EXHIBIT 10.3

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “ACT”). THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, ASSIGNED,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE ACT. THIS NOTE IS SUBJECT TO CERTAIN
TRANSFER RESTRICTIONS SET FORTH IN SECTION 12 OF THIS NOTE.

CHURCHILL DOWNS INCORPORATED
CONVERTIBLE PROMISSORY NOTE

$16,669,379.87 Louisville, Kentucky
October 19, 2004

          Churchill Downs Incorporated, a Kentucky corporation (the “Company”),
the principal office of which is located at 700 Central Avenue, Louisville,
Kentucky 40208, for value received, hereby promises to pay to the order of Brad
M. Kelley, an individual, whose principal residence is located at 100 Gulf
Blvd., Boca Grande, Florida 33921 (“Holder”), the sum of Sixteen Million Six
Hundred Sixty-Nine Thousand Three Hundred Seventy-Nine Dollars and 87/100
($16,669,379.87), or such lesser amount as shall then equal the outstanding
principal balance hereof and any unpaid accrued interest hereon, as set forth
below, on the date which is ten (10) years from the date hereof (the “Maturity
Date”). The Company shall have no right to prepay or transfer this note prior to
the Maturity Date without the consent of the Holder. The Company shall, on the
Maturity Date, pay the principal balance hereof and any unpaid accrued interest
hereon in any combination of cash and shares of the Company’s common stock (with
shares of the Company’s common stock to be valued for such purposes at the
Conversion Price).

          Payment for all amounts due hereunder shall be made by mail to the
Holder c/o Holder’s attorney, Greg Betterton, Esq., 981 Ridgewood Avenue, #101,
Venice, Florida 34285. This Note is issued pursuant to that certain Stock
Redemption Agreement dated as of the date hereof by and among the Company and
the Holder, as the same may from time to time be amended, modified or
supplemented (the “Redemption Agreement”).

          The following is a statement of the rights of the Holder and the
conditions to which this Note is subject, and to which the Holder, by the
acceptance of this Note, agrees:

          1.     Definitions. Unless specifically defined herein, capitalized
terms shall have the meaning given them in the Redemption Agreement. As used
herein, the following terms, unless the context otherwise requires, have the
following meanings:

1

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

               (i)     The “Company” includes any entity which shall succeed to
or assume the obligations of the Company under this Note.

               (ii)     “Holder,” when the context refers to a holder of this
Note, shall mean any person who shall at the time be the registered holder of
this Note.

               (iii)     “Conversion Price” means $36.83.

          2.     Interest. The Company shall pay interest on the principal
amount of the Note on an annual basis if, and only if, the Company declares and
pays a cash dividend on its common stock for such year. Within ten (10) business
days of paying any cash dividend on its common stock, the Company will pay to
the Holder as interest an amount equal to what Holder would have received as a
dividend on the shares of the Company’s common stock redeemed pursuant to the
Redemption Agreement. All payments made on this Note shall be applied, at the
option of the Holder, first to collection costs, if any, then to accrued
interest and then to principal. After maturity or in the event of default,
interest shall continue to accrue on the Note at the rate set forth above.
Notwithstanding anything in this Note to the contrary, the interest rate charged
hereon shall not exceed the maximum rate allowable by applicable law. If any
stated interest rate herein exceeds the maximum allowable rate, then the
interest rate shall be reduced to the maximum allowable rate, and any excess
payment of interest made by the Company at any time shall be applied to the
unpaid balance of any outstanding principal of this Note.

          3.     Events of Default. If any of the events specified in this
Section 3 shall occur (herein individually referred to as an “Event of
Default”), the Holder of the Note may, so long as such condition exists, declare
the entire outstanding principal of this Note and unpaid accrued interest
thereon immediately due and payable, by notice in writing to the Company:

               (i)     Default in the payment of the principal and unpaid
accrued interest of this Note within fifteen (15) days of when due and payable;
or

               (ii)     The institution by the Company of proceedings to be
adjudicated as bankrupt or insolvent, or the consent by it to institution of
bankruptcy or insolvency proceedings against it, or the filing by it of a
petition or answer to consent seeking reorganization or release under the
federal Bankruptcy Act, or any other applicable federal or state law, or the
consent by it to the filing of any such petition or the appointment of a
receiver, liquidator, assignee, trustee or other similar official of the
Company, or of any substantial part of its property, or the making by it of an
assignment for the benefit of creditors, or the taking of corporate action by
the Company in furtherance of any such action; or

               (iii)     If, within sixty (60) days after the commencement of an
action against the Company (and service of process in connection therewith on
the Company) seeking any bankruptcy, insolvency, reorganization, liquidation,
dissolution or similar relief under any present or future statute, law or
regulation, such action shall not have been resolved in favor of the Company or
all

2

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

orders or proceedings thereunder affecting the operations or the business of the
Company stayed, or if the stay of any such order or proceeding shall thereafter
be set aside, or if, within sixty (60) days after the appointment without the
consent or acquiescence of the Company of any trustee, receiver or liquidator of
the Company or of all or any substantial part of the properties of the Company,
such appointment shall not have been vacated.

