CDI: Quietly Positioned for Growth

Churchill Downs Inc. said it is in a position to grow in various gaming areas.

Churchill Downs Inc. said Nov. 6 it is in a position to grow in various gaming areas, but is mum about what possible ventures might be considered in the future.

In a conference call discussing the company’s third-quarter earnings, CDI officials praised a conservative business approach that led to a 109% increase in net earnings to $2.3 million during the financial period, which was achieved despite sharp declines in revenue and handle.

A financial analyst asked officials what future plans the company may have, including possible expansion in online gaming or a regional racino, in lieu of a reported “flexible” balance sheet.

CDI president and chief executive officer Robert L. Evans said he would like to discuss such possibilities, but declined.

“I’d love to, but I have a whole bunch of people looking at me saying ‘No, no, no,’” he said with a chuckle. “It would be an interesting discussion to have, but we can’t right now. We have been pretty conservative with our balance sheet. And we have resources to pursue (new) opportunities. You can read into that however you wish.”

The company did say it would resurrect efforts to support slots legislation in both Kentucky and Illinois in 2009. Evans noted that with the recent passage of such legislation in Maryland, Kentucky is the only one of the states hosting a Triple Crown event now without forms of alternative gaming.

“We will look for ways to continue our expansion of gaming operations,” he said.

CDI was also pressed about the opening of a slots operation at its Calder Race Course in Florida. The company said it has hired architects and contractors to be involved in the project, but declined to put any hard launch date, saying plans were winding their way through various regulatory agencies.

“We will move on it as quickly as we can,” Evans said.

The company acknowledged that current “signals wars” between horsemen and advance deposit wagering companies had affected revenues and overall company handle, which was reported at a 12% decline to $712.3 million during the quarter. But handle on the company's ADW platforms increased 62% to $56.1 million during the quarter.

Evans argued that ADW business is not taking away from on-track wagers, which is one of the charges horsemen are making in revenue disputes over bets made through online and telephone platforms. Instead, Evans claims on-track wagering was already dropping before the advent of ADW, and the decline has actually slowed, percentage-wise, in the last few years.

“Conventional wisdom says that ADW business is bad for the industry – we see it differently,” he said.

Alternative gaming revenue helped offset declining overall company revenues, which fell 4% to $99.6 million. EBITDA (earnings before interest, taxes, depreciation, and amortization) on the company's gaming operations in the quarter was $4.4 million, more than double the $1.9 million reported for the same period in 2007, and nearly on par with the $4.7 million registered for CDI's entire racing operations. Fair Grounds plans to open its permanent slots facility Nov. 7, with 650 machines scheduled for the New Orleans-area track.