EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT (this " Agreement "), dated as of July 18, 2006 (the " Effective Date "), by and between Churchill Downs Incorporated, a Kentucky corporation (the " Company "), and Robert L. Evans (" Executive ").

WHEREAS, the Company desires to employ Executive and to enter into an agreement embodying the terms of such employment, and considers it to be in its best interests and in the best interests of its stockholders to employ Executive during the Employment Term (as defined in Section 1 below);

WHEREAS, Executive desires to accept such employment with the Company and to enter into this Agreement; and

WHEREAS, Executive is willing to accept employment on the terms hereinafter set forth in this Agreement.

NOW, THEREFORE, in consideration of the premises and mutual covenants herein and for other good and valuable consideration, the parties hereby agree as follows:

1.   Term of Employment . Unless terminated earlier in accordance with the provisions of Section 7, Executive’s employment under this Agreement shall be effective for a term commencing on August 14, 2006 (the " Start Date ") and ending on the three (3) year anniversary of the Start Date (the " Employment Term "). Thereafter, the Employment Term shall be automatically extended for subsequent one (1)-year periods unless written notice to the contrary is given by either the Company or Executive within ninety (90) days prior to the expiration of the Employment Term or the expiration of any subsequent one (1)-year extension thereof. Notwithstanding this Section 1, the equity grants made pursuant to Section 5 of this Agreement shall be made as of the Effective Date.

2.   Position and Duties .

(a)   As of the Start Date, Executive shall serve as the Chief Executive Officer and President of the Company. In such position, Executive shall report directly to the Board (as defined in Section 10(c)) and have such authority, responsibilities, and duties customarily exercised by a person holding such position. The Company shall cause Executive to be appointed to the Board as of the Start Date and, during the Employment Term, to be nominated for election as a member of the Board as needed to maintain Executive’s position on the Board.

(b)   During the Employment Term, Executive will devote substantially all of his business time and best efforts to the performance of his duties. Executive may:

(i)   in addition to being a director of the Company and with the prior written approval of the Chairman of the Board, serve as a director or trustee of: (x) up to three (3) corporate or charitable entities and (y) trade or other associations related to the Company’s industry; and

(ii)   manage his personal investments;

Return to 10-Q

to the extent that such activities do not materially inhibit or materially interfere with the performance of Executive’s duties under this Agreement.

3.   Base Salary . During the Employment Term, the Company shall pay Executive a base salary (the " Base Salary ") at the annual rate of $450,000.00, payable in regular installments in accordance with the Company’s usual payroll practices. The Base Salary includes fees otherwise payable for his services for the Board. The Board shall review and may consider for increase (but not decrease) at any time Executive’s Base Salary in its sole discretion based on Executive’s performance.

4.   Incentive Compensation . Executive shall be eligible to participate in any annual or long-term, cash or equity based, incentive plan or other arrangements of the Company, as they exist from time-to-time. Executive shall first be eligible to participate in an annual performance bonus plan for the performance period commencing January 1, 2007, with a target bonus for such period at 75% of Base Salary. The Board shall determine Executive’s annual incentive plan participation for subsequent years.

5.   Equity Grants .

(a)   Restricted Stock Units . In accordance with the terms of that certain Restricted Stock Units Agreement between the Company and Executive of even date herewith, as of the Effective Date, the Company shall grant Executive 65,000 Restricted Stock Units (as defined in Section 10(r)). The Restricted Stock Units shall vest as follows:

2

Return to 10-Q

(b)   Restricted Shares .

(i)   In accordance with the terms of that certain Restricted Stock Agreement between the Company and Executive of even date herewith, as of the Effective Date and subject to shareholder approval, the Company shall grant Executive 90,000 Restricted Shares of Common Stock which shall vest as follows upon the Fair Market Value (as defined in Section 10(m)) of a share of the Common Stock (as defined in Section 10(g)) reaching the following prices for ** ^* (**) consecutive trading days on and after the Start Date; provided, however, that such ** (**)-trading day period occurs prior to a Termination of Employment (as defined in Section 10(u)), but subject to Section 7(b) below:

(ii)   In accordance with the terms of that certain Restricted Stock Agreement between the Company and Executive of even date herewith, as of the Effective Date and subject to shareholder approval, the Company shall grant Executive 65,000 Restricted Shares of Common Stock which shall vest upon the satisfaction of the requirements described in Subsections (1) and (2) below:

(1)   for ** (**) consecutive trading days after the Start Date, the Fair Market Value of a share of the Common Stock being equal to or greater than *-*, * percent (***%)of the Fair Market Value of a share of Common Stock as of the Effective Date (the " Share Price Requirement "); and

(2)   for the applicable number of Restricted Shares per the schedule immediately below, the later of: (A) the corresponding vesting date as listed on the schedule below, or (B) the satisfaction of the Share Price Requirement; provided, however, that such vesting date or Share Price Requirement occurs prior to a Termination of Employment, but subject to Section  7(b) below:

_________________________

^* Confidential information omitted and filed separately with the Securities and Exchange Commission under a Confidential Treatment Request.