               (iv)     Failure of Company to convert in accordance with the
procedure set forth herein, in which case this Note shall accrue interest at the
maximum allowable rate until the date of conversion.

          4.     Conversion.

               (i)     Optional Conversion. Upon delivery of the Conversion
Notice attached hereto to the Company, the Holder has the right, at the Holder’s
option, at any time prior to payment in full of the principal balance of and
accrued interest on this Note, to convert this Note, in accordance with the
provisions of this Section 4, in whole or in part (if in part, in principal
amounts of no less than $100,000, and in $100,000 increments), into shares of
the Company’s common stock, which are fully paid, nonassessable, fully
registered and immediately transferable, subject only to compliance with all
applicable securities laws and regulations. This Note, or any portion thereof,
will be convertible into that number of fully paid and nonassessable shares of
the Company’s common stock equal to (i) the principal amount of the Note being
converted, together with all accrued but unpaid interest thereon, divided by
(ii) the Conversion Price. Provided, however, Holder will only be able to
convert the Note, or any portion thereof, into shares of the Company’s common
stock if Holder’s total beneficial ownership of the Company’s common stock
immediately after such conversion would be less than 4.9% of the Company’s then
total number of issued and outstanding shares of common stock (nothing herein
shall prevent Holder from entering into an agreement to sell all or a portion of
the shares into which this Note would convert as long as the closing on any such
sale occurs simultaneously with the conversion of the Note so that Holder’s
percentage ownership of Company’s common stock never surpasses 4.9%).
Notwithstanding the immediately preceding sentence, if Holder’s post-conversion
beneficial ownership of the Company’s common stock would be five percent (5.0%)
or greater, Holder may convert the Note, or any portion thereof, if (and only
if) Holder has fully disclosed any and all information, has executed any
documents, and has taken all other steps, required by any applicable gaming
agency or regulatory authority for holders of 5.0% or more of the Company’s
common stock (the “Disclosure Requirements”), and agrees to make all such
information available in the future and to comply with any request of the
Company or any applicable gaming agency or regulatory authority or otherwise
fully complies with (on a timely basis) the requirements of such applicable
gaming agency or regulatory authority.

               (ii)     Conversion Procedure. Before the Holder shall be
entitled to convert this Note into shares of the Company’s common stock, Holder
shall deliver the Conversion Notice attached hereto to Company not less than
seventy-five (75) days prior to the date Holder desires to convert this Note.
Such Conversion Notice shall be delivered by mail, postage prepaid, to the
Company at its principal corporate office, and shall contain a statement of the
election of Holder to

3

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

convert the Note, or a portion of the Note as well as the date the Holder
desires such conversion to be effective. Such conversion shall be deemed to have
been made immediately prior to the close of business on the later of (a) the
date specified in such notice (which date shall be not less than seventy five
(75) days from the date Company receives such notice) or (b) the date of
surrender of this Note or (c) the date Holder has demonstrated compliance with
the Disclosure Requirements, and the person or persons entitled to receive the
shares issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares as of such date.

          As promptly as practicable after the conversion of this Note, the
Company at its expense will issue and deliver to the Holder of this Note a
certificate or certificates for the number of full shares of the Company’s
registered common stock issuable upon such conversion.

          If Holder has complied with the provisions of this Note as it relates
to conversion of this Note and, despite such compliance by Holder, it is
apparent to Company that Holder will be unable to convert this Note into fully
registered and immediately transferable shares of the Company’s common stock on
the date Holder has specified in the Transfer Notice (“Holder’s Desired Transfer
Date”) because of Company’s actions, inactions or efforts to comply with
applicable securities laws, then Company shall have the option of allowing
Holder to convert this Note (or a portion hereof) so that Company can
immediately purchase and redeem the shares issued by Company to Holder upon
conversion of this Note (or a portion hereof) at a per share price equal to the
per share closing price on the Nasdaq national market (“Closing Price”) on the
day of conversion (the “Redemption Option”). Upon exercising the Redemption
Option, the principal amount of the Note will be reduced accordingly. If Company
does not elect to exercise the Redemption Option, Company will hold Holder
harmless from any drop in the Closing Price between the Holder’s Desired
Transfer Date and the date Holder is able to convert this Note into fully
registered and immediately transferable shares of the Company’s common stock
(the “Interim Period”). Similarly, if during the Interim Period, the Closing
Price increases, Holder will pay the amount of the increase to Company.

