, would impair its ability to represent
shareholder interests. The rights plan may make an unsolicited takeover more
difficult or less likely to occur or may prevent a takeover, even though it may
offer our shareholders the opportunity to sell their stock at a price above the
prevailing market rate and may be favored by a majority of our shareholders.

The Kentucky Business Corporations Act contains a business combination statute
which prohibits Kentucky corporations from engaging in a business combination
with a 10% or greater shareholder or its affiliate or associate for five years
following the acquisition of such 10% or greater stake, unless the board, by a
majority vote of the continuing directors, approved the combination prior to the
10% or greater acquisition. If not previously approved by the board, the 10% or
greater shareholder or its affiliate or associate may effect a business
combination only after the expiration of a five year period and then only with
the approval of 80% of the outstanding shares and 66 2/3% of the outstanding
shares not owned by the 10% or greater shareholder, or if the aggregate amount
of the offer meets certain fair price requirements.

64
<PAGE>
UNDERWRITING

Churchill Downs has entered into an underwriting agreement with the underwriters
named below. CIBC World Markets Corp., Lehman Brothers Inc., J.C. Bradford & Co.
and J.J.B. Hilliard, W.L. Lyons, Inc. are acting as representatives of the
underwriters.

The underwriting agreement provides for the purchase of a specific number of
shares of common stock by each of the underwriters. The underwriters'
obligations are several, which means that each underwriter is required to
purchase a specified number of shares, but is not responsible for the commitment
of any other underwriter to purchase shares. Subject to the terms and conditions
of the underwriting agreement, each underwriter has severally agreed to purchase
the number of shares of common stock set forth opposite its name below:

<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
CIBC World Markets Corp.................................................... 740,000
Lehman Brothers Inc........................................................ 555,000
J.C. Bradford & Co......................................................... 365,000
J.J.B. Hilliard, W.L. Lyons, Inc. ......................................... 180,000
Credit Suisse First Boston Corporation..................................... 40,000
PaineWebber Incorporated................................................... 40,000
SG Cowen Securities Corporation............................................ 40,000
Crowell, Weedon & Co....................................................... 20,000
Natcity Investment, Inc.................................................... 20,000
-----------------
Total.................................................................... 2,000,000
-----------------
</TABLE>

This is a firm commitment underwriting. This means that the underwriters have
agreed to purchase all of the shares offered by this prospectus (other than
those covered by the over-allotment option described below) if any are
purchased. Under the underwriting agreement, if any underwriter defaults in its
commitment to purchase shares, the commitments of non-defaulting underwriters
may be increased or the underwriting agreement may be terminated, depending on
the circumstances.

The representatives have advised Churchill Downs that the underwriters propose
to offer the shares directly to the public at the public offering price that
appears on the cover page of this prospectus. In addition, the representatives
may offer some of the shares to securities dealers at such price less a
concession of $0.85 per share. The underwriters may also allow, and these
dealers may reallow, a concession not in excess of $0.10 per share to other
dealers. After the shares are released for sale to the public, the
representatives may change the offering price and other selling terms at various
times.

Churchill Downs has granted the underwriters an over-allotment option. This
option, which is exercisable for up to 30 days after the date of this
prospectus, permits the underwriters to purchase a maximum of 300,000 additional
shares from Churchill Downs to cover over-allotments. If the underwriters
exercise all or part of this option, they will purchase shares covered by the
option at the initial public offering price that appears on the cover page of
this prospectus, less the underwriting discount. If this option is exercised in
full, the total price to public will be $66.7 million and the total proceeds to
Churchill Downs will be $63.2 million before offering expenses. The underwriters
have severally agreed that, to the extent the over-allotment option is
exercised, they will each purchase a number of additional shares proportionate
to the underwriter's initial amount reflected in the table above.

65
<PAGE>
The following table provides information regarding the amount of the discount to
be paid to the underwriters by Churchill Downs:

<TABLE>
<CAPTION>
TOTAL WITHOUT EXERCISE TOTAL WITH FULL EXERCISE
OF OF
PER SHARE OVER-ALLOTMENT OPTION OVER-ALLOTMENT OPTION
----------- ---------------------- ------------------------
<S> <C> <C> <C>
Churchill Downs Incorporated........................ $ 1.52 $ 3,045,000 $ 3,501,750
</TABLE>

Churchill Downs estimates that its total expenses of this offering, excluding
the underwriting discount, will be approximately $817,500.

Churchill Downs has agreed to indemnify the underwriters against some
liabilities, including liabilities under the Securities Act of 1933.

Churchill Downs, its officers and directors and certain other shareholders have
agreed to a 180-day "lock-up" with respect to 2,378,511 shares of common stock
and other securities of Churchill Downs that they beneficially own, including
securities that are convertible into shares of common stock and securities that
are exchangeable or exercisable for shares of common stock. This means that, for
the period of 180 days following the date of this prospectus, Churchill Downs
and such persons may not offer, sell, pledge or otherwise dispose of these
securities without the prior written consent of CIBC World Markets Corp.

The underwriters have reserved for sale up to 300,000 shares for directors and
officers of Churchill Downs. These reserved shares will be sold at the public
offering price that appears on the cover page of this prospectus. The number of
shares available for sale to the general public in the offering will be reduced
to the extent reserved shares are purchased by such persons. The underwriters
will offer to the general public, on the same terms as other shares offered by
the prospectus, any reserved shares that are not purchased by such persons.

CIBC World Markets Corp., one of the representatives, has provided and currently
provides financial advisory services to Churchill Downs in connection with its
acquisition program. Churchill Downs pays CIBC World Markets Corp. customary
fees for these advisory services.

CIBC World Markets Corp. is a lender under Churchill Downs' new $250.0 million
credit facility and will receive payments of principal and interest under such
facility from the proceeds of this offering. PNC Bank, N.A., the parent of
J.J.B. Hilliard, W.L. Lyons, Inc., acts as the agent and is a lender under
Churchill Downs' new $250.0 million credit facility. As agent under the credit
facility, PNC has received customary fees, and as a lender under the credit
facility, PNC will receive payments of principal and interest under such
facility from the proceeds of the offering. Because more than 10% of the net
proceeds of the offering may be paid to members or affiliates of members of the
National Association of Securities Dealers, Inc. participating in this offering,
the offering will be conducted in accordance with NASD Conduct Rule 2710(c)(8).

Rules of the Securities and Exchange Commission may limit the ability of the
underwriters to bid for or purchase shares before the distribution of the shares
is completed. However, the underwriters may engage in the following activities
in accordance with the rules:

- Stabilizing transactions--The representatives may make bids or purchases
for the purpose of pegging, fixing or maintaining the price of the shares,
so long as stabilizing bids do not exceed a specified maximum.

- Over-allotments and syndicate covering transactions--The underwriters may
create a short position in the shares by selling more shares than are set
forth on the cover page of this prospectus. If a short position is created
in connection with the offering, the representatives may engage in
syndicate covering transactions by purchasing shares in the open market.
The

66
<PAGE>
representatives may also elect to reduce any short position by exercising
all or part of the over-allotment option.

- Penalty bids--If the representatives purchase shares in the open market in
a stabilizing transaction or syndicate covering transaction, they may
reclaim a selling concession from the underwriters and selling group
members who sold those shares as part of this offering.

- Passive market making--Market makers in the shares who are underwriters or
prospective underwriters may make bids for or purchases of shares, subject
to limitations, until the time, if ever, at which a stabilizing bid is
made.

Stabilization and syndicate covering transactions may cause the price of the
share to be higher than it would be in the absence of such transactions. The
imposition of a penalty bid might also have an effect on the price of the shares
if it discourages resales of the shares.

Neither Churchill Downs nor the underwriters makes any representation or
prediction as to the effect that the transactions described above may have on
the price of the shares. These transactions may occur on the Nasdaq National
Market or otherwise. If such transactions are commenced, they may be
discontinued without notice at any time.

LEGAL MATTERS

The validity of the issuance of the shares of common stock offered by this
prospectus will be passed upon for Churchill Downs by Wyatt, Tarrant & Combs,
Louisville, Kentucky. Other legal matters will be passed on for Churchill Downs
by Skadden, Arps, Slate, Meagher & Flom (Illinois). Some legal matters relating
to this offering will be passed upon for the underwriters by Morgan, Lewis &
Bockius LLP, New York, New York.

EXPERTS

The consolidated financial statements of Churchill Downs as of December 31,
1998, 1997 and 1996 and for each of the three years in the period ended December
31, 1998 included in this prospectus and registration statement have been so
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.

The consolidated financial statements of Calder Race Course, Inc. and Tropical
Park, Inc. as of December 31, 1998, 1997 and 1996 and for each of the three
years in the period ended December 31, 1998 included in this prospectus and
registration statement have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

Ernst & Young LLP, independent auditors, have audited Racing Corporation of
America's consolidated financial statements at December 31, 1997 and for the
year then ended included in our Current Report on Form 8-K/A dated December 21,
1998, as set forth in their report dated April 7, 1998, which is incorporated by
reference in this prospectus and elsewhere in the registration statement. Racing
Corporation of America's consolidated financial statements are incorporated by
reference in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.

The combined financial statements of the Hollywood Park Race Track and Casino as
of December 31, 1998 and 1997, and for each of the three years in the period
ended December 31, 1998, included in this prospectus and elsewhere in this
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and is
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said report.

67
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549
and at the Regional Offices of the SEC at 7 World Trade Center, 13th Floor, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60601. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. The SEC maintains a site on the World
Wide Web at http://www.sec.gov that contains our SEC filings and reports, proxy
and information statements, and other information regarding registrants.

The SEC allows us to "incorporate by reference" the information we file with
them, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is considered
to be part of this prospectus, and information that we file later with the SEC
will automatically update and supersede this information. We incorporate by
reference the documents listed below and any future filings we will make with
the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934:

1. Annual Report on Form 10-K, as amended by Form 10-K/A, for the fiscal
year ended December 31, 1998 and the portions of the Company's Proxy
Statement for the 1999 Annual Shareholders' Meeting that we incorporated
by reference into the 10-K;

2. Quarterly Report on Form 10-Q for the quarter ended March 31, 1999;

3. Current report on Form 8-K dated April 23, 1999, as amended by Form
8-K/A;

4. The description of the Company's Common Stock, no par value, contained
in the Current Report on Form 8-K dated December 14, 1998;

5. The description of the Company's Preferred Stock Purchase Rights
contained in the Company's Registration Statement on Form 8-A filed March
20, 1998 pursuant to Section 12(g) of the 1934 Act; and

6. Current Report on Form 8-K/A dated December 21, 1998.

You may request a copy of these filings, at no cost, by writing or telephoning
us at the following address:

Chantelle Kammerdiener

Director of Investor Relations

Churchill Downs Incorporated

700 Central Avenue

Louisville, Kentucky 40208

(502) 636-4400

This prospectus is part of a registration statement we filed with the SEC. You
should rely only on the information or representations provided in this
prospectus. We have authorized no one to provide you with different information.
These securities are not offered in any state where the offer is not permitted.
You should not assume that the information in this prospectus is accurate as of
any date other than the date on the front of the document.

68
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF CHURCHILL DOWNS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Report of Independent Accountants.......................................................................... F-3
Consolidated Balance Sheets................................................................................ F-4
Consolidated Statements of Earnings........................................................................ F-5
Consolidated Statements of Shareholders' Equity............................................................ F-6
Consolidated Statements of Cash Flows...................................................................... F-7
Notes to Consolidated Financial Statements................................................................. F-8

INTERIM CONSOLIDATED FINANCIAL STATEMENTS OF CHURCHILL DOWNS FOR THE THREE-MONTH PERIODS ENDED MARCH 31,
1999 AND 1998
Condensed Consolidated Balance Sheets...................................................................... F-23
Condensed Consolidated Statements of Earnings.............................................................. F-24
Condensed Consolidated Statements of Cash Flows............................................................ F-25
Condensed Notes to Consolidated Financial Statements....................................................... F-26

FINANCIAL STATEMENTS OF CALDER RACE COURSE, INC. FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Report of Independent Certified Public Accountants......................................................... F-31
Balance Sheets............................................................................................. F-32
Statements of Income....................................................................................... F-33
Statements of Changes in Shareholder's Deficit............................................................. F-34
Statements of Cash Flows................................................................................... F-35
Notes to Financial Statements.............................................................................. F-36

INTERIM FINANCIAL STATEMENTS OF CALDER RACE COURSE, INC. FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1999
AND 1998
Balance Sheet.............................................................................................. F-42
Statements of Income....................................................................................... F-43
Statements of Cash Flows................................................................................... F-44
Notes to Financial Statements.............................................................................. F-45

FINANCIAL STATEMENTS OF TROPICAL PARK, INC. FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Report of Independent Certified Public Accountants......................................................... F-46
Balance Sheets............................................................................................. F-47
Statements of Income....................................................................................... F-48
Statements of Changes in Shareholder's Deficit............................................................. F-49
Statements of Cash Flows................................................................................... F-50
Notes to Financial Statements.............................................................................. F-51

INTERIM FINANCIAL STATEMENTS OF TROPICAL PARK, INC. FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1999 AND
1998
Balance Sheet.............................................................................................. F-56
Statements of Income....................................................................................... F-57
Statements of Cash Flows................................................................................... F-58
Notes to Financial Statements.............................................................................. F-59
</TABLE>

F-1
<PAGE>
INDEX TO FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF HOLLYWOOD PARK FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Report of Independent Public Accountants................................................................... F-60
Combined Balance Sheets.................................................................................... F-61
Combined Statements of Operations.......................................................................... F-62
Combined Statements of Changes in Parent's Equity.......................................................... F-63
Combined Statements of Cash Flows.......................................................................... F-64
Notes to Combined Financial Statements..................................................................... F-65
</TABLE>

F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders and Board of Directors
Churchill Downs Incorporated

In our opinion, the accompanying consolidated balance sheets and consolidated
statements of earnings, shareholders' equity and cash flows present fairly, in
all material respects, the consolidated financial position of Churchill Downs
Incorporated and its subsidiaries as of December 31, 1998, 1997 and 1996, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.

PRICEWATERHOUSECOOPERS LLP

Louisville, Kentucky
February 24, 1999

F-3
<PAGE>
CHURCHILL DOWNS INCORPORATED
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
<S> <C> <C> <C>
1998 1997 1996
-------------- ------------- -------------
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 6,379,686 $ 9,280,233 $ 8,209,414
Accounts receivable.............................................. 11,968,114 7,086,889 5,218,236
Other current assets............................................. 1,049,084 540,489 679,221
-------------- ------------- -------------
Total current assets........................................... 19,396,884 16,907,611 14,106,871

Other assets....................................................... 3,796,292 3,884,080 1,574,714
Plant and equipment, net........................................... 83,088,204 63,162,767 62,882,189
Intangible assets, net............................................. 8,369,395 1,894,350 2,165,192
-------------- ------------- -------------
$ 114,650,775 $ 85,848,808 $ 80,728,966
-------------- ------------- -------------
-------------- ------------- -------------

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable................................................. $ 6,530,502 $ 5,732,783 $ 5,403,000
Accrued expenses................................................. 8,098,228 7,937,575 8,021,487
Dividends payable................................................ 3,762,521 3,658,468 2,375,271
Income taxes payable............................................. 257,588 186,642 2,510,508
Deferred revenue................................................. 8,412,552 7,344,830 6,511,902
Long-term debt, current portion.................................. 126,812 79,805 73,893
-------------- ------------- -------------
Total current liabilities...................................... 27,188,203 24,940,103 24,896,061

Long-term debt, due after one year................................. 13,538,027 2,633,164 2,878,714
Outstanding mutuel tickets (payable after one year)................ 806,573 1,625,846 2,031,500
Deferred compensation.............................................. 949,187 880,098 825,211
Deferred income taxes.............................................. 6,937,797 2,377,100 2,316,600
Shareholders' equity:
Preferred stock, no par value; authorized, 250,000 shares;
issued, none................................................... -- -- --
Common stock, no par value; authorized, 20,000,000 shares, issued
7,525,041 shares, 1998, 7,316,934 shares, 1997 and 7,308,524
shares, 1996................................................... 8,926,975 3,614,567 3,493,042
Retained earnings................................................ 56,598,957 49,842,930 44,352,838
Deferred compensation costs...................................... (229,944) -- --
Note receivable for common stock................................. (65,000) (65,000) (65,000)
-------------- ------------- -------------
65,230,988 53,392,497 47,780,880
-------------- ------------- -------------
$ 114,650,775 $ 85,848,808 $ 80,728,966
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-4
<PAGE>
CHURCHILL DOWNS INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
<S> <C> <C> <C>
1998 1997 1996
-------------- -------------- --------------
Net revenues $ 147,300,299 $ 118,907,367 $ 107,858,818
-------------- -------------- --------------

Operating expenses:
Purses........................................................ 50,192,973 39,718,374 34,439,143
Other direct expenses......................................... 68,895,654 55,705,722 52,438,836
-------------- -------------- --------------
119,088,627 95,424,096 86,877,979
-------------- -------------- --------------

Gross profit.................................................. 28,211,672 23,483,271 20,980,839

Selling, general and administrative............................. 11,068,262 9,077,983 8,665,942
-------------- -------------- --------------

Operating income.............................................. 17,143,410 14,405,288 12,314,897
-------------- -------------- --------------

Other income (expense):
Interest income............................................... 679,782 575,084 390,669
Interest expense.............................................. (896,067) (332,117) (337,438)
Miscellaneous income.......................................... 342,423 325,087 673,398
-------------- -------------- --------------
126,138 568,054 726,629
-------------- -------------- --------------

Earnings before provision for income taxes...................... 17,269,548 14,973,342 13,041,526

Provision for income taxes...................................... 6,751,000 5,824,782 4,970,000
-------------- -------------- --------------
Net earnings.................................................... $ 10,518,548 $ 9,148,560 $ 8,071,526
-------------- -------------- --------------
-------------- -------------- --------------

Earnings per common share data:
Basic......................................................... $ 1.41 $ 1.25 $ 1.08
Diluted....................................................... $ 1.40 $ 1.25 $ 1.08

Weighted average shares outstanding:
Basic......................................................... 7,460,058 7,312,052 7,445,542
Diluted....................................................... 7,539,482 7,320,670 7,447,706
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-5
<PAGE>
CHURCHILL DOWNS INCORPORATED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
-----------------------------------------------------
DEFERRED
COMMON STOCK RETAINED NOTE RECEIVABLE COMPENSATION
SHARES AMOUNT EARNINGS COMMON STOCK COSTS TOTAL
--------- --------- ---------- --------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances December 31, 1995........ 7,569,206 $3,504,388 $43,486,460 $ (65,000) $(272,691) $46,653,157
Net earnings...................... 8,071,526 8,071,526
Deferred compensation
amortization.................... 272,691 272,691
Issuance of common stock at $14.45
per share....................... 7,818 112,970 112,970
Repurchase of common stock........ (268,500) (124,316) (4,829,877) (4,954,193)
Cash dividends, $.33 per share.... (2,375,271) (2,375,271)
--------- --------- ---------- --------------- ------------- ----------
Balances December 31, 1996........ 7,308,524 3,493,042 44,352,838 (65,000) -- 47,780,880
Net earnings...................... 9,148,560 9,148,560
Issuance of common stock at $14.45
per share....................... 8,410 121,525 121,525
Cash dividends, $.50 per share.... (3,658,468) (3,658,468)
--------- --------- ---------- --------------- ------------- ----------
Balances December 31, 1997........ 7,316,934 3,614,567 49,842,930 (65,000) -- 53,392,497
Net earnings...................... 10,518,548 10,518,548
Deferred compensation............. 344,046 (344,046) --
Deferred compensation
amortization.................... 114,102 114,102
Issuance of common stock at $24.25
per share in conjunction with
RCA acquisition................. 200,000 4,850,000 4,850,000
Issuance of common stock at $14.60
per share....................... 8,107 118,362 118,362
Cash dividends, $.50 per share.... (3,762,521) (3,762,521)
--------- --------- ---------- --------------- ------------- ----------
Balances December 31, 1998........ 7,525,041 $8,926,975 $56,598,957 $ (65,000) $(229,944) $65,230,988
--------- --------- ---------- --------------- ------------- ----------
--------- --------- ---------- --------------- ------------- ----------
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-6
<PAGE>
CHURCHILL DOWNS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
<S> <C> <C> <C>
1998 1997 1996
------------- ------------ -------------
Cash flows from operating activities:
Net earnings........................................................ $ 10,518,548 $ 9,148,560 $ 8,071,526
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization....................................... 5,743,932 4,558,761 4,814,114
Deferred income taxes............................................... (121,000) 352,100 (461,000)
Deferred compensation............................................... 183,191 54,887 226,690
Increase (decrease) in cash resulting from changes in operating
assets and liabilities:
Accounts receivable............................................... (2,972,985) (2,053,211) (2,943,932)
Other current assets.............................................. (292,994) (152,868) 232,699
Accounts payable.................................................. (1,245,550) 329,783 (1,114,508)
Accrued expenses.................................................. (579,904) (83,912) 4,710,605
Income taxes payable (refundable)................................. 70,946 (2,323,866) 1,461,000
Deferred revenue.................................................. 757,889 1,017,486 237,958
Other assets and liabilities...................................... (1,245,808) (377,523) (109,037)
------------- ------------ -------------
Net cash provided by operating activities....................... 10,816,265 10,470,197 15,126,115
------------- ------------ -------------
Cash flows from investing activities:
Acquisition of business, net of cash acquired of $517,151........... (17,232,849) -- --
Additions to plant and equipment, net............................... (3,524,032) (4,568,494) (2,570,795)
Purchase of minority-owned investment............................... -- (2,337,500) --
------------- ------------ -------------
Net cash used in investing activities............................. (20,756,881) (6,905,994) (2,570,795)
------------- ------------ -------------
Cash flows from financing activities:
Decrease in long-term debt, net..................................... (140,164) (239,638) (3,468,569)
Borrowings on bank line of credit................................... 22,000,000
Repayments of bank line of credit................................... (11,000,000)
Dividends paid...................................................... (3,658,468) (2,375,271) (1,892,302)
Common stock issued................................................. 118,362 121,525 112,970
Common stock repurchased............................................ -- -- (4,954,193)
Loan origination costs.............................................. (279,661) -- --
------------- ------------ -------------
Net cash provided by (used in) financing activities............... 7,040,069 (2,493,384) (10,202,094)
------------- ------------ -------------
Net increase (decrease) in cash and cash equivalents.................. (2,900,547) 1,070,819 2,353,226
Cash and cash equivalents, beginning of period........................ 9,280,233 8,209,414 5,856,188
------------- ------------ -------------
Cash and cash equivalents, end of period.............................. $ 6,379,686 $ 9,280,233 $ 8,209,414
------------- ------------ -------------
------------- ------------ -------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest............................................................ $ 497,307 $ 151,397 $ 277,149
Income taxes........................................................ $ 7,129,540 $ 7,914,974 $ 3,970,000
Schedule of non-cash activities:
Issuance of common stock related to the acquisition of RCA.......... $ 4,850,000 -- --
Invoicing for future Kentucky Derby and Oaks........................ $ 677,733 $ 402,328 $ 586,886
Plant and equipment additions included in accounts payable.......... $ 95,055 -- --
Compensation expense................................................ $ 344,406 -- --
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-7
<PAGE>
Churchill Downs Incorporated
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BASIS OF PRESENTATION:

Churchill Downs Incorporated (the "Company") conducts Spring, Summer and Fall
live race meetings for Thoroughbred horses and participates in intrastate and
interstate simulcast wagering at its racetracks in Kentucky. In Indiana, the
Company, through its subsidiary, Hoosier Park L.P. (Hoosier Park), conducts live
Thoroughbred, Quarter Horse and Standardbred horse races and participates in
interstate simulcast wagering. Both its Kentucky and Indiana operations are
subject to regulation by the racing commissions of the respective states.

The accompanying consolidated financial statements include the accounts of the
Company, its wholly owned subsidiaries, Ellis Park Race Course (Ellis Park),
Churchill Downs Management Company (CDMC), Churchill Downs Investment Company
(CDIC), the Kentucky Horse Center and Anderson Park Inc. (Anderson) and its
majority-owned subsidiary, Hoosier Park. All significant intercompany balances
and transactions have been eliminated.

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.

A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOLLOWS:

CASH EQUIVALENTS:

The Company considers investments with original maturities of three months or
less to be cash equivalents. The Company has, from time to time, cash in the
bank in excess of federally insured limits.

PLANT AND EQUIPMENT:

Plant and equipment are recorded at cost. Depreciation is calculated using the
straight-line method over the estimated useful lives of the related assets.

INTANGIBLE ASSETS:

Amortization of the cost of acquisition in excess of fair value of assets
acquired and the Indiana racing license is provided over 40 years using the
straight-line method. Organizational costs were amortized using the
straight-line method over 24 months to 60 months. Loan origination costs on the
Company's line of credit are being amortized under the effective interest method
over 36 months, the term of the loan.

F-8
<PAGE>
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)

LONG-LIVED ASSETS:

In the event that facts and circumstances indicate that the carrying amount of
tangible or intangible long-lived assets or groups of assets may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the assets would be
compared to the assets' carrying amount to determine if a write-down to market
value or discounted cash flow value is required.

DEFERRED REVENUE:

Deferred revenue includes primarily advance sales related to the Kentucky Derby
and Oaks races in Kentucky.

STOCK-BASED COMPENSATION:

The Company accounts for stock-based compensation in accordance with Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees". In
accordance with Statement of Financial Accounting Standards (SFAS) No. 123
"Accounting for Stock-based Compensation" proforma disclosure of net earnings
and earnings per share are presented in Note 10 as if SFAS No. 123 had been
applied.

RECLASSIFICATION:

Certain financial statement amounts have been reclassified in the prior years to
conform to current year presentation.

2. ACQUISITIONS:

On April 21, 1998, the Company acquired from TVI Corp., ("TVI") all of the
outstanding stock of Racing Corporation of America ("RCA") for a purchase price
of $22.6 million, including transaction costs. RCA owns and operates Ellis Park
Race Course in Henderson, Kentucky, and the Kentucky Horse Center, a training
facility located in Lexington, Kentucky. The purchase price was paid as 200,000
shares of the Company's common stock valued at $4.9 million with the remainder
paid in cash. The purchase price was allocated to the acquired assets and
liabilities based on their fair values on the acquisition date with the excess
of $6.4 being amortized over 40 years. The acquisition was accounted for by the
Company under the purchase method of accounting and, accordingly, the results of
operations of RCA subsequent to April 20, 1998, are included in the Company's
consolidated results of operations.

Pursuant to the terms of the purchase agreement between the Company and TVI, if
alternative gaming (whether full casino, slot machine or video lottery) is
legalized in the Commonwealth of Kentucky by December 31, 2015, TVI will receive
royalty payments equal to 50% of annual earnings before interest and taxes of
the gaming operations at Ellis Park Race Course and at the Kentucky Horse
Center. Should gaming be legalized before December 31, 2006, such royalties will
be payable for ten years from

F-9
<PAGE>
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

2. ACQUISITIONS: (CONTINUED)

the date that such gaming becomes fully operational. The royalty period will be
reduced by one year for each year from 2006 through 2015 in which gaming is
legalized.

Following are the unaudited pro forma results of operations as if the April 21,
1998 transaction had occurred on January 1, 1997 (in thousands, except per share
and share amounts):

<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Net revenues...................................................... $ 149,272 $ 137,316
Net earnings...................................................... $ 9,589 $ 8,845
Earnings per common share:
Basic........................................................... $ 1.28 $ 1.18
Diluted......................................................... $ 1.26 $ 1.18
Weighted average shares outstanding:
Basic........................................................... 7,520,332 7,512,052
Diluted......................................................... 7,599,756 7,520,670
</TABLE>

This unaudited pro forma financial information is not necessarily indicative of
the operating results that would have occurred had the transaction been
consummated as of January 1, 1997, nor is it necessarily indicative of future
operating results.