3

Return to 10-Q

(c)   Stock Options . In accordance with the terms of that certain Stock Option Agreement between the Company and Executive of even date herewith, as of the Effective Date and subject to shareholder approval, the Company shall grant Executive six (6)-year term Options (as defined in Section 10(p)) to purchase 130,000 shares of Common Stock with a per share exercise price equal to the Fair Market Value of a share of Common Stock as of the date of grant. Such Options shall vest as follows:

(d)   Change in Control . In the event of a Change in Control during the Employment Term, Executive shall receive accelerated vesting of: (i) fifty percent (50%) of the then-unvested Restricted Stock Units granted pursuant to Section 5(a) above, (ii) fifty percent (50%) of the then-unvested Restricted Shares granted pursuant to Subsections 5(b)(i) and (ii) above, and (iii) fifty percent (50%) of the then-unvested Stock Options granted pursuant to Section 5(c) above. The Restricted Stock Units, Restricted Shares and Stock Options that are subject to accelerated vesting pursuant to this Section 5(d) shall be taken pro-rata from each then-unvested tranche of the applicable award, and the remaining portion of each tranche shall vest according to the original terms of the applicable award agreement, subject to potential accelerated vesting pursuant to Section 7(c) below.

4

Return to 10-Q

(e)   Shareholder Approval . In the event shareholder approval of the awards granted pursuant to Subsection 5(b)(i), Subsection 5(b)(ii), and/or Section 5(c) above is not secured at or prior to the Company’s annual shareholders’ meeting in 2007 (the " 2007 Annual Meeting "), then:

(i)   the Company agrees to use its reasonable efforts to grant Executive a compensation arrangement of equivalent value; or

(ii)   by written notice delivered to the Company within the thirty (30)-day period immediately following the 2007 Annual Meeting, Executive may terminate his employment with the Company and receive, subject to Section 7(g), (A) a lump-sum cash payment equal to $400,000.00 and (B) the Accrued Obligations (as defined in Section 7(a) below); provided, however, that such notice must provide no less than thirty (30) days, but no more than one hundred twenty (120) days, prior notice of the effective date of such Termination of Employment and that such notice shall relieve the Company of its obligations per Section 5(e)(i) above. Notwithstanding the above, as needed to avoid incurring penalties under Section 409A of the Code (as defined in Section 10(f)), such payments due under this Section 5(e)(ii) shall be subject to a 6-month delay from the Termination of Employment. Except as provided herein, Executive shall have no further rights to any compensation or any other benefits under this Agreement due to such Termination of Employment. All other accrued and vested benefits, if any, due Executive following Termination of Employment pursuant to this Section 5(e)(ii) shall be determined in accordance with the plans, policies and practices of the Company.

6.   Other Benefits.

(a)   Retirement Benefits . During the Employment Term, Executive shall be provided with the opportunity to participate in the Company’s qualified 401(k) profit sharing plan and non-qualified deferred compensation plan, as may exist from time to time, in each case, in accordance with the terms of such plans.

(b)   Welfare Benefits . During the Employment Term, Executive shall be provided with the opportunity to participate in the Company’s medical plan and other employee welfare benefits on a comparable basis as such benefits are generally provided by the Company from time to time to the Company’s other senior executives, in each case, in accordance with the terms of such plans.

(c)   Perquisites . During the Employment Term, Executive shall be provided with the opportunity to receive or participate in perquisites on a comparable basis as such perquisites are generally provided by the Company from time to time to the Company’s other senior executives, subject to the following:

(i)   Transportation benefit - Executive will be entitled to transportation, via car service or other comparable arrangement in connection with the performance of his duties hereunder (including but not limited to transportation between his primary residence and the Main Office (as defined in Section 10(o))), which will be in lieu of the Company’s standard cash automobile subsidy provided to senior executives. To the extent this benefit is taxable income to Executive, he will receive a Tax Gross-Up Payment (as defined in Section 10(t)); and

5

Return to 10-Q

(ii)   Attorney fees - The Company will pay reasonable attorneys’ fees and related expenses incurred by Executive in connection with the negotiation and review of this Agreement.

(iii)   Indemnification Agreement - The Company agrees to enter into an agreement with Executive whereby the Company shall: (a) indemnify Executive to the maximum extent allowed under Kentucky law and (b) maintain directors’ and officers’ liability insurance for the benefit of the Executive in a form at least as comprehensive as, and in an amount that is at least equal to, that maintained by the Company at such time for any officer or director of the Company.

