Churchill Downs' Numbers Show Wagering Shift

Calder was only CDI track that experienced wagering gain in 2009.

When Churchill Downs Inc. released its 2009 annual report March 2, it offered a clear picture of the shift in wagering trends from racetracks to online and telephone wagering.

Because CDI does not release handle numbers, except in reports required by the Securities and Exchange Commission of all publicly traded companies, the annual report provided the first look at how Churchill’s tracks performed last year.

Overall, the numbers were not as bad as they could have been, considering the downturns within the horse industry and the overall U.S. economy. CDI reported total pari-mutuel handle at its four racetracks – the flagship Churchill Downs, Arlington Park, Fair Grounds, and Calder Racecourse – fell 8%, somewhat better than the 9.9% decline posted by all North American tracks in 2009.

By track, total handle (and percent of decline when compared with 2008) fell $117 million (-15%) at Churchill Downs, was down $58.2 million (-7%) at Arlington, and declined by $66.2 million (-13%) at Fair Grounds. Only Calder, which had experienced a dramatic decline in wagering in 2008 due to a dispute over simulcasting revenues that led to the signal being cut off, posted a wagering gain in 2009, up $23 million (+4%).

Contributing to the declines in total handle was a 2% decrease in live racing dates, from 416 in 2008 to 407 in 2009, at CDI’s tracks.

Those wagering declines were more than offset by hefty increases from CDI’s online wagering, which consists primarily of, which grew 41% from $234.4 million in 2008 to $329.7 million in 2009. Additionally, CDI had net revenues of $62.3 million, up 23%, from its slot machine operations in Louisiana.


The bottom line was that CDI’s total net revenues increased $9.1 million, primarily as a result of increased online wagering and gaming at revenues from slot operations at Fair Grounds, offsetting the decline in handle at the racetracks. Also CDI reported that it was also negatively impacted by declines in operating revenues derived from corporate hospitality and admissions revenues generated by Kentucky Derby week.

In reviewing the company’s 2009 performance with stock analysts March 2, CDI president and CEO Bob Evans said "We have continued to grow while prudently managing our balance sheet. The value of our efforts to diversity became evident in 2009. We hope the pieces are in place to continue this diversified growth trend in 2010."

Citing casino operations that began at Calder in 2009 and CDI’s pending acquisition of, Evans said the company will continue to diversify beyond being just a racetrack-operating company, especially considering that "there is no indication things will improve with racing in 2010."

Citing recent acquisitions and expansion of its businesses totaling about $250 million by CDI, the company has also been able to expand its line of credit to $275 million, with an option to increase it up to $375 million.

But Evans said CDI was not ignoring its commitment to racing even as it focuses more on alternative gaming, online wagering, and a newly formed entertainment division. He explained that Churchill Downs had made a major financial commitment to install lights at the Louisville track to permit night racing, upgrading all of its video operations to high-definition, and purchased television time to air six prep races leading up to the 2010 Kentucky Derby Presented by Yum! Brands (gr. I).

Such investments in racing, which total more than $10 million and do not include the regular operating costs for the tracks, will not continue unless alternative gaming is available at all CDI tracks, Evans said.

"Making these types of investments, not to mention the considerable capital investment required just to maintain our tracks, cannot continue in the absence of a business model that provides an adequate return on capital," Evans said, adding that U.S. racing can be profitable but only if conducted on a much smaller scale.

"In the absence of some other form of revenue or subsidy, or willingness on the part of track owners to simply eat their losses, the necessary determinant of which tracks survive and which won’t will be which have the right to conduct casino gaming. We have that right at Fair Grounds and Calder; we don’t at Churchill Downs and Arlington."

Evans said Churchill Downs will take a close look at the continued viability of its racing operations and alternative uses for those facilities.

On another note, Evans reported that the board of directors is scheduled to vote April 6 on the pending acquisition by CDI. He said the last hurdle in the transaction was cleared March 2 when CDI settled a lawsuit filed by some shareholders.

A review of business trends at CDI since 2007, a year after was founded, shows the full impact of the shift in wagering habits. While handle has predictably fallen at each track and has grown significantly at the online business, there is also a huge disparity in the amount of commissions CDI derives from the respective wagering types.

During the period, online business rose 353%, from $86.6 million in 2007 to $392.7 million in 2009. Commissions from online business were 21.1%, 19.9%, and 19.5%, during each of the three years.

At Churchill Downs, pari-mutuel handle fell 23.9% from 2007 to 2009, and the commission percentage went from 7.1% to 8.0%. Similar results were seen at the other CDI-owned tracks: Arlington Park, handle declined 10.6%, commissions went from 9.0% to 9.8% from 2007 to 2009; Calder Racecourse, handle down 27% and commissions went from 9.8% to 9.5%; and Fair Grounds, handle declined 20.6%, with commissions from 9.0% to 8.6%.