Promotional Allowances Soar at CDI Properties

Churchill executives say they are cutting back on the amount of free play offerings.

As a large racing and gaming operator, Churchill Downs Inc. has a program in which customers are rewarded complimentary goods and services that are considered "promotional allowances" on the company's bottom line.

According to CDI's earnings report released Feb. 26, promotional allowances soared in 2013 to $33 million, up from $21.5 million in 2012 and $17.1 million in 2011 as CDI has added additional gaming properties to its portfolio.

"Promotional allowances, which include the company's customer loyalty programs, primarily consist of the retail value of complimentary goods and services provided to guests at no charge," CDI said in its consolidated financial statements accompanying the earnings report. "The retail value of these promotional allowances I included in gross revenue and then deducted to arrive at net revenue."

By sector, CDI gaming promotional allowances of $19.8 million, $11.2 million, and $8.7 million were registered in 2013, 2012, and 2011, respectively. In the same respective years, online promotional allowances totaled $12.3 million, $9.3 million, and $6.5 million. In the racing sector of CDI's operations, promotional allowances fell in 2013 to about $900,000, compared with $1 million in 2012 and $2 million in 2011.

While those figures represent the retail value of the promotional allowances, CDI said the estimated cost of providing those incentives, as included in its operating expenses, totaled $9.5 million, $5.7 million, and $4.6 million, in 2013, 2012, and 2011, respectively.

CDI executives say they will cut back on those promotions, particularly within the area of casino free plays.

During a Feb. 27 conference call with financial analysts, Bill Mudd, CDI's chief financial officer and executive vice president, noted that revenues declined by $4.2 million at the Harlow's Casino Resort and Hotel in Greenville, Miss., primarily due to continued economic weakness in the region, product improvements at a competitor, and "limited incremental revenue associated with free play offers."

"And we have dialed those back pretty dramatically at the beginning of the year," Mudd said of the casino free play incentives.