CDI Pleased with Quarterly Results

CDI Pleased with Quarterly Results
Churchill Downs Inc. said Aug. 6 it was pleased with its second-quarter results despite various challenges that left the company with flat earnings in year-over-year comparison, claiming a high-profile dispute with horsemen had “very little impact” on certain aspects of its financial performance.

CDI recently reported it had net earnings of $29.4 million during the second quarter, compared to $29.3 million a year ago, during a financial period that is typically one of the company’s strongest, based on racing content such as the signature Churchill Downs meet and its premier event, the Kentucky Derby Presented by Yum! Brands (gr. I).

But CDI claimed during an Aug. 6 conference call that while the revenue-sharing standoffs with horsemen put a significant hit on the financial benchmark known as EBITDA (earnings before interest, taxes, depreciation, and amortization), the company’s bottom line was strong.

“Overall company performance is solid despite high gas prices, declining consumer confidence, and disputes with horsemen in Florida and Kentucky,” CDI president and CEO Robert Evans said. “Considering that disputes with horsemen cost us $4 million in EBITDA, I believe our core performance did quite well in a difficult economic and industry environment.”

Evans said the company’s ADW property,, performed admirably during the quarter despite not being able to carry its own Churchill Downs and Calder Race Course signals, among others, due to the horsemen’s dispute.

“The boycott by horsemen had very little impact on,” Evans said, noting the company’s ADW handle was “sequentially” up 12% to $68.8 million over the first quarter.

Evans said the ADW dispute, which has also resulted in purse cuts and a federal antitrust lawsuit filed by the company against various horsemen, would not deter the long-range plans of the company in pursuit of wagering growth through ADWs.

“It seems quite short-sighted to us to make our ADW channel unprofitable as the horsemen's demand for a 40% larger share of the takeout pie would do,” he said. “Hence, the ADW signal pricing dispute.”

Part of the horsemen’s dispute was resolved in July when an agreement on purses and future slots revenue at Calder was reached with the Florida Horsemen’s Benevolent and Protective Association. But Evans said the company still wasn’t prepared to release details of its plans for a slots operation, other than to say it would be open for business in the second half of 2009.

In commenting on slots at Calder, Evans made reference to Gulfstream Park, which struggled mightily during the launch of its alternative gaming operation.

“I'm not being critical here, because it's always easier to be the second one to act, but, as we've seen with Gulfstream, the wrong facility built on top of the wrong economic business model doesn't return favorable financial results for anyone, neither the track nor the horsemen,” he said. “We have to make sure that we get the underlying business model right to enable us to compete in that market.”

The slots agreement reached with the Florida HBPA is contingent on a separate revenue-sharing contract being signed with the Florida Thoroughbred Breeders’ and Owners’ Association. According to the company’s quarterly filing with the U.S. Securities and Exchange Commission, the date for an agreement to be reached with the FTBOA was recently extended from Aug. 6 to Aug. 31.

The agreements with the Florida HBPA could be terminated “if the agreement with the (FTBOA) is not reached …” said the filing, which also indicated the agreements could become “null and void” if CDI re-files lawsuit claims against the Florida HBPA, which has been dismissed from the antitrust suit.

Company-wide revenues for the quarter increased to $179.3 million from $169.9 million a year earlier, a 5.5% increase.

CDI also reported a $15 million payment it claims is now due from Hoosier Park hasn’t been collected. The company said a provision in the 2007 purchase of CDI’s interest in the Indiana track provided for the pay-out once slot machines were operational there.

“Management has determined that collectibility of amounts due is not reasonably assured,” the SEC filing said.

Shares of CDI stock were trading at $37 late in the morning of Aug.6, down 3.7%.

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