Churchill Downs Inc. is asking for patience in seeing financial rewards from what it termed an $80 million investment into the advance deposit wagering industry in 2007, and promises to act on opportunities for the company’s progress in 2008.
During a March 14 conference call discussing fourth-quarter and year-end financial results for 2007, CDI president and chief executive officer Robert Evans gave insight into several actions the company is tackling in the face of a changing racing business.
“Clearly the industry is consolidating,” Evans said in his opening remarks, adding CDI has “put the groundwork in place” to meet the challenges of changes in Thoroughbred racing. “This is no easy feat,” he added.
A day earlier, CDI reported net earnings of $15.7 million in 2007, down 45.4% from the $29.8 million realized in 2006 and 80.1% lower than the $79.1 million in 2005, when it recognized a gain of $69.9 million, net of income taxes, on the sale of the assets of Hollywood Park. Revenues rose to $410.7 million in 2007 from $376.7 million in 2006, a 9% increase year over year.
Financial analysts questioned the immediate return on the investment CDI made into the ADW scene. CDI last June completed an $80 million purchase of AmericaTab and Bloodstock Research Information Services, and last March purchased a 50% stake in HRTV from Magna Entertainment Corp. and formed TrackNet Media Group with MEC, which required an additional investment of $1.9 million for 2007.
Net revenue from $94.6 million in handle generated from the ADW side of CDI’s business totaled about $18.2 million, or a 19.4% commission, the company reported.
“Have some patience,” Evans said of the ADW business. “I don’t mean to be cute. But the second half of last year there was a lot of stuff going on. And the business is doing quite well, and as the business goes forward, I think you will see that.
“I feel confident that we are growing customers,” Evans said. “The content advantage we have really didn’t kick in until this year.”
Evans noted that the combined ADW segment wasn’t fully operational until the last half of the year, and the company was missing key tracks from New York and California, which have signed on with TrackNet. CDI also was without its own Calder Race Course for the whole year and Arlington Park for most of the year due to previous agreements with TVG.
One analyst asked if HRTV was eating into company profits, and wondered if CDI could simply walk away from the agreement with MEC. Evans replied that the two companies were about one year into a three-year contract, and any potential losses are capped.
“There is a lot going on in the delivery of live video to the consumer, many of which are lower cost,” Evans said. “We are going to look at all of those opportunities.”
Total handle in 2007 for all of CDI properties topped $3.2 billion, an 8.3% increase over 2006, with net revenue realized from total handle pegged at $285.9 million. Fueling the increase was a 66% increase to $544.7 million from the Louisiana operations over 2006, when Fair Grounds was forced to move its 2005-2006 meet to Louisiana Downs due to hurricane damage. Fair Grounds reopened in November 2006.
Handle for signature track Churchill Downs dropped 9% to $852.6 million in 2007, and Calder fell 4% to $922.5 million. Arlington’s total handle increased 7% to $820.6 million (CDI last year said it would no longer report individual meet handle figures).
Evans said increasing handle was one of several “opportunities” CDI would pursue in an attempt to grow business in 2008.
“Since The Jockey Club reported that total handle on U.S. Thoroughbred racing declined 0.4% in 2007, we are confident that we increased our fair share of the total,” he said. “We strive to continue the improvement of our races, the performance of our on-track OTBs, and twinspires.com channels, to try and attract more bettors and greater handle. But I’ll repeat the observation I made last spring: Handle is nice, but more important is how handle converts to revenue.”
Updates were given on alternative gaming situations for CDI properties. Net-win on slots at Fair Grounds temporary parlor hit $314 in February, up from $123 during its opening month last September. Of CDI’s estimated $44 million in capital expenditures for 2008, about $25 million is ticketed towards the development of a permanent slots facility at Fair Grounds.
Although a Florida referendum passed in January to allow slots in Miami-Dade County, where Calder is located, Evans said CDI would wait to unveil facility plans until there is a determination on active Florida legislation seeking a reduction in the 50% tax rate.
In Kentucky, where casino legislation is struggling, Evans said the company has been in active talks with legislators and others.
“The issue being discussed isn’t whether we should have gaming or not, it’s a whole bunch of other issues that are affecting the bill from a political view,” he said. “Until all of that gets resolved, budget issues and etc., we are not going to get anything done.”
CDI's stock price closed March 14 trading at $42.64, down 10.1% on the day. Volume was 110,020 shares, almost double the daily average for the last three months.
CDI president Robert L. Evans
