Updated on 02/28/2013 6:32PM

Churchill Downs Inc. stockholders reap rewards on strong 2012 earnings


Churchill Downs Inc. had another strong year in 2012, with net earnings of $58.3 million on record revenues of $732.4 million, and its stockholders are reaping the rewards.

One year ago, Churchill’s stock price was approximately $53 a share. As of Thursday, one day after releasing its 2012 earnings, the stock price had grown 24 percent, strongly outpacing the 8 percent gain in the Dow Jones Industrial Average over the same period. Late last year the company also announced a 72-cent per share dividend, up 20 percent over the 60-cent dividend it awarded shareholders the year prior.

Though the recent acquisition of two casinos in Mississippi and the opening of a casino at Calder Race Course in 2010 have propelled revenue growth over the past three years, Churchill’s live racing operations have stabilized despite the uncertain economic climate surrounding the sport. But more importantly, at least to those concerned about the general health of the racing industry, revenue from Churchill’s online account-wagering business was up 11 percent compared with the 2011 figure, during a year when handle on U.S. races nationwide was up 1 percent.

While the company’s four casinos remain Churchill’s best producers, generating $67.8 million in earnings before interest, taxes, depreciation, and amortization (EBITDA) on total revenue of $223.1 million, its racing businesses are not far behind. Racing operations in 2012 generated $50.8 million in EBITDA from $302.1 million in revenue, according to the financial statements released on Wednesday, while the online business generated $40.3 million in EBITDA from $183.3 million in revenue.

Still, there are some weaknesses in those numbers. Although Churchill doesn’t break out the financial performance of individual tracks, the company’s flagship track in Louisville is believed to be responsible for the brunt of its earnings from its racing operations, largely because of the enormous amounts of cash generated by the Kentucky Derby and Kentucky Oaks. Its other tracks – Calder, Fair Grounds, and Arlington – are probably close to break-even.

In a release, Churchill said that its Oaks and Derby business generated $5.4 million in additional profits in 2012 than in 2011, without providing the total revenue or profit figure. Wagering on both races was a record last year. In a Thursday conference call, William Mudd, Churchill’s chief financial officer, said that revenues from premium seating and sponsorships in 2013 was running ahead of last year’s tally, in part because of demand for its new premium seating area, the Mansion, which Churchill built over the past year at the stated cost of $9 million.

The success of Churchill’s dominant account-wagering platform, twinspires.com, also has its downside, especially where horsemen are concerned, because the business is likely growing at the expense of ontrack wagering. An ontrack wagering dollar generates far more revenue for local horsemen than a bet through an account-wagering platform, where the rewards accrue primarily to the owner of the platform.

Churchill is expanding its online business in the hopes of generating new customers, but its strategy in that arena isn’t exactly racing friendly. In 2012, the company launched Luckity.com, an online gambling site designed to appeal to lottery and bingo players. Though wagers made through the site are commingled into the parimutuel pools and use the results of races on twinspires.com for payoffs, customers of the site aren’t handicapping, and it’s possible some customers don’t fully understand how the payoffs are generated.

On the Thursday conference call, Churchill officials declined to provide revenue figures for Luckity.com, but they said that the company incurred $2.9 million in costs related to the late 2012 launch. Bill Carstanjen, the company’s chief operating officer, also indicated that the site may need some tweaking, in large part because of the delays users encounter in waiting for their bets to pay off.

“We have not had trouble attracting customers,” he said. “The problem has been keeping them engaged and on the site.”