(d)   Reimbursement of Business Expenses . During the Employment Term, all reasonable business expenses incurred by Executive in the performance of his duties hereunder shall be reimbursed by the Company upon receipt of documentation of such expenses in a form reasonably acceptable to the Company, and otherwise in accordance with the Company’s expense reimbursement policies. Pursuant to the terms of this Section 6(d), the Company shall pay for the reasonable expenses of the Executive’s wife when she travels with him on the Company’s business.

7.   Termination . Notwithstanding any other provision of the Agreement:

(a)   For Cause by the Company or Voluntary Resignation by Executive Without Good Reason . If Executive is terminated by the Company for Cause (as defined in Section 10(d)) or if Executive voluntarily resigns without Good Reason (as defined in Section 10(n)), Executive shall be entitled to receive as soon as reasonably practicable after his date of termination or such earlier time as may be required by applicable statute or regulation: (i) his earned but unpaid Base Salary through the date of termination; (ii) payment in respect of any vacation days accrued but unused through the date of termination, to the extent provided by Company policy; (iii) reimbursement for all business expenses properly incurred in accordance with Company policy prior to the date of termination and not yet reimbursed by the Company; and (iv) subject to Section 7(g), any earned but unpaid annual bonus in respect of any of the Company’s fiscal years preceding the fiscal year in which the termination occurs (provided, however that if Executive’s termination is by the Company for Cause and such event(s) and/or action(s) that constitute Cause are materially and demonstrably injurious to the business or reputation of the Company, then no payment will be made pursuant to this clause (iv)) (the aggregate benefits payable pursuant to clauses (i), (ii), (iii) and (iv) hereafter referred to as the " Accrued Obligations "); and except as provided herein he shall have no further rights to any compensation (including any Base Salary or annual bonus, if any) or any other benefits under this Agreement. All equity-based awards shall be treated as set forth under the terms of the applicable plan or agreement. All other accrued and vested benefits, if any, due Executive following Executive’s Termination of Employment pursuant to this Section 7(a) shall be determined and paid in accordance with the plans, policies, and practices of the Company.

6

Return to 10-Q

(b)   Without Cause by the Company or Voluntary Resignation by Executive for Good Reason . If Executive is terminated by the Company other than for Cause, Disability (as defined in Section 10(i)) or death, or if Executive voluntarily resigns for Good Reason, Executive shall receive: (i) the Accrued Obligations; and (ii) subject to Section 7(g), (A) Base Salary through the end of the calendar quarter in which Termination of Employment under this Section 7(b) occurs, (B) treatment of all equity-based awards per the terms of the applicable plan or agreement; provided, however, that vesting of any equity awards granted pursuant to Section 5 of this Agreement (including Restricted Shares vesting upon achievement of certain stock price targets) shall be calculated through the end of the calendar quarter in which Termination of Employment occurs, and (C) the continuation of medical benefits through the end of the calendar quarter in which Termination of Employment occurs; provided, however, that such benefit shall be reduced or eliminated to the extent Executive receives similar benefits from a subsequent employer. Notwithstanding the above, as needed to avoid incurring penalties under Section 409A of the Code, such payments due under this Section 7(b) shall be subject to a 6-month delay; provided, however, in the 7th month after Termination of Employment, a lump-sum catch-up payment shall be made for the 6-month delay. Except as provided herein, Executive shall have no further rights to any compensation (including any Base Salary) or any other benefits under this Agreement. All other accrued and vested benefits, if any, due Executive following Termination of Employment pursuant to this Section 7(b) shall be determined in accordance with the plans, policies and practices of the Company.

(c)   Termination following a Change in Control . If, during the 2-year period following a Change in Control (as defined in Section 10(e)), Executive is terminated by the Company other than for Cause, Disability or death, or if Executive voluntarily resigns for Good Reason, Executive shall receive: (i) the Accrued Obligations; (ii) subject to Section 7(g): (A) the benefits set forth in Section 7(b); (B) full accelerated vesting of (x) any then-unvested Restricted Stock Units granted pursuant to Section 5(a), (y) any then-unvested Restricted Shares granted pursuant to Subsections 5(b)(i) and (ii), and (z) any then-unvested Stock Options granted pursuant to Section 5(c); and (C) a Tax Gross-Up Payment for purposes of Code Section 280G.

(d)   Death . Following a Termination of Employment for death, Executive’s estate shall be entitled to receive: (i) the Accrued Obligations; and (ii) subject to Section 7(g), (A) a pro-rata bonus, if any, for