In July 1997, the Company purchased a 24% interest in the Kentucky Downs
racecourse in Franklin, Kentucky. The Company's investment of $2.2 million is
accounted for under the equity method of accounting.

3. PLANT AND EQUIPMENT:

Plant and equipment is comprised of the following:

<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Land........................................ $ 7,631,657 $ 5,999,036 $ 5,879,994
Grandstands and buildings................... 73,376,961 57,579,747 56,154,054
Equipment................................... 4,979,383 3,416,306 2,936,129
Furniture and fixtures...................... 5,341,119 4,327,797 3,603,276
Tracks and other improvements............... 37,997,696 33,118,100 31,377,753
Construction in process..................... 249,438 113,210 74,206
-------------- -------------- --------------
129,576,254 104,554,196 100,025,412
Accumulated depreciation.................... (46,488,050) (41,391,429) (37,143,223)
-------------- -------------- --------------
$ 83,088,204 $ 63,162,767 $ 62,882,189
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>

Depreciation expense was $5,490,450, $4,287,916, and $4,038,135 for the years
ended December 31, 1998, 1997 and 1996.

F-10
<PAGE>
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

4. INTANGIBLES ASSETS:

The Company's intangible assets are comprised of the following:

<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cost of acquisition in excess of fair value of net
assets acquired................................... $ 6,448,867 -- --
Indiana racing license.............................. 2,085,428 $ 2,085,428 $ 2,085,428
Loan origination costs.............................. 279,661 -- --
Organizational and preopening costs................. -- -- 932,738
------------ ------------ ------------
8,813,956 2,085,428 3,018,166
Accumulated amortization.......................... (444,561) (191,078) (852,974)
------------ ------------ ------------
$ 8,369,395 $ 1,894,350 $ 2,165,192
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

Amortization expense was $253,482, $270,845 and $775,979 for the years ended
December 31, 1998, 1997 and 1996.

5. INCOME TAXES:

Components of the provision for income taxes are as follows:

<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Currently payable:
Federal........................................... $ 6,110,000 $ 4,616,800 $ 4,538,000
State & local..................................... 762,000 856,100 893,000
------------ ------------ ------------
6,872,000 5,472,900 5,431,000
------------ ------------ ------------
Deferred:
Federal........................................... 45,500 308,100 (382,000)
State & local..................................... 6,500 44,000 (79,000)
------------ ------------ ------------
52,000 352,100 (461,000)
------------ ------------ ------------
Reversal of valuation allowance..................... (173,000) -- --
------------ ------------ ------------
$ 6,751,000 $ 5,825,000 $ 4,970,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

F-11
<PAGE>
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

5. INCOME TAXES: (CONTINUED)

The Company's income tax expense is different from the amount computed by
applying the statutory federal income tax rate to income before taxes as
follows:

<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Federal statutory tax on earnings before income
tax............................................... $ 5,942,000 $ 5,141,000 $ 4,464,000
State income taxes, net of federal income tax
benefit........................................... 747,000 612,000 537,000
Permanent differences and other..................... 235,000 72,000 (31,000)
Reversal of valuation allowance..................... (173,000) -- --
------------ ------------ ------------
$ 6,751,000 $ 5,825,000 $ 4,970,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

At December 31, 1998, the Company has net operating loss carryforwards of
approximately $3,885,000 for Indiana state income tax purposes expiring from
2009 through 2011 and approximately $8,786,000 for Kentucky state income tax
purposes expiring from 2002 through 2011. Management has determined that its
ability to realize future benefits of the state net operating loss carryforwards
meets the "more likely than not" criteria of SFAS No. 109, "Accounting for
Income Taxes"; therefore, no valuation allowance has been recorded at December
31, 1998.

F-12
<PAGE>
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

5. INCOME TAXES: (CONTINUED)

Components of the Company's deferred tax assets and liabilities are as follows:

<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Deferred tax liabilities:
Property & equipment in excess of tax basis......... $ 7,804,600 $ 2,415,000 $ 2,284,000
Racing license in excess of tax basis............... 650,000 636,000 657,000
------------ ------------ ------------
Deferred tax liabilities........................ 8,454,600 3,051,000 2,941,000
------------ ------------ ------------
Deferred tax assets:
Supplemental benefit plan........................... 315,400 295,000 273,000
State net operating loss carryforwards.............. 856,700 173,000 176,000
Allowance for uncollectible receivables............. 87,100 71,000 66,000
Other assets........................................ 191,300 250,000 136,000
Other accruals...................................... 246,100 128,400 511,500
------------ ------------ ------------
Deferred tax assets............................. 1,696,600 917,400 1,162,500
------------ ------------ ------------

Valuation allowance for state net operating loss
carryforwards......................................... -- 173,000 176,000
------------ ------------ ------------
Net deferred tax liability.......................... $ 6,758,000 $ 2,306,600 $ 1,954,500
------------ ------------ ------------
------------ ------------ ------------

Income taxes are classified in the balance sheet as
follows:
Net non-current deferred tax liability.............. $ 6,937,800 $ 2,377,100 $ 2,316,600
Net current deferred tax asset...................... (179,800) (70,500) (362,100)
------------ ------------ ------------
$ 6,758,000 $ 2,306,600 $ 1,954,500
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

F-13
<PAGE>
Churchill Downs Incorporated
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------

6. SHAREHOLDERS' EQUITY:

On March 19, 1998, the Company's Board of Directors authorized a 2-for-1 stock
split of its common stock effective March 30, 1998. All share and per share
amounts in the accompanying consolidated financial statements have been restated
to give effect to the stock split.

Additionally, the Company's Board of Directors approved a shareholder "Rights
Plan" (the "Plan") on March 19, 1998, which grants each shareholder the right to
purchase a fraction of a share of Series 1998 Preferred Stock at the rate of one
right for each share of the Company's common stock. The rights will become
exercisable 10 business days (or such later date as determined by the Board of
Directors) after any person or group acquires, obtains a right to acquire or
announces a tender offer for 15% or more of the Company's outstanding common
stock. The rights would allow the holder to purchase preferred stock of the
Company at a 50% discount. The Plan is intended to protect stockholders from
takeover tactics that may be used by an acquirer that the Board believes are not
in the best interests of the shareholders. The Plan expires on March 19, 2008.

7. EMPLOYEE BENEFIT PLANS:

The Company has a profit-sharing plan that covers all full-time employees with
one year or more of service. The Company will match contributions made by the
employee up to 2% of the employee's annual compensation and contribute a
discretionary amount determined annually by the Board of Directors. The
Company's contributions to the plan for the years ended December 31, 1998, 1997
and 1996 was $806,000, $535,000, and $402,000 respectively.

The Company is a member of a noncontributory defined benefit multi-employer
retirement plan for all members of the Pari-mutuel Clerk's Union of Kentucky.
Contributions are made in accordance with negotiated labor contracts. Retirement
plan expense for the year ended December 31, 1998, 1997 and 1996 was $258,000,
$205,000, and $183,000, respectively. The Company's policy is to fund this
expense as accrued.

The estimated present value of future payments under a supplemental benefit plan
is charged to expense over the period of active employment of the employees
covered under the plan. Supplemental benefit plan expense for the years ended
December 31, 1998, 1997 and 1996 was $55,200, $51,000, and $51,000 respectively.

8. LONG-TERM DEBT:

On September 15, 1998, the Company obtained a $100 million line of credit, which
expires in September 2001, through a syndicate of banks headed by its principal
lender. The new credit facility replaces a $50 million line of credit obtained
during the second quarter of 1998. The interest rate on borrowings is based upon
LIBOR plus 50 to 112.5 additional basis points which is determined by certain
Company financial ratios. There was $11.0 million outstanding on the line of
credit at December 31, 1998, and no borrowings outstanding at December 31, 1997
and 1996 under previous lines of credit. Provisions contained in the line of
credit agreement require the Company to maintain specified levels of net worth,
a specific ratio of consolidated funded debt to consolidated earnings

F-14
<PAGE>
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

8. LONG-TERM DEBT: (CONTINUED)

before interest, taxes, depreciation and amortization and a specific ratio of
consolidated earnings before interest and taxes to the sum of consolidated
interest expense and consolidated dividends.

The Company also has two non-interest bearing notes payable in the aggregate
face amount of $900,000 relating to the purchase of an intrastate wagering
license from the former owners of the Louisville Sports Spectrum property.
Interest has been imputed at 8%. The balance of these notes net of unamortized
discount was $196,000, $276,000, and $350,000 at December 31, 1998, 1997 and
1996, respectively. The notes require aggregate annual payments of $110,000.

On May 31, 1996, the Company entered into a Partnership Interest Purchase
Agreement with Conseco, HPLP, L.L.C. ("Conseco") for the sale of 10% of the
Company's partnership interest in Hoosier Park to Conseco. The transaction also
included assumption by Conseco of a loan to the Company of approximately
$2,600,000, of which the balance is $2,395,092 at December 31, 1998. The loan
requires interest of prime plus 2% (9.75% at December 31, 1998) payable monthly
with principal due November 2004. The note is collateralized by 10% of the
assets of Hoosier Park. Conseco had an option to purchase an additional 47%
interest in Hoosier Park which expired unexercised on December 31, 1998.

Future aggregate maturities of long-term debt are as follows:

<TABLE>
<S> <C>
1999-.......................................................... $ 127,000
2000-.......................................................... 126,000
2001-.......................................................... 11,008,000
2002-.......................................................... 9,000
2003-.......................................................... --
Thereafter-.................................................... 2,395,000
----------
$13,665,000
----------
----------
</TABLE>

9. OPERATING LEASES:

The Company has a long-term operating lease for the land in Anderson, Indiana on
which its Hoosier Park facility is located, as well as operating leases for the
Indianapolis off-track betting facility and certain totalisator and audio/visual
and other equipment and services. The Anderson lease expires in 2003, with an
option to extend the lease for three additional ten year terms. The Indianapolis
lease expires in 2009, with an option to extend the lease for two additional
five year terms. The leases include provisions for minimum lease payments as
well as contingent lease payments based on handle or revenues. Total rent
expense for all operating leases was $4,022,000, $3,803,000 and $3,465,000 for
the years ended December 31, 1998, 1997 and 1996.

F-15
<PAGE>
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

9. OPERATING LEASES: (CONTINUED)

Future minimum operating lease payments are as follows:

<TABLE>
<CAPTION>
MINIMUM LEASE
PAYMENT
---------------
<S> <C>
1999......................................................................... $ 725,604
2000......................................................................... 704,625
2001......................................................................... 556,214
2002......................................................................... 462,045
2003......................................................................... 372,840
Thereafter................................................................... 1,694,301
---------------
$ 4,515,629
---------------
---------------
</TABLE>

10. STOCK-BASED COMPENSATION PLANS:

The Company sponsors both the "Churchill Downs Incorporated 1997 Stock Option
Plan" (the "97 Plan") and the "Churchill Downs Incorporated 1993 Stock Option
Plan" (the "93 Plan"), stock-based incentive compensation plans, which are
described below. The Company applies APB Opinion 25 and related interpretations
in accounting for both the plans. However, pro forma disclosures as if the
Company adopted the cost recognition provisions of SFAS 123 are presented below.

The Company is authorized to issue up to 300,000 shares and 400,000 shares of
common stock (as adjusted for the stock split) under the 97 Plan and 93 Plan,
respectively, pursuant to "Awards" granted in the form of incentive stock
options (intended to qualify under Section 422 of the Internal Revenue Code of
1986, as amended) and non-qualified stock options. Awards may be granted to
selected employees of the Company or any subsidiary.

EMPLOYEE STOCK OPTIONS:

Both the 97 Plan and the 93 Plan provide that the exercise price of any
incentive stock option may not be less than the fair market value of the common
stock on the date of grant. The exercise price of any nonqualified stock option
is not so limited by the plans. The Company granted stock options in 1998, 1997
and 1996. The stock options granted in those years have contractual terms of 10
years and varying vesting dates, ranging from one to three years following the
date of grant. In accordance with APB 25, the Company has not recognized any
compensation cost for these stock options.

F-16
<PAGE>
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

10. STOCK-BASED COMPENSATION PLANS: (CONTINUED)

A summary of the status of the Company's stock options as of December 31, 1998,
1997 and 1996 and the changes during the year ended on those dates is presented
below:

<TABLE>
<CAPTION>
1998 1997 1996
-------------------------- -------------------------- --------------------------
WEIGHTED WEIGHTED WEIGHTED
# OF SHARES AVERAGE # OF SHARES AVERAGE # OF SHARES AVERAGE
UNDERLYING EXERCISE UNDERLYING EXERCISE UNDERLYING EXERCISE
OPTIONS PRICES OPTIONS PRICES OPTIONS PRICES
----------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
the year................. 426,532 $ 19.45 337,000 $ 19.08 248,000 $ 22.34
Granted.................... 51,766 $ 32.50 89,532 $ 20.83 274,400 $ 18.97
Exercised.................. -- -- -- -- -- --
Canceled................... -- -- -- -- 185,400 $ 23.27
Forfeited.................. -- -- -- -- -- --
Expired.................... -- -- -- -- -- --
Outstanding at end of
year..................... 478,298 $ 20.86 426,532 $ 19.45 337,000 $ 19.08
Exercisable at end of
year..................... 248,000 $ 21.02 207,400 $ 19.67 -- --
Weighted-average fair value
per share of options
granted during the
year..................... $ 10.42 $ 6.34 $ 5.55
</TABLE>

The fair value of each stock option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions for grants in 1998, 1997 and 1996, respectively: dividend yields
ranging from 1.20% to 1.54%; risk-free interest rates are different for each
grant and range from 5.75% to 6.63%; and the expected lives of options are
different for each grant and range from approximately 5.83 to 6.5 years,and
expected volatility rates of 24.86%, 19.38% and 18.75% for years ending December
31, 1998, 1997 and 1996.

The following table summarizes information about stock options outstanding at
December 31, 1998:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- --------------------------
<S> <C> <C> <C> <C> <C>
WEIGHTED WEIGHTED
NUMBER WEIGHTED AVERAGE AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES AT 12/31/98 CONTRIBUTING LIFE PRICE AT 12/31/98 PRICE
- ---------------------------------------------- ----------- ----------------- ------------- ----------- -------------
$15.75 to $19.25 315,900 6.05 $ 18.72 211,000 $ 20.89
$21.25 to $32.50 162,398 8.20 $ 25.02 37,000 $ 21.71
----------- -----------
TOTAL......................................... 478,298 6.77 $ 20.86 248,000 $ 21.02
----------- -----------
----------- -----------
</TABLE>

EMPLOYEE STOCK PURCHASE PLAN:

Under the Company's Employee Stock Purchase Plan (the "Employee Stock Purchase
Plan"), the Company is authorized to sell, pursuant to short-term stock options,
shares of its common stock to its full-time (or part-time for at least 20 hours
per week and at least five months per year) employees at a discount from the
common stock's fair market value. The Employee Stock Purchase Plan operates on

F-17
<PAGE>
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

10. STOCK-BASED COMPENSATION PLANS: (CONTINUED)

the basis of recurring, consecutive one-year periods. Each period commences on
August 1 and ends on the next following July 31.

On the first day of each 12-month period, August 1, the Company offers to each
eligible employee the opportunity to purchase common stock. Employees elect to
participate for each period to have a designated percentage of their
compensation withheld (after-tax) and applied to the purchase of shares of
common stock on the last day of the period, July 31. The Employee Stock Purchase
Plan allows withdrawals, terminations and reductions on the amounts being
deducted. The purchase price for the common stock is 85% of the lesser of the
fair market value of the common stock on (i) the first day of the period, or
(ii) the last day of the period. No employee may purchase common stock under the
Employee Stock Purchase Plan valued at more than $25,000 for each calendar year.

Under the Employee Stock Purchase Plan, the Company sold 8,107 shares of common
stock to 102 employees pursuant to options granted on August 1, 1997, and
exercised on July 31, 1998. Because the plan year overlaps the Company's fiscal
year, the number of shares to be sold pursuant to options granted on August 1,
1998, can only be estimated because the 1998 plan year is not yet complete. The
Company's estimate of options granted in 1998 under the Plan is based on the
number of shares sold to employees under the Plan for the 1997 plan year,
adjusted to reflect the change in the number of employees participating in the
Plan in 1998.

A summary of the status of the Company's stock options under the Employee Stock
Purchase Plan as of December 31, 1998, 1997 and 1996 and the changes during the
year ended on those dates is presented below:

<TABLE>
<CAPTION>
1998 1997 1996
---------------------------- ------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C> <C>
# OF SHARES WEIGHTED # OF SHARES WEIGHTED # OF SHARES WEIGHTED
UNDERLYING AVERAGE UNDERLYING AVERAGE UNDERLYING AVERAGE
OPTIONS EXERCISE PRICES OPTIONS EXERCISE PRICES OPTIONS EXERCISE PRICES
----------- --------------- ------------- --------------- ------------- ---------------
Outstanding at beginning of the
year............................ 8,030 $ 14.60 8,000 $ 14.45 7,818 $ 14.45
Adjustment to prior year estimated
grants.......................... 77 $ 14.60 410 $ 14.45 -- --
Granted........................... 5,238 $ 31.45 8,030 $ 18.94 8,000 $ 17.22
Exercised......................... 8,107 $ 14.60 8,410 $ 14.95 7,818 $ 14.45
Forfeited......................... -- -- -- -- -- --
Expired........................... -- -- -- -- -- --
Outstanding at end of year........ 5,238 $ 31.45 8,030 $ 18.94 8,000 $ 17.22
Exercisable at end of year........ -- -- -- -- -- --
Weighted-average
Fair value per share of options
granted during the year....... $ 12.16 $ 5.36 $ 5.35
</TABLE>

F-18
<PAGE>
Churchill Downs Incorporated
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------

10. STOCK-BASED COMPENSATION PLANS: (CONTINUED)

Had the compensation cost for the Company's stock-based compensation plans been
determined consistent with SFAS 123, the Company's net earnings and earnings per
common share for 1998, 1997 and 1996 would approximate the pro forma amounts
presented below:

<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------ ------------
<S> <C> <C> <C>
Net earnings:
As reported......................................................... $ 10,518,548 $ 9,148,560 $ 8,071,526
Pro-forma........................................................... $ 10,086,914 $ 8,605,000 7,530,000
Earnings per common share:
As reported
Basic............................................................. $ 1.41 $ 1.25 $ 1.08
Diluted........................................................... $ 1.40 $ 1.25 $ 1.08
Pro-forma
Basic............................................................. $ 1.35 $ 1.18 $ 1.01
Diluted........................................................... $ 1.34 $ 1.18 $ 1.01
</TABLE>

The effects of applying SFAS 123 in this pro forma disclosure are not indicative
of future amounts. The Company anticipates making awards in the future under its
stock-based compensation plans.

11. FAIR VALUES OF FINANCIAL INSTRUMENTS:

Financial Accounting Standards Board ("FASB") Statement No. 107, "Disclosure
about Fair Value of Financial Instruments," is a part of a continuing process by
the FASB to improve information on financial instruments. The following methods
and assumptions were used by the Company in estimating its fair value
disclosures for such financial instruments as defined by the Statement:

Cash and Cash Equivalents--The carrying amount reported in the balance sheet for
cash and cash equivalents approximates its fair value.

Long-Term Debt--The carrying amounts of the Company's borrowings under its line
of credit agreements and other long-term debt approximates fair value, based
upon current interest rates.

12. CONTINGENCIES:

On January 22, 1992, the Company acquired certain assets of Louisville Downs,
Incorporated for $5,000,000 including the site of the Louisville Sports
Spectrum. In conjunction with this purchase, the Company withheld $1,000,000
from the amount due to the sellers to offset certain costs related to the
remediation of environmental contamination associated with underground storage
tanks at the site. All of the $1,000,000 hold back had been utilized as of
December 31, 1998 and additional costs of remediation have not yet been
conclusively determined. The sellers have now received a reimbursement from the
State of Kentucky of $995,000 for remediation costs and that amount is now being
held in an escrow account to pay further costs of remediation. Approximately
$985,000 remains in the account. In

F-19
<PAGE>
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

12. CONTINGENCIES: (CONTINUED)

addition to the hold back, the Company has obtained an indemnity to cover the
full cost of remediation from the prior owner of the property.

It is not anticipated that the Company will have any liability as a result of
compliance with environmental laws with respect to any of the Company's
property. Except as discussed herein, compliance with environmental laws has not
affected the ability to develop and operate the Company's properties and the
Company is not otherwise subject to any material compliance costs in connection
with federal or state environmental laws.

13. EARNINGS PER COMMON SHARE COMPUTATIONS:

The following is a reconciliation of the numerator and denominator of the
earnings per common share computations:

<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------ ------------
<S> <C> <C> <C>
Net earnings (numerator) amounts used for basic and diluted per share
computations:....................................................... $ 10,518,548 $ 9,148,560 $ 8,071,526
------------- ------------ ------------
------------- ------------ ------------
Weighted average shares (denominator) of common stock outstanding per
share computations:
Basic............................................................... 7,460,058 7,312,052 7,445,542
Plus dilutive effect of stock options............................... 79,424 8,618 2,164
------------- ------------ ------------
Diluted............................................................. 7,539,482 7,320,670 7,447,706
------------- ------------ ------------
------------- ------------ ------------
Earnings per common share:
Basic............................................................... $ 1.41 $ 1.25 $ 1.08
Diluted............................................................. $ 1.40 $ 1.25 $ 1.08
</TABLE>

Options to purchase 51,766, 9,800 and 135,250 shares for the years ended
December 31, 1998, 1997 and 1996, respectively, were not included in the
computation of earnings per common share-assuming dilution because the options'
exercise prices were greater than the average market price of the common shares.

14. SEGMENT INFORMATION

In 1998 the Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." The Company has determined that it
currently operates in the following four segments: (1) Churchill Downs racetrack
and the Louisville Sports Spectrum simulcast facility, (2) Ellis Park racetrack
and its on-site simulcast facility, (3) Hoosier Park racetrack and its on-site
simulcast facility and the other three Indiana simulcast facilities and (4)
Other operations.

F-20
<PAGE>
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

14. SEGMENT INFORMATION (CONTINUED)

Company's investments in various other business enterprises. The Company's
equity in the net income of equity method investees is not significant.
Eliminations include the elimination of management fees and other intersegment
transactions.

The accounting policies of the segments are the same as those described in the
"Summary of Significant Accounting Policies." The Company evaluates the
performance of its segments and allocates resources to them based on earnings
before interest, taxes, depreciation and amortization ("EBITDA") and operating
income.

The table below presents information about reported segments for the years
ending December 31, 1998, 1997 and 1996:

SEGMENT INFORMATION (IN THOUSANDS)

<TABLE>
<CAPTION>
OTHER
CHURCHILL DOWNS HOOSIER PARK ELLIS PARK OPERATIONS ELIMINATIONS TOTAL
--------------- ------------ ----------- --------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues:
1998............................. $ 80,925 $ 47,744 $ 17,386 $ 2,497 $ (1,252) $ 147,300
1997............................. 77,404 41,503 -- 1,299 (1,299) 118,907
1996............................. 74,540 33,319 -- 1,334 (1,334) 107,859
EBITDA:
1998............................. $ 14,417 $ 5,599 $ 2,305 $ 909 -- $ 23,230
1997............................. 14,205 4,282 -- 802 -- 19,289
1996............................. 15,390 1,565 -- 847 -- 17,802
Operating income:
1998............................. $ 10,700 $ 4,499 $ 1,422 $ 522 -- $ 17,143
1997............................. 10,557 3,088 -- 760 -- 14,405
1996............................. 11,482 6 -- 827 -- 12,315
Total assets:
1998............................. $ 89,427 $ 31,732 $ 23,038 $ 71,109 $ (100,655) $ 114,651
1997............................. 72,490 29,689 -- 31,180 (47,510) 85,849
1996............................. 71,047 28,626 -- 26,062 (45,006) 80,729
</TABLE>

Following is a reconciliation of total EBITDA to income before provision for
income taxes:

<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997 1996
- ------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Total EBITDA................................................. $ 23,230 $ 19,289 $ 17,802
Depreciation and amortization................................ (5,744) (4,559) (4,814)
Interest income (expense).................................... (216) 243 53
--------- --------- ---------
Earnings before provision for income taxes................... $ 17,270 $ 14,973 $ 13,041
--------- --------- ---------
--------- --------- ---------
</TABLE>

F-21
<PAGE>
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

15. SUBSEQUENT EVENTS:

On January 13, 1999, the Company acquired a 60% interest in Charlson Broadcast
Technologies, LLC ("CBT") for a purchase price of $5.4 million. CBT provides
simulcast graphic software video services to racetracks and simulcast wagering
facilities throughout the United States. The purchase agreement includes
provisions for an additional contingent purchase price to be paid by the Company
to the former owners of the 60% interest based upon the achievement of certain
operating targets.

On January 21,1999, the Company entered into an agreement to acquire all of the
outstanding shares of Calder Race Course, Inc., and Tropical Park, Inc.
("Calder"), from KE Acquisition Corp., a private holding company. Terms of the
agreement include a purchase price of $86 million subject to certain
adjustments. Closing of the acquisition is expected in early April 1999.

F-22
<PAGE>
Churchill Downs Incorporated
Condensed Consolidated Balance Sheets (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
1999 1998 1998
-------------- -------------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 12,590,422 $ 6,379,686 $ 11,803,389
Accounts receivable............................................... 8,401,845 11,968,114 5,925,377
Prepaid income taxes.............................................. 2,374,781 -- 969,185
Other current assets.............................................. 950,089 1,049,084 847,493
-------------- -------------- ------------
Total current assets............................................ 24,317,137 19,396,884 19,545,444

Other assets........................................................ 5,427,113 3,796,292 3,691,108
Plant and equipment, net............................................ 85,826,688 83,088,204 63,145,872
Intangible assets, net.............................................. 11,406,833 8,369,395 1,872,449
-------------- -------------- ------------
$ 126,977,771 $ 114,650,775 $ 88,254,873
-------------- -------------- ------------
-------------- -------------- ------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................. $ 11,329,628 $ 6,530,502 $ 9,960,311
Accrued expenses.................................................. 5,307,925 8,098,228 5,000,182
Dividends payable................................................. -- 3,762,521 --
Income taxes payable.............................................. -- 257,588 --
Deferred revenue.................................................. 15,461,793 8,412,552 13,718,956
Long-term debt, current portion................................... 570,526 126,812 79,805
-------------- -------------- ------------
Total current liabilities....................................... 32,669,872 27,188,203 28,759,254

Long-term debt, due after one year.................................. 21,236,525 13,538,027 2,633,164
Other liabilities................................................... 3,810,159 1,755,760 2,661,889
Deferred income taxes............................................... 7,011,619 6,937,797 2,377,100
Shareholders' equity:
Preferred stock, no par value; authorized, 250,000 shares, issued,
none............................................................ -- -- --
Common stock, no par value; authorized, 20,000,000 shares, issued
7,525,041 shares, March 31, 1999 and December 31, 1998 and
7,316,934 shares, March 31, 1998................................ 8,926,975 8,926,975 3,614,567
Retained earnings................................................. 53,588,822 56,598,957 48,273,899
Deferred compensation costs....................................... (201,201) (229,944) --
Note receivable for common stock.................................. (65,000) (65,000) (65,000)
-------------- -------------- ------------
62,249,596 65,230,988 51,823,466
-------------- -------------- ------------
$ 126,977,771 $ 114,650,775 $ 88,254,873
-------------- -------------- ------------
-------------- -------------- ------------
</TABLE>

The accompanying notes are an integral part of the condensed consolidated
financial statements.

