Churchill Downs

Churchill Downs

Anne M. Eberhardt

Churchill Shatters Earnings, Revenue Records

Company also notes financial impact following race date changes in Florida.

A record Kentucky Derby Presented by Yum! Brands (gr. I) week in terms of revenue helped Churchill Downs Inc. to a record-breaking second quarter in 2013.

In its earnings report released July 31, Churchill noted record Derby week adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) increased $5.8 million thanks to facility upgrades in 2013 anchored by the addition of high-end seating in the Mansion. The company enjoyed record second quarter revenues of $283.8 million, up 5% compared with last year; and record second quarter net earnings of $50.3 million, up 4% compared with last year.

"With record second-quarter net revenues and net earnings, we were pleased with the quarter," said Churchill Downs Inc. chairman Robert Evans in a release. "Our Gaming segment adjusted EBITDA was up $4.4 million reflecting the addition of our Riverwalk Casino Hotel property in Vicksburg, Miss., that we acquired in October of last year. The adjusted EBITDA increase of Kentucky Oaks (gr. I) and Derby week was $5.8 million, the third consecutive year where Kentucky Oaks and Derby week adjusted EBITDA growth has exceeded $5 million."

Churchill already has announced more facility renovations for 2014 at its flagship Louisville track. The Churchill Downs Grandstand Terrace project will add 2,400 reserved seats while improving concession, restroom, and wagering facilities. It also will include an area for high-end patrons called the Rooftop Garden. The facility improvements could generate returns similar to the Mansion project.

"I think you would expect something fairly similar," Evans told investors and analysts in a May 1 conference call. "We may be wrong, the future is a tricky place, but we would expect something similar."

The company reported that its advance deposit wagering outlet registered a 1.3% increase in handle. That was despite the loss of wagering from customers in Illinois, where ADW was not allowed after rules expired at the end of last year and were not renewed until June 7. That took Illinois customers out of the mix for both the Derby and the Preakness Stakes (gr. I).

Churchill officials said customers in the state have returned to Evans noted that if Illinois is excluded for the sake of year-to-year comparison, handle was up 7% in the second quarter.

Excluding Derby week, Churchill said racing revenues were down $2.7 million. Evans blamed the trend on the tough overall environment in racing, a Florida racing dates dispute that has seen Gulfstream Park add spring and summer dates in competition with Churchill-owned Calder Casino & Race Course, and rainy weather at this year's Jazz Fest at Churchill-owned Fair Grounds Race Course & Slots.

In Florida, Gulstream began competing with Calder this year and on May 7 all three Florida Thoroughbred tracks began claiming year-round host-track status, which allows tracks to collect fees on wagers made at Florida locations on out-of-state racing. Previously, Calder would have had host-track status for most of the second quarter.

The policy change cost Churchill $5.1 million in reduced second quarter revenues and $1.5 million in EBITDA. But Churchill officials pointed out that if the current arrangement continues, the track will pick up revenues it previously did not receive when Gulfstream was conducting live racing and considered the host track.

Churchill believes Florida law requires a track race three days a week to attain host track status and the company has filed a petition with the Division of Pari-Mutuel Wagering to clarify its position.

"The racing dates dispute is affecting Calder's financial performance," Evans said. "I find it disappointing that we haven't been able to find a mutually satisfactory agreement there but we will continue to try.

"It's very difficult to predict what will happen because this is a whole new ballgame. For example, while Gulfstream Park is running on top of us, it's hurting us right now. But when we are racing this December into April, it will be all upside for us since historically we haven't run those dates but we will, starting this year and next. Just what the net effect will be is hard to say. It may take a couple years, maybe more, before this is resolved and the final outcome is known."