02/27/2014 3:14PM

Churchill Downs Inc. sees net income decline for 2013


Churchill Downs Inc. once again posted record revenue in 2013, but its net income declined as its revenue from racing operations fell sharply and growth evaporated at its account-wagering business, according to financial documents released by the company Wednesday.

Although total revenue for the company in 2013 rose 7 percent to a record $779.3 million, total racing revenue at its four tracks fell 9 percent, dragged down principally by Calder Race Course in Florida. Racing revenue at Fair Grounds in New Orleans was down 8 percent for the year, and revenue at Arlington Park near Chicago was down 7 percent.

On the plus side, revenue at Churchill Downs in Louisville, buoyed by a strong Kentucky Derby and Kentucky Oaks, was up 7 percent, to $132.8 million, providing almost half of the company’s racing revenue for the year.

Meanwhile, revenue from the company’s online operations, a significant source of growth in recent years, was up only 1 percent, to $184.5 million. The vast majority of the revenue for Churchill’s online operations is generated by twinspires.com, the largest account-wagering operation in the United States.

Net income for the year was $55 million, down 6 percent from $58.3 million in 2012.

Total revenue for the company in 2013 was boosted entirely by higher revenue from its casino operations, but even those numbers revealed struggles. Revenue at the casinos operated by Churchill throughout 2012 was flat in 2013. All the growth in the segment was provided by new revenue from casinos purchased either late in 2012 or in 2013. Those new casino additions – one in Mississippi and one in Maine – accounted for $77 million in additional revenue in 2013, driving total casino revenue to $297.5 million for the year, up $75.3 million, or 33 percent.

The total casino revenue was $23.2 million higher than total revenue for Churchill’s live-racing operations. That marked the first time in the company’s history that its casino revenue was higher than its live-racing revenue.

Calder was the weakest part of the company’s portfolio, with revenue dropping $28.5 million for 2013, down 44 percent, to $36.3 million. For the first time, Calder raced head-to-head with Gulfstream Park from July 1 through the end of the year, costing the track live-racing handle. More significantly, Gulfstream and Tampa Bay Downs qualified as “host tracks” in Florida during the latter part of the year, allowing the two tracks to resell simulcast signals in the state. Calder had previously held the exclusive right to resell simulcast signals throughout most of the year.

On a conference call Thursday, Bill Mudd, the company’s chief financial officer, said Churchill believed that the worst was over at Calder. Mudd also said the company anticipated a favorable ruling from Florida regulators that would retroactively disqualify Gulfstream and Tampa as host tracks for 2013, and that Churchill “will pursue the recovery of those losses available to us” from the resold simulcast signals. A hearing in the matter is scheduled for March 6.

For its online operations, Churchill said the slowdown in growth was partially attributable to a six-month shutdown in account-wagering in Illinois during the first half of the year and to the company’s decision to stop taking wagers from bettors in Texas in September 2013 due to a legal dispute. Although handle through twinspires.com was up only 1 percent for the year, Churchill said handle through the account-wagering operation was up 6.2 percent for the year when handle totals from Texas and Illinois were not included in the totals for either year.

Mudd also said the company is weighing whether to shutter an online betting site that uses horse races to determine payouts in games designed to play like bingo or scratch-off lottery cards. The site, Luckity.com, was launched by Churchill in 2012.

“By the beginning of the next quarter, we should be able to determine if we want to continue to invest in this product,” Mudd said.

Bob Evans, the company’s chief executive, told analysts on the conference call that Churchill would continue to shop for more casinos. “We’re still out there looking at everything,” he said.