F-23
<PAGE>
CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
Net revenues...................................................................... $ 17,662,926 $ 15,385,151
Operating expenses................................................................ 19,157,153 15,999,128
-------------- --------------
Gross loss...................................................................... (1,494,227) (613,977)

Selling, general and administrative expenses...................................... 3,303,115 2,155,754
-------------- --------------

Operating loss.................................................................. (4,797,342) (2,769,731)
-------------- --------------

Other income (expense):
Interest income................................................................. 147,431 189,270
Interest expense................................................................ (435,465) (104,524)
Miscellaneous, net.............................................................. 44,117 117,054
-------------- --------------

(243,917) 201,800
-------------- --------------

Loss before income tax benefit.................................................. (5,041,259) (2,567,931)
-------------- --------------
Federal and state income tax benefit.............................................. 2,031,123 998,900
-------------- --------------
Net loss........................................................................ $ (3,010,136) $ (1,569,031)
-------------- --------------
-------------- --------------
Basic and diluted net loss per share.............................................. $ (.40) $ (.21)
Basic and diluted weighted average shares outstanding............................. 7,525,041 7,316,934
</TABLE>

The accompanying notes are an integral part of the condensed consolidated
financial statements.

F-24
<PAGE>
CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings.................................................................... $ (3,010,136) $ (1,569,031)
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization................................................... 1,903,255 1,159,106
Deferred income taxes........................................................... 73,822 --
Deferred compensation........................................................... 98,591 13,800
Increase (decrease) in cash resulting from changes in operating assets and
liabilities:
Accounts receivable........................................................... 4,405,301 1,161,512
Prepaid income taxes.......................................................... (2,374,781) (969,185)
Other current assets.......................................................... 112,733 (307,004)
Accounts payable.............................................................. 4,713,229 4,227,528
Accrued expenses.............................................................. (2,868,898) (2,937,393)
Income taxes payable.......................................................... (257,588) (186,642)
Deferred revenue.............................................................. 6,258,985 6,374,126
Other assets and liabilities.................................................. (1,205,204) 335,118
-------------- --------------
Net cash provided by operating activities................................... 7,849,309 7,301,935
-------------- --------------
Cash flows from investing activities:
Additions to plant and equipment, net........................................... (2,563,687) (1,120,311)
Acquisition of business, net of cash acquired of $25,767........................ (2,925,648) --
-------------- --------------
Net cash used in investing activities......................................... (5,489,335) (1,120,311)
Cash flows from financing activities:
Increase (decrease) in long-term debt, net...................................... (938,133) --
Borrowings on bank line of credit............................................... 8,000,000 --
Repayments of bank line of credit............................................... (1,000,000) --
Dividends paid.................................................................. (3,762,521) (3,658,468)
Contribution by minority interest in subsidiary................................. 1,551,416 --
-------------- --------------
Net cash provided by (used in) financing activities........................... 3,850,762 (3,658,468)
-------------- --------------
Net increase in cash and cash equivalents......................................... 6,210,736 2,523,156
Cash and cash equivalents, beginning of period.................................... 6,379,686 9,280,233
-------------- --------------
Cash and cash equivalents, end of period.......................................... $ 12,590,422 $ 11,803,389
-------------- --------------
-------------- --------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest........................................................................ $ 526,322 $ 250,000
Income taxes.................................................................... -- $ 18,000
Noncash transactions:
Invoicing for 1999 and 1998 Kentucky Derby and Oaks............................. $ 790,256 $ 371,252
</TABLE>

The accompanying notes are an integral part of the condensed consolidated
financial statements.

F-25
<PAGE>
CHURCHILL DOWNS INCORPORATED

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)
- --------------------------------------------------------------------------------

1. BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements are presented in
accordance with the requirements of Form 10-Q and consequently do not include
all of the disclosures normally required by generally accepted accounting
principles or those normally made in Churchill Downs Incorporated's (the
"Company") annual report on Form 10-K. The year end condensed consolidated
balance sheet data was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting principles.
Accordingly, the reader of this Form 10-Q may wish to refer to the Company's
Form 10-K for the period ended December 31, 1998 for further information. The
accompanying condensed consolidated financial statements have been prepared in
accordance with the registrant's customary accounting practices and have not
been audited. In the opinion of management, all adjustments necessary for a fair
presentation of this information have been made and all such adjustments are of
a normal recurring nature.

Because of the seasonal nature of the Company's business, revenues and operating
results for any interim quarter are not indicative of the revenues and operating
results for the year and are not necessarily comparable with results for the
corresponding period of the previous year. The accompanying condensed
consolidated financial statements reflect a disproportionate share of annual net
earnings (loss) as the Company normally earns a substantial portion of its net
earnings in the second quarter of each year during which the Kentucky Derby and
Kentucky Oaks are run. The Kentucky Derby and Kentucky Oaks are run on the first
weekend in May.

2. LONG-TERM DEBT

On September 15, 1998, the Company obtained a $100 million line of credit
through a syndicate of banks headed by its principal lender, which expires in
September 2001. This credit facility replaced a $50 million line of credit
obtained during the second quarter of 1998. The interest rate on borrowings was
based upon LIBOR plus 50 to 112.5 additional basis points, which was determined
by certain Company financial ratios. There was $18.0 million outstanding on the
line of credit at March 31, 1999, $11.0 million outstanding at December 31, 1998
and no borrowings outstanding at March 31, 1998, under previous lines of credit.
In connection with our acquisition strategy, the Company increased the line of
credit during the second quarter of 1999 to $250 million (See Note 7).

3. RECLASSIFICATION

Certain prior period financial statement amounts have been reclassified to
conform to the current period presentation.

4. ACQUISITIONS

On January 13, 1999, the Company acquired a 60% interest in Charlson Broadcast
Technologies, LLC ("CBT") for $3.1 million and made an additional equity
contribution to CBT in the amount of $2.3 million. CBT's total assets and
liabilities were $2.1 million and $2.2 million, respectively on the date of
acquisition. The purchase price was allocated to the fair value of net assets
acquired, with the

F-26
<PAGE>
CHURCHILL DOWNS INCORPORATED

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)
- --------------------------------------------------------------------------------

4. ACQUISITIONS (CONTINUED)

excess of $3.2 million being amortized over periods of 5 and 15 years based on
the nature of the intangibles acquired. CBT's financial position and results of
operations have been included in the Company's consolidated financial statements
since the date of acquisition.

On April 21, 1998, the Company acquired from TVI Corp., ("TVI") all of the
outstanding stock of Racing Corporation of America ("RCA") for a purchase price
of $22.6 million, which includes transaction costs of $.6 million. RCA owns and
operates Ellis Park Race Course in Henderson, Kentucky, and the Kentucky Horse
Center, a training facility located in Lexington, Kentucky. As part of the
transaction, TVI received 200,000 shares of the Company's common stock valued at
$4.9 million with the remaining balance of $17.1 million paid from cash on hand
and a draw on the Company's bank line of credit. The purchase price of $22.6
million was allocated to the acquired assets and liabilities based on their fair
values on the acquisition date with the excess of $6.4 million being recorded as
goodwill, which is being amortized over 40 years. The acquisition was accounted
for by the Company under the purchase method of accounting and, accordingly, the
results of operations of RCA subsequent to April 20, 1998, are included in the
Company's consolidated results of operations.

Following are the unaudited pro forma results of operations as if the April 21,
1998, acquisition had occurred on January 1, 1998 (in thousands, except per
share and share amounts):

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1998
-------------------
<S> <C>
Net revenues............................................................. $ 16,942
Net loss................................................................. $ (2,234)
Basic and diluted net loss per share..................................... $ (.30)
Basic and diluted weighted average shares outstanding outstanding........ 7,516,934
</TABLE>

This unaudited proforma financial information is not necessarily indicative of
the operating results that would have occurred had the transaction been
consummated as of January 1, 1998, nor is it necessarily indicative of future
operating results.

F-27
<PAGE>
CHURCHILL DOWNS INCORPORATED

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)
- --------------------------------------------------------------------------------

5. EARNINGS PER SHARE

The following is a reconciliation of the numerator and denominator of the basic
and diluted per share computations:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1999 1998
------------- -------------
<S> <C> <C>
Loss (numerator) amounts used for basic and diluted per share
computations.................................................. $ (3,010,136) $ (1,569,031)
Basic and diluted weighted average shares (denominator) of
common stock outstanding per share............................ 7,525,041 7,316,934
Basic and diluted net loss per share............................ $ (.40) $ (.21)
</TABLE>

Options to purchase 478,298 and 426,532 shares for the three months ended March
31, 1999 and 1998 are excluded from the computation of earnings (loss) per
common share-assuming dilution since their effect is antidilutive because of the
net loss for the period.

6. SEGMENT INFORMATION

The Company has adopted SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information." The Company has determined that it
currently operates in the following four segments: (1) Churchill Downs
racetrack, the Louisville Sports Spectrum simulcast facility and Churchill Downs
corporate expenses (2) Ellis Park racetrack and its on-site simulcast facility,
(3) Hoosier Park racetrack and its on-site simulcast facility and the other
three Indiana simulcast facilities and (4) Other operations.

Most of the Company's revenues are generated from commissions on pari-mutuel
wagering at the Company's racetracks and simulcast wagering facilities, as well
as simulcast fees, admissions and concessions revenue and other sources. Other
operations include Kentucky Horse Center and the Company's investments in
various other business enterprises. The Company's equity interest in the net
income of equity method investees is not significant. Eliminations include the
elimination of management fees and other intersegment transactions.

The accounting policies of the segments are the same as those described in the
"Summary of Significant Accounting Policies" in the Company's annual report to
stockholders for the year ended December 31, 1998.

F-28
<PAGE>
CHURCHILL DOWNS INCORPORATED

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)
- --------------------------------------------------------------------------------

6. SEGMENT INFORMATION (CONTINUED)

The table below presents information about reported segments for the three
months ending March 31, 1999 and 1998:

SEGMENT INFORMATION (IN THOUSANDS)

<TABLE>
<CAPTION>
CHURCHILL HOOSIER ELLIS OTHER
DOWNS PARK PARK OPERATIONS ELIMINATIONS TOTAL
----------- --------- --------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues:
1999 $ 4,643 $ 10,948 $ 1,166 $ 1,214 $ (308) $ 17,663
1998 5,367 10,018 -- 334 (334) 15,385
EBITDA:
1999 $ (4,475) $ 1,678 $ (382) $ 329 -- $ (2,850)
1998 (3,351) 1,686 -- 171 -- (1,494)
Operating income (loss):
1999 $ (5,390) $ 1,377 $ (702) $ (82) -- $ (4,797)
1998 (4,343) 1,713 -- (140) -- (2,770)
Total assets:
1999 $ 98,429 $ 32,835 $ 22,788 $ 83,277 $ (110,351) $ 126,978
1998 71,024 31,410 -- 29,504 (43,683) 88,255
</TABLE>

Following is a reconciliation of total EBITDA to income before provision for
income taxes:

<TABLE>
<CAPTION>
1999 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Total EBITDA........................................................... $ (2,850) $ (1,494)
Depreciation and amortization.......................................... (1,903) (1,159)
Interest income (expense), net......................................... (288) 85
--------- ---------
Earnings before provision for income taxes............................. $ (5,041) $ (2,568)
--------- ---------
--------- ---------
</TABLE>

7. SUBSEQUENT EVENTS

On April 23, 1999, the Company acquired all of the outstanding stock of Calder
Race Course, Inc. and Tropical Park, Inc. from KE Acquisition Corporation for a
purchase price of $86 million cash plus a closing net working capital adjustment
of approximately $2.9 million cash and $0.6 million in transaction costs. The
purchase included Calder Race Course in Miami and the licenses held by Calder
Race Course, Inc. and Tropical Park, Inc. to conduct horse racing at Calder Race
Course. Calder Race Course, one of four Thoroughbred tracks in Florida, offers
live racing and simulcast-only days during two consecutive race meets, which run
from late May through early January. The results of operations of Calder Race
Course, Inc. and Tropical Park, Inc. will be included in the Company's
consolidated financial statements from the date of acquisition during the second
quarter of 1999.

F-29
<PAGE>
CHURCHILL DOWNS INCORPORATED

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)
- --------------------------------------------------------------------------------

7. SUBSEQUENT EVENTS (CONTINUED)

Also on April 23, 1999, the Company increased its line of credit under a new
revolving loan facility through a syndicate of banks headed by its principal
lender to meet working capital and other short-term requirements and to provide
funding for acquisitions, including the pending acquisition of Hollywood Park
Race Track. The line of credit is secured by substantially all of the assets of
the Company and its wholly owned subsidiaries. The new facility offers a line of
credit of $250 million and matures in 2004.

On May 6, 1999, the Company signed a definitive agreement whereby the Company
would purchase the Hollywood Park Race Track, the Hollywood Park Casino and
approximately 240 acres located at the racetrack site in Inglewood, California.
The racetrack offers live Thoroughbred racing and simulcast wagering. Terms of
the agreement includes a purchase price of $140 million subject to certain
adjustments and a provision under which either party can terminate the agreement
during the due diligence period. If not so terminated, closing of the
transaction is expected in the third quarter of 1999.

F-30
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors of
Calder Race Course, Inc.

In our opinion, the accompanying balance sheets and the related statements of
income, of changes in shareholder's deficit and of cash flows present fairly, in
all material respects, the financial position of Calder Race Course, Inc. (a
wholly-owned subsidiary of K.E. Acquisition Corporation) at December 31, 1998
and 1997, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
February 19, 1999

F-31
<PAGE>
CALDER RACE COURSE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)
BALANCE SHEETS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
<S> <C> <C>
1998 1997
-------------- --------------
ASSETS
Current assets:
Cash and cash equivalents....................................................... $ 3,672,783 $ 311,519
Accounts receivable, net of allowance of $289,000 and $35,000 at December 31,
1998 and 1997, respectively................................................... 620,863 598,501
Restricted cash and investments................................................. 545,941 545,466
Prepaid expenses................................................................ 113,867 47,082
-------------- --------------
Total current assets.......................................................... 4,953,454 1,502,568
-------------- --------------
Property, plant and equipment:
Land and improvements........................................................... 1,054,637 1,054,637
Buildings and improvements...................................................... 47,341,792 46,580,447
Furniture, fixtures, and equipment.............................................. 1,857,808 5,290,502
-------------- --------------
50,254,237 52,925,586
Less accumulated depreciation................................................... 32,161,187 33,868,502
-------------- --------------
Property, plant and equipment, net............................................ 18,093,050 19,057,084
-------------- --------------
Restricted cash and investments--noncurrent....................................... 905,590 895,590
Other assets...................................................................... 203,287 89,137
-------------- --------------
1,108,877 984,727
-------------- --------------
Total assets.................................................................. $ 24,155,381 $ 21,544,379
-------------- --------------
-------------- --------------
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Accounts payable................................................................ $ 322,783 $ 103,991
Funds held for stake racing--current............................................ 570,117 545,517
Mutuel tickets outstanding...................................................... 538,309 485,990
Accrued liabilities............................................................. 762,854 679,114
Redeemable preferred stock payable.............................................. -- 200,000
Due to affiliate and parent..................................................... 4,548,380 3,121,717
-------------- --------------
Total current liabilities..................................................... 6,742,443 5,136,329
Funds held for stake racing--noncurrent........................................... 817,401 817,108
Long-term debt.................................................................... 22,910,647 28,342,941
Deferred tax liability............................................................ 4,771,119 1,608,983
-------------- --------------
Total liabilities............................................................. 35,241,610 35,905,361
-------------- --------------
Mandatorily redeemable preferred stock, 7% cumulative, $1 par value. Authorized
190 shares; issued and outstanding -0- and 70 shares at December 31, 1998 and
1997, respectively; redemption amount of $10,000 per share...................... -- 700,000
Shareholder's deficit:
Common stock, $.25 par value. Authorized 800,000 shares; issued and outstanding
667,440 shares at December 31, 1998 and 1997.................................. 166,860 166,860
Additional paid-in capital...................................................... 39,299,247 39,299,247
Accumulated deficit............................................................. (50,552,336) (54,527,089)
-------------- --------------
Total shareholder's deficit................................................... (11,086,229) (15,060,982)
-------------- --------------
Total liabilities and shareholder's deficit................................... $ 24,155,381 $ 21,544,379
-------------- --------------
-------------- --------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-32
<PAGE>
CALDER RACE COURSE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)
STATEMENTS OF INCOME
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
<S> <C> <C> <C>
1998 1997 1996
------------- ------------- -------------
Revenues:
Pari-mutuel commissions........................................... $ 37,157,767 $ 33,700,053 $ 29,583,341
Interstate simulcast commissions.................................. 6,170,547 5,485,302 4,131,141
Stake fees for purses............................................. 1,595,950 1,531,608 1,273,970
Admissions........................................................ 575,153 608,177 698,693
Parking, programs and concessions................................. 1,122,232 1,199,114 1,311,421
Breakage.......................................................... 1,467,305 1,358,981 1,057,300
Sundry............................................................ 1,885,156 1,236,825 1,339,278
------------- ------------- -------------
Total revenues.................................................. 49,974,110 45,120,060 39,395,144
------------- ------------- -------------
Expenses:
Purses and owners' awards......................................... 23,347,422 21,152,506 18,575,516
Advertising and promotion......................................... 1,480,848 1,647,781 1,334,982
Depreciation...................................................... 1,682,188 1,611,697 1,578,500
Insurance......................................................... 1,332,754 1,331,234 1,372,077
Maintenance and repairs........................................... 690,787 740,835 705,202
Payroll and other compensation.................................... 5,671,542 5,366,527 5,008,421
Taxes............................................................. 1,770,203 1,747,056 1,655,176
Services purchased................................................ 2,035,327 1,873,546 1,662,633
Totalisator rental................................................ 492,992 504,973 469,222
Utilities......................................................... 1,257,996 1,232,486 1,221,159
Other............................................................. 2,867,096 2,585,572 2,332,479
------------- ------------- -------------
Total expenses.................................................. 42,629,155 39,794,213 35,915,367
------------- ------------- -------------
Operating income................................................ 7,344,955 5,325,847 3,479,777
------------- ------------- -------------
Other income (expense):
Rental income..................................................... 1,010,807 1,067,848 871,676
Interest income................................................... 164,861 123,818 108,752
Interest expense.................................................. (1,866,600) (2,312,932) (2,453,517)
------------- ------------- -------------
(690,932) (1,121,266) (1,473,089)
------------- ------------- -------------
Income before income taxes...................................... 6,654,023 4,204,581 2,006,688
Provision for income taxes.......................................... 2,641,046 1,645,873 616,000
------------- ------------- -------------
Net income.......................................................... 4,012,977 2,558,708 1,390,688
Dividends on preferred stock........................................ 38,224 67,822 91,000
------------- ------------- -------------
Net income attributable to common shareholders...................... $ 3,974,753 $ 2,490,886 $ 1,299,688
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-33
<PAGE>
CALDER RACE COURSE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)
STATEMENTS OF CHANGES IN SHAREHOLDER'S DEFICIT
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
COMMON STOCK
----------------------- ADDITIONAL TOTAL
NUMBER PAR PAID-IN (ACCUMULATED SHAREHOLDER'S
OF SHARES VALUE CAPITAL DEFICIT) DEFICIT
----------- ---------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996................ 667,400 $ 166,860 $ 39,299,247 $ (58,317,663) $ (18,851,556)
Net income.............................. -- -- -- 1,390,688 1,390,688
Dividends on preferred stock............ -- -- -- (91,000) (91,000)
----------- ---------- ------------- -------------- --------------
Balance at December 31, 1996.............. 667,400 166,860 39,299,247 (57,017,975) (17,551,868)
Net income.............................. -- -- -- 2,558,708 2,558,708
Dividends on preferred stock............ -- -- -- (67,822) (67,822)
----------- ---------- ------------- -------------- --------------
Balance at December 31, 1997.............. 667,400 166,860 39,299,247 (54,527,089) (15,060,982)
Net income.............................. -- -- -- 4,012,977 4,012,977
Dividends on preferred stock............ -- -- -- (38,224) (38,224)
----------- ---------- ------------- -------------- --------------
Balance at December 31, 1998.............. 667,400 $ 166,860 $ 39,299,247 $ (50,552,336) $ (11,086,229)
----------- ---------- ------------- -------------- --------------
----------- ---------- ------------- -------------- --------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-34
<PAGE>
CALDER RACE COURSE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
<S> <C> <C> <C>
1998 1997 1996
------------- ------------- -------------
Cash flows from operating activities:
Net income......................................................... $ 4,012,977 $ 2,558,708 $ 1,390,688
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation....................................................... 1,682,188 1,611,697 1,578,500
Provision for deferred taxes....................................... 2,641,046 1,094,983 514,000
Provision for bad debts............................................ 254,000 -- --
Adjustment in carrying value of captive insurance company.......... -- 152,123 --
Changes in assets and liabilities:
(Increase) decrease in:
Restricted cash and investments................................ (10,475) (60,811) 16,172
Accounts receivable............................................ (276,362) (184,634) 66,300
Prepaid expenses............................................... (66,785) 147,171 (5,486)
Other assets................................................... (114,150) 30,812 (14,960)
Increase (decrease) in:
Accounts payable............................................... 218,792 (15,073) (62,825)
Funds held for stake racing.................................... 24,893 48,686 309,259
Mutuel tickets outstanding..................................... 52,319 35,749 (33,708)
Accrued liabilities............................................ 83,740 239,556 (188,885)
------------- ------------- -------------
Net cash provided by operating activities...................... 8,502,183 5,658,967 3,569,055
------------- ------------- -------------
Cash flows from investing activities:
Payments for purchases of property and equipment................... (718,154) (629,471) (303,320)
------------- ------------- -------------
Net cash used in investing activities.......................... (718,154) (629,471) (303,320)
------------- ------------- -------------
Cash flows from financing activities:
Advances to affiliate and parent, net.............................. 1,947,753 1,054,069 733,286
Redemption of mandatorily redeemable preferred stock............... (900,000) (400,000) --
Loan payments...................................................... (5,432,294) (5,900,000) (3,899,728)
Dividends paid on preferred stock.................................. (38,224) (67,822) (91,000)
------------- ------------- -------------
Net cash used in financing activities.......................... (4,422,765) (5,313,753) (3,257,442)
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents........... 3,361,264 (284,257) 8,293
Cash and cash equivalents, beginning of period....................... 311,519 595,776 587,483
------------- ------------- -------------
Cash and cash equivalents, end of period............................. $ 3,672,783 $ 311,519 $ 595,776
------------- ------------- -------------
------------- ------------- -------------
Supplemental cash flow information:
Interest paid........................................................ $ 1,915,779 $ 2,316,208 $ 2,485,840
------------- ------------- -------------
------------- ------------- -------------
Supplemental schedule of noncash financing activities:
Purchase of mandatorily redeemable preferred stock................... $ -- $ -- $ 200,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-35
<PAGE>
Calder Race Course, Inc.
(A Wholly-owned subsidiary of K.E. Acquisition Corporation)
Notes to Financial Statements
December 31, 1998
- --------------------------------------------------------------------------------

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Calder Race Course, Inc. (the "Company"), holds a pari-mutuel racing permit from
the State of Florida and conducts live race meetings for thoroughbred horses and
participates in simulcast wagering as a host track and as a receiving track in
Dade County, Florida. The Company's operations are classified under one business
segment. As provided in the Florida statutes, the Company was authorized to
operate a 122-day race meet during the years ended December 31, 1998, 1997 and
1996.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.

RESTRICTED CASH

Restricted cash consists of a surety bond made payable to the State of Florida,
which is required by the State of Florida in order for Calder to be granted a
license to race, and fines collected from horsemen, trainers and jockeys during
meets, which are used to subsidize medical and funeral expenses of backside
personnel, who are otherwise uninsured or in need. In addition, included in
restricted cash at December 31, 1998 and 1997, respectively, are approximately
$1,371,000 and $76,000 of amounts to be invested relating to the future Florida
Stallion Stakes.

INVESTMENTS

Investments consist of interest-bearing Bankers acceptances and money market
accounts held for the future Florida Stallion Stakes races. These securities are
carried at accreted cost and are held to maturity. Interest income is accrued as
earned.

PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment are stated at cost and are depreciated on a
straight-line basis over the estimated useful lives of the respective assets,
between 5 and 50 years. During 1998, the Company retired approximately $3.4
million of fully depreciated furniture, fixtures and equipment which are no
longer being used in operations.

F-36
<PAGE>
CALDER RACE COURSE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

IMPAIRMENT OF LONG-LIVED ASSETS

The Company reviews long-term assets for impairment and writes these down to
fair value whenever events or changes in circumstances indicate that the
carrying value may not be recoverable.

FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107 requires all entities to
disclose the fair value of certain financial instruments in their financial
statements. Accordingly, the Company reports that the carrying amount of cash
and cash equivalents, trade receivables, accounts payable, long-term debt
payable and accrued liabilities approximates fair value due to the short
maturity of these instruments, and that the carrying amount of marketable
securities is stated at fair value.

INCOME TAXES

The Company files a consolidated U.S. Federal income tax return with its parent,
K.E. Acquisition Corporation (Parent). Under the terms of a tax sharing
arrangement with its parent, the provision for income taxes is computed as if
the Company filed a separate tax return, on a year to year, stand-alone basis,
with the current tax balances determined based on a consolidated filing
position. All current income tax related balances are included as due to parent
in the accompanying financial statements.

The Company accounts for income taxes using the asset and liability approach.
The asset and liability approach requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of temporary
differences between the carrying amounts and the tax bases of other assets and
liabilities. The differences in 1998 and 1997 related primarily to accelerated
tax depreciation.

PURSES

In accordance with Florida statutes, the Company is required to distribute a
specific amount of purses and owners' awards based on a percentage of the
pari-mutuel handle plus additional amounts based on contractual agreements with
the Florida Horsemen's Benevolent Protective Association. The Company underpaid
approximately $160,000 and $308,000 of purses and owners' awards during December
31, 1998 and 1997, respectively. Such amounts are included in accrued
liabilities. The obligation at December 31, 1997 was fulfilled in 1998, and the
obligation at December 31, 1998 is expected to be fulfilled in 1999.

HORSEMEN ACCOUNT

F-37
<PAGE>
CALDER RACE COURSE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

administered on behalf of the Horsemen amounted to $109,000 and $37,000 at
December 31, 1998 and 1997, respectively. Such funds have been excluded from the
financial statements.

RECLASSIFICATIONS

Certain reclassifications have been made to prior period financial statements to
conform with current period presentation.

2. ACCOUNTS RECEIVABLE

Accounts receivable consist primarily of amounts due from simulcasting, rent,
and from concession activities. The Company maintains an allowance for doubtful
accounts at a level which management believes is sufficient to cover potential
losses.

3. DEBT

The Company and its affiliate, Tropical Park, Inc. (Tropical), assumed debt of
its former owner, of which the Company's allocable share at December 31, 1998
and 1997 amounted to $22,910,647 and $28,342,941, respectively. The debt, which
is payable to its Parent, was allocated by agreement between the Company and
Tropical. The debt is collateralized by substantially all of the Company's
assets. The loan bears interest at adjusted LIBOR plus .75% (6.75% at December
31, 1998). In February 1999, the maturity date was extended to January 1, 2000.
Interest payments are payable quarterly. The Company, and its affiliate,
Tropical, are jointly and severally liable to their Parent for the total debt
assumed which approximates $39,498,000 and $49,000,000 at December 31, 1998 and
1997, respectively.

4. MANDATORILY REDEEMABLE PREFERRED STOCK

On August 5, 1988, the Company entered into a preferred stock exchange agreement
whereby 190 shares of $1.00 par value, nonvoting, 7% cumulative preferred stock
were authorized and issued. The preferred stock has a liquidation value of
$10,000 per share. On August 28, 1998, the Company exercised an option to redeem
all the remaining outstanding shares of preferred stock. The Company paid
preferred stock dividends of $38,224, $67,822 and $91,000 during 1998, 1997 and
1996, respectively.