               (iii)     Mechanics and Effect of Conversion. No fractional
shares shall be issued upon conversion of this Note. In lieu of the Company
issuing any fractional shares to the Holder upon the conversion of this Note,
the Company shall pay to the Holder the amount of outstanding principal and
interest that is not so converted. Upon conversion of the entire outstanding
principal amount of and all accrued interest on this Note, the Company shall be
forever released from all its obligations and liabilities under this Note.

          5.     Conversion Price Adjustments.

               (i)     Adjustments for Splits and Subdivisions. In the event the
Company should at any time or from time to time after the date of issuance
hereof fix a record date for the effectuation of a split or subdivision of the
outstanding capital stock of the Company or the determination of holders of
capital stock entitled to receive a dividend or other distribution payable in
additional shares of capital stock or other securities or rights convertible
into, or entitling the holder thereof to receive directly or indirectly,
additional shares of capital stock (hereinafter referred to as “Share

4

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

Equivalents”) without payment of any consideration by such holder for the
additional capital stock or the Share Equivalents (including the additional
shares of capital stock issuable upon conversion or exercise thereof), then, as
of such record date (or the date of such dividend distributions, split or
subdivision if no record date is fixed), the Conversion Price of this Note shall
be appropriately decreased so that the number of shares issuable upon conversion
of this Note shall be increased in proportion to such increase of outstanding
shares of capital stock.

               (ii)     Adjustments for Reverse Splits. If the number of shares
of Company’s capital stock outstanding at any time after the date hereof is
decreased by a combination of the outstanding shares of Company’s capital stock,
then, following the record date of such combination, the Conversion Price for
this Note shall be appropriately increased so that the number of shares issuable
on conversion hereof shall be decreased in proportion to such decrease in
outstanding shares.

          6.     Notices of Record Date, etc. In the event of:

               (i)     Any taking by the Company of a record of the holders of
any class of securities of the Company for the purpose of determining the
holders thereof who are entitled to receive any distribution (other than a
distribution payable only in cash) or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right; or

               (ii)     Any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
transfer outside of the regular course of business of all or substantially all
of the assets of the Company to any other person (other than a subsidiary of the
Company) or any consolidation or merger involving the Company (other than a
merger with a subsidiary of the Company) ; or

               (iii)     Any voluntary or involuntary dissolution, liquidation
or winding-up of the Company,

the Company will mail to the holder of this Note at least ten (10) days prior to
the earliest date specified therein, a notice specifying: (a) the date on which
any such record is to be taken for the purpose of such distribution or right,
and the amount and character of such distribution or right; and (b) the date on
which any such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding-up is expected to become effective
and the record date (if any) for determining shareholders entitled to vote
thereon. In the event Company delivers the notice described in this Section 6,
Holder may demand immediate conversion of this Note without regard to the notice
provisions and time periods set forth in Section 4 (ii); provided that Holder
must still comply with the Disclosure Requirements if Holder’s post-conversion
beneficial ownership of the Company’s common stock will equal or exceed 5.0%.

          7.     Reservation of Shares Issuable Upon Conversion. The Company
covenants that it shall reserve from its authorized and unissued shares of
common stock, a sufficient number of shares

5

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

to effect the conversion of the entire outstanding principal amount of this
Note. The Company further covenants that all shares that may be issued upon the
exercise of rights represented by this Note will, when issued in accordance with
the terms hereof, be fully paid, nonassessable, fully registered and immediately
transferable (subject only to compliance with all applicable securities laws and
regulations), free of preemptive rights and free from all taxes, liens and
charges in respect of the issue thereof (other than taxes in respect of any
transfer occurring contemporaneously or otherwise specified herein). The Company
agrees that its issuance of this Note shall constitute full authority to its
officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for shares upon the conversion of
this Note.

          8.     Prepayment. The Company shall have no right to prepay this Note
without the consent of Holder, who may grant or deny such consent in its sole
discretion.

