Diversification Drives CDI's Success
Though there is no end in sight for the continued declines in North American racing, the newly elected chairman of Churchill Downs Inc. painted a positive picture for the Kentucky-based racetrack and gaming operator during the company’s annual shareholder meeting June 16.
“I don’t believe we have quite found the bottom yet in Thoroughbred racing,” CDI chairman Bob Evans said after telling shareholders that diversification has enabled the company to continue to grow in spite of declines at CDI-owned and other North American tracks.
Evans, who was presiding over his first annual meeting since succeeding retired chairman Carl Pollard, said the five-year “depression” in North American racing is unlikely to turn around soon, ostensibly due to cutbacks in the number of horses being foaled each year that will continue to impact the number of horses available to fill races.
“We are in a downward trend for the next few years,” he said.
However, Evans said that due to its diversification into both traditional and racetrack casino gaming and online wagering, CDI has not only been able to weather the downturn but has increased earnings and profits.
According to figures provided the shareholders, CDI’s net revenue experienced a compound annual growth rate of 11.5% from 2004-10. During the same period, earnings before interest, taxes, depreciation, and amortization grew at a compound annual rate of 11.4%.
“Revenues are nice, but profits matter,” said Evans.
Showing the impact of diversification on CDI’s bottom line, Evans said racing’s percentage of the company’s total revenue fell from 90% in 2006 to just over 50% in 2010. During the same period, gaming’s contribution to revenue has grown from about 5% to just over 20%; online gaming through TwinSpires.com went from zero to 20% of CDI revenue from 2006-10.
At the same time CDI has been successful with its ability to diversify, other major North American racing companies have experienced major financial problems that have led several into bankruptcy.
“Some people tell me they don’t like that,” Evans said of CDI’s foray into casinos, racetrack gaming, and Internet gaming. “They want things the way they used to be. The world changes constantly and we have to change in order to be successful.”
While the company has expanded into alternative gaming opportunities, it is still focused on the core product of racing, Evans said, but with emphasis on quality and not quantity.
“Top quality racing is growing and is profitable,” Evans said, citing the continued success of the Kentucky Derby Presented by Yum! Brands (gr. I) and Kentucky Oaks (gr. I) as examples. This year, the Derby set an attendance record of 164,858, with the $165.2 million wagered, the third-highest in history. Oaks attendance of 110,122 was third-highest, and the handle of $37.5 million was a record.
He also presented statistics showing that from 2003-10, wagering on the top 25 races in the U.S. has grown 18%. During the same period, wagering on the top 400 races grew only 2%.
“The good stuff is succeeding and the bad stuff is failing,” Evans said.
In addition to emphasizing quality over quantity, Evans said the ability of CDI tracks to offer other entertainment along with racing was proving to be a successful formula. For example, the “Downs After Dark” night racing programs at Churchill Downs have produced average attendance of 27,547 and average total handle of $6.2 million. For the comparable non-night race days, average attendance was 7,100 and average wagering was $5.8 million.
Going forward, CDI will continue its expansion into alternative gaming, with the possibility of casino gambling coming to its Arlington Park facility in Illinois. If it becomes a reality, CDI would have 5,500 slot or video poker machines at operations in four states in 2012, compared with the 1,000 video poker machines in Louisiana in 2007.
In response to a question about the possibility of alternative gaming at Ohio tracks, Evans said that development would impact all Kentucky tracks but would have the greatest effect on Turfway Park in northern Kentucky.
A greater threat to Churchill Downs and other tracks, Evans said, is the casino being built at Aqueduct in New York. He said the purse enhancement accruing to New York racing would have a major effect on those tracks’ ability to attract horses.
During the shareholder meeting, an emotional tribute to Pollard was shown, with his family, Churchill Downs employees, and fellow directors reflecting on the positive impact he has had during his tenure with CDI.
Pollard, owner-operator of Hermitage Farm, has served as CDI chairman since 2000 and will remain as a director emeriti. Evans has been CDI president and CEO since August 2006; he will continue as company CEO in addition to being chairman.
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