A day after Churchill Downs Inc. issued a revenue report from the first quarter of 2010, officials analyzed the information and talked about what’s in store for the future of the company.
“Overall, we’re pleased, but not thrilled with our results,” said CDI president and CEO Robert Evans during a conference call May 6. While the revenue from CDI’s core business racing operations is down, the added funds from the newly opened Calder Casino and growth of TwinSpires.com has boosted net revenues from continuing operations to a record total of $75.1 million.
“Our first quarter results illustrate how important our diversification efforts have been,” said Evans. “Since the first quarter of 2006, U.S. Thoroughbred handle was off by a little more than 22%.”
Evans noted that If CDI had been as dependent on the U.S. Thoroughbred industry it was four years ago, its results would have likely mirrored the industry’s decline.
“But instead our revenue was more than double that in the first quarter of 2006,” he said, adding that the growth is due largely to CDI’s new gaming facility and online businesses, which contributed almost 60% of revenue in the first quarter, and were the two business units that contributed positively to EBITDA (earnings before interest, taxes, depreciation, and amortization) during that time period.
Since the opening of the Calder Casino in late January, Evans said CDI has seen growth in gross gaming revenue each month on a daily average basis. “We continue to believe the facility will operate between $80 million and $100 million in gross gaming revenue on an ongoing annualized basis.”
Evans noted how he was particularly pleased with the outcome of this year’s Kentucky Oaks (gr. I) and Kentucky Derby Presented by Yum! Brands (gr. I).
“Despite continuing high unemployment and decline in U.S. Thoroughbred handle, which through April was down 8.4% according to Equibase, we had a terrific weekend,” he said.
A new event during Derby week called “Taste of Derby” featuring different foods created by chefs around the country raised more than $82,000 for hunger relief, while the record 116,046 attendees at the Oaks generated $116,046 for Susan G. Komen for the Cure. Over the last two years, CDI has given Susan G. Komen, which raises money for breast cancer research, and the charitable organization Horses for Hope, more than $275,000.
With attendance at the Derby the sixth highest in history and television viewership the highest in the last 21 years, Evans said he expects overall figures for Derby week to increase $3 million or more over last year’s numbers.
Bill Mudd, executive vice president and chief financial officer of CDI, talked about how Arlington Park saw external customer revenues decline $7 million for the first quarter, which was attributed to the receipt of $4.3 million in source market fees, as well as Arlington having 11 fewer host track days.
Fair Grounds’ racing operation revenues also declined 12% to $16.5 million during the first quarter, which was mostly due to a 10% reduction of race dates, Mudd said.
He noted that CDI’s general and administration expenses had increased by $900,000 versus the same quarter of last year. “While we continue to be vigilant in controlling costs across the company, we were not able to offset the $1.1 million in legal expenses associated with our pending merger with Youbet.com,” Mudd said, adding that interest expenses increased mainly due to spending related to the building of the Calder Casino, and income tax benefits were not able to offset the $1.2 million that was due to pending allegations with Calder.
CDI’s long-term debt increased $9.2 million during the first quarter as the company incurred borrowings for the purposes of continuing to build up the new Calder casino and the insulation of permanent lights at Churchill Downs.
Regarding the situation with Illinois’ equity trust fund, Mudd said the state court had recently ruled the funds associated with that bill can be disbursed to the Illinois racetracks, including the CDI-owned Arlington Park. “We anticipate they will receive $11.6 million of which $6.8 million will be added to purses, and $4.8 million will be used by Arlington Park,” he explained. “The court in related federal law suits also filed by the casinos has issued an order that race tracks must escrow these funds pending the outcome of the federal law suit. We expect to receive these funds over the next couple weeks.”
Illinois racetracks are also currently pushing legislation that would allow them to add slot machines to boost industry revenue.
“There’s a lot of activity there right now, and we’re hopeful, but it’s difficult to make predictions,” said Bill Carstanjen, CDI’s chief operation officer. “There are some positive things we’re seeing and some positive activity, but we’ll just have to wait and see how things turn out. It’s too hard to read the tea leaves. We’ve been working along the lines of a couple different proposals…but it would be inappropriate to discuss those right now; it’s up to the legislature to modify those as we see fit.”
Referencing the new Calder casino, Carstanjen noted that out of the five pari-mutuel slot operators in Florida, the Miami-based track is now the second largest in the market, with around 20% of net gaming revenue and 22% of machine inventory.
“We feel like we’ve been able to gain share quickly since we opened in January, and I think we have a better mouse trap with the facility we’ve built,” he said. “I think if we stay patient and do a good job of marketing, we’ll continue to build the revenue base.”