Updated on 02/26/2015 10:05AM

Churchill Downs Inc. net income drops 16 percent


Churchill Downs had net income of $46.2 million in 2014, according to financial documents released Wednesday, a drop of 16 percent compared with net income of $54.9 million in 2013, despite posting record revenue during the year.

Revenue for the year was $812.9 million, a 4 percent jump over revenue of $779.3 million last year. Revenue growth came from the company’s Churchill Downs racetrack in Louisville, Ky., and its twinspires.com account-wagering operation, along with an 11 percent jump in revenue from its casino properties due to the full-year accounting of an acquisition in 2013. But the net revenue figure was dragged down by weak results at its other racetracks and at the vast majority of its casino properties, along with higher interest payments on a sharp increase in debt.

Racing revenue as a whole was down 5 percent during the year, in large part because of a 47 percent drop in revenue from Calder Race Course, which Churchill leased to a competitor, the Stronach Group, as part of a deal reached midway through 2014. However, company officials said the lease was a net gain to the company because of poor results from the Calder racing operation in the year prior, when Gulfstream, owned by Stronach, began racing head-to-head against the track and selling simulcast signals to other Florida tracks in competition with Calder.

At Churchill Downs, the track, earnings before interest, taxes, depreciation, and amortization for Derby week was up $8.8 million compared with the track’s EBITDA for Derby week of 2013, officials said. The company did not break out revenue figures for either year’s Derby week.

“Racing outside of the Kentucky Derby remained very challenging, and we don’t see anything that makes us believe that will change in the future,” said Bill Carstanjen, CDI’s chief executive, on a conference call Thursday to discuss the results.

Total racing revenue at Churchill Downs was $143.2 million during the year, a jump of 8 percent, despite significant handle declines during the track’s spring meet and during a short meet in September. While Churchill blamed short fields and other factors for the decline, many horseplayers called for a boycott of the track’s races after Churchill raised the takeout rates for bets at the track. The increase in takeout obviously mitigated some of the revenue impact from the handle declines.

Revenue from twinspires.com, the largest account-wagering company in the U.S., was $190.3 million, up 3 percent compared with 2013. Churchill said in financial documents that handle through twinspires.com was $897.7 million in 2014, up 3 percent compared with handle in 2013. Churchill noted in its release that overall handle on U.S. horse races during 2014 dropped 2.8 percent.

Revenue from the company’s high-roller offshore wagering operation, VSI, dipped 4 percent compared with 2013, to $34.4 million, according to the financial documents.

Revenue from the company’s casinos during 2014 was $329 million, up 11 percent compared with revenue of $297.5 million in 2013. The 2014 results included a full year of operations from a casino in Maine that Churchill acquired in 2013, accounting for $42 million in additional revenue and disguising weak results for the rest of the segment. The Oxford casino was the only casino in Churchill’s portfolio that had revenue growth compared with 2013, with all of its other casinos posting declines in revenue from 2 percent to 7 percent, reflecting the weakness of the national market for casinos as the gambling landscape becomes more and more competitive.

Churchill also had $13.9 million in new revenue from its acquisition of Big Fish Games, a maker of mobile gaming applications that Churchill purchased for an initial price of $485 million in November, with the potential for the price to rise to a total of $885 million. Big Fish distributes a wide range of games, but Churchill is seeking to build the game maker’s “social-casino” application into a real casino if laws are loosened to allow casino-type gambling over mobile devices.

Interest payments ballooned from $6.1 million during 2013 to $20.8 million as Churchill took on $390 million in additional debt during the year to pay for the Big Fish acquisition. At the end of the year, the company had long-term debt of $459.1 million, compared with $69.2 million at the end of 2013. Churchill also added a $327.8 million liability to its balance sheet to account for the potential future payments to Big Fish’s former owners.

Share-based compensation dipped 44 percent during the year, from $21.5 million in 2013 to $11.9 million in 2014, as the company wound down an incentive program that allowed its former chief executive, Robert Evans, to cash in approximately $14 million in stock options over an 18-month period ending this summer. Evans stepped down from Churchill in the fall but remains the company’s chairman.