5. COMMITMENTS AND CONTINGENCIES

LEASES AND CONTRACTS

The Company entered into a lease with Tropical, an affiliate, for the rental of
the Company's racing plant and facilities through March 2004. Rent is calculated
at 1.5% of Tropical's on-site pari-mutuel handle. Total rental income under this
lease was $803,199, $810,618 and $707,206 for 1998, 1997 and 1996, respectively.
The rent, real estate taxes, and maintenance costs are reviewed annually to

F-38
<PAGE>
CALDER RACE COURSE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------

5. COMMITMENTS AND CONTINGENCIES (CONTINUED)

determine whether an adjustment should be made based on increases or decreases
in various costs and expenses.

The Company has also agreed to furnish Tropical with personnel necessary for its
racing meets. For this service, Tropical is charged with the actual payroll cost
plus a fringe benefit charge of 40% of this amount. The Company pays all related
payroll costs. Fringe benefit fees for the year ended December 31, 1998, 1997
and 1996 totaled $896,410, $869,248 and $746,162, respectively. Payroll expenses
have been reduced by this amount in the accompanying financial statements.

LEGAL MATTERS

The Company is involved in various matters of litigation which arise in the
normal course of business. Management believes that liability, if any, arising
from such litigation will not have a material adverse effect on the financial
position of the Company.

CONCESSION CONTRACT

The Company has two years remaining on its three-year contract with its food and
beverage concessionaire. Under the terms of the agreement, the Company is
entitled to receive a percentage of the net concession sales, by location. In
addition, the contract provides for the concessionaire to reimburse the Company
for certain electricity costs in the main building. Amounts owed to the Company
at December 31, 1998 and 1997 amounted to $196,278 and $34,300, respectively.

LAND LEASE

The Company has leased a portion of its land, through February 2025, to an
operator of a national hotel franchise. As provided by the terms of the lease,
the annual base rent is $63,000 plus a percentage of the rent based on the gross
receipts of the hotel.

SERVICE AGREEMENTS

The Company has entered into a totalisator service agreement through 1999. The
totalisator service charge is based on a tiered percentage of the daily handle,
subject to a minimum fee of $2,000 for each racing day. Total charges amounted
to $492,992, $504,973 and $469,222 for 1998, 1997 and 1996, respectively.

In 1994, the Company entered into a five-year service agreement with a third
party who provides on-track video and support operations. The charge for this
service amounted to $468,793, $468,629 and $409,760 for 1998, 1997 and 1996,
respectively.

F-39
<PAGE>
CALDER RACE COURSE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------

5. COMMITMENTS AND CONTINGENCIES (CONTINUED)

EMPLOYMENT AGREEMENTS

The Company entered into three employment agreements with key employees for
which the contract periods and termination dates vary from one year to three
years. The agreements provide, in part, for combined compensation to be
allocated between the Company and its affiliate, Tropical, of approximately
$376,000, $350,000 and $314,000 in 1998, 1997 and 1996, respectively. The
Company's portion was approximately $325,000, $296,000 and $255,000 for the
years ended December 31, 1998, 1997 and 1996, respectively. Total remaining
annual commitments under these agreements amount to approximately $238,700,
$183,000 and $42,000 for the years ending 1999, 2000 and 2001, respectively, of
which the Company's allocated portion for 1999, 2000 and 2001 will be
approximately $202,900, $155,600 and $35,700, respectively.

FUNDS HELD FOR STAKE RACING

Funds held for stake racing represent funds relating to nominating fees from
horsemen for the Florida Stallion Stakes to be held in future years. These funds
are included as investments and restricted cash in the accompanying financial
statements. These funds consist primarily of interest bearing Bankers
acceptances and money market accounts carried at accreted cost, maturing during
the three years mentioned above. Market value approximates accreted cost.

401(K) PLAN

All employees who have completed at least 1,000 hours of service, not covered by
any other qualified pension or profit-sharing plan and are 21 years or older are
eligible to participate in the Calder Race Course, Inc. 401(k) Plan. The
Company's plan contributions, which are in the form of matching contributions
equal to a percentage of the employees' contributions to the plan, totaled
$13,281 and $8,948 for the years ended December 31, 1998 and 1997, respectively.

6. INCOME TAXES

The provision for income taxes differs from the amount of income tax determined
by applying the applicable U.S. statutory federal income tax rate to pretax
income primarily as a result of certain expenses where the deductions are
accelerated for tax purposes.

The Company's results are included in the consolidated U.S. federal income tax
return with its parent. Under the terms of the agreed-upon tax sharing
arrangement with its parent, the provision for income taxes is computed as if
the Company filed a separate tax return, on a year to year, stand-alone basis.
The consolidated current income tax liability of the Company's parent is
allocated to the Company based on its pro-rata percentage of taxable income of
the consolidated group and is included as Due to affiliate and parent in the
accompanying financial statements. Other income tax related balances including
those arising from temporary differences which generate deferred taxes and the
difference in the current liability for income taxes computed as if the Company
filed a separate tax return and the

F-40
<PAGE>
CALDER RACE COURSE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------

6. INCOME TAXES (CONTINUED)

parent's allocated amount, are included as Deferred tax liability in the
accompanying financial statements.

The aggregate amount of current and deferred tax expense, and the net amount of
any tax-related balances due to parent was $2,641,046 and $4,771,119,
respectively, for 1998 and $1,645,873 and $2,161,873, respectively, for 1997.
The current and deferred tax expense was $616,000 for 1996.

7. DUE TO AFFILIATE AND PARENT

Intercompany accounts with affiliate and parent consists of the following:

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------
<S> <C> <C>
1998 1997
------------- -------------
Due to affiliate, net........................................... $ (4,548,380) $ (2,568,827)
Current taxes payable........................................... -- (552,890)
------------- -------------
Total due to affiliate and parent--current.................... $ (4,548,380) $ (3,121,717)
------------- -------------
------------- -------------
Deferred tax liability--noncurrent.............................. $ (956,633) $ (1,030,720)
Deferred tax sharing agreement liability--noncurrent............ (3,814,486) (578,263)
------------- -------------
Deferred tax liability (Due to parent--noncurrent)............ $ (4,771,119) $ (1,608,983)
------------- -------------
------------- -------------
</TABLE>

8. SUBSEQUENT EVENT

On January 21, 1999, K.E. Acquisition Corporation entered into a definitive
agreement to sell all of the outstanding shares of the Company and its
affiliate, Tropical, to Churchill Downs, Inc. for cash consideration of
$86,000,000 subject to certain adjustments at closing. The transaction remains
subject to customary closing conditions, including the expiration of the waiting
period under the Hard-Scott-Rodino Act and approval of the Florida Department of
Business and Professional Regulation. Closing of the transaction is anticipated
during the first quarter of 1999.

* * *

F-41
<PAGE>
Calder Race Course, Inc.
(A Wholly-owned Subsidiary of K.E. Acquisition Corporation)
Balance Sheet
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
MARCH 31,
1999
-------------
(UNAUDITED)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................................ $ 1,831,507
Accounts receivable, net of allowance of $294,000................................................ 430,288
Restricted cash and investments.................................................................. 696,289
Prepaid expenses................................................................................. 38,192
-------------
Total current assets........................................................................... 2,996,276
-------------
Property, plant and equipment:
Land and improvements............................................................................ 1,054,637
Buildings and improvements....................................................................... 47,349,817
Furniture, fixtures, and equipment............................................................... 2,102,563
-------------
50,507,017
Less accumulated depreciation.................................................................... 32,572,024
-------------
Property, plant and equipment, net............................................................. 17,934,993
-------------
Restricted cash and investments - noncurrent....................................................... 778,991
Other assets....................................................................................... 806,240
-------------
1,585,231
-------------
Total assets................................................................................... $ 22,516,500
-------------
-------------

LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Accounts payable................................................................................. $ 318,209
Funds held for stake racing--current............................................................. 696,288
Mutuel tickets outstanding....................................................................... 835,488
Accrued liabilities.............................................................................. 680,487
Due to affiliate and parent...................................................................... 4,670,751
-------------
Total current liabilities...................................................................... 7,201,223

Funds held for stake racing - noncurrent........................................................... 1,153,901
Long-term debt..................................................................................... 22,910,647
Deferred tax liability............................................................................. 3,691,519
-------------
Total liabilities.............................................................................. 34,957,290
-------------
Shareholder's deficit:
Common stock, $.25 par value. Authorized 800,000 shares; issued and outstanding 667,440 shares... 166,860
Additional paid-in capital....................................................................... 39,299,247
Accumulated deficit.............................................................................. (51,906,897)
-------------
Total shareholder's deficit.................................................................... (12,440,790)
-------------
Total liabilities and shareholder's deficit.................................................... $ 22,516,500
-------------
-------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-42
<PAGE>
CALDER RACE COURSE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)
STATEMENTS OF INCOME
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS THREE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
1999 1998
--------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues:
Admissions................................................................... $ 2,280 $ --
Parking, programs and concessions............................................ 1,861 3,602
Sundry....................................................................... 608,271 561,625
--------------- ---------------
Total revenues............................................................. 612,412 565,227
--------------- ---------------
Expenses:
Advertising and promotion.................................................... 68,318 35,970
Depreciation................................................................. 420,000 412,500
Insurance.................................................................... 350,372 335,217
Maintenance and repairs...................................................... 231,064 179,545
Payroll and other compensation............................................... 726,214 665,127
Taxes........................................................................ 332,388 311,660
Services purchased........................................................... 85,504 87,823
Utilities.................................................................... 169,462 169,096
Other........................................................................ 402,845 304,616
--------------- ---------------
Total expenses............................................................. 2,786,167 2,501,554
--------------- ---------------
Operating loss............................................................. (2,173,755) (1,936,327)
--------------- ---------------
Other income (expense):
Rental income................................................................ 100,696 75,680
Interest income.............................................................. 25,844 13,349
Interest expense............................................................. (386,946) (479,937)
--------------- ---------------
(260,406) (390,908)
--------------- ---------------
Loss before benefit for income taxes....................................... (2,434,161) (2,327,235)
Benefit for income taxes....................................................... 1,079,600 924,000
--------------- ---------------
Net loss....................................................................... (1,354,561) (1,403,235)
Dividends on preferred stock................................................... -- (13,728)
--------------- ---------------
Net loss attributable to common shareholders................................... $ (1,354,561) $ (1,416,963)
--------------- ---------------
--------------- ---------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-43
<PAGE>
CALDER RACE COURSE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS THREE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
1999 1998
--------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss..................................................................... $ (1,354,561) $ (1,403,235)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation................................................................. 420,000 412,500
Benefit for deferred taxes................................................... (1,079,600) (924,000)
Provision for bad debts...................................................... 5,000 --
Changes in assets and liabilities:
(Increase) decrease in:
Restricted cash and investments.......................................... (23,749) (141,864)
Accounts receivable...................................................... 185,575 64,959
Prepaid expenses......................................................... 75,675 47,082
Other assets............................................................. (602,953) (460,175)
Increase (decrease) in:
Accounts payable......................................................... (4,574) 355,951
Funds held for stake racing.............................................. 462,671 479,623
Mutuel tickets outstanding............................................... 297,179 167,632
Accrued liabilities...................................................... (82,367) 626,725
--------------- ---------------
Net cash used in operating activities.................................... (1,701,704) (774,802)
--------------- ---------------
Cash flows from investing activities:
Payments for purchases of property and equipment............................. (261,943) (464,170)
--------------- ---------------
Net cash used in investing activities...................................... (261,943) (464,170)
--------------- ---------------
Cash flows from financing activities:
Advances from affiliate and parent, net...................................... 122,371 3,479,165
Redemption of mandatorily redeemable preferred stock......................... -- (200,000)
Loan payments................................................................ -- (440,000)
Dividends paid on preferred stock............................................ -- (13,726)
--------------- ---------------
Net cash provided by financing activities................................ 122,371 2,825,439
--------------- ---------------
Net (decrease) increase in cash and cash equivalents..................... (1,841,276) 1,586,467
Cash and cash equivalents, beginning of period................................. 3,672,783 311,519
--------------- ---------------
Cash and cash equivalents, end of period....................................... $ 1,831,507 $ 1,897,986
--------------- ---------------
--------------- ---------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-44
<PAGE>
CALDER RACE COURSE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------

1. UNAUDITED FINANCIAL STATEMENTS

The interim financial data is unaudited; however, in the opinion of Calder Race
Course, Inc. (the "Company"), the interim data includes all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position and the results of operations for the
interim periods.

2. SUBSEQUENT EVENTS

On April 23, 1999, Churchill Downs Incorporated acquired all of the outstanding
stock of the Company and its affiliate, Tropical Park, Inc. from K.E.
Acquisition Corporation for a purchase price of $86 million cash plus a closing
net working capital adjustment of approximately $2.9 million cash and $0.6
million in transaction costs. The purchase included the licenses held by the
Company and its affiliate, Tropical Park, Inc. to conduct horse racing at Calder
Race Course. The results of operations of the Company and its affiliate,
Tropical Park, Inc. will be included in Churchill Downs Incorporated's
consolidated financial statements since the date of acquisition during the
second quarter of 1999.

F-45
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors of
Tropical Park, Inc.

In our opinion, the accompanying balance sheets and the related statements of
income, of changes in shareholder's deficit and of cash flows present fairly, in
all material respects, the financial position of Tropical Park, Inc. (a
wholly-owned subsidiary of K.E. Acquisition Corporation) at December 31, 1998
and 1997, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

PricewaterhouseCoopers LLP

Fort Lauderdale, Florida

February 19, 1998

F-46
<PAGE>
TROPICAL PARK, INC.
(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)
BALANCE SHEETS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
<S> <C> <C>
1998 1997
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 4,734,157 $ 7,302,918
Accounts receivable, net of allowance of $156,000 and $30,000 at December 31,
1998 and 1997, respectively.................................................... 5,330,266 3,758,584
Due from affiliate............................................................... 4,548,380 2,568,827
Prepaid expenses................................................................. 83,628 47,160
------------- -------------
Total current assets......................................................... 14,696,431 13,677,489
------------- -------------
Property and equipment:
Building and equipment........................................................... 7,241,887 7,241,887
Racetrack improvements........................................................... 2,846,785 2,919,974
------------- -------------
10,088,672 10,161,861
Less accumulated depreciation.................................................... 8,371,902 8,317,543
------------- -------------
Property and equipment, net.................................................. 1,716,770 1,844,318
------------- -------------
Restricted cash.................................................................... 88,352 86,138
Other assets....................................................................... 149,013 149,013
------------- -------------
237,365 235,151
------------- -------------
Total assets................................................................. $ 16,650,566 $ 15,756,958
------------- -------------
------------- -------------

LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Accounts payable................................................................. $ 2,324,037 $ 1,135,343
Mutuel tickets outstanding....................................................... 382,696 392,120
Accrued and other liabilities.................................................... 2,074,835 1,792,651
Due to parent.................................................................... -- 280,522
------------- -------------
Total current liabilities.................................................... 4,781,568 3,600,636
Long-term debt..................................................................... 16,587,174 20,311,000
Deferred tax liability............................................................. 2,652,934 1,127,965
------------- -------------
Total liabilities............................................................ 24,021,676 25,039,601
------------- -------------
Shareholder's deficit:
Common stock, $31.25 stated value. Authorized 1,000 shares; issued and
outstanding 195 shares at December 31, 1998 and 1997........................... 6,094 6,094
Additional paid-in capital....................................................... 19,044,657 19,044,657
Accumulated deficit.............................................................. (26,421,861) (28,333,394)
------------- -------------
Total shareholder's deficit.................................................. (7,371,110) (9,282,643)
------------- -------------
Total liabilities and shareholder's deficit.................................. $ 16,650,566 $ 15,756,958
------------- -------------
------------- -------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-47
<PAGE>
TROPICAL PARK, INC.
(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)
STATEMENTS OF INCOME
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
<S> <C> <C> <C>
1998 1997 1996
------------- ------------- -------------
Revenues:
Pari-mutuel commissions........................................... $ 14,583,809 $ 13,909,779 $ 12,361,514
Interstate simulcast commissions.................................. 4,445,505 4,207,286 3,496,869
Stake fees for purses............................................. 331,450 217,100 176,605
Admissions........................................................ 268,786 263,522 262,796
Parking, programs, and concessions................................ 487,481 500,113 420,560
Breakage.......................................................... 547,440 527,701 391,798
Sundry............................................................ 691,616 485,484 402,490
------------- ------------- -------------
Total revenues.................................................. 21,356,087 20,110,985 17,512,632
------------- ------------- -------------
Expenses:
Purses and owners' awards......................................... 9,655,499 9,612,064 8,442,959
Advertising and promotion......................................... 752,163 638,339 616,728
Depreciation...................................................... 127,547 127,694 127,900
Insurance......................................................... 237,201 234,318 268,468
Rent.............................................................. 817,637 819,195 714,659
Personnel and related costs....................................... 2,945,426 2,862,383 2,449,635
Services purchased................................................ 858,590 830,216 732,691
Totalisator rental................................................ 217,448 209,666 191,337
Utilities......................................................... 472,112 453,827 560,537
Other............................................................. 1,036,245 860,225 930,222
------------- ------------- -------------
Total expenses.................................................. 17,119,868 16,647,927 15,035,136
------------- ------------- -------------
Operating income................................................ 4,236,219 3,463,058 2,477,496
------------- ------------- -------------
Other income (expense):
Rental income..................................................... 69,863 70,920 68,994
Interest income................................................... 173,846 138,206 110,841
Interest expense.................................................. (1,347,042) (1,155,340) (1,226,759)
------------- ------------- -------------
(1,103,333) (946,214) (1,046,924)
------------- ------------- -------------
Income before income taxes...................................... 3,132,886 2,516,844 1,430,572
Provision for income taxes.......................................... 1,221,353 933,487 585,000
------------- ------------- -------------
Net income...................................................... $ 1,911,533 $ 1,583,357 $ 845,572
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-48
<PAGE>
TROPICAL PARK, INC.
(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)
STATEMENTS OF CHANGES IN SHAREHOLDER'S DEFICIT
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
COMMON STOCK
---------------------------------------
<S> <C> <C> <C> <C> <C>
ADDITIONAL TOTAL
NUMBER PAR PAID-IN ACCUMULATED SHAREHOLDER'S
OF SHARES VALUE CAPITAL DEFICIT DEFICIT
------------- --------- ------------- -------------- --------------
Balance at January 1, 1996................... 195 $ 6,094 $ 19,044,657 $ (30,762,323) $ (11,711,572)
Net income................................. -- -- -- 845,572 845,572
--- --------- ------------- -------------- --------------
Balance at December 31, 1996................. 195 6,094 19,044,657 (29,916,751) (10,866,000)
Net income................................. -- -- -- 1,583,357 1,583,357
--- --------- ------------- -------------- --------------
Balance at December 31, 1997................. 195 6,094 19,044,657 (28,333,394) (9,282,643)
Net income................................. -- -- -- 1,911,533 1,911,533
--- --------- ------------- -------------- --------------
Balance at December 31, 1998................. 195 $ 6,094 $ 19,044,657 $ (26,421,861) $ (7,371,110)
--- --------- ------------- -------------- --------------
--- --------- ------------- -------------- --------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-49
<PAGE>
TROPICAL PARK, INC.
(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------
<S> <C> <C> <C>
1998 1997 1996
------------- ------------ -------------
Cash flows from operating activities:
Net income.......................................................... $ 1,911,533 $ 1,583,357 $ 845,572
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation........................................................ 127,548 127,694 127,900
Provision for deferred taxes........................................ 1,221,353 617,965 510,000
Provision for bad debts............................................. 126,000 -- --
Adjustment in carrying value of captive insurance company........... -- 76,031 --
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable............................................. (1,697,682) (175,367) --
Restricted cash................................................. (2,214) (12,376) (514)
Prepaid expenses................................................ (36,468) 127,671 (124,624)
Other assets.................................................... -- 55,280 199,962
Increase (decrease) in:
Accounts payable.................................................. 1,188,694 114,002 (2,058,317)
Mutuel tickets outstanding........................................ (9,424) 81,538 (133,361)
Accrued liabilities............................................... 282,184 (571,609) 729,521
------------- ------------ -------------
Net cash provided by operating activities......................... 3,111,524 2,024,186 96,139
------------- ------------ -------------
Cash flows from investing activities:
Payments for purchases of property and equipment.................... -- -- (4,800)
------------- ------------ -------------
Net cash used in investing activities............................. -- -- (4,800)
------------- ------------ -------------
Cash flows from financing activities:
Advances from affiliate and parent.................................. (1,956,459) (397,656) (597,559)
Loan payments....................................................... (3,723,826) -- (299,000)
------------- ------------ -------------
Net cash used in financing activities............................. (5,680,285) (397,656) (896,559)
------------- ------------ -------------
Net (decrease) increase in cash and cash equivalents.............. (2,568,761) 1,626,530 (805,220)
Cash and cash equivalents, beginning of period........................ 7,302,918 5,676,388 6,481,608
------------- ------------ -------------
Cash and cash equivalents, end of period.............................. $ 4,734,157 $ 7,302,918 $ 5,676,388
------------- ------------ -------------
------------- ------------ -------------
Supplemental cash flow information:
Interest paid......................................................... $ 1,341,720 $ 1,158,104 $ 1,242,920
------------- ------------ -------------
------------- ------------ -------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-50
<PAGE>
Tropical Park, Inc.
(A Wholly-owned subsidiary of K.E. Acquisition Corporation)
Notes to Financial Statements
December 31, 1998
- --------------------------------------------------------------------------------

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Tropical Park, Inc. (the "Company"), holds a pari-mutuel racing permit from the
State of Florida and conducts live race meetings for thoroughbred horses and
participates in simulcast wagering as a host track and as a receiving track. The
Company's operations are classified under one business segment. The Company
currently operates its meets at Calder Race Course, Inc. (Calder), an affiliate.
As provided in Florida statutes, the Company was authorized to operate one race
meet during the period from November 1998 to January 1999, for a period of 51
days. During 1997 and 1996 the race meets were authorized from November 1997 to
January 1998 and from November 1996 to January 1997 for 51 days and 50 days,
respectively.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.

RESTRICTED CASH

Restricted cash consists of a surety bond made payable to the State of Florida.
Such bond is required by the State of Florida in order for Tropical to be
granted a license to race. Such amounts include fines collected from horsemen,
trainers and jockeys during meets which are used to subsidize medical and
funeral expenses of backside personnel, who are otherwise uninsured or in need.

PROPERTY AND EQUIPMENT

The Company has made various improvements to the racing plant which it leases
from Calder. Property and equipment are stated at cost and depreciated on the
straight-line basis over the lesser of their estimated useful lives or the
remaining term of the lease, between 5 and 31 years. During 1998, the Company
retired approximately $73,000 of fully depreciated racetrack improvements which
are no longer used in operations.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company reviews long-term assets for impairment and writes these down to
fair value whenever events or changes in circumstances indicate that the
carrying value may not be recoverable.

F-51
<PAGE>
TROPICAL PARK, INC.
(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107 requires all entities to
disclose the fair value of certain financial instruments in their financial
statements. Accordingly, the Company reports that the carrying amount of cash
and cash equivalents, trade receivables, accounts payable, long term debt
payable and accrued liabilities approximates fair value due to the short
maturity of these instruments, and that the carrying amount of marketable
securities is stated at fair value.

INCOME TAXES

The Company files a consolidated U.S. Federal income tax return with its parent
K.E. Acquisition Corporation (Parent). Under the terms of a tax sharing
arrangement with its parent, the provision for income taxes is computed as if
the Company filed a separate tax return, on a year to year, stand-alone basis,
with the current tax balances determined based on a consolidated filing
position. All current income tax related balances are included as due to parent
in the accompanying financial statements.

PURSES

In accordance with Florida statutes, the Company is required to distribute a
specific amount of purses and owners' awards based on a percentage of the
pari-mutuel handle plus additional amounts based on contractual agreements with
the Florida Horsemen's Benevolent Protective Association. At December 31, 1998
and 1997, the Company underpaid approximately $968,000 and $779,000,
respectively, of purses and owners' awards. Such amounts are included in accrued
liabilities. In January 1999 and 1998, the majority of these obligations were
fulfilled.

HORSEMEN ACCOUNT

During the track meet the Company administers the Horsemen's bank account on
their behalf. In addition to the opening balance, these funds include purses
which have been paid by the Company to the Horsemen during the track meet but
not yet withdrawn by the Horsemen. The funds held and administered on behalf of
the Horsemen amounted to $5,531,000 and $7,234,000 as of December 31, 1998 and
1997, respectively. Such funds have been excluded from the financial statements.

RECLASSIFICATIONS

Certain reclassifications have been made to prior period financial statements to
conform with current period presentation.

F-52
<PAGE>
TROPICAL PARK, INC.
(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------

2. ACCOUNTS RECEIVABLE

Accounts receivable consist primarily of amounts due from simulcasting and from
concession activities. The Company maintains an allowance for doubtful accounts
at a level which management believes is sufficient to cover potential losses.

3. ACCRUED AND OTHER LIABILITIES

Accrued and other liabilities is comprised of:

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------
<S> <C> <C>
1998 1997
------------ ------------
Purses liability.................................................. $ 625,756 $ 840,306
Breeders awards liability......................................... 403,707 529,358
Other liabilities................................................. 1,045,372 422,987
------------ ------------
$ 2,074,835 $ 1,792,651
------------ ------------
------------ ------------
</TABLE>

4. DEBT

The Company and its affiliate, Calder, assumed debt of its former owner, of
which the Company's allocable share at December 31, 1998 and 1997 amounted to
$16,587,174 and $20,311,000, respectively. The debt which is payable to its
Parent, was allocated by agreement between the Company and Calder. The debt is
collateralized by substantially all of the Company's assets. The loan bears
interest at adjusted LIBOR plus .75% (6.75% at December 31, 1998). In February
1999, the maturity date was extended to January 1, 2000. Interest payments are
payable quarterly. The Company and its affiliate, Calder, are jointly and
severally liable to their Parent for the total debt assumed which approximates
$39,498,000 and $49,000,000 at December 31, 1998 and 1997, respectively.

5. COMMITMENTS AND CONTINGENCIES

LEASES AND CONTRACTS

The Company entered into a lease with Calder, an affiliate, for the rental of
Calder's racing plant and facilities through March 2004. Rent is calculated at
1.5% of the Company's on-site pari-mutuel handle. Rent expense was $803,199,
$810,618 and $707,406 during 1998, 1997 and 1996, respectively. The rent, real
estate taxes, and maintenance costs are reviewed annually to determine whether
an adjustment should be made based on increases or decreases in various costs
and expenses.

Calder has also agreed to furnish the Company with personnel necessary for its
racing meets. For this service, the Company is charged with the actual payroll
costs and expenses, plus a fringe benefit charge of 40% of this amount. Fringe
benefit expense for the years ended December 31, 1998, 1997 and 1996 totaled
$896,410, $869,248 and $746,162, respectively.

F-53
<PAGE>
TROPICAL PARK, INC.
(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------

5. COMMITMENTS AND CONTINGENCIES (CONTINUED)

LEGAL MATTERS

CONCESSION CONTRACT

The Company has two years remaining on its three-year contract with its food and
beverage concessionaire. Under the terms of the agreement, the Company is
entitled to receive a percentage of the net concession sales. In addition, the
contract provides for the concessionaire to reimburse the Company for certain
electricity costs in the main building. Amounts owed to the Company at December
31, 1998 and 1997 amounted to $146,589 and $109,713, respectively.

SERVICE AGREEMENTS

The Company entered into a totalisator service agreement through 1999. The
totalisator service charge is based on a tiered percentage of the daily handle,
subject to a minimum fee of $2,000 for each racing day. Total charges for 1998,
1997 and 1996 amounted to $217,448, $209,666 and $191,337, respectively.

In 1994, the Company entered into a five year service agreement with a third
party who provides on-track video and support operations. The charge for this
service for 1998, 1997 and 1996 amounted to $197,444, $188,844 and $197,844,
respectively.

