Evans: CDI Prepared for Internet Gambling

Churchill Downs Inc. says it has a strategy for possible Internet gambling.

Churchill Downs Inc. plans to expand beyond pari-mutuel wagering should online gambling be legalized on the state or federal levels, company officials said March 15.

During a conference call on earnings for 2010, CDI president and chief executive officer Bob Evans said the Kentucky-based company is “very much wired into the political and business side” of Internet gambling, which is limited—legally speaking—to advance deposit wagering on horse races. The federal government and some states have floated legislation to legalize other forms of online betting, including online poker and casino games.

“If Internet gambling gets legalized at the state or federal level, we would intend to play in these businesses,” Evans said. “And we expect to play competitively whenever that may happen. We’ll be there when it occurs.”

CDI has invested tens of millions of dollars in developing an online wagering platform, TwinSpires.com, for betting on races. In the fourth quarter of 2010, the system, which has a hub in Oregon, attracted $167.1 million in pari-mutuel handle.

Overall, CDI saw limited growth in online handle in 2010. Officials noted, however, overall handle decline nationally.

Evans again said he’s “not comfortable using handle numbers in this business” and would rather look at maximizing earnings before interest, taxes, depreciation, and amortization. “There’s no single source to get ADW handle numbers,” he said. “It’s not 100% accurate.”

The industry as a whole is off to a slow start in 2011. Through February, wagering on United States racing was down 7.66% from the comparable period in 2010.

“We are doing well given the handle decline in the industry, but I’m not happy with the growth rate—or shrinkage rate—for the first two months of 2011,” CDI chief financial officer Bill Mudd said during the conference call.

CDI on March 14 was told by the California Horse Racing Board it has until March 18 to resolve a content dispute over ADW or it will lose its California license. If not licensed, TwinSpires.com would be unable to take bets from residents of that state.

After the conference call, CDI vice president of communications Julie Koenig Loignon said the company is working on a resolution.

“Our team is working diligently to resolve remaining issues with respect to obtaining the rights to California content,” she said. “We hope to have this process completed prior to March 18.”

As for the company’s racetrack holdings, Evans said Churchill Downs in Kentucky had a “good” year because of the Kentucky Oaks (gr. I) and Kentucky Derby Presented by Yum! Brands (gr. I) programs, revenue growth in night racing, and hosting the Breeders’ Cup World Championships. CDI’s other racing properties—even those with gaming—were flat, he said.

"Racing at Arlington, Calder, and Fair Grounds continues to struggle,” Evans said. “I think we’re getting pretty much all we can out of these operations. I doubt there is substantial improvement on the horizon.”

CDI and other racing companies are waiting for release of tens of millions of dollars sitting an escrow account in Illinois. The money is from casinos that by law were ordered to pay racing a percentage of revenue, but the situation has been tied up in court for years.

Arlington alone would get $40.5 million--$16.5 million for owner CDI and $24 million for purses and breed development at the track.

“It’s going to be a while before we see any of that money,” Mudd said.