CDI Poised for Online Betting, Gaming Growth

CDI Poised for Online Betting, Gaming Growth
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Churchill Downs Inc. expects continued growth in its online wagering business, and with a little help from the Illinois governor, expansion of its gaming operations.

CDI was among the presenters at the INVESTKentucky financial conference held June 9 at Churchill Downs in Louisville. Bill Mudd, executive vice president and chief financial offer for CDI, gave an overview of and update on company business in advance of the CDI annual shareholders’ meeting scheduled for June 16.

Mudd, a Kentucky native who has held the CFO post since 2007, said an estimated $1.73 billion—15.2% of total pari-mutuel handle on Thoroughbred racing in the United States—was generated by advance deposit wagering in 2010. CDI, through TwinSpires.com and Youbet.com, which it acquired last year, accounted for almost 50% of online handle, he said.

“I think we will continue to grow on that side of it,” Mudd said, noting strength in technology, integrated data, and custom rewards and marketing programs for patrons.

CDI officials in the past have said they intend to be involved should legal online gambling—poker, for instance—be expanded beyond horse racing. Mudd mentioned several states looking to approve in-state online gambling but said CDI prefers a more national approach because of betting volume.

"We'd rather see it pushed at the federal level," Mudd said. "Whenever you operate something like this it's all about liquidity. We think it will happen, but the questions are when will it happen and how will it happen?"

On the gaming side CDI went from having 600 gaming machines in 2006 to 3,500 in 2010, when it purchased Harlow’s Casino in Mississippi. Its other properties with slots or video poker machines are Fair Grounds Race Course & Slots in Louisiana and Calder Casino & Race Course in Florida.

In Illinois, CDI owns Arlington Park and affiliated off-track betting parlors, one of which is located at Quad City Downs, a former harness track in East Moline. Under legislation passed by the state House and Senate and awaiting the signature of Gov. Pat Quinn, Arlington and Quad City would get slot machines.

Under the bill Arlington could have 1,200 machines and Quad City, which would again offer live racing, could have 900. The tax rate would range from 10%-40% based on gross receipts, and purses and breed development would earn 12.75%-26.50% based on gross receipts.

Mudd said the bill as written would work for CDI. “It’s going to be (a formula) that works if you’re diligent about how much investment you put into it,” he said.

Quinn, a Democrat, is the wild card even though both houses are controlled by Democrats. He has indicated he doesn’t like parts of the gambling bill and has the option to veto it with amendments that must be approved the legislature.

Mudd said the state of Illinois clearly needs money to fund services, but that doesn’t mean Quinn will approve the measure.

“I really can’t say,” Mudd said. “Anything can happen. I’m optimistic.”

The Kentucky Derby Presented by Yum! Brands and Kentucky Oaks (both gr. I) programs continue to grow on the revenue side even though the Churchill Downs facility is basically maxed out both days. CDI this year opted to create a “Kentucky Derby week” by opening its spring meet the Saturday before the Derby with an evening program that attracted more than 38,000 patrons.

Earnings for the company from the Derby and related activities continue to grow by millions of dollars each year. Combined total handle on Derby and Oaks days now accounts for roughly 2% of total U.S. handle in a year, Mudd said.

“It’s pretty phenomenal,” he said. “It shows you how resilient the Derby is (given continued overall declines in the business).”

Mudd noted CDI had about $60 million in cash on hand in the first quarter of 2011 and had reduced its debt to about $233 million. Thus, the company is prepared for expansion.

"We're a very good cash-producing business," Mudd said. "We're in a great spot to acquire some assets."

In keeping with policy, CDI doesn't publicly discuss potential acquisitions.

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