EMPLOYMENT AGREEMENTS

An affiliate of the Company entered into three employment agreements with key
employees for which the contract periods and termination dates vary from one
year to three years. The agreements provide, in part, for combined compensation
to be allocated between the Company and its affiliate, Calder, of approximately
$376,000, $350,000 and $314,000 in 1998, 1997 and 1996, respectively. The
Company's portion was approximately $51,000, $54,000 and $59,000 for the years
ended December 31, 1998, 1997 and 1996, respectively. Total remaining annual
commitments under these agreements amount to approximately $238,700, $183,000
and $42,000 for the years ending 1999, 2000 and 2001, respectively of which the
Company's allocated portion for 1999, 2000 and 2001 will be approximately
$35,800, $27,400 and $6,300, respectively.

6. INCOME TAXES

F-54
<PAGE>
TROPICAL PARK, INC.
(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------

6. INCOME TAXES (CONTINUED)

The Company's results are included in the consolidated U.S. federal income tax
return with its parent. Under the terms of the agreed-upon tax sharing
arrangement with its parent, the provision for income taxes is computed as if
the Company filed a separate tax return, on a year to year, stand-alone basis.
The consolidated current income tax liability of the Company's parent is
allocated to the Company based on its pro-rata percentage of taxable income of
the consolidated group and is included as Due to parent in the accompanying
financial statements. Other income tax related balances including those arising
from temporary differences which generate deferred taxes and the difference in
the current liability for income taxes computed as if the Company filed a
separate tax return and the parent's allocated amount are included as Deferred
tax liability in the accompanying financial statements.

The aggregate amount of current and deferred tax expense, and the net amount of
any tax-related balances due to parent was $1,221,353 and $2,652,934,
respectively, for 1998 and $933,487 and $1,408,487, respectively, for 1997. The
current and deferred tax expense was $585,000 for 1996.

7. DUE TO/FROM AFFILIATE AND PARENT

As of December 31, 1998 and 1997, the Company had a due from its affiliate,
Calder, in the amount of $4,548,380 and $2,568,827, respectively, and the
amounts due to parent consisted of the following:

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------
<S> <C> <C>
1998 1997
------------- -------------
Due to parent for income taxes--current......................... $ -- $ (280,522)
------------- -------------
------------- -------------

Deferred tax asset--noncurrent.................................. $ 1,046,279 $ 1,102,078
Deferred tax sharing agreement liability--noncurrent............ (3,699,213) (2,230,043)
------------- -------------
Net deferred tax liability (Due to parent--noncurrent).......... $ (2,652,934) $ (1,127,965)
------------- -------------
------------- -------------
</TABLE>

8. SUBSEQUENT EVENTS

On January 21, 1999, K.E. Acquisition Corporation entered into a definitive
agreement to sell all of the outstanding shares of the Company and its
affiliate, Calder, to Churchill Downs Inc. for cash consideration of
$86,000,000, subject to certain adjustments at closing. The transaction remains
subject to customary closing conditions, including the expiration of the waiting
period under the Hart-Scott-Rodino Act and approval of the Florida Department of
Business and Professional Regulation. Closing of the transaction is anticipated
during the first quarter of 1999.

* * *

F-55
<PAGE>
Tropical Park, Inc.
(A Wholly-owned Subsidiary of K.E. Acquisition Corporation)
Balance Sheet
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
MARCH 31,
1999
--------------
(UNAUDITED)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................................................... $ 5,407,966
Accounts receivable, net of allowance of $140,000............................................... 500,900
Due from affiliate.............................................................................. 4,670,751
--------------
Total current assets.......................................................................... 10,579,617
--------------
Property and equipment:
Building and equipment.......................................................................... 7,241,887
Racetrack improvements.......................................................................... 2,846,785
--------------
10,088,672
Less accumulated depreciation................................................................... 8,404,901
--------------
Property and equipment, net................................................................... 1,683,771
--------------
Restricted cash................................................................................... 96,136
Other assets...................................................................................... 149,013
--------------
245,149
--------------
Total assets.................................................................................. $ 12,508,537
--------------
--------------

LIABILITIES AND SHAREHOLDER'S DEFICIT

Current liabilities:
Accounts payable................................................................................ $ 133,424
Mutuel tickets outstanding...................................................................... 243,002
Accrued and other liabilities................................................................... 514,236
--------------
Total current liabilities..................................................................... 890,662

Long-term debt.................................................................................... 16,587,174
Deferred tax liability............................................................................ 2,542,534
--------------
Total liabilities............................................................................. 20,020,370
--------------
Shareholder's deficit:
Common stock, $31.25 stated value. Authorized 1,000 shares; issued and outstanding 195 shares... 6,094
Additional paid-in capital...................................................................... 19,044,657
Accumulated deficit............................................................................. (26,562,584)
--------------
Total shareholder's deficit................................................................... (7,511,833)
--------------
Total liabilities and shareholder's deficit................................................... $ 12,508,537
--------------
--------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-56
<PAGE>
TROPICAL PARK, INC.
(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)
STATEMENTS OF INCOME
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS THREE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
1999 1998
--------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues:
Pari-mutuel commissions...................................................... $ 705,146 $ 683,297
Interstate simulcast commissions............................................. 325,136 318,242
Admissions................................................................... 12,708 14,330
Parking, programs, and concessions........................................... 21,894 27,235
Breakage..................................................................... 20,343 19,668
Sundry....................................................................... 99,106 156,207
--------------- ---------------
Total revenues............................................................. 1,184,333 1,218,979
--------------- ---------------
Expenses:
Purses and owners' awards.................................................... 499,330 501,694
Advertising and promotion.................................................... 41,803 60,469
Depreciation................................................................. 33,000 33,000
Insurance.................................................................... 53,000 49,000
Rent......................................................................... 53,917 31,861
Personnel and related costs.................................................. 225,887 187,185
Services purchased........................................................... 40,615 47,565
Totalisator rental........................................................... 7,656 8,557
Utilities.................................................................... 129,158 94,130
Other........................................................................ 150,643 108,156
--------------- ---------------
Total expenses............................................................. 1,235,009 1,121,617
--------------- ---------------
Operating (loss) income.................................................... (50,676) 97,362
--------------- ---------------
Other income (expense):
Rental income................................................................ 15,000 15,000
Interest income.............................................................. 64,638 74,335
Interest expense............................................................. (280,085) (342,045)
--------------- ---------------
(200,447) (252,710)
--------------- ---------------
Loss before benefit for income taxes....................................... (251,123) (155,348)
Benefit for income taxes....................................................... 110,400 60,600
--------------- ---------------
Net loss................................................................... $ (140,723) $ (94,748)
--------------- ---------------
--------------- ---------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-57
<PAGE>
TROPICAL PARK, INC.
(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS THREE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
1999 1998
--------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss..................................................................... $ (140,723) $ (94,748)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation................................................................. 33,000 33,000
Benefit for deferred taxes................................................... (110,400) (60,600)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable...................................................... 4,829,366 3,465,641
Restricted cash.......................................................... (7,784) (933)
Prepaid expenses......................................................... 83,628 33,554
Increase (decrease) in:
Accounts payable......................................................... 2,190,614 (982,400)
Mutuel tickets outstanding............................................... (139,694) (85,690)
Accrued liabilities...................................................... (1,560,599) (1,015,321)
--------------- ---------------
Net cash provided by operating activities................................ 796,180 1,292,503
--------------- ---------------
Cash flows from financing activities:
Advances to affiliate and parent............................................. (122,371) (4,351,580)
--------------- ---------------
Net cash used in financing activities...................................... (122,371) (4,351,580)
Net increase (decrease) in cash and cash equivalents....................... 673,809 (3,059,077)
Cash and cash equivalents, beginning of period................................. 4,734,157 7,302,918
--------------- ---------------
Cash and cash equivalents, end of period....................................... $ 5,407,966 $ 4,243,841
--------------- ---------------
--------------- ---------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-58
<PAGE>
TROPICAL PARK, INC.
(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------

1. UNAUDITED FINANCIAL STATEMENTS

The interim financial data is unaudited; however, in the opinion of Tropical
Park, Inc. (the "Company"), the interim data includes all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position and the results of operations for the
interim periods.

2. SUBSEQUENT EVENTS

On April 23, 1999, Churchill Downs Incorporated acquired all of the outstanding
stock of the Company and its affiliate, Calder Race Course, Inc. from K.E.
Acquisition Corporation for a purchase price of $86 million cash plus a closing
net working capital adjustment of approximately $2.9 million cash and $0.6
million in transaction costs. The purchase included the licenses held by the
Company and its affiliate, Calder Race Course, Inc. to conduct horse racing at
Calder Race Course. The results of operations of the Company and its affiliate,
Calder Race Course, Inc. will be included in Churchill Downs Incorporated's
consolidated financial statements since the date of acquisition during the
second quarter of 1999.

F-59
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To The Board of Directors and Stockholders of
Hollywood Park, Inc.:

We have audited the accompanying combined balance sheets of the Hollywood Park
Race Track and Casino, combined on the basis described in Note 2, to be acquired
by Churchill Downs, Inc. from Hollywood Park, Inc. (the "Parent"), pursuant to
the purchase agreement dated May 5, 1999, as of December 31, 1998 and 1997, and
the related combined statements of operations, Parent's equity and cash flows
for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of Hollywood Park, Inc.'s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Hollywood Park Race Track
and Casino as of December 31, 1998, and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Los Angeles, California
June 9, 1999

F-60
<PAGE>
HOLLYWOOD PARK RACE TRACK AND CASINO
COMBINED BALANCE SHEETS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
AS OF
-------------------------------------
DECEMBER 31,
------------------------
1998 1997
----------- -----------
MARCH 31,
1999
-----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................ $ 2,241,951 $ 3,788,016 $ 2,717,353
Restricted cash.................................. 287,518 407,241 709,910
Other receivables, net allowance for bad debts of
$916,916 in 1998 and $557,336 in 1997.......... 7,391,583 6,680,902 2,908,670
Intercompany receivable.......................... 6,202,692 -- 7,070,302
Prepaid expenses and other assets................ 2,558,380 3,005,197 2,913,838
----------- ----------- -----------
Total current assets........................... 18,682,124 13,881,356 16,320,073

Property, plant and equipment, net................. 75,626,084 78,220,360 74,194,313
Goodwill, net...................................... 19,286,227 19,825,171 19,151,492
Long term gaming assets............................ 1,260,417 1,764,584 1,134,375
Other assets....................................... 18,401 20,398 17,899
----------- ----------- -----------
$114,873,253 $113,711,869 $110,818,152
----------- ----------- -----------
----------- ----------- -----------

LIABILITIES AND PARENT'S EQUITY
Current Liabilities:
Accounts payable................................. $ 5,704,233 $ 5,625,780 $ 3,970,569
Intercompany payable............................. -- 9,137,382 --
Accrued liabilities.............................. 6,108,774 7,218,328 5,848,111
Accrued workers' compensation.................... 2,356,266 2,176,827 2,417,160
Accrued slip and fall claims..................... 1,176,693 1,255,442 1,016,795
Gaming liabilities............................... 2,444,371 2,459,881 2,419,119
Amounts due to horsemen for purses, stakes and
awards......................................... -- 278,356 --
Outstanding pari-mutuel tickets.................. 1,850,288 3,245,466 1,589,342
Current portion of notes payable................. 37,309 36,018 42,748
Income taxes payable............................. 16,232,324 11,259,411 15,689,492
----------- ----------- -----------
Total current liabilities...................... 35,910,258 42,692,891 32,993,336

Notes payable...................................... 227,679 255,923 227,679
Deferred tax liabilities, net...................... 4,934,437 5,115,886 4,889,075
----------- ----------- -----------
Total liabilities.............................. 41,072,374 48,064,700 38,110,090

Parent's Equity:
Common stock--$.10 par value, authorized 100
shares; 100 issued and outstanding in 1998 and
in 1997........................................ 10 10 10
Capital in excess of par......................... 990 990 990
Accumulated earnings............................. 73,799,879 65,646,169 72,707,062
----------- ----------- -----------
Total Parent's equity.......................... 73,800,879 65,647,169 72,708,062
----------- ----------- -----------
$114,873,253 $113,711,869 $110,818,152
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

See accompanying notes to combined financial statements.

F-61
<PAGE>
HOLLYWOOD PARK RACE TRACK AND CASINO
COMBINED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------------- --------------------------
1998 1997 1996 1999 1998
------------- ------------- ------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Pari-mutuel commissions............... $ 39,524,470 $ 40,412,063 $ 40,735,953 $ 1,597,827 $ 1,526,778
Gaming--Casino........................ 46,254,519 50,816,983 50,271,952 11,856,297 11,403,530
Admissions, programs, and other racing
income.............................. 15,099,076 16,635,495 17,422,226 3,013,662 2,922,835
Concession sales...................... 11,008,599 11,601,280 11,557,248 1,920,636 1,785,100
Other income.......................... 2,863,941 2,333,206 2,282,324 1,101,047 1,050,221
------------- ------------- ------------- ------------ ------------
114,750,605 121,799,027 122,269,703 19,489,469 18,688,464
------------- ------------- ------------- ------------ ------------

Expenses:
Operating expenses.................... 88,670,970 92,717,751 91,499,991 17,479,171 17,393,190
Depreciation and amortization......... 8,410,852 8,437,757 8,306,739 2,143,043 2,137,469
------------- ------------- ------------- ------------ ------------
Operating expenses.................. 97,081,822 101,155,508 99,806,730 19,622,214 19,530,659
------------- ------------- ------------- ------------ ------------
Selling, general and
administrative.................... 6,676,729 6,586,853 8,194,726 1,542,827 1,556,991
------------- ------------- ------------- ------------ ------------
Operating income (loss)............... 10,992,054 14,056,666 14,268,247 (1,675,572) (2,399,186)
Interest expense.................... 23,048 25,156 27,101 5,439 5,991
------------- ------------- ------------- ------------ ------------
Income (loss) before income taxes..... 10,969,006 14,031,510 14,241,146 (1,681,011) (2,405,177)
Income tax expense (benefit)........ 4,791,464 6,103,638 6,142,480 (588,194) (883,263)
------------- ------------- ------------- ------------ ------------
Net income (loss)....................... $ 6,177,542 $ 7,927,872 $ 8,098,666 $ (1,092,817) $ (1,521,914)
------------- ------------- ------------- ------------ ------------
------------- ------------- ------------- ------------ ------------
</TABLE>

See accompanying notes to combined financial statements.

F-62
<PAGE>
HOLLYWOOD PARK RACE TRACK AND CASINO
COMBINED STATEMENTS OF CHANGES IN PARENT'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 AND THE THREE MONTHS ENDED
MARCH 31, 1999
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PARENT'S
EQUITY
-------------
<S> <C>
Balance as of December 31, 1996.................................................................... $ 57,719,297
Net income....................................................................................... 7,927,872
-------------
Balance as of December 31, 1997.................................................................... 65,647,169
Net income....................................................................................... 6,177,542
Capital contribution............................................................................. 1,976,168
-------------
Balance as of December 31, 1998.................................................................... 73,800,879
Net (loss) (Unaudited)........................................................................... (1,092,817)
-------------
Balance as of March 31, 1999 (Unaudited)........................................................... $ 72,708,062
-------------
-------------
</TABLE>

See accompanying notes to combined financial statements.

F-63
<PAGE>
HOLLYWOOD PARK RACE TRACK AND CASINO
COMBINED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FOR THE THREE MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------- ----------------------
1998 1997 1996 1999 1998
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................ $6,177,542 $7,927,872 $8,098,666 $(1,092,817) $(1,521,914)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities:
Taxes and licenses............................. 504,167 504,166 1,035,417 126,042 126,042
Depreciation and Amortization.................. 8,410,852 8,437,757 8,306,739 2,143,043 2,137,469
Changes in assets and liabilities:
Decrease (increase) in restricted cash......... 119,723 4,078,752 (3,841,535) (422,392) 158,638
Decrease in short term investments............. -- -- 1,942,716 -- --
(Increase) decrease in other receivables,
net.......................................... (710,681) (1,213,922) 560,564 4,482,913 3,198,714
Decrease (increase) in prepaid expenses and
other assets................................. 446,817 (390,111) 1,561,985 (355,458) (142,294)
Increase (decrease) in accounts payable........ 78,453 178,271 (1,132,946) (1,733,664) (1,861,878)
(Decrease) increase in accrued liabilities..... (1,109,554) (805,029) 325,088 (260,663) (876,549)
Increase (decrease) in accrued workers'
compensation................................. 179,439 210,165 (310,659) 60,894 (175,318)
(Decrease) increase in slip and fall claims.... (78,749) (462,927) 175,326 (159,898) (137,951)
(Decrease) increase in accrued gaming
liabilities.................................. (15,510) (38,773) (1,499,278) (25,252) 172,495
(Decrease) increase in amounts due to horsemen
for purses, stakes and awards................ (278,356) (4,075,426) 3,645,085 -- (278,356)
(Decrease) increase in outstanding pari-mutuel
tickets...................................... (1,395,178) 2,086,898 (1,366,633) (260,946) (1,353,656)
Increase (decrease) in income taxes payable.... 4,972,913 5,424,476 5,834,935 (542,832) (837,901)
(Decrease) increase in deferred tax
liabilities, net............................. (181,449) 679,162 307,545 (45,362) (45,362)
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in) operating
activities................................. 17,120,429 22,541,331 23,643,015 1,913,608 (1,437,821)
---------- ---------- ---------- ---------- ----------

Cash flows from investing activities:
Additions to property, plant and equipment....... (3,301,464) (3,336,628) (4,596,255) (576,537) (820,220)
Other assets..................................... 1,997 4,003 1,999 502 499
---------- ---------- ---------- ---------- ----------
Net cash used in investing activities........ (3,299,467) (3,332,625) (4,594,256) (576,035) (819,721)
---------- ---------- ---------- ---------- ----------

Cash flows from financing activities:
(Increase) decrease in intercompany receivable,
net............................................ (15,340,074) (19,317,848) (21,795,049) (867,610) 1,266,669
Payment of unsecured notes payable, net.......... (26,953) (24,844) (22,899) 5,439 5,991
Long term gaming liabilities..................... -- -- (500,000) -- --
---------- ---------- ---------- ---------- ----------
Net cash (used for) provided by financing
activities................................... (15,367,027) (19,342,692) (22,317,948) (862,171) 1,272,660
---------- ---------- ---------- ---------- ----------
(Decrease) increase in cash and cash
equivalents.................................... (1,546,065) (133,986) (3,269,189) 475,402 (984,882)
Cash and cash equivalents at the beginning of the
period......................................... 3,788,016 3,922,002 7,191,191 2,241,951 3,788,016
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents at the end of the
period......................................... $2,241,951 $3,788,016 $3,922,002 $2,717,353 $2,803,134
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------

Supplemental disclosure of non-cash transcations:
Contribution of capital.......................... $1,976,168 $ -- $ -- $ -- $1,003,175
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------

Supplemental disclosure of cash flow information:
Cash paid during the year for interest........... $ 23,000 $ 25,000 $ 27,000 $ -- $ --
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Cash paid during the year for income taxes....... $ -- $ -- $ -- $ -- $ --
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>

See accompanying notes to combined financial statements.

F-64
<PAGE>
Hollywood Park Race Track and Casino
Notes to Combined Financial Statements
- --------------------------------------------------------------------------------

1. BASIS OF PRESENTATION

On May 5, 1999, Hollywood Park, Inc. ("Hollywood Park" or the "Parent") and
Churchill Downs, Inc. ("Churchill Downs") signed a definitive agreement for
Churchill Downs to acquire the Hollywood Park Race Track in Inglewood,
California, along with 240 acres of surrounding land, and the Hollywood Park
Casino. The Hollywood Park Race Track and Hollywood Park Casino will be sold to
Churchill Downs for purchase prices totaling $140 million in cash. The
transaction is subject to certain closing conditions, including the approval of
the California Horse Racing Board, and is expected to close in the third quarter
of 1999. Churchill Downs will grant Hollywood Park a long-term lease with a
renewal option at a lease rate of $3 million per year for the Hollywood Park
Casino.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF COMBINATION

These combined financial statements have been prepared from Hollywood Park's
historical accounting records and present operations of the businesses that will
be acquired by Churchill Downs as if the Company had been a separate entity for
all periods presented. These combined financial statements principally include
the accounts of the Hollywood Park Operating Company (the "HPOC"), a Delaware
corporation, and its two wholly owned subsidiaries, Hollywood Park Food
Services, Inc. and Hollywood Park Fall Operating Company, and the Hollywood Park
Casino which is a division of Hollywood Park, Inc. (collectively referred to as
the "Hollywood Park Race Track and Casino" or the "Company"). Long-term debt
historically recorded on HPOC's books, consisting of $125 million in 9.5% Notes
which were co-issued in August 1997 by Hollywood Park and HPOC, and related
interest expense, have been excluded from the combined financial statements
because the proceeds of the notes were used to fund other businesses of the
Parent. All significant intercompany accounts and transactions have been
eliminated in the preparation of these combined financial statements. The
financial information included herein may not necessarily reflect the combined
results of operations, financial position, changes in Parent's equity and cash
flows of the Company in the future or what they would have been had it been a
separate, stand-alone entity during the periods presented.

ACQUISITION OF PACIFIC CASINO MANAGEMENT, INC.

The Hollywood Park Casino was opened by the Parent in July 1994 under a third
party leasing arrangement with Pacific Casino Management, Inc. ("PCM"). On
November 17, 1995, Hollywood Park acquired substantially all of the assets,
property and business of PCM, and assumed substantially all of PCM's
liabilities. Prior to the acquisition, under a lease with the Company, PCM
operated the gaming floor activities of the Hollywood Park Casino. The purchase
price of PCM's net assets was an aggregate $2,640,000, payable in shares of
Hollywood Park, Inc. common stock, in three installments: (i) shares of
Hollywood Park common stock, having a value of $1,600,000, or 136,008 common
shares, issued on November 17, 1995, (ii) shares of Hollywood Park common stock,
having a value of $540,000, or 48,674 common shares, issued on November 19, 1996
and (iii) shares of Hollywood Park common stock, having a value of $500,000, or
33,417 common shares, issued on February 10, 1997. Virtually all of the
approximately $21,568,000 of excess acquisition cost over the recorded value of
the net assets acquired from PCM was allocated to goodwill and is being
amortized over 40 years. The amortization of the goodwill is not deductible for
income tax purposes.

F-65
<PAGE>
HOLLYWOOD PARK RACE TRACK AND CASINO
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RESTRICTED CASH

Restricted cash as of December 31, 1998 and 1997, was for amounts due to
horsemen for purses, stakes and awards.

RACING REVENUES AND EXPENSES

The Company records pari-mutuel revenues, admissions, food and beverage and
other racing income associated with racing on a daily basis, except for prepaid
admissions, which were recorded ratably over the racing season. Expenses
associated with racing revenues were charged against income in those periods in
which the racing revenues are recognized. Other expenses were recognized as they
occurred throughout the year.

GAMING-CASINO REVENUE AND PROMOTIONAL ALLOWANCES

Gaming-Casino gaming revenues consisted of fees collected from patrons on a per
seat or per hand basis. Revenues in the accompanying statements of operations
exclude the retail value of food and beverage provided to card players on a
complimentary basis. The estimated cost of providing these promotional
allowances during the years ended December 31, 1998, 1997, and 1996 was
approximately $554,000, $945,000, and $1,316,000, respectively.

USE OF ESTIMATES

Financial statements prepared in accordance with generally accepted accounting
principles require the use of management estimates, including estimates used to
evaluate the recoverability of property, plant and equipment, to determine the
fair value of financial instruments, to account for the valuation allowance for
deferred tax assets, and to determine litigation related obligations. Actual
amounts could differ from estimates.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are depreciated on the straight line method over
their estimated useful lives as follows:

<TABLE>
<CAPTION>
YEARS
---------
<S> <C>
Land improvements................................................................... 3 to 25
Buildings........................................................................... 5 to 40
Equipment........................................................................... 3 to 10
</TABLE>

Maintenance and repairs were charged to operations of facilities; betterments
were capitalized. The cost of property sold or otherwise disposed of and the
accumulated depreciation were eliminated from both the property and accumulated
depreciation accounts with any gain or loss recorded in the expense accounts.

F-66
<PAGE>
HOLLYWOOD PARK RACE TRACK AND CASINO
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Property, plant and equipment is carried on the Company's balance sheets at
depreciated cost. Whenever there are recognized events or changes in
circumstances that affect the carrying amount of the property, plant and
equipment, management reviews the assets for possible impairment.

INCOME TAXES

The Company accounts for income taxes under Statement of Financial Accounting
Standards ("SFAS") 109, Accounting for Income Taxes, whereby deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
included the enactment date.

CASH FLOWS

Cash and cash equivalents consisted of cash, certificates of deposit and short
term investments with original maturities of 90 days or less.

ACCOUNTING PRONOUNCEMENTS

SEGMENT INFORMATION

Statement of Financial Accounting Standards No. 131 Disclosures about Segments
of an Enterprise and Related Information ("SFAS No. 131") was effective for
years after December 31, 1997, and has been adopted by the Company for all
periods presented in these combined financial statements. SFAS No. 131
establishes revised guidelines for public companies in determining operating
segments based on those used for internal reporting to management. Based on
these guidelines, Hollywood Park reports information under a single gaming
segment.

LONG-LIVED ASSETS

The Company periodically reviews the propriety of the carrying amount of
long-lived assets and the related intangible assets as well as the related
amortization period to determine whether current events or circumstances warrant
adjustments to the carrying value and/or the estimates of useful lives. This
evaluation consists of the Company's projection of the undiscounted operating
income before depreciation, amortization and interest over the remaining lives
of the excess costs, in accordance with FASB Statement No. 121 Accounting for
the Impairment of Long-Lived Assets to Be Disposed Of. Based on its review, the
Company believes that as of December 31, 1998, there were no significant
impairments of its long-lived assets or related intangible assets.

START-UP COSTS

The Company's policy has been to expense start-up costs as incurred. In April
1998, Statement of Position 98-5 Reporting on the Costs of Start-Up Activities
was issued and was effective for years after

F-67
<PAGE>
HOLLYWOOD PARK RACE TRACK AND CASINO
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

December 31,1998. Statement of Position 98-5 required that start-up activities
and organizational costs be expensed as incurred. The adoption of Statement of
Position 98-5 did not have an impact on the financial statements of the Company.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

In September 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 Accounting for Derivative Instruments and
Hedging Activities ("SFAS No.133"). The Company has not made such investments in
the past and does not expect to make such investments in the foreseeable future,
and thus SFAS No. 133 has no impact on the financial reporting of the Company.
SFAS No. 133 established accounting and reporting standards with respect to
recording derivative instruments on the balance sheet measured at its fair
value. SFAS No. 133, also sets reporting requirements for changes in the fair
value of a derivative, and for qualifying hedges. SFAS No. 133 will be effective
for accounting years beginning after June 15, 1999.

COMPREHENSIVE INCOME

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard's No. 130, Reporting Comprehensive Income ("SFAS
No. 130"), which became effective for years beginning after December 31, 1997.
The Company adopted SFAS No. 130 in 1998. SFAS No. 130 requires the
classification of other comprehensive income by its nature in a financial
statement, and to disclose the accumulated balance of other comprehensive income
separately in the shareholders' equity section of the balance sheet.

INTERIM PERIOD FINANCIAL STATEMENTS

The combined interim financial statements have been prepared by the Company and
is unaudited, however, in the opinion of the Company, the interim data includes
all adjustments, consisting of only normal recurring adjustments necessary for a
fair statement of the results of cash flows for the interim period. The interim
results of operations are not indicative of the results for the full year, due
to the seasonality of the horse racing business.

