Anne M. Eberhardt

Churchill Weighs In on Its Racing Operations

Churchill racing operations did fare well during Kentucky Derby week.

Churchill Downs Inc. officials said Feb. 26, during a conference call with analysts and investors, that they aim to build on last year's highly profitable Kentucky Derby Presented by Yum! Brands (gr. I) week, but acknowledged they see little opportunity for racing growth outside of that week.

In a conference call the morning after CDI announced record adjusted EBITDA of $202.5 million and record net revenues of $812.9 million in 2014, CDI chief executive officer Bill Carstanjen said the company sees little opportunity for profits from its racing operations that include Churchill Downs, Fair Grounds Race Course & Slots, and Arlington Park

"Racing outside of the Kentucky Derby remains very challenging and we don't see anything in the trends that suggests this is going to change in the near future," Carstanjen said. "Our focus has been on our cost structure and managing our racing operations efficiently."

Record Revenues for Churchill Downs in 2014

Contributing to Churchill's strong 2014 numbers was an $8.8 million bump in profitability during the week of the Derby and Longines Kentucky Oaks (gr. I). Carstanjen said the company hopes to build on that success this year.

"With respect to the Kentucky Oaks and Derby, 2014 was a year of significant growth. As we head into 2015 and are now 65 days away from the 141st Kentucky Derby, we plan to continue that momentum," Carstanjen said. "At this point, seating, revenues, sponsorships, and other key metrics all look quite encouraging and are tracking nicely ahead of last year. Our Churchill Downs racetrack team is very experienced and focused. They are doing their thing."

Churchill has enjoyed success offering new seating options for fans during Derby week and Carstanjen said the track will unveil another seating option this year. 

"This year we are introducing a new section called the Winner's Circle Suites and Courtyard, which will be a central feature of the facility and we hope a big hit with everyone," Carstanjen said. "The $4.2 million project remains on budget and on time to be ready for the 2015 Kentucky Derby."

The company, which in July ceased pari-mutuel operations at Calder Race Course, reported a $17.5 million decline in revenues because of that closure but noted that EBITDA improved $3.3 million following the cessation of Calder pari-mutuel operations. Churchill reached a deal in July for The Stronach Group and Gulfstream Park to operate racing at Calder.

"Our transaction in the third quarter, to lease the pari-mutuel operations at Calder to The Stronach Group, is an example of our willingness to find new and better solutions," Carstanjen said. "As you can see in our fourth quarter results, the Calder transaction was a good move for us. We believe it also was a good move for The Stronach Group and Florida horsemen as well."

The company attributed all of its racing operations earnings growth to the improved Derby-week performance and the cessation of Calder's pari-mutuel operations.

The company was pleased with the performance of its advance-deposit wagering operation, TwinSpires.com, which increased revenues of $5.8 million in 2014, up 3%. Carstanjen noted that growth came at a time that saw overall wagering on U.S. races fall 2.8%. He also noted that the growth occurred despite the loss of online wagering in Texas in 2014 and disruptions of online wagering in Illinois.