CDI Keeping an Eye on the Future
by Ryan Conley
Date Posted: 11/8/2007 1:41:30 PM
Last Updated: 11/10/2007 1:35:07 PM

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Photo: Barbara D. Livingston

Churchill Downs Inc. reported a 7.1% increase in net revenue for the third quarter of 2007, but realized a 62.9% decline in net earnings, as the company's chief executive voiced hope for the future on a variety of fronts during a Nov. 8 conference call.

Net revenue from continuing operations grew to $103.9 million when compared with the same period in 2006, while net earnings fell to $1.1 million ($.08 per share) from the $2.9 million ($.21 per share) realized in 2006. During the third quarter of 2006, the company recognized $1.8 million in insurance recoveries related to the damage on Calder Race Course from Hurricane Wilma.

Handle figures reported in the company’s quarterly filing with the Securities and Exchange Commission showed an overall 1% increase during the period to $822,128,000 for all of CDI’s racetracks. But the company's namesake track realized a 43% decline in handle to $68,321,000, an event the company attributed to fewer racing days during the quarter as compared to 2006.

An accompanying news release also noted two “major” ADW players (assumed to be TVG and Youbet.com) and a “large rebate shop” (International Racing Group) did not take wagers on CDI signals. The three prominent players lost the rights to the signals earlier this year when CDI formed TrackNet Media Group with Magna Entertainment Corp.

“The financial results of the three tracks that were running during the quarter were soft,” said Bob Evans, CDI’s president and chief operating officer. “Churchill Downs had … six fewer days of racing during the third quarter. Arlington Park improved, but only over the very depressed 2006 levels. Calder’s business was significantly affected by rain, which caused us to take 55, or about one-third of all our turf races, off the soggy grass course.”

Arlington, which held its first meet over a synthetic surface, realized an 8% increase in handle to $382,614,000 from a 2006 meet that was marred by breakdowns on the former dirt surface. Calder’s handle decreased 2% to $313,863,000.

CDI in August said it would no longer provide attendance and handle figures at the end of race meets. Evans reminded analysts why the company believes it is important to focus on data other than handle alone.

“Our financial results are, and will increasingly be, driven by things other than and in addition to handle and attendance, including how that  handle converts to revenue, our advance deposit wagering (business), and our alternative gaming, slots, and video poker business at the Fair Ground in New Orleans,” he said.

Fair Grounds, which was dark for live racing during the quarter, realized a net win of $155 per the 245 machines that operated in a temporary facility during the quarter. Churchill Downs president Steve Sexton said a permanent facility is still on course to open next year.

Referencing a January 2008 referendum vote that could bring slots to Calder, an analyst queried Evans on what lessons could be learned from Gulstream Park’s poor performance with its slots operation.

“I don’t know if these are learnings from Gulfstream or not; I’ll leave that for somebody else to decide,” Evans said. “Two things in our thinking: We have to know what the offering is in the market we are trying to serve. Assuming there is a successful vote … we then have to make sure have to know what we want that consumer entertainment offering to be in that particular market, so that it is unique, differentiated, and competitive.

“The second thing is capital dollars matter a lot, so we want to be exceptionally prudent in committing capital to this kind of development.”

Evans was also asked what the recent election of Steve Beshear as Kentucky’s new governor would do for Churchill Downs. Beshear campaigned in part on supporting a referendum to bring casino gaming to the commonwealth.

“I am the world’s worst handicapper of political events,” Evan responded with a chuckle. “It’s really up to the new governor and legislature. Hopefully, something will happen sooner rather than later.”



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