3. ALLOWANCE FOR BAD DEBTS

<TABLE>
<S> <C>
Balance as of December 31, 1996................................. $1,088,510
Charges to expense............................................ 76,000
Write offs.................................................... 607,174
---------
Balance as of December 31, 1997................................. 557,336
Charges to expense............................................ 481,000
Write offs.................................................... 121,420
---------
Balance as of December 31, 1998................................. $ 916,916
---------
---------
</TABLE>

F-68
<PAGE>
HOLLYWOOD PARK RACE TRACK AND CASINO
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment held at December 31, 1998, and 1997 consisted of
the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Land and land improvements................................... $ 12,251,511 $ 12,059,906
Buildings.................................................... 119,470,712 117,472,053
Equipment.................................................... 21,874,841 18,728,723
Construction in progress..................................... 449,244 509,845
-------------- --------------
154,046,308 148,770,527

Less accumulated depreciation................................ 78,420,224 70,550,167
-------------- --------------
$ 75,626,084 $ 78,220,360
-------------- --------------
-------------- --------------
</TABLE>

5. UNSECURED NOTES PAYABLE

Notes payable as of December 31, 1998, and 1997 consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Unsecured note payable--Gold Cup...................................... $ 264,988 $ 291,941
---------- ----------
Less current maturities............................................... 37,309 36,018
---------- ----------
$ 227,679 $ 255,923
---------- ----------
---------- ----------
</TABLE>

The Company's Gold Cup note payable resulted from the $1,000,000 Gold Cup
Contest on July 20, 1986. The prize money is payable to the winner in 20 annual
installments of $50,000, beginning August 1, 1986. The remaining liability at
December 31, 1998 is net of unamortized discount at 8.5%.

6. INCOME TAXES

During the periods presented, the Company was included in the consolidated tax
returns of Hollywood Park, Inc. The Company has provided for income taxes as if
it were a stand-alone taxpayer, in accordance with SFAS No. 109. The Company was
part of the Hollywood Park tax group and therefore did not directly pay any
current taxes on a stand-alone basis.

F-69
<PAGE>
HOLLYWOOD PARK RACE TRACK AND CASINO
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

6. INCOME TAXES (CONTINUED)

The composition of the Company's income tax expense for the years ended December
31, 1998, 1997 and 1996 is as follows:

<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------------ ----------- ------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998:
U.S. Federal....................................... $ 3,879,000 $ (141,000) $ 3,738,000
State.............................................. 1,093,913 (40,449) 1,053,464
------------ ----------- ------------
4,972,913 (181,449) 4,791,464
------------ ----------- ------------
------------ ----------- ------------

YEAR ENDED DECEMBER 31, 1997:
U.S. Federal....................................... 4,232,000 530,000 4,762,000
State.............................................. 1,192,476 149,162 1,341,638
------------ ----------- ------------
5,424,476 679,162 6,103,638
------------ ----------- ------------
------------ ----------- ------------

YEAR ENDED DECEMBER 31, 1996:
U.S. Federal....................................... 4,551,000 240,000 4,791,000
State.............................................. 1,283,935 67,545 1,351,480
------------ ----------- ------------
$ 5,834,935 $ 307,545 $ 6,142,480
------------ ----------- ------------
------------ ----------- ------------
</TABLE>

The following table reconciles the Company's income tax expense (based on its
effective tax rate) to the federal statutory tax rate of 35%:

<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Income before income tax expense, at the statutory
rate.............................................. $ 3,839,152 $ 4,911,029 $ 4,984,401
State taxes......................................... 593,477 806,251 818,296
Goodwill amortization............................... 220,434 220,434 220,434
Political and lobbying costs........................ 120,000 139,000 92,000
Other non-deductible expenses....................... 18,401 26,924 27,349
------------ ------------ ------------
Income tax expense.................................. $ 4,791,464 $ 6,103,638 $ 6,142,480
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

F-70
<PAGE>
HOLLYWOOD PARK RACE TRACK AND CASINO
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

6. INCOME TAXES (CONTINUED)

For the years ended December 31, 1998, and 1997, the tax effects of temporary
differences that gave rise to significant portions of the deferred tax assets
and deferred tax liabilities are presented below.

<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
CURRENT DEFERRED TAX ASSETS:
Workers' compensation insurance reserve......................... $ 960,177 $ 887,056
General liability insurance reserve............................. 479,502 511,593
Legal accrual................................................... 86,000 113,000
Vacation and sick pay accrual................................... 291,149 250,117
Bad debt allowance.............................................. 373,644 227,114
Other........................................................... 36,555 76,656
------------ ------------
Current deferred tax assets................................... 2,227,027 2,065,536
------------ ------------

CURRENT DEFERRED TAX LIABILITIES:
Business insurance and other.................................... 134,000 134,000
------------ ------------
Net current deferred tax assets................................... $ 2,093,027 $ 1,931,536
------------ ------------
------------ ------------

NON-CURRENT DEFERRED TAX LIABILITIES:
Depreciation.................................................... 7,027,464 7,047,422
------------ ------------
Net non-current deferred tax liabilities.......................... $ 7,027,464 $ 7,047,422
------------ ------------
------------ ------------
</TABLE>

7. PARENT'S EQUITY

The Parent owns 100% of the outstanding common stock of the HPOC. Divisional
equity of the Hollywood Park Casino is included in accumulated earnings in the
accompanying balance sheets.

8. RETIREMENT PLANS

The employees of the Company were included in the 401(k) Investment Plan of
Hollywood Park (the "401(k) Plan") which is subject to the provisions of the
Employee Retirement Income Security Act of 1994. The 401(k) Plan is open to all
employees of the Company (except those covered by collective bargaining
agreements) who have completed one year of service. Employees can contribute up
to 15% of pretax income (subject to legal limitation of $10,000 for 1998). The
Company offers a discretionary matching, and for the years ended December 31,
1998 and 1997 contributed $459,325 and $389,804, respectively. The Company did
not provide a matching contribution in 1996.

The Company's employees were also included in Hollywood Park's Pension Plan,
prior to its termination on January 31, 1997. The funds accumulated under the
Pension Plan were distributed to the Pension Plan participants. The Company also
contributed to several collectively-bargained multi-employer pension and
retirement plans which are administered by unions, and to a pension plan
covering non-union employees which is administered by an association of race
track owners. Amounts charged to pension cost and contributed to these plans for
the years ended December 31, 1998, 1997 and 1996 totaled $1,689,757, $1,842,127,
and $1,872,674, respectively. Contributions to the

F-71
<PAGE>
HOLLYWOOD PARK RACE TRACK AND CASINO
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

8. RETIREMENT PLANS (CONTINUED)

collectively-bargained plans were determined in accordance with the provisions
of negotiated labor contracts and generally are based on the number of employee
hours or days worked. Contributions to the non-union plans are based on the
covered employees' compensation. Information from the plans administrators was
not available to permit the Company to determine its share of unfunded vested
benefits or prior service liability. It is the opinion of management that no
material liability exists.

9. RELATED PARTY TRANSACTIONS

The Company is guarantor on both the Hollywood Park, Inc. $125,000,000 aggregate
principal amount of 9.5% Notes issued on August 6, 1997 and the Hollywood Park,
Inc. $350,000,000 aggregate principal amount of 9.25% Notes issued on February
18, 1999.

The Parent pays for various expenses, including legal and insurance premiums on
the Company's behalf. This activity is included in operating and selling,
general and administrative expenses and the net intercompany receivable
(payable) in the accompanying combined financial statements.

10. COMMITMENTS AND CONTINGENCIES

LEASE OBLIGATIONS

The Company leases certain equipment primarily for use in racing operations
(pari-mutuel wagering equipment) and general office equipment. Minimum lease
payments required under operating leases that have initial terms in excess of
one year as of December 31, 1998 are approximately $678,000 in 1999 and annually
thereafter. Total rent expense for these long term lease obligations for the
years ended December 31, 1998, 1997 and 1996 was $769,194, $834,150 and
$817,564, respectively.

LITIGATION

The Company is a defendant in various litigation in the normal course of
business. Although the outcome of litigation cannot be predicted with certainty,
in the opinion of management, based on the facts known at this time, the
resolution of such litigation is not anticipated to have a material adverse
effect on the financial position or results of operations of the Company.

F-72
<PAGE>
[Color photos and graphics related to Churchill Downs, including: the logos of
Churchill Downs, Ellis Park, Hoosier Park, and Calder Race Course; the grounds
and racetracks at the Churchill Downs racetrack, Ellis Park, Calder, and Hoosier
Park; and the Paddock Pavilion.]
<PAGE>
- --------------------------------------------------------------------------------

[LOGO]
CHURCHILL DOWNS INCORPORATED
2,000,000 SHARES
COMMON STOCK
----------------
PROSPECTUS
-------------------

July 15, 1999

CIBC WORLD MARKETS
LEHMAN BROTHERS
J.C. BRADFORD & CO.

J.J.B. HILLIARD, W.L. LYONS, INC.

----------------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NO DEALER,
SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE INFORMATION THAT IS NOT
CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT
SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR
SALE IS NOT PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT
ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF THE DELIVERY
OF THIS PROSPECTUS OR ANY SALE OF THESE SECURITIES.

UNTIL AUGUST 24, 1999, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENT OR SUBSCRIPTIONS.

<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth an itemized statement of all costs and expenses,
other than underwriting discounts and commissions, to be borne by the Company in
its sale and distribution of the shares registered hereunder. All amounts are
estimated, except for the SEC registration fee and the NASD listing fee.

<TABLE>
<S> <C>
SEC registration fee.............................................. $ 22,258
NASD fee.......................................................... $ 15,000
National Market Application and Listing Fee....................... $ 86,500
Blue sky fees and expenses........................................ $ 2,000
Printing and engraving expenses................................... $ 185,000
Legal fees and expenses........................................... $ 350,000
Accounting fees and expenses...................................... $ 150,000
Miscellaneous..................................................... $ 6,742
---------
---------

Total........................................................... $ 817,500
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Article XI of the Registrant's Amended and Restated Articles of Incorporation
limits the liability of directors of the Registrant pursuant to the Kentucky
Business Corporation Act. Under this article, directors generally are personally
liable to the Registrant or its shareholders for monetary damages only in
transactions involving conflicts of interest or improper personal benefit for a
director, intentional misconduct, violations of law, or unlawful distributions.

The Restated Bylaws of the Registrant require the Registrant to indemnify, and
permit the advancement of expenses to, each director, officer, employee or agent
of the Registrant, and his executors, administrators or heirs, who was or is
made, or is threatened to be made a defendant or respondent to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative ("Proceeding"), by reason of the fact that he is
or was a director, officer, employee or agent of the Registrant, for the costs
of such Proceeding to the fullest extent expressly permitted or required by the
statutes of the Commonwealth of Kentucky and all other applicable law.

The Restated Bylaws of the Registrant further provide for indemnification and
advancement of expenses to the aforementioned persons by action of the Board of
Directors in such amounts, on such terms and conditions, and based upon such
standards of conduct as the Board of Directors may deem to be in the best
interests of the Registrant.

The circumstances under which Kentucky law requires or permits a corporation to
indemnify its directors, officers, employees and/or agents are set forth at KRS
271B.8-500, et seq.

Generally, under KRS 271B.8-500 et seq., a corporation may indemnify an
individual made a party to a proceeding because he is or was a director against
liability incurred in the proceeding if:

(1) he conducted himself in good faith; and

(2) he reasonably believed

II-1
<PAGE>
(a) in the case of conduct in his official capacity with the corporation
that his conduct was in its best interests; and

(b) in all other cases, that his conduct was at least not opposed to its
best interests.

(3) in the case of any criminal proceeding, he had no reasonable cause to
believe his conduct was unlawful.

A corporation may not indemnify a director:

(1) in connection with a proceeding by or in the right of the corporation in
which the director was adjudged liable to the corporation; or

(2) in connection with any other proceeding charging improper personal
benefit to him, whether or not involving action in his official capacity,
in which he was adjudged liable on the basis that personal benefit was
improperly received by him.

Indemnification permitted in connection with a proceeding by or in the right of
the corporation is limited to reasonable expenses incurred in connection with
the proceeding.

In addition, the Registrant maintains directors' and officers' liability
insurance covering certain liabilities which may be incurred by the directors
and officers of the Registrant in connection with the performance of their
duties.

ITEM 16. EXHIBITS.

<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF DOCUMENT
- ------ --------------------------------------------------------------------------
<C> <S>
1.1 Underwriting Agreement, dated as of July 15, 1999 between the Company and
the Underwriters.

2.1 Asset Purchase Agreement dated as of May 5, 1999 between Hollywood Park,
Inc. and Churchill Downs Incorporated.*

4.1 Amended and Restated Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3(e) to the Company's Report on
Form 10-Q for the fiscal quarter ended June 30, 1998).

4.2 Restated Bylaws of the Company (incorporated by reference to Exhibit 3(i)
of the Company's Report on Form 10-Q for the fiscal quarter ended June
30, 1998).

4.3 Specimen Stock Certificate (incorporated by reference to Exhibit 4(d) to
the Company's Registration Statement on Form S-8, File No. 33-85012).

4.4 Rights Agreement dated as of March 19, 1998, between the Company and Bank
of Louisville (incorporated by reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K filed on March 20, 1998).

5 Opinion and Consent of Wyatt, Tarrant & Combs as to the legality of the
shares being registered.*

23.1 Consent of PricewaterhouseCoopers LLP.

23.2 Consent of PricewaterhouseCoopers LLP.

23.3 Consent of Ernst & Young LLP.

23.4 Consent of Arthur Andersen LLP.
</TABLE>

II-2
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF DOCUMENT
- ------ --------------------------------------------------------------------------
<C> <S>
23.5 Consent of Wyatt, Tarrant & Combs (included in Exhibit 5).*
</TABLE>

- ------------------------

* Previously filed.

ITEM 17. UNDERTAKINGS.

The undersigned Company hereby undertakes:

(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:

(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement; and

(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement; provided, however, that paragraphs (1)(i) and (1)(ii) do
not apply if the registration statement is on Form S-3 or Form S-8
and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports
filed by the Company pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference
in the registration statement.

(2) that, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

(3) to remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.

The undersigned Company hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Company's annual
report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act
of 1934 that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

II-3
<PAGE>
The undersigned Company hereby undertakes that:

(1) for purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Company pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of
this registration statement as of the time it was declared effective.

(2) for the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-4
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Louisville, Commonwealth of Kentucky, on July 14, 1999.

<TABLE>
<S> <C> <C>
CHURCHILL DOWNS INCORPORATED

By: /s/ THOMAS H. MEEKER
-----------------------------------------
Thomas H. Meeker
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>

Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement on Form S-3 has been signed below by the following persons on the 14th
day of July, 1999 in the capacities indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------

<C> <S> <C>
/s/ THOMAS H. MEEKER
- ------------------------------ President, Chief Executive
Thomas H. Meeker Officer and Director

/s/ ROBERT L. DECKER Executive Vice President
- ------------------------------ and Chief Financial
Robert L. Decker Officer

/s/ VICKI L. BAUMGARDNER
- ------------------------------ Vice President, Finance
Vicki L. Baumgardner and Treasurer

*
- ------------------------------ Director
Charles W. Bidwill, Jr.

*
- ------------------------------ Director
William S. Farish

*
- ------------------------------ Director
J. David Grissom

*
- ------------------------------ Director
Seth W. Hancock
</TABLE>

II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------

<C> <S> <C>
*
- ------------------------------ Director
Daniel P. Harrington

*
- ------------------------------ Director
G. Watts Humphrey, Jr.

*
- ------------------------------ Director
Frank B. Hower, Jr.

*
- ------------------------------ Director
W. Bruce Lunsford

*
- ------------------------------ Director
Carl F. Pollard

*
- ------------------------------ Director
Dennis D. Swanson

*
- ------------------------------ Director
Darrell R. Wells
</TABLE>

<TABLE>
<S> <C> <C> <C>
*By: /s/ REBECCA C. REED
-------------------------
Rebecca C. Reed,
PURSUANT TO POWER OF
ATTORNEY
</TABLE>

II-6

<PAGE>

2,000,000 Shares

CHURCHILL DOWNS INCORPORATED

Common Stock

FORM OF UNDERWRITING AGREEMENT

July 15, 1999

CIBC World Markets Corp.
Lehman Brothers Inc.
J.C. Bradford & Co.
J.J.B. Hilliard, W.L. Lyons, Inc.
c/o CIBC World Markets Corp.
One World Financial Center
New York, New York 10281

On behalf of the Several
Underwriters named on
Schedule I attached hereto.

Ladies and Gentlemen:

Churchill Downs Incorporated, a Kentucky corporation (the
"Company"), proposes, subject to the terms and conditions contained herein,
to sell to you and the other underwriters named on Schedule I to this
Agreement (the "Underwriters"), for whom you are acting as representatives
(the "Representatives"), an aggregate of 2,000,000 shares (the "Firm Shares")
of the Company's common stock, no par value (the "Common Stock"). The
respective amounts of the Firm Shares to be purchased by each of the several
Underwriters are set forth opposite their names on Schedule I hereto. In
addition, the Company proposes to grant to the Underwriters an option to
purchase up to an additional 300,000 shares (the "Option Shares") of Common
Stock from it for the purpose of covering over-allotments in connection with
the sale of the Firm Shares. The Firm Shares and the Option Shares are
together called the "Shares."

1. SALE AND PURCHASE OF THE SHARES. On the basis of the
representations, warranties and agreements contained in, and subject to the
terms and conditions of, this Agreement:

(a) The Company agrees to sell to each of the Underwriters, and each
of the

<PAGE>

Underwriters agrees, severally and not jointly, to purchase from the
Company, at a price of $27.48 per share (the "Initial Price"), the number
of Firm Shares set forth opposite the name of such Underwriter on Schedule
I to this Agreement, subject to adjustment in accordance with Section 10
hereof.

(b) The Company grants to the several Underwriters an option to
purchase, severally and not jointly, all or any part of the Option Shares
at the Initial Price. The number of Option Shares to be purchased by each
Underwriter shall be the same percentage (adjusted by the Representatives
to eliminate fractions) of the total number of Option Shares to be
purchased by the Underwriters as such Underwriter is purchasing of the Firm
Shares. Such option may be exercised only to cover over-allotments in the
sales of the Firm Shares by the Underwriters and may be exercised in whole
or in part at any time on or before 12:00 noon, New York City time, on the
business day before the Firm Shares Closing Date (as defined below), and
from time to time thereafter within 30 days after the date of this
Agreement, in each case upon written or telegraphic notice, or verbal or
telephonic notice confirmed by written or telegraphic notice, by the
Representatives to the Company no later than 12:00 noon, New York City
time, on the business day before the Firm Shares Closing Date or at least
two business days before the Option Shares Closing Date (as defined below),
as the case may be, setting forth the number of Option Shares to be
purchased and the time and date (if other than the Firm Shares Closing
Date) of such purchase.

2. DELIVERY AND PAYMENT. Delivery by the Company of the Firm Shares
to the Representatives for the respective accounts of the Underwriters, and
payment of the purchase price by wire transfer of immediately available funds to
the Company against delivery of the certificate(s) therefor to the
Representatives, shall take place at the offices of Morgan, Lewis & Bockius LLP,
101 Park Avenue, New York, New York 10178, at 10:00 a.m., New York City time,
on the third business day following the date of this Agreement, or at such time
on such other date, not later than 10 business days after the date of this
Agreement, as shall be agreed upon by the Company and the Representatives (such
time and date of delivery and payment are called the "Firm Shares Closing
Date").

In the event the option with respect to the Option Shares is
exercised, delivery by the Company of the Option Shares to the Representatives
for the respective accounts of the Underwriters and payment of the purchase
price by wire transfer of immediately available funds to the Company, shall take
place at the offices of Morgan, Lewis & Bockius LLP specified above at the time
and on the date (which may be the same date as, but in no event shall be earlier
than, the Firm Shares Closing Date) specified in the notice referred to in
Section 1(b) (such time and date of delivery and payment are called the "Option
Shares Closing Date"). The Firm Shares Closing Date and the Option Shares
Closing Date are called, individually, a "Closing Date" and, together, the
"Closing Dates."

-3-
<PAGE>

Certificates evidencing the Shares shall be registered in such names
and shall be in such denominations as the Representatives shall request at least
two full business days before the Firm Shares Closing Date or, in the case of
Option Shares, on the day of notice of exercise of the option as described in
Section 1(b) and shall be made available to the Representatives for checking and
packaging, at such place as is designated by the Representatives, on the full
business day before the Firm Shares Closing Date (or the Option Shares Closing
Date in the case of the Option Shares).

3. REGISTRATION STATEMENT AND PROSPECTUS; PUBLIC OFFERING. The
Company has prepared and filed in conformity with the requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and the published
rules and regulations thereunder (the "Rules") adopted by the Securities and
Exchange Commission (the "Commission") a Registration Statement (as
hereinafter defined) on Form S-3 (No. 333-79031), including a preliminary
prospectus relating to the Shares, and such amendments thereof as may have
been required to the date of this Agreement. Copies of such Registration
Statement (including all amendments thereto) and of the related Preliminary
Prospectus (as hereinafter defined) have heretofore been delivered by the
Company to you. The term "Preliminary Prospectus" as used in this Agreement
means any preliminary prospectus (as described in Rule 430 of the Rules)
included at any time as a part of the Registration Statement or filed with
the Commission by the Company with the consent of the Representatives
pursuant to Rule 424(a) of the Rules. The term "Registration Statement" as
used in this Agreement means the initial registration statement, including
all exhibits, financial schedules and information deemed to be a part of the
Registration Statement through incorporation by reference or otherwise, as
amended at the time and on the date it became effective (the "Effective
Date") and as thereafter amended by post-effective amendments. If the
Company has filed an abbreviated registration statement to register
additional Shares pursuant to Rule 462(b) under the Rules (the "462(b)
Registration Statement") then any reference herein to the Registration
Statement shall be deemed to include such 462(b) Registration Statement. The
term "Prospectus" as used in this Agreement means the prospectus in the form
included in the Registration Statement at the time of effectiveness or, if
Rule 430A of the Rule is relied on, the term Prospectus shall also include
the final prospectus filed with the Commission pursuant to Rule 424(b) of the
Rules.

The Company understands that the Underwriters propose to make a public
offering of the Shares, as set forth in and pursuant to the Prospectus, as soon
after the Effective Date and the date of this Agreement as the Representatives
deem advisable. The Company hereby confirms that the Underwriters and dealers
have been authorized to distribute or cause to be distributed each Preliminary
Prospectus, and are authorized to distribute the Prospectus (as from time to
time amended or supplemented if the Company furnishes amendments or supplements
thereto to the Underwriters).

4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to, and agrees with, each Underwriter as follows:

-4-
<PAGE>

(a) On the Effective Date the Registration Statement complied,
and on the date of the Prospectus, the date any post-effective amendment
to the Registration Statement becomes effective, the date any supplement
or amendment to the Prospectus is filed with the Commission and each
Closing Date, the Registration Statement and the Prospectus (and any
amendment thereof or supplement thereto) will comply, in all material
respects, with the applicable provisions of the Securities Act and the
Rules and the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the Commission thereunder; the
Registration Statement did not, as of the Effective Date, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein not misleading; and on the other dates referred to
above, neither the Registration Statement nor the Prospectus nor any
amendment thereof or supplement thereto will contain any untrue
statement of a material fact or will omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein (as to the Prospectus, in light of the circumstances
under which they were made) not misleading. When any related preliminary
prospectus was first filed with the Commission (whether filed as part of
the Registration Statement or any amendment thereto or pursuant to Rule
424(a) of the Rules) and when any amendment thereof or supplement
thereto was first filed with the Commission, such preliminary prospectus
as amended or supplemented complied in all material respects with the
applicable provisions of the Securities Act and the Rules and did not
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which
they were made, not misleading. Notwithstanding the foregoing, none of
the representations and warranties in this paragraph 4(a) shall apply to
statements in, or omissions from, the Registration Statement, the
Preliminary Prospectus or the Prospectus made in reliance upon, and in
conformity with, information herein or otherwise furnished in writing by
the Representatives on behalf of the several Underwriters for use in the
Registration Statement or the Prospectus. With respect to the preceding
sentence, the Company acknowledges that the only information furnished
in writing by the Representatives on behalf of the several Underwriters
for use in the Registration Statement or the Prospectus is the
information referred to in Section 7(b) hereof.

(b) The Registration Statement is effective under the Securities Act
and no stop order preventing or suspending the effectiveness of the
Registration Statement or preventing or suspending the use of the
Prospectus has been issued and no proceedings for that purpose have been
instituted or are threatened under the Securities Act; any required filing
of the Prospectus and any supplement thereto pursuant to Rule 424(b) of the
Rules has been or will be made in the manner and within the time period
required by such Rule 424(b).

-5-
<PAGE>

(c) The documents incorporated by reference in the Registration
Statement and the Prospectus, at the time they were filed with the
Commission, complied in all material respects with the requirements of the
Exchange Act and, when read together and with the other information in the
Registration Statement and the Prospectus, do not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.

(d) The consolidated financial statements of the Company (including
all notes and schedules thereto) included or incorporated by reference in
the Registration Statement and Prospectus present fairly in all material
respects the financial position, the results of operations, the statements
of cash flows and the statements of stockholders' equity and the other
information purported to be shown therein of the Company at the respective
dates and for the respective periods to which they apply; and such
financial statements and related schedules and notes have been prepared in
conformity with generally accepted accounting principles in the United
States applied on a consistent basis throughout the periods involved,
except as specified therein, and all adjustments necessary for a fair
presentation of the results for such periods have been made. The summary
and selected financial data included in the Prospectus present fairly the
information shown therein as at the respective dates and for the respective
periods specified and the summary and selected financial data have been
presented on a basis consistent with the consolidated financial statements
so set forth in the Prospectus and other financial information.

(e) PricewaterhouseCoopers LLP, whose reports are filed with the
Commission as a part of the Registration Statement, are and, during the
periods covered by their reports, were independent public accountants as
required by the Securities Act and the Rules.

(f) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the Commonwealth of Kentucky. Each
subsidiary of the Company is a corporation, limited liability company or
limited partnership duly organized or formed, as the case may be, validly
existing and in good standing (where applicable) under the laws of the
state of such subsidiary's organization or formation, as the case may be.
The Company and each of its subsidiaries is duly qualified to do business
and is in good standing (where applicable) as a foreign corporation,
limited liability company or limited partnership, as the case may be, in
each jurisdiction in which the nature of the business conducted by it or
location of the assets or properties owned, leased or licensed by it
requires such qualification, except for such jurisdictions where the
failure to so qualify would not have a

-6-
<PAGE>

material adverse effect on the assets, properties, business, results of
operations or financial condition of the Company and its subsidiaries,
taken as a whole (a "Material Adverse Effect"). The Company does not
own, lease or license any asset or property or conduct any business
outside the United States of America. The Company and each of its
subsidiaries has all requisite corporate power and authority, and all
necessary authorizations, approvals, consents, orders, licenses,
certificates and permits of and from all governmental or regulatory
bodies or any other person or entity (collectively, the "Permits"), to
own, lease and license its assets and properties and conduct its
businesses, all of which are valid and in full force and effect, as
described in the Registration Statement and the Prospectus except where
the failure to obtain or maintain such Permits would not have a Material
Adverse Effect; the Company and each of its subsidiaries has fulfilled
and performed in all material respects all of its material obligations
with respect to such Permits, and no event has occurred that allows, or
after notice or lapse of time would allow, revocation or termination
thereof or results in any other impairment of the rights of the Company
thereunder, except where such revocation, termination or impairment
would not have a Material Adverse Effect. Except as may be required
under the Securities Act, the rules of the National Association of
Securities Dealers, Inc. ("NASD"), the rules of the National
Association of Securities Dealers Automated Quotation ("Nasdaq")
National Market system and state and foreign Blue Sky laws, no other
Permits are required for the Company to enter into, deliver and perform
this Agreement, and to issue and sell the Shares.

