Strong Third Quarter Overall for Churchill

Churchill Downs Inc. had a good third quarter and looks forward to Breeders' Cup

Churchill Downs Inc. reported net earnings of $3.7 million for the third quarter of 2010, up considerably from a net loss of $1.2 million for the same period in 2009.

On the racing side, CDI is expecting a fourth-quarter boost from the Breeders’ Cup World Championships, which it will host Nov. 5-6 at Churchill Downs.

CDI president and chief executive officer Bob Evans, during a Nov. 4 earnings teleconference, said the circumstances surrounding undefeated Zenyatta, who will seek to run her record to 20-for-20 in the Nov. 6 Breeders’ Cup Classic (gr. I), is “one of the great storylines we’ve seen in racing for quite some time.”

Evans said having the Cup at Churchill, which has drawn the largest crowds for the event, should “lead to strong revenue for Breeders’ Cup and (CDI) in terms of attendance and wagering.”

For the third quarter, CDI reported revenue from continuing operations of $135.7 million, up 35% from $100.9 million for the third quarter of 2009. Earnings before interest, taxes, depreciation, and amortization increased 75%, from $9.7 million last year to $17.1 million this year.

The company cited growth at Calder Casino & Race Course in Florida and growth in online betting through its advance deposit wagering operations.

“This was the quarter in which we first saw the earnings power of the diversification strategy we’ve been pursuing for the last few years,” Evans said. “The decline in racing operations net revenues and EBITDA from continuing operations was more than offset by net revenue and EBITDA growth in our online and gaming businesses.

“We have been pursuing diversification into our gaming and online business segments, and the results of that strategy are clear and increasingly important to our overall financial performance. While the third quarter showed that the business of operating racetracks remains in decline, we feel a great sense of optimism as the popularity and profitability of the Kentucky Derby and Kentucky Oaks continue to grow, and as we execute on our diversification strategy with the integration of and the planned acquisition of Harlow’s Casino Resort & Hotel (in Mississippi).”

CDI acquired earlier this year. For the third quarter, wagering through CDI’s was up 12%, but wagering through decreased 14.5%. Rohit  Thukral, CDI executive vice president of technology initiatives, said the results are “a trend we’ve seen since the start of the year.”

Thukral cited the following factors: lower credit card acceptance rates because of a federal law regulating use of credit for online betting on horse racing; a cutback on the number of signals available to online bettors in Illinois for July and August; and less action from bigger players on Thukral said was ahead of the curve regarding the federal law and wasn’t greatly impacted.

Thukral also said customers who use both ADWs made shifts to accommodate their needs.

CDI racing operations experienced a net revenue decline of $5.9 million in the third quarter of 2009. Evans again said the company isn’t focused on pari-mutuel handle but EBITDA from handle.

CDI has a $375 million credit facility and continues to look for growth opportunities. However, the company will “manage its balance sheet conservatively,” Evans said.

Earlier this year CDI announced plans to purchase the Harlow’s gaming facility in Mississippi. It marks a shift for CDI, which previously pursued gaming operations with ties to horse racing.