CDI: Internal Growth, Several External Challenges

Churchill Downs the company hopes to reap the rewards of what president Tom Meeker calls a "culture change," and it also plans to utilize its resources to deal with three lingering industry problems: the tote system, offshore wagering, and short fields.

Meeker made his remarks today during a somewhat subdued Churchill Downs Inc. annual shareholders' meeting. With the $121-million reconstruction of its flagship racetrack complete, and Fair Grounds in New Orleans in the CDI fold, there was no discussion of impending expansion. Meeker instead discussed the internal workings of CDI, with an emphasis on employees.

"Our most important asset in this company remains our employees," Meeker said.

The culture change to which he spoke required providing employees with the tools to address problems and execute solutions. He said CDI management asked itself two years ago if the company was good at change and discovered it wasn't very effective.

CDI then developed two strategies: business change management (BCM) and customer relationship management (CRM). The BCM program required a commitment to take risks and use financial resources on important projects such as legislative initiatives. The CRM project involves technology upgrades that have allowed CDI to track customer behavior, primarily through its Twin Spires Club.

Meeker cited one example whereby 7,000 e-mails were sent to Twin Spires Club members telling them if they wagered on tracks in the Churchill Downs Simulcast Network rather than others, they would earn "bonus points." He said 47% of those contacted "accepted the offer," though he didn't provide details on how the program affected handle on CDSN tracks.

Meeker often touched on technology in his state-of-the-company address. But technology--perhaps the lack of it--is at the core of the tote problem, he said. Meeker repeatedly has said the tote system is the industry's most pressing issue.

"We have a dinosaur tote system that is not responsive to the needs of customers and to the needs of racetracks," he said. "This doesn't take a whole lot of brain power. It takes a commitment by the vendors."

CDI and several other major racing associations and companies have issued a request for proposals and has received some responses, he said. The idea is to develop a new tote system that, like the casino industry and slot machines, could involve multiple vendors under one roof.

As for offshore wagering, Meeker said: "As time goes forward, we will find a response to that led by Churchill Downs." He said "a large number of bets" are made offshore--presumably outside of the pari-mutuel loop--but didn't offer specifics on how CDI or the industry would address the situation.

Meeker said recent disease outbreaks and lingering effects from the mare reproductive loss syndrome of 2001 have contributed to short fields throughout the industry. He said it's "clear the entire industry is suffering on a product basis," and that he hopes the industry finds a long-term solution.

When asked after the shareholders' meeting whether there is an industry strategy, he said: "It has to be addressed on an industry level. There are myriad different things we're looking at. Our product is not as good as it should be. I don't think anybody who follows (horse racing) would disagree.

"Something is happening this year. (Handle in the industry) is down 4%, and most of that is product. People are not wagering on exotics in these five-, six-, and seven-horse fields."

Churchill Downs president Steve Sexton indicated field size at Churchill, which offers about $450,000 a day in purses, is down about a half a horse from last spring to 7.9 horses per race.

In other business at the shareholders' meeting, four Class III directors--Robert Fealy, Daniel Harrington, Carl Pollard, and Darrell Wells--were re-elected to three-year terms. Charles "Stormy" Bidwill Jr., an owner of the National Jockey Club, has become a director emeritus of CDI.

According to information provided at the meeting, there were 12,928,411 shares of common stock in CDI as of April 20. The largest individual shareholder was Duchossois Industries with 3,150,000, or almost 25% of the total. CDI's 25 directors and executive officers as a group account for almost 40% of the stock.