(g) All outstanding shares of capital stock of each subsidiary of
the Company have been duly and validly authorized and issued and are
fully paid and nonassessable, and except as otherwise set forth in the
Prospectus, all outstanding shares of capital stock of the subsidiaries
are owned by the Company either directly or through wholly owned
subsidiaries, free and clear of any security interests, claims, liens or
encumbrances. Without limiting the foregoing, all outstanding and
issued shares of capital stock of each subsidiary of the Company have
been pledged pursuant to that certain Credit Agreement dated April 23,
1999 (the "Credit Agreement") among the Company, the Banks party
thereto, PNC Bank, National Association, as Agent, CIBC Oppenheimer
Corp., as Syndication Agent and Bank One, Kentucky, N.A., as
Documentation Agent; and all such pledged shares are included in the
description of the assets securing the Company's obligations under the
Credit Agreement set forth in the first full paragraph on page 40 of the
Prospectus under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations -Liquidity and Capital
Resources."

(h) The Company owns or possesses adequate and enforceable rights
to use all trademarks, trademark applications, trade names, service
marks, copyrights, copyright applications, patents, licenses, know-how
and other similar rights and proprietary knowledge (collectively,
"Intangibles") described in the Prospectus as

-7-
<PAGE>

being owned by it, including service mark registrations with respect to
the names "Kentucky Derby," "Churchill Downs," "Churchill Downs Sports
Spectrum," "Kentucky Oaks," "Churchill Charlie" and the twin spires
design, or necessary for the conduct of its business except where
failure to own or possess such rights would not have a Material Adverse
Effect. Neither the Company nor any of its subsidiaries has received
any notice of, nor is aware of, any infringement of or conflict with
asserted rights of others with respect to any Intangibles which singly
or in the aggregate, if subject to an unfavorable decision, ruling or
finding, would have a Material Adverse Effect.

(i) The Company and each of its subsidiaries has good and marketable
title in fee simple to all items of real property and good title to all
personal property described in the Prospectus as being owned by it and any
real property and buildings described in the Prospectus as being held under
lease by the Company or any of its subsidiaries are held by it under valid
and enforceable leases, free and clear of all liens, encumbrances, claims,
security interests and defects, except such as are (A) described in the
Registration Statement and the Prospectus, (B) arise out of the Credit
Agreement or (C) those which would not have a Material Adverse Effect.

(j) There is no litigation or governmental or other proceeding or
investigation before any court or before or by any public body or board
pending or, to the Company's best knowledge, threatened (and the Company
does not know of any basis therefor) against, or involving the assets,
properties or business of, the Company or its subsidiaries or to which the
Company or its subsidiaries is subject which would have a Material Adverse
Effect, challenges the validity or enforceability of this Agreement or
would be required to be disclosed in the Registration Statement and the
Prospectus that is not so disclosed.

(k) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as described
therein, (i) there has not been any material adverse change with regard to
the assets or properties, business, results of operations, or financial
condition of the Company and its subsidiaries, taken as a whole, (ii)
neither the Company nor any of its subsidiaries has sustained any loss or
interference with its assets, business or properties (whether owned or
leased) from fire, explosion, earthquake, flood or other calamity, whether
or not covered by insurance, or from any labor dispute or any court or
legislative or other governmental action, order or decree which would have
a Material Adverse Effect; and (iii) since the date of the latest balance
sheet included in the Registration Statement and the Prospectus, except as
described therein, neither the Company nor any of its subsidiaries has (a)
issued any securities or incurred any liability or obligation, direct or
contingent, for borrowed money, except such issuances, liabilities or
obligations incurred in the ordinary course of business and the granting
of 10,000 options to John Long, (b) entered into any transaction not in the
ordinary course of business or (c) declared or paid any

-8-
<PAGE>

dividend or made any distribution on any shares of its stock or
redeemed, purchased or otherwise acquired or agreed to redeem, purchase
or otherwise acquire any shares of its stock.

(l) There is no document, contract or other agreement of a character
required to be described in the Registration Statement or Prospectus or to
be filed as an exhibit to the Registration Statement which is not
described, filed or incorporated by reference as required by the Securities
Act or the Rules. Each description of a document, contract or other
agreement in the Registration Statement and the Prospectus accurately
reflects in all material respects the terms of the underlying document,
contract or agreement required to be described therein. Each agreement
described in the Registration Statement and Prospectus or listed in the
Exhibits to the Registration Statement or incorporated by reference therein
is in full force and effect and is valid and enforceable by and against the
Company or any subsidiary of the Company, as the case may be, in accordance
with its terms except (i) as the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles and (ii) to the extent that rights to indemnity or
contribution under this Agreement may be limited by Federal and state
securities laws or the public policy underlying such laws. No default
exists, and no event has occurred which with notice or lapse of time or
both would constitute a default, in the due performance and observance by
the Company or any subsidiary of the Company, if the subsidiary is a party
thereto, or, to the Company's knowledge, any other party thereto, of any
other agreement or instrument to which the Company or any subsidiary of the
Company is a party or by which it or its properties or business may be
bound or, affected, which default or event would have a Material Adverse
Effect.

(m) None of the Company or its subsidiaries is in violation of any
term or provision of its charter or by-laws or of any franchise, license,
permit, judgment, decree, order, statute, rule or regulation, where the
consequences of such violation would have a Material Adverse Effect.

(n) Neither the execution, delivery and performance of this
Agreement by the Company nor the consummation of any of the transactions
contemplated hereby (including, without limitation, the issuance and
sale by the Company of the Shares) will give rise to a right to
terminate or accelerate the due date of any payment due under, or
conflict with or result in the breach of any term or provision of, or
constitute a default (or an event which with notice or lapse of time or
both would constitute a default) under, or require any consent or waiver
under, or result in the execution or imposition of any lien, charge or
encumbrance upon any properties or assets of the Company or any of its
subsidiaries pursuant to the terms of, any indenture, mortgage, deed of
trust or other agreement or instrument to which the

-9-
<PAGE>

Company or any of its subsidiaries is a party or by which the Company or
any of its subsidiaries or any of their properties or businesses is
bound, or any franchise, license, permit, judgment, decree, order,
statute, rule or regulation applicable to the Company or any of its
subsidiaries, or violate any provision of the charter or by-laws of the
Company or any of its subsidiaries, except for such consents or waivers
as have already been obtained and are in full force and effect or for
any such case that would not have a Material Adverse Effect.

(o) The Company has authorized and outstanding capital stock as set
forth under the caption "Capitalization" in the Prospectus. The
certificates evidencing the Shares are in due and proper legal form and
have been duly authorized for issuance by the Company. All of the issued
and outstanding shares of Common Stock have been duly and validly issued
and are fully paid and nonassessable. There are no statutory preemptive or
other similar rights to subscribe for or to purchase or acquire any shares
of Common Stock of the Company or any of its subsidiaries or any such
rights pursuant to its Articles of Incorporation or by-laws or any
agreement or instrument to or by which the Company or any of its
subsidiaries is a party or is bound. The Shares, when issued and sold
pursuant to this Agreement, will be duly and validly issued, fully paid and
nonassessable and none of them will be issued in violation of any
preemptive or other similar right. Except as disclosed in the Registration
Statement and the Prospectus, there is no outstanding option, warrant or
other right calling for the issuance of, and there is no commitment, plan
or arrangement to issue, any shares of stock of the Company or any security
convertible into, or exercisable or exchangeable for, such stock. The
Common Stock and the Shares conform in all material respects to all
statements in relation thereto contained in the Registration Statement and
the Prospectus.

(p) Except as set forth in the Prospectus, no holder of any security
of the Company, has the right to have any security owned by such holder
included in the Registration Statement or to demand registration of any
security owned by such holder during the period ending 180 days after the
date of this Agreement. Each person known to the Company to be a five
percent or greater stockholder, and each director and executive officer of
the Company, has delivered to the Representatives a written lock-up
agreement in the form attached to this Agreement (a "Lock-up Agreement").

(q) All necessary corporate action has been duly and validly taken
by the Company to authorize the execution, delivery and performance of
this Agreement and the issuance and sale of the Shares by the Company. This
Agreement has been duly and validly authorized, executed and delivered by
the Company and constitutes a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its terms,
except (i) as the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws

affecting the enforcement of creditors' rights generally and by general
equitable principles and (ii) to the extent that rights to indemnity or
contribution under this Agreement may be limited by Federal and state
securities laws or the public policy underlying such laws.

-10-
<PAGE>

(r) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of the net proceeds thereof as
described in the Prospectus, will not be, an "investment company" or a
person directly or indirectly controlled by an "investment company," as
defined in the Investment Company Act of 1940, as amended.

(s) None of the Company or any of its subsidiaries is involved in
any labor dispute or, to the knowledge of the Company, no such dispute is
threatened, which dispute would have a Material Adverse Effect.

(t) No transaction has occurred between or among the Company and any
of its officers, directors, holders of five percent or more of the capital
stock of the Company or any affiliate or affiliates of any such officer, or
director or holder that is required to be described in and is not described
in the Registration Statement and the Prospectus.

(u) The Company has not taken, nor will it take, directly or
indirectly, any action designed to or which might reasonably be expected to
cause or result in, or which has constituted or which might reasonably be
expected to constitute, the stabilization or manipulation of the price of
the Common Stock to facilitate the sale or resale of any of the Shares.

(v) The books, records and accounts of the Company and its
subsidiaries accurately and fairly reflect, in reasonable detail and in all
material respects, the transactions in, and dispositions of, the assets of,
and the results of operations of, the Company and its subsidiaries. The
Company and each of its subsidiaries maintains a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally
accepted accounting principles in the United States and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.

(w) The Company and each of its subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and in
such amounts

-11-
<PAGE>

as are prudent and customary in the businesses in which they are engaged
and all such policies of insurance are in full force and effect in all
material respects.

(x) To the best of the knowledge of the Company, there are no
affiliations with the NASD among the Company's officers, directors, or more
of the capital stock of the Company, except as set forth in the
Registration Statement or otherwise disclosed in writing to the
Representatives of the Underwriters.

(y) Except as would not have a Material Adverse Effect, the Company
and each of its subsidiaries (i) are in compliance with any and all
applicable foreign, federal, state and local rules, laws and regulations
which are applicable to its business relating to the use, treatment,
disposal of toxic substances and protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received and are in
compliance with all permits, licenses or other approvals required of them
under applicable Environmental Laws to conduct their respective businesses,
(iii)do not own, lease or occupy any property which has been designated as
a Superfund site pursuant to the Comprehensive Environmental Response,
Compensation of Liability Act of 1980, as amended (42 U.S.C. Section 9601,
et. seq.) ("CERCLA") or otherwise designated as a contaminated site under
applicable state or local law and (iv) have not been named as a
"potentially responsible party" under CERCLA. In the ordinary course of
its business, the Company periodically reviews the effect of Environmental
Laws on the business, operations and properties of the Company and its
subsidiaries, in the course of which the Company identifies and evaluates
associated costs and liabilities (including, without limitation, any
capital or operating expenditures required for clean-up, closure of
properties or compliance with Environmental Laws, or any permit, license or
approval, any related constraints on operating activities and any potential
liabilities to third parties). On the basis of such review, the Company
has reasonably concluded that such associated costs and liabilities would
not, singly or in the aggregate, have a Material Adverse Effect.

(z) The Company and each of its subsidiaries has filed all Federal,
local and foreign tax returns which are required to be filed through the
date hereof, or has received extensions thereof, and has paid all taxes
shown on such returns and all assessments received by it to the extent that
the same are material and have become due and there are no tax audits or
investigations pending, which if adversely determined would have a Material
Adverse Effect; nor are there any material proposed additional tax
assessments against the Company or any of its subsidiaries.

(aa) The Shares have been duly authorized for quotation on the Nasdaq
National Market System.

(bb) The Company has reviewed its operations and that of its
subsidiaries to

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<PAGE>

evaluate the extent to which the business or operations of the Company
or any of its subsidiaries will be affected by the Year 2000 Problem
(that is, any significant risk that computer hardware or software
applications used by the Company and its subsidiaries will not, in the
case of dates or time periods occurring after December 31, 1999,
function at least as effectively as in the case of dates or time periods
occurring prior to January 1, 2000); as a result of such review, (i) the
Company does not reasonably believe that (A) there are any issues
related to the Company's preparedness to address the Year 2000 Problem
that are of a character required to be described or referred to in the
Registration Statement or Prospectus which have not been accurately
described in the Registration Statement or Prospectus and (B) the Year
2000 Problem will have a Material Adverse Effect; and (ii) the Company
reasonably believes, and is making due inquiry to confirm, that the
suppliers, vendors, customers or other material third parties used or
served by the Company and such subsidiaries are addressing or will
address the Year 2000 Problem in a timely manner, except to the extent
that a failure to address the Year 2000 by a supplier, vendor, customer
or material third party would not have a Material Adverse Effect.

Any certificate signed by any officer of the Company and delivered to the
Representatives or counsel for the Underwriters in connection with the offering
of the Shares shall be deemed a representation and warranty to each Underwriter
by the Company as to matters covered thereby.

5. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of
the Underwriters under this Agreement are several and not joint. The respective
obligations of the Underwriters to purchase the Shares are subject to each of
the following terms and conditions:

(a) Notification that the Registration Statement has become
effective shall have been received by the Representatives and the
Prospectus shall have been timely filed with the Commission in accordance
with Section 6(A)(i) of this Agreement.

(b) No order preventing or suspending the use of any preliminary
prospectus or the Prospectus shall have been or shall be in effect, and no
order suspending the effectiveness of the Registration Statement shall be
in effect, and no proceedings for such purpose shall be pending before or
threatened by the Commission, and any requests for additional information
on the part of the Commission (to be included in the Registration Statement
or the Prospectus or otherwise) shall have been complied with to the
satisfaction of the Commission and the reasonable satisfaction of the
Representatives.

(c) The representations and warranties of the Company contained in
this Agreement and in the certificates delivered pursuant to Section 5(d)
shall be true and

-13-
<PAGE>

correct when made and on and as of each Closing Date as if made on
such date, and the Company shall have performed all covenants and
agreements and satisfied all the conditions contained in this Agreement
required to be performed or satisfied by it at or before such Closing
Date.

(d) The Representatives shall have received on each Closing Date a
certificate, addressed to the Representatives and dated such Closing Date,
of the chief executive or chief operating officer and the chief financial
officer or chief accounting officer of the Company to the effect that (i)
the signers of such certificates have carefully examined the Registration
Statement, the Prospectus and this Agreement, and that the representations
and warranties of the Company in this Agreement are true and correct on and
as of such Closing Date with the same effect as if made on such Closing
Date, (ii) the Company has performed all covenants and agreements and
satisfied all conditions contained in this Agreement required to be
performed or satisfied by it at or prior to such Closing Date and (iii) no
stop order suspending the effectiveness of the Registration Statement has
been issued and, to their best knowledge, no proceedings for that purpose
have been instituted or are pending under the Securities Act.

(e) The Representatives shall have received on the Effective Date,
at the time this Agreement is executed and on each Closing Date a signed
letter from PricewaterhouseCoopers, LLP addressed to the Representatives
and dated, respectively, the Effective Date, the date of this Agreement and
each such Closing Date, in form and substance reasonably satisfactory to
the Representatives, confirming that they are independent accountants
within the meaning of the Securities Act and the Rules, and stating in
effect that:

(i) in their opinion, the financial statements and
financial statement schedules of the Company and its subsidiaries,
Calder Race Course, Inc. and Tropical Park, Inc. included or
incorporated by reference in the Registration Statement and the
Prospectus and audited by them comply as to form in all material
respects with the applicable accounting requirements of the Securities
Act and the Rules;

(ii) they have read the unaudited pro forma condensed
consolidated balance sheet of the Company as of March 31, 1999, and
the unaudited pro forma condensed consolidated statements of income
for the Company for the year ended December 31, 1998, and the
three-month period ended March 31, 1999, included in the Registration
Statement, inquired of officials of the Company who have
responsibility for financial and accounting matters about (A) the
basis for their determination of the pro forma adjustments and (B)
whether the unaudited pro forma condensed consolidated financial
statements referred to in this paragraph (ii) comply as to form in all
material respects with the applicable accounting requirements of Rule
11-02 of Regulation S-X and

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<PAGE>

proved the arithmetic accuracy of the application of the pro forma
adjustments to the historical amounts in the unaudited pro forma
condensed consolidated financial statements;

(iii) on the basis of the review referred to in clause (ii)
above, nothing came to their attention that caused them to believe
that (a) the unaudited pro forma condensed consolidated financial
statements referred to in (ii) above do not comply as to form in all
material respects with the applicable accounting requirements of Rule
11-02 of Regulation S-X and (b) the pro forma adjustments have not
been properly applied to the historical amounts in the compilation of
those statements;

(iv) they have performed the procedures specified by the
American Institute of Certified Public Accountants for a review of
interim financial information as described in Statement of Auditing
Standards No. 71, INTERIM FINANCIAL INFORMATION, on the unaudited
condensed interim financial statements of the Company and its
subsidiaries, Calder Race Course, Inc. and Tropical Park, Inc.
included in the Registration Statement;

(v) on the basis of the review referred to in clause (iv)
above, a reading of the latest available interim financial statements
of the Company, inquiries of officials of the Company who have
responsibility for financial and accounting matters and other
specified procedures, nothing came to their attention that caused them
to believe that:

(1) the unaudited financial statements included in the
Registration Statement do not comply as to form in all
material respects with the applicable accounting
requirements of the Act and the related published Rules
and Regulations or any material modifications should be
made to such unaudited financial statements for them to
be in conformity with generally accepted accounting
principles;

(2) at a specified date not more than three business days
prior to the date of the letter, there was any change
in the capital stock or any increase in the short-term
or long-term indebtedness of the Company and its
consolidated subsidiaries or, at the date of the latest
available balance sheet read by such accountants, there
was any decrease in consolidated net current assets or
net assets, as compared with amounts shown on the
latest balance sheet included in the Prospectus; or

-15-
<PAGE>

(3) for the period from the closing date of the latest
income statement included in the Prospectus to the
closing date of the latest available income statement
read by such accountants there were any decreases, as
compared with the corresponding period of the previous
year and with the period of corresponding length ended
the date of the latest income statement included in the
Prospectus, in consolidated net sales or net operating
income in the total or per share amounts of
consolidated net income;

except in all cases set forth in clauses (2) and (3) above for
changes, increases or decreases which the Prospectus discloses have
occurred or may occur or which are described in such letter;

(vi) they have performed certain other procedures as a
result of which they determined that certain information of an
accounting, financial or statistical nature (which is limited to
accounting, financial or statistical information derived from the
general accounting records of the Company) set forth in the
Registration Statement and the Prospectus and reasonably specified by
the Representatives agrees with the accounting records of the Company;
and

(vii) they have performed certain other procedures as a
result of which they determined that the information set forth in the
Prospectus under the captions "Summary Consolidated Selected Financial
Information," "Capitalization," "Selected Consolidated Financial
Information," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" which is expressed
in dollars (or percentages derived from dollar amounts) and has been
obtained from accounting records which are subject to financial
reporting controls or which have been derived directly from such
accounting records by analysis or computation, is in agreement with
the records or computations made therefrom.

References to the Registration Statement and the Prospectus in this
paragraph (e) are to such documents as amended and supplemented at the
date of the letter.

(f) The Representatives shall have received on the Effective Date, at
the time this Agreement is executed and on each Closing Date a signed
letter from Arthur Anderson LLP addressed to the Representatives and dated,
respectively, the Effective Date, the date of this Agreement and each such
Closing Date, in form and substance reasonably satisfactory to the
Representatives, confirming that they are independent accountants within
the meaning of the Securities Act and the Rules, and stating in effect
that:

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<PAGE>

(i) in their opinion, the financial statements and
financial statement schedules of Hollywood Park, Inc. included in the
Registration Statement and the Prospectus and audited by them comply
as to form in all material respects with the applicable accounting
requirements of the Securities Act and the Rules;

(ii) they have performed the procedures specified by the
American Institute of Certified Public Accountants for a review of
interim financial information as described in Statement of Auditing
Standards No. 71, INTERIM FINANCIAL INFORMATION, on the unaudited
interim financial statements of Hollywood Park, Inc. included in the
Registration Statement;

(iii) on the basis of the review referred to in clause (ii)
above, a reading of the latest available interim financial statement
of Hollywood Park, Inc., inquiries of officials of Hollywood Park,
Inc. who have responsibility for financial and accounting matters and
other specified procedures, nothing came to their attention that
caused them to believe that:

(2) at a specified date not more than three business days
prior to the date of the letter, there was any change
in the capital stock or any increase in the short-term
or long-term indebtedness of Hollywood Park, Inc. and
its consolidated subsidiaries or, at the date of the
latest available balance sheet read by such
accountants, there was any decrease in consolidated net
current assets or net assets, as compared with amounts
shown on the latest balance sheet included in the
Prospectus; or

-17-
<PAGE>

consolidated net sales or net operating income in the
total or per share amounts of consolidated net income;

except in all cases set forth in clauses (2) and (3) above for
changes, increases or decreases which the Prospectus discloses have
occurred or may occur or which are described in such letter.

References to the Registration Statement and the Prospectus in this
paragraph (f) are to such documents as amended and supplemented at the date
of the letter.

(g) The Representatives shall have received on each Closing Date from
Wyatt, Tarrant & Combs, counsel for the Company, an opinion, addressed to
the Representatives and dated such Closing Date, and stating in effect
that:

(i) Such counsel has acted as principal external counsel to
the Company for more than thirty years, and during the course of such
representation, nothing has come to the attention of such counsel that
would lead such counsel to believe that the Company has not been duly
organized.

(ii) The Company is validly existing as a corporation under
the laws of the Commonwealth of Kentucky. The Company is duly
qualified, and is active or in good standing (where applicable) as a
foreign corporation in each jurisdiction in which the character or
location of its assets or properties (owned, leased or licensed) or
the nature of its businesses makes such qualification necessary,
except for such jurisdictions where the failure to so qualify would
not have a Material Adverse Effect.

(iii) Each of the Company's subsidiaries has been duly
incorporated or formed and is validly existing as a corporation,
limited liability company or limited partnership, as the case may be
and is active or in good standing (where applicable) under the laws of
the jurisdiction of its incorporation or formation. Each subsidiary
of the Company is duly qualified and is active or in good standing
(where applicable) as a foreign corporation, limited liability company
or limited partnership, as the case may be, in each jurisdiction in
which the character or location of its assets or properties (owned,
leased or licensed) or the nature of its business makes such
qualification necessary except for such jurisdictions where the
failure to so qualify would not have a Material Adverse Effect. All
the outstanding shares of capital stock of each corporate subsidiary
of the Company have been duly and validly authorized and issued and
are fully paid and nonassessable, and, except as otherwise set forth
in the Prospectus, to such counsel's knowledge after due
inquiry, all outstanding shares of capital stock of such subsidiaries
are beneficially owned by the Company either directly or through
wholly owned subsidiaries, free and clear of any security interest,

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<PAGE>

lien or encumbrance, except as created in connection with the
Credit Agreement.

(iv) Each of the Company and its subsidiaries has, as
applicable, all requisite corporate, partnership or limited liability
company power and authority to own, lease and license its assets and
properties and conduct its business as now being conducted and as
described in the Registration Statement and the Prospectus; and the
Company has all requisite corporate power and authority and all
necessary authorizations, approvals, consents, orders, licenses,
certificates and permits to enter into, deliver and perform this
Agreement and to issue and sell the Shares other than those required
under the Securities Act, the rules of the NASD and state and foreign
Blue Sky laws.

(v) The Company has authorized and, to the best knowledge
of such counsel after due inquiry, outstanding capital stock as set
forth in the Registration Statement and the Prospectus under the
caption "Capitalization;" the certificates evidencing the Shares are
in due and proper legal form and have been duly authorized for
issuance by the Company; and to such counsel's knowledge after
appropriate inquiry, all outstanding shares of Common Stock of the
Company have been duly and validly authorized and issued and are fully
paid and non-assessable. Based on such counsel's representation of
the Company as set forth in (i) above, nothing has come to the attention
of such counsel that would lead such counsel to believe that any share
of Common Stock of the Company was issued in violation of any
preemptive or other similar right. To the best of such counsel's
knowledge after due inquiry, except as discussed in the Registration
Statement and the Prospectus, there are no preemptive rights or any
restriction upon the voting or transfer of any securities of the
Company pursuant to the Company's Articles of Incorporation or by-laws
or other governing documents or any other instrument to which the
Company is a party or by which it may be bound. The Shares when
issued and sold pursuant to this Agreement will be duly and validly
issued, outstanding, fully paid and nonassessable, and none of them
will have been issued in violation of any statutory preemptive or
other similar right. To the best of such counsel's knowledge, after
due inquiry, except as disclosed in the Registration Statement and the
Prospectus, there is no outstanding option, warrant or other right
calling for the issuance of, and no commitment, plan or arrangement to
issue, any shares of stock of the Company or any security convertible
into, exercisable for, or exchangeable for stock of the Company. The
Common Stock and the Shares conform in all material respects to the
descriptions thereof contained in the Registration Statement and the
Prospectus. Except as disclosed in the Prospectus, no holders of
securities of the Company have rights to the registration of such
securities under the Registration Statement.

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<PAGE>

(vi) All necessary corporate action has been duly and
validly taken by the Company to authorize the execution, delivery and
performance of this Agreement, and the issuance and sale of the
Shares. This Agreement has been duly and validly authorized, executed
and delivered by the Company, and this Agreement constitutes the
legal, valid and binding obligation of the Company enforceable against
the Company in accordance with its terms.

(vii) Neither the execution, delivery and performance of this
Agreement by the Company nor the consummation of any of the
transactions contemplated hereby (including, without limitation, the
issuance and sale by the Company of the Shares) will give rise to a
right to terminate or accelerate the due date of any payment due
under, or conflict with or result in the breach of any term or
provision of, or constitute a default (or any event which with notice
or lapse of time, or both, would constitute a default) under, or
require consent or waiver under, or result in the execution or
imposition of any lien, charge or encumbrance upon any properties or
assets of the Company or any subsidiary of the Company pursuant to the
terms of, any indenture, mortgage, deed trust, note or other material
agreement or instrument of which such counsel is aware and to which
the Company or any subsidiary of the Company is a party or by which it
or any of its properties or businesses is bound, or any material
franchise, license or permit or any judgment, decree, order, statute,
rule or regulation of which such counsel is aware or violate any
provision of the charter or by-laws of the Company or any subsidiary
of the Company.

(viii) To the best of such counsel's knowledge, no event has
occurred which with notice or lapse of time, or both, would constitute
a default, in the due performance and observance of any term, covenant
or condition by the Company of any indenture, mortgage, deed of trust,
note or any other agreement or instrument to which the Company is a
party or by which it or any of its assets or properties or businesses
may be bound or affected, where the consequences of such default would
have a Material Adverse Effect.

(ix) To the best of such counsel's knowledge, the Company
and its subsidiaries are not in violation of any term or provision of
their respective charters or by-laws or any franchise, license,
permit, judgment, decree, order, statute, rule or regulation, where
the consequences of such violation would have a Material Adverse
Effect.

(x) No consent, approval, authorization or order of any
court or governmental agency or regulatory body, including the
Kentucky Racing Commission, is required for the execution, delivery or
performance of this Agreement by the Company or the consummation of
the transactions contemplated hereby or thereby, except such as have
been obtained under the

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<PAGE>

Securities Act, the rules of the NASD or state gaming laws and such
as may be required under state securities or Blue Sky laws in
connection with the purchase and distribution of the Shares by the
several Underwriters.

(xi) To the best of such counsel's knowledge, there is no
litigation or governmental or other proceeding or investigation,
before any court or before or by any public body or board pending or
threatened against, or involving the assets, properties or businesses
of, the Company which would have a Material Adverse Effect.

