Although Churchill Downs Inc. posted a slight increase in revenue during the second quarter of 2009 despite the depressed economic picture with the U.S., the racetrack operating company’s president and CEO said the "results from our racing operations were disappointing."
"The core problem is that our three tracks (Churchill Downs, Calder Race Course, Arlington Park) that were running during the second quarter are at a competitive disadvantage (with tracks operating in states where purses are enhanced by slots or video lottery terminal revenues)," CEO and president Robert Evans said July 30 during a conference call with financial analysts.
The previous day, CDI released its quarterly earnings report that showed the company had net income during the quarter of $30.9 million, or $2.20 per share, an increase from the comparable quarter in 2008 when it showed net income of $29.4 million, or $2.11 per share. Revenue increased from $179.3 million to $180 million.
A downturn in wagering at the tracks was more than offset by increased revenues at CDI slots operations in Louisiana and gains in online business, specifically the advanced deposit wagering operations of TwinSpires.com. During the quarter, net revenues from continuing operations at TwinSpires.com rose 35% and the Louisiana gaming business saw a quarterly gain in net revenues of 31%, when compared with the previous year.
Within the racetrack sector, revenues at Churchill Downs in Louisville, Ky., fell 6% to $88.4 million, declined by 9% to $25.4 million at Arlington Park, and dropped 15% to $10 million at Fair Grounds near New Orleans. At Calder near Miami, revenues of $19.4 million during the quarter represented a 5% gain over 2008, when the track’s simulcast signal was limited due to a dispute with horsemen. Also, Fair Grounds’ casino gaming operations posted revenues of $15.4 million, up 31%.
Evans said the declines in the racing segment of the company were especially disappointing, and are caught in a "declining spiral we want to avoid."
With owners and trainers electing to compete at tracks with slots-enhanced purses, the average number of horses racing in each race at non-slots tracks continues to decline. That, in turn, results in less money wagered on each race because there are fewer wagering interests. With decreased handle, purses also decline, increasing the gap with slots tracks.
Evans noted that at Churchill Downs alone, the average number of runners per race has fallen from 8.6 before tracks in nearby states had slots to 7.8 this year. He said CDI’s numbers crunchers calculated that 0.8 decline in starters per race equates to an average per race decline of $52,800. Based on the number of races run at Churchill, that decline would total $24 million over the course of the year, Evans said.
Among the three CDI tracks with declining revenues this year, Calder is in the best position to improve its finances. Evans said the poker room being built in the grandstand section of the track is scheduled to begin operations this fall and that the track is on scheduled to open the $85 million slots facility in early 2010.
However, Evans said CDI is committed to continuing to lobby for legalized alternative wagering at racetracks in Kentucky, an effort that came up short during the recent legislative session.
"We were very disappointed in the failure of the slots bill in Kentucky," Evans said. "This is a battle we will continue to fight and one we believe we must win if horse racing is to survive in the state."
While Churchill’s successful experiment with night racing this year gave CDI executives "reason to be optimistic about the future of racing," Evans said the financial success of such ventures pale in comparison with the amount of revenues being generated by slots in other states.