          9.     Note is Subordinate to Company’s Credit Facilities and other
Senior Long Term Debt. Holder acknowledges that Company has existing credit
facilities with commercial lenders and other senior long term debt with
institutional investors and that, prior to the Maturity Date, Company may enter
into amendments thereto or into new credit facilities with commercial lenders or
into new other senior long term debt with institutional investors (collectively,
the “Credit Facilities and Other Senior Long Term Debt”). Notwithstanding any
contrary statement contained in this Note, any and all payments arising on
account of any obligation arising from or in connection with this Note (whether
of principal, interest or otherwise) shall be, at all times, subordinate to the
payment of amounts of any kind or nature, present or future, which are owed by
Company pursuant to or arising from the Credit Facilities and Other Senior Long
Term Debt. By signing below, Holder hereby irrevocably subordinates and
postpones the payment and the time of payment of all payments arising on account
of any obligation arising from or in connection with this Note and all claims
and demands arising therefrom to the Credit Facilities and Other Senior Long
Term Debt and directs that the Credit Facilities and Other Senior Long Term Debt
be paid in full before any amounts be paid pursuant to this Note, provided such
subordination shall not restrict Holder’s right to convert.

          10.     Assignment. Subject to the restrictions on transfer described
in Section 12 below, the rights and obligations of the Company and the Holder of
this Note shall be binding upon and benefit the successors, assigns, heirs,
administrators and transferees of the parties.

         11.     Waiver and Amendment. Any provision of this Note may be
amended, waived or modified only upon the written consent of both the Company
and the Holder.

          12.     Transfer of this Note; Compliance with Securities Laws. The
Holder of this Note, by acceptance hereof, acknowledges that this Note and the
shares to be issued upon conversion hereof are being acquired solely for the
Holder’s own account and not as a nominee for any other party, and for
investment. This Note is not transferable without the express written consent of
Company. Further, if Company consents to any transfer proposed by Holder, such
transfer must be in compliance with all applicable securities laws and
regulations as determined in the sole discretion of Company’s legal counsel.

6

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

          13.     Notices. Any notice, request or other communication required
or permitted hereunder shall be in writing and shall be deemed to have been duly
given when (i) delivered by hand (with written confirmation of receipt), or (ii)
when received by the addressee, if sent by a nationally recognized overnight
delivery service (receipt requested), in each case to the appropriate addresses
set forth herein. Any party hereto may by notice so given change its address for
future notice hereunder.

          14.     No Shareholder Rights. Nothing contained in this Note shall be
construed as conferring upon the Holder or any other person the right to vote or
to consent to or receive notice as a shareholder in respect of meetings of
shareholders for the election of directors of the Company or any other matters
or any rights whatsoever as a shareholder of the Company.

          15.     Waivers. The Company hereby waives presentment, demand,
protest and notice of dishonor and protest, and also waives all other
exemptions; and agrees that extension or extensions of the time of payment of
this Note or any installment or part thereof may be made before, at or after
maturity by agreement by the Holder. Upon default hereunder the Holder shall
have the right to convert this Note without regard to the notice provisions and
time periods set forth in Section 4 (ii); provided that Holder must still comply
with the Disclosure Requirements if Holder’s post-conversion ownership of the
Company’s common stock will equal or exceed 5.0%. The Company shall pay to the
Holder, upon demand, all costs and expenses, including, without limitation,
attorneys’ fees and legal expenses, that may be incurred by the Holder in
connection with the enforcement of this Note, including expenses, if any,
incurred by Holder related to the registration of shares on conversion.

         16.     Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Kentucky, excluding
that body of law relating to conflict of laws.

          17.     Heading; References. All headings used herein are used for
convenience only and shall not be sued to construe or interpret this Note.
Except where otherwise indicated, all references herein to Sections refer to
Sections hereof.

7

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

          IN WITNESS WHEREOF, the Company has caused this Convertible Promissory
Note to be issued as of this the 19th day of October, 2004.

  “Company”

CHURCHILL DOWNS INCORPORATED

  By: /S/ Michael W. Anderson                                  

Its: VP Finance & Treasurer                                      

  “Holder”

    /s/ Brad M. Kelley                                                       
Brad M. Kelley

8

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

NOTICE OF CONVERSION

(To Be Signed Only Upon Conversion of Note)

TO CHURCHILL DOWNS INCORPORATED

 

The Note attached to this Notice of Conversion is in the principal amount of
$__________ and is dated September _____, 2004. The undersigned, the Holder of
the attached Note, hereby surrenders such Note for conversion into shares of the
common stock of Churchill Downs Incorporated, to the extent of $_________ unpaid
principal amount and accrued interest of such Note, and requests that the
certificates for such shares be issued in the name of, and delivered to, Brad M.
Kelley, whose address is ___________________________. The undersigned requests
that the conversion be effective as of _________ ____, 20__ (which date must be
no less than the date which is sixty (60) days after the date this Notice of
Conversion is delivered to Churchill Downs Incorporated, except as provided in
Section 6 of the Note) and further acknowledges that such effective date is
subject to the terms of the Note.

  Dated:                                              

 
                                                                                    
(Signature must conform in all respect to name
of Holder as specified on the face of the Note)      
                                                                                     
Address