(xii) The Capital Stock of the Company conforms in all
material respects to the description thereof contained in the
Prospectus under the caption "Description of Capital Stock."

(xiii) The statements in the Prospectus under the captions
"Description of Capital Stock," "Management's Discussion and Analysis
- Liquidity and Capital Resources," "Business - Pari-Mutuel Industry
Overview -- Other Legislative Changes", "Business - Licensing",
"Business - Service Marks," "Business -Environmental Matters,"
"Business - Management," "Principal Shareholders" and "Certain
Transactions," insofar as such statements constitute a summary of
documents referred to therein or matters of law, are fair summaries in
all material respects and accurately present in all material respects
the information called for by the Securities Act and the Rules
promulgated thereunder with respect to such documents and matters. To
such counsel's knowledge, accurate copies of all contracts and other
documents required to be filed as exhibits to, or described in, the
Registration Statement have been so filed with the Commission or
incorporated by reference therein as permitted by the Rules or are
fairly described in the Registration Statement, as the case may be.

To the extent deemed advisable by such counsel, they may rely as to
matters of fact on certificates of responsible officers of the Company and
public officials and on the opinions of other counsel satisfactory to the
Representatives as to matters which are governed by laws other than the
laws of the Commonwealth of Kentucky, the General Corporation Law of the
State of Delaware and the Federal laws of the United States; provided that
such counsel shall state that in their opinion the Underwriters and they
are justified in relying on such other opinions. Copies of such
certificates and other opinions shall be furnished to the Representatives
and counsel for the Underwriters.

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<PAGE>

the Prospectus and related matters were discussed and, although such
counsel is not passing upon and does not assume any responsibility for
the accuracy, completeness or fairness of the statements contained in
the Registration Statement and the Prospectus (except as specified in
the foregoing opinion), on the basis of the foregoing, no facts have
come to the attention of such counsel which lead such counsel to believe
that the Registration Statement at the time it became effective (except
with respect to the financial statements and the notes and schedules
thereto and other financial and statistical data, as to which such
counsel need express no belief) contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, or
that the Prospectus as amended or supplemented (except with respect to
the financial statements and notes and schedules thereto and other
financial and statistical data, as to which such counsel need make no
statement) on the date thereof contained any untrue statement of a
material fact or omitted to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading.

(h) The Representatives shall have received on each Closing Date from
Skadden, Arps, Slate, Meagher & Flom (Illinois), counsel for the Company,
an opinion, addressed to the Representatives and dated such Closing Date,
and stating in effect that:

(i) The Registration Statement, all preliminary prospectuses and
the Prospectus and each amendment or supplement thereto (except for
the financial statements and schedules and other financial and
statistical data included therein, as to which such counsel expresses
no opinion) comply as to form in all material respects with the
requirements of the Securities Act, the Rules and the Exchange Act.
The Company meets the requirements for filing the Registration
Statement on Form S-3.

(ii) The Registration Statement is effective under the Securities
Act and no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have
been instituted or are threatened, pending or contemplated. Any
required filing of the Prospectus and any supplement thereto pursuant
to Rule 424(b) under the Securities Act has been made in the manner
and within the time period required by such Rule 424(b).

(iii) The Shares have been approved for listing on the Nasdaq
National Market.

(iv) The company is not an "investment company" or an entity
controlled by an "investment company" as such terms are defined in the

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<PAGE>

Investment Company Act of 1940, as amended.

To the extent deemed advisable by such counsel, they may rely as to
matters of fact on certificates of responsible officers of the Company and
public officials, and on the opinions of other counsel satisfactory to the
Representatives as to matters which are governed by laws other than the
laws of the State of Illinois, the General Corporation Law of the State of
Delaware and the Federal laws of the United States; provided that such
counsel shall state that in their opinion the Underwriters and they are
justified in relying on such other opinions. Copies of such certificates
and other opinions shall be furnished to the Representatives and counsel
for the Underwriters.

In addition, such counsel shall state that such counsel has
participated in conferences with officers and other representatives of the
Company, representatives of the Representatives and representatives of the
independent certified public accountants of the Company, at which
conferences the contents of the Registration Statement and the Prospectus
and related matters were discussed and, although such counsel is not
passing upon and does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement and the Prospectus (except as specified in the foregoing
opinion), on the basis of the foregoing, no facts have come to the
attention of such counsel which lead such counsel to believe that the
Registration Statement at the time it became effective (except with respect
to the financial statements and notes and schedules thereto and other
financial data, as to which such counsel need express no belief) contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, or that the Prospectus as amended or supplemented (except
with respect to the financial statements and notes and schedules thereto
and other financial data, as to which such counsel need make no statement)
on the date thereof contained any untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.

(i) All proceedings taken in connection with the sale of the Firm
Shares and the Option Shares as herein contemplated shall be reasonably
satisfactory in form and substance to the Representatives and their
counsel, and the Underwriters shall have received from Morgan, Lewis &
Bockius LLP a favorable opinion, addressed to the Representatives and dated
such Closing Date, with respect to the Shares, the Registration Statement
and the Prospectus, and such other related matters as the Representatives
may reasonably request, and the Company shall have furnished to Morgan,
Lewis & Bockius LLP such documents as they may reasonably request for the
purpose of enabling them to pass upon such matters.

(j) The Representatives shall have received copies of the Lock-up
Agreements executed by each entity or person described in Section 4(p).

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<PAGE>

6. COVENANTS OF THE COMPANY.

(A) The Company covenants and agrees as follows:

(i) The Company shall prepare the Prospectus in a form
approved by the Representatives and file such Prospectus pursuant to
Rule 424(b) under the Securities Act not later than the Commission's
close of business on the second business day following the execution
and delivery of this Agreement, or, if applicable, such earlier time
as may be required by Rule 430A(a)(3) under the Securities Act.

(ii) The Company shall promptly advise the Representatives
in writing (a) when any amendment to the Registration Statement shall
have become effective, (b) of any request by the Commission for any
amendment of the Registration Statement or the Prospectus or for any
additional information, (c) of the prevention or suspension of the use
of any preliminary prospectus or the Prospectus or of the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement or the institution or threatening of any
proceeding for that purpose and (d) of the receipt by the Company of
any notification with respect to the suspension of the qualification
of the Shares for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose. The Company shall not
file any amendment of the Registration Statement or supplement to the
Prospectus unless the Company has furnished the Representatives a copy
for their review prior to filing and shall not file any such proposed
amendment or supplement to which the Representatives reasonably
object. The Company shall use its best efforts to prevent the
issuance of any such stop order and, if issued, to obtain as soon as
possible the withdrawal thereof.

(iii) If, at any time when a prospectus relating to the
Shares is required to be delivered under the Securities Act and the
Rules, any event occurs as a result of which the Prospectus as then
amended or supplemented would include any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein in the light of the circumstances under which they
were made not misleading, or if it shall be necessary to amend or
supplement the Prospectus to comply with the Securities Act or the
Rules, the Company promptly shall prepare and file with the
Commission, subject to paragraph (ii) of this Section 6(A), an
amendment or supplement which shall correct such statement or omission
or an amendment which shall effect such compliance.

(iv) The Company shall make generally available to its
security holders and to the Representatives as soon as practicable,
but not later than 45

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<PAGE>

days after the end of the 12-month period beginning at the end of
the fiscal quarter of the Company during which the Effective Date
occurs (or 90 days if such 12-month period coincides with the
Company's fiscal year), an earnings statement (which need not be
audited) of the Company, covering such 12-month period, which shall
satisfy the provisions of Section 11(a) of the Securities Act or
Rule 158 of the Rules.

(v) The Company shall furnish to the Representatives and
counsel for the Underwriters, without charge, signed copies of the
Registration Statement (including all exhibits thereto and amendments
thereof) and to each other Underwriter a copy of the Registration
Statement (without exhibits thereto) and all amendments thereof and,
so long as delivery of a prospectus by an Underwriter or dealer may be
required by the Securities Act or the Rules, as many copies of any
preliminary prospectus and the Prospectus and any amendments thereof
and supplements thereto as the Representatives may reasonably request.

(vi) The Company shall cooperate with the Representatives
and their counsel in endeavoring to qualify the Shares for offer and
sale in connection with the offering under the laws of such
jurisdictions as the Representatives may designate and shall maintain
such qualifications in effect so long as required for the distribution
of the Shares; provided, however, that the Company shall not be
required in connection therewith, as a condition thereof, to qualify
as a foreign corporation or to execute a general consent to service of
process in any jurisdiction or subject itself to taxation as doing
business in any jurisdiction.

(vii) For a period of three years after the date of this
Agreement, the Company shall supply to the Representatives, and to
each other Underwriter who may so request in writing, copies of such
financial statements and other periodic and special reports as the
Company may from time to time distribute generally to the holders of
any class of its capital stock and to furnish to the Representatives a
copy of each annual or other report it shall be required to file with
the Commission (including the Report required by Rule 463 of the
Rules).

(viii) Without the prior written consent of CIBC World Markets
Corp., for a period of 180 days after the date of this Agreement, each
of the directors and executive officers of the Company shall not sell
and the Company shall not issue, sell or register with the Commission
(other than on Form S-8 or on any successor form), or otherwise
dispose of, directly or indirectly, any equity securities of the
Company (or any securities convertible into or exercisable or
exchangeable for equity securities of the Company), except for the
issuance of the Shares pursuant to the Registration Statement and the
issuance of shares pursuant to the Company's existing stock option
plan, employee stock purchase

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<PAGE>

plan or bonus plan as described in the Registration Statement and
the Prospectus.

(ix) On or before completion of this offering, the Company
shall make all filings required under applicable securities laws and
by the Nasdaq National Market System.

(x) The Company will apply the net proceeds from the
offering of the Shares in the manner set forth under "Use of Proceeds"
in the Prospectus.

(B) The Company agrees to pay, or reimburse if paid by the
Representatives, whether or not the transactions contemplated hereby are
consummated or this Agreement is terminated, all costs and expenses incident to
the public offering of the Shares and the performance of the obligations of the
Company under this Agreement including those relating to: (i) the preparation,
printing, filing and distribution of the Registration Statement, including all
exhibits thereto, each preliminary prospectus, the Prospectus, all amendments
and supplements to the Registration Statement and the Prospectus, and the
printing, filing and distribution of this Agreement; (ii) the preparation and
delivery of certificates for the Shares to the Underwriters; (iii) the
registration or qualification of the Shares for offer and sale under the
securities or Blue Sky laws of the various jurisdictions referred to in Section
6(A)(vi), including the reasonable fees and disbursements of counsel for the
Underwriters in connection with such registration and qualification and the
preparation, printing, distribution and shipment of preliminary and
supplementary Blue Sky memoranda; (iv) the furnishing (including costs of
shipping and mailing) to the Representatives and to the Underwriters of copies
of each preliminary prospectus, the Prospectus and all amendments or supplements
to the Prospectus, and of the several documents required by this Section to be
so furnished, as may be reasonably requested for use in connection with the
offering and sale of the Shares by the Underwriters or by dealers to whom Shares
may be sold; (v) the filing fees of the NASD in connection with its review of
the terms of the public offering and reasonable fees and disbursements of
counsel for the Underwriters in connection with such review; (vi) the furnishing
(including costs of shipping and mailing) to the Representatives and to the
Underwriters of copies of all reports and information required by Section
6(A)(vii); (vii) inclusion of the Shares for quotation on the Nasdaq National
Market System; and (viii) all transfer taxes, if any, with respect to the sale
and delivery of the Shares by the Company to the Underwriters. Subject to the
provisions of Section 9, the Underwriters agree to pay, whether or not the
transactions contemplated hereby are consummated or this Agreement is
terminated, all costs and expenses incident to the performance of the
obligations of the Underwriters under this Agreement not payable by the Company
pursuant to the preceding sentence, including, without limitation, the fees and
disbursements of counsel for the Underwriters.

7. INDEMNIFICATION.

(a) The Company agrees to indemnify and hold harmless each
Underwriter

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<PAGE>

and each person, if any, who controls any Underwriter within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act
against any and all losses, claims, damages and liabilities, joint or
several (including any reasonable investigation, legal and other
expenses incurred in connection with, and any amount paid in settlement
of, any action, suit or proceeding or any claim asserted), to which it
may become subject under the Securities Act, the Exchange Act or other
Federal or state laws or regulations, at common law or otherwise,
insofar as such losses, claims, damages or liabilities arise out of or
are based upon any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus, the Registration
Statement or the Prospectus or any amendment thereof or supplement
thereto, or arise out of or are based upon any omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading; provided,
however, that such indemnity shall not inure to the benefit of any
Underwriter (or any person controlling such Underwriter) on account of
any losses, claims, damages or liabilities arising from the sale of the
Shares to any person by such Underwriter if such untrue statement or
omission or alleged untrue statement or omission was made in such
preliminary prospectus, the Registration Statement or the Prospectus, or
such amendment or supplement, in reliance upon and in conformity with
information furnished in writing to the Company by the Representatives
on behalf of any Underwriter specifically for use therein, it being
understood and agreed that the only such information furnished by any
Underwriter consists of the information described as such in Section
7(b) below. This indemnity agreement will be in addition to any
liability which the Company may otherwise have.

(b) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act, each director of the Company, and each officer of
the Company who signs the Registration Statement, to the same extent as the
foregoing indemnity from the Company to each Underwriter, but only insofar
as such losses, claims, damages or liabilities arise out of or are based
upon any untrue statement or omission or alleged untrue statement or
omission which was made in any preliminary prospectus, the Registration
Statement or the Prospectus, or any amendment thereof or supplement
thereto, contained in (i) the concession and reallowance figures appearing
in the 3rd and 5th paragraph under the caption "Underwriting" and (ii) the
stabilization information contained in the 15th paragraph under the
caption "Underwriting"; provided, however, that the obligation of each
Underwriter to indemnify the Company (including any controlling person,
director or officer thereof) shall be limited to the net proceeds received
by the Company from such Underwriter.

(c) Any party that proposes to assert the right to be indemnified
under this Section will, promptly after receipt of notice of commencement
of any action, suit or proceeding against such party in respect of which a
claim is to be made against an

-27-

<PAGE>

indemnifying party or parties under this Section, notify each such
indemnifying party of the commencement of such action, suit or
proceeding, enclosing a copy of all papers served. No indemnification
provided for in Section 7(a) or 7(b) shall be available to any party who
shall fail to give notice as provided in this Section 7(c) if the party
to whom notice was not given was unaware of the proceeding to which such
notice would have related and was prejudiced by the failure to give such
notice but the omission so to notify such indemnifying party of any such
action, suit or proceeding shall not relieve it from any liability that
it may have to any indemnified party for contribution or otherwise than
under this Section. In case any such action, suit or proceeding shall
be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party
shall be entitled to participate in, and, to the extent that it shall
wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof and
the approval by the indemnified party of such counsel, which approval
shall not be unreasonably withheld, the indemnifying party shall not be
liable to such indemnified party for any legal or other expenses, except
as provided below and except for the reasonable costs of investigation
subsequently incurred by such indemnified party in connection with the
defense thereof. The indemnified party shall have the right to employ
its counsel in any such action, but the fees and expenses of such
counsel shall be at the expense of such indemnified party unless (i) the
employment of counsel by such indemnified party has been authorized in
writing by the indemnifying parties, (ii) the indemnified party shall
have reasonably concluded that there may be a conflict of interest
between the indemnifying parties and the indemnified party in the
conduct of the defense of such action (in which case the indemnifying
parties shall not have the right to direct the defense of such action on
behalf of the indemnified party) or (iii) the indemnifying parties shall
not have employed counsel to assume the defense of such action within a
reasonable time after notice of the commencement thereof, in each of
which cases the reasonable fees and expenses of counsel shall be at the
expense of the indemnifying parties but in no event will the
indemnifying parties be liable for fees and expenses of more than two
counsel, one of whom shall be local counsel, separate from the
indemnifying parties' counsel, for all indemnified parties in connection
with any one or separate but similar or related actions arising out of
the same general allegations. An indemnifying party shall not be liable
for any settlement of any action, suit, proceeding or claim effected
without its written consent, which consent shall not be unreasonably
withheld or delayed.

8. CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in
Section 7(a) or 7(b) is due in accordance with its terms but for any reason is
held to be unavailable or insufficient to hold harmless an indemnified party
under Section 7(a) or 7(b), then each indemnifying party shall contribute to the
aggregate losses, claims, damages and liabilities (including any investigation,

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<PAGE>

legal and other expenses reasonably incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding or any claims asserted,
but after deducting any contribution received by any person entitled hereunder
to contribution from any person who may be liable for contribution) to which the
indemnified party may be subject in such proportion as is appropriate to reflect
the relative benefits received by the Company on the one hand and the
Underwriters on the other from the offering of the Shares or, if such allocation
is not permitted by applicable law or indemnification is not available as a
result of the indemnifying party not having received notice as provided in
Section 7 hereof, in such proportion as is appropriate to reflect not only the
relative benefits referred to above but also the relative fault of the Company
on the one hand and the Underwriters on the other in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company and the Underwriters shall be
deemed to be in the same proportion as (x) the total proceeds from the offering
(net of underwriting discounts but before deducting expenses) received by the
Company, as set forth in the table on the cover page of the Prospectus, bear to
(y) the underwriting discounts received by the Underwriters, as set forth in the
table on the cover page of the Prospectus. The relative fault of the Company or
the Underwriters shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact related to
information supplied by the Company or the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section 8
were determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation that does not
take account of the equitable considerations referred to above. Notwithstanding
the provisions of this Section 8, (i) in no case shall any Underwriter (except
as may be provided in the Agreement Among Underwriters) be liable or responsible
for any amount in excess of the underwriting discount applicable to the Shares
purchased by such Underwriter hereunder; and (ii) the Company shall be liable
and responsible for any amount in excess of such underwriting discount;
provided, however, that no person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 8, each person, if any, who
controls an Underwriter within the meaning of Section 15 of the Securities Act
or Section 20(a) of the Exchange Act shall have the same rights to contribution
as such Underwriter, and each person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange
Act, each officer of the Company who shall have signed the Registration
Statement and each director of the Company shall have the same rights to
contribution as the Company, subject in each case to clauses (i) and (ii) in the
immediately preceding sentence of this Section 8. Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim for
contribution may be made against another party or parties under this Section,
notify such party or parties from whom contribution may be sought, but the
omission so to notify such party or parties from whom

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<PAGE>

contribution may be sought shall not relieve the party or parties from whom
contribution may be sought from any other obligation it or they may have
hereunder or otherwise than under this Section. No party shall be liable for
contribution with respect to any action, suit, proceeding or claim settled
without its written consent. The Underwriter's obligations to contribute
pursuant to this Section 8 are several in proportion to their respective
underwriting commitments and not joint.

9. TERMINATION. This Agreement may be terminated with respect to
the Shares to be purchased on a Closing Date by the Representatives by notifying
the Company at any time

(a) in the absolute discretion of the Representatives at or before
any Closing Date: (i) if, on or prior to such date, any domestic or
international event or act or occurrence has materially disrupted, or in
the opinion of the Representatives will in the future materially disrupt,
the securities markets; (ii) if there has occurred any new outbreak or
material escalation of hostilities or other calamity or crisis the effect
of which on the financial markets of the United States is such as to make
it, in the judgment of the Representatives, inadvisable to proceed with the
offering; (iii) if there shall be such a material adverse change in general
financial, political or economic conditions or the effect of international
conditions on the financial markets in the United States is such as to make
it, in the judgment of the Representatives, inadvisable or impracticable to
market the Shares; (iv) if trading in the Shares has been suspended by the
Commission or trading generally on the New York Stock Exchange, Inc., the
American Stock Exchange, Inc. or the Nasdaq National Market has been
suspended or limited, or minimum or maximum ranges for prices for
securities shall have been fixed, or maximum ranges for prices for
securities shall have been required, by said exchanges or by order of the
Commission, the National Association of Securities Dealers, Inc., or any
other governmental or regulatory authority; (v) if a banking moratorium has
been declared by any state or Federal authority; or (vi) if, in the
judgment of the Representatives, there has occurred a Material Adverse
Effect, or

(b) at or before any Closing Date, that any of the conditions
specified in Section 5 shall not have been fulfilled when and as required
by this Agreement.

If this Agreement is terminated pursuant to any of its provisions, the
Company shall not be under any liability to any Underwriter, and no Underwriter
shall be under any liability to the Company, except that (y) if this Agreement
is terminated by the Representatives or the Underwriters because of any failure,
refusal or inability on the part of the Company to comply with the terms or to
fulfill any of the conditions of this Agreement, the Company will reimburse the
Underwriters for all out-of-pocket expenses (including the reasonable fees and
disbursements of their counsel) incurred by them in connection with the proposed
purchase and sale of the Shares or in contemplation of performing their
obligations hereunder and (z) no Underwriter who shall have failed or refused to
purchase the Shares agreed to be purchased by

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<PAGE>

it under this Agreement, without some reason sufficient hereunder to justify
cancellation or termination of its obligations under this Agreement, shall be
relieved of liability to the Company or to the other Underwriters for damages
occasioned by its failure or refusal.

10. SUBSTITUTION OF UNDERWRITERS. If one or more of the Underwriters
shall fail (other than for a reason sufficient to justify the cancellation or
termination of this Agreement under Section 9) to purchase on any Closing Date
the Shares agreed to be purchased on such Closing Date by such Underwriter or
Underwriters, the Representatives may find one or more substitute underwriters
to purchase such Shares or make such other arrangements as the Representatives
may deem advisable, or one or more of the remaining Underwriters may agree to
purchase such Shares in such proportions as may be approved by the
Representatives, in each case upon the terms set forth in this Agreement. If no
such arrangements have been made by the close of business on the business day
following such Closing Date,

(a) if the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date shall not exceed 10% of the Shares that
all the Underwriters are obligated to purchase on such Closing Date, then
each of the nondefaulting Underwriters shall be obligated to purchase such
Shares on the terms herein set forth in proportion to their respective
obligations hereunder; provided that in no event shall the maximum number
of Shares that any Underwriter has agreed to purchase pursuant to Section 1
be increased pursuant to this Section 10 by more than one-ninth of such
number of Shares without the written consent of such Underwriter, or

(b) if the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date shall exceed 10% of the Shares that all
the Underwriters are obligated to purchase on such Closing Date, then the
Company shall be entitled to one additional business day within which it
may, but is not obligated to, find one or more substitute underwriters
reasonably satisfactory to the Representatives to purchase such Shares upon
the terms set forth in this Agreement.

In any such case, either the Representatives or the Company shall have
the right to postpone the applicable Closing Date for a period of not more than
five business days in order that necessary changes and arrangements (including
any necessary amendments or supplements to the Registration Statement or
Prospectus) may be effected by the Representatives and the Company. If the
number of Shares to be purchased on such Closing Date by such defaulting
Underwriter or Underwriters shall exceed 10% of the Shares that all the
Underwriters are obligated to purchase on such Closing Date, and none of the
nondefaulting Underwriters or the Company shall make arrangements pursuant to
this Section within the period stated for the purchase of the Shares that the
defaulting Underwriters agreed to purchase, this Agreement shall terminate with
respect to the Shares to be purchased on such Closing Date without liability on
the part of any nondefaulting Underwriter to the Company and without liability
on the part of the Company, except in both cases as provided in Sections

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<PAGE>

6(B), 7, 8 and 9. The provisions of this Section shall not in any way affect
the liability of any defaulting Underwriter to the Company or the
nondefaulting Underwriters arising out of such default. A substitute
underwriter hereunder shall become an Underwriter for all purposes of this
Agreement.

11. MISCELLANEOUS. The respective agreements, representations,
warranties, indemnities and other statements of the Company or its officers and
of the Underwriters set forth in or made pursuant to this Agreement shall remain
in full force and effect, regardless of any investigation made by or on behalf
of any Underwriter or the Company or any of the officers, directors or
controlling persons referred to in Sections 7 and 8 hereof, and shall survive
delivery of and payment for the Shares. The provisions of Sections 6(B), 7, 8
and 9 shall survive the termination or cancellation of this Agreement.

This Agreement has been and is made for the benefit of the
Underwriters and the Company and their respective successors and assigns, and,
to the extent expressed herein, for the benefit of persons controlling any of
the Underwriters or the Company, and directors and officers of the Company, and
their respective successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. The term "successors and
assigns" shall not include any purchaser of Shares from any Underwriter merely
because of such purchase.

All notices and communications hereunder shall be in writing and
mailed or delivered or by telephone or telegraph if subsequently confirmed in
writing, (a) if to the Representatives, c/o CIBC World Markets Corp., One World
Financial Center, New York, New York 10281 Attention: Legal Department with a
copy to Morgan, Lewis & Bockius LLP, 101 Park Avenue, New York, New York 10178,
Attention: Howard L. Shecter, Esq., and (b) if to the Company, to its agent for
service as such agent's address appears on the cover page of the Registration
Statement with copies to Wyatt, Tarrant & Combs, Citizens Plaza, Louisville, KY
40202-2898, Attention: Robert A. Heath and Skadden, Arps, Slate, Meagher & Flom
(Illinois), 333 W. Wacker Dr., Suite 2100, Chicago, IL 60606, Attention:
William R. Kunkel.

This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without regard to principles of conflict of
laws.

This Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.

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<PAGE>

[signature page to follow]

-33-

<PAGE>

Please confirm that the foregoing correctly sets forth the agreement
among us.

Very truly yours,

CHURCHILL DOWNS INCORPORATED

By
-----------------------------
Name:
Title:

Confirmed:

CIBC World Markets Corp.

- ------------------------------

Acting severally on behalf of itself
and as representative of the several
Underwriters named in Schedule I
annexed hereto.

By CIBC World Markets Corp.

By
------------------------------
Name:
Title:

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<PAGE>

SCHEDULE I

Number of
Firm Shares to
Name Be Purchased
-----------------

CIBC World Markets Corp.
Lehman Brothers Inc.
J.C. Bradford & Co.
J.J.B. Hilliard, W.L. Lyons, Inc.

_______________

Total
===============

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the inclusion in this Amendment No. 2 to the Registration
Statement on Form S-3 of our report dated February 24, 1999 relating to
the financial statements of Churchill Downs Incorporated, which appears in
this Registration Statement as amended. We also consent to the incorporation
by reference in this Amendment No. 2 to the Registration Statement on Form S-3
of our report dated February 24, 1999 relating to the financial statements
and financial statement schedule, which appears in Churchill Downs
Incorporated's Annual Report on Form 10-K for the year ended December 31,
1998. We also consent to the reference to us under the heading "Experts" in
such Registration Statement as amended.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Louisville, Kentucky
July 14, 1999

<PAGE>

EXHIBIT 23.2

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We hereby consent to the use in this Registration Statement Amendment No. 2
on Form S-3 of Churchill Downs Incorporated of our reports dated February 19,
1999 relating to the financial statements of Calder Race Course, Inc. and
Tropical Park, Inc., which appear in such Registration Statement. We also
consent to the reference to us under the heading "Experts" in such
Registration Statement.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
July 14, 1999

<PAGE>

EXHIBIT 23.3

Consent of Ernst & Young LLP, Independent Auditors

We consent to the reference to our firm under the caption "Experts" and to
the incorporation by reference in Amendment No. 2 to the Registration
Statement (Form S-3) and related Prospectus of Churchill Downs Incorporated
for the registration of two million shares of common stock of our report
dated April 7, 1998, with respect to the consolidated financial statements of
Racing Corporation of America included in Churchill Downs Incorporated's
Current Report (Form 8-K/A) dated December 21, 1998, filed with the
Securities and Exchange Commission.

/s/ Ernst & Young LLP

July 14, 1999
Louisville, Kentucky

<PAGE>
ARTHUR ANDERSEN LLP

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.

/s/ ARTHUR ANDERSEN LLP

Los Angeles, California
July 14, 1999