03/01/2017 5:33PM

Churchill Downs warming up to historical racing machines

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Churchill Downs Inc. would consider installing so-called historical racing machines at its Louisville, Ky., racetrack if a machine could be designed that was “competitive” with the more traditional slot machines offered at casinos in nearby Indiana, the company’s chief operating officer said Wednesday.

Speaking on a conference call to discuss the company’s 2016 financial results, COO Bill Mudd said Churchill was “working toward figuring out if we can make a better product” than the historical-racing machines already in use at three racetracks in Kentucky.

“I can’t say whether we are there yet or not, but that’s our goal,” Mudd said.

In the past, Churchill Downs has rejected the notion of installing historical-racing machines, in part because it believed that installing the devices would sap its effort to get legislation passed allowing the company to operate a Las Vegas-style casino at its Louisville flagship racetrack. However, the odds of getting casino legislation passed in Kentucky have withered under the current gubernatorial administration, and Churchill now appears to be receptive to the devices.

Historical-racing machines have been installed at Kentucky Downs in Franklin, Ellis Park in Henderson, and the Red Mile in Lexington, in partnership with Keeneland. While the machines do not typically generate the same per-day revenue numbers as traditional slot machines, they have generated millions of dollars for their operators and subsidize purses at Kentucky tracks.

Churchill is researching and developing a number of games simulating gambling through its social-gaming unit, Big Fish. The unit generated $486.2 million in revenue in the year. Outside Churchill, two manufacturers currently develop historical-racing machines, one owned by The Stronach Group and the other by a partnership that includes a co-owner of Kentucky Downs.

Also on the conference call, Mudd said that the company’s Kentucky Derby will be simulcast in Japan for the first time this year, but an official later clarified that the simulcast will be contingent on a Japanese horse running in the race. In addition, if Japanese bettors were to wager on the Derby, their wagers would be combined in a separate pool from the commingled pools bet into by horseplayers in North America and other countries, the official said.

Last year, Churchill announced that it would guarantee a spot in the Derby to a horse in Japan who earned the most qualifying points in two designated races. The strategy was an attempt to get Japanese officials to endorse the Derby as one of 24 races that could be imported into the country each year as part of a law passed in 2016.

Japan is one of the richest markets for horse-race betting in the world, but the country has long prohibited simulcasts into the country, with only limited exceptions. The first race simulcast under the new law, the Prix de l’Arc de Triomphe in France last October, drew $40 million in wagers from Japanese bettors (those wagers were not commingled either). The Japanese horse Makahiki finished 14th in the race.

Epicharis, who is undefeated in four starts, is the leading candidate among Japanese horses to receive an invitation to the Derby after winning the Feb. 19 Hyacinth Stakes at Tokyo Racecourse, the second of the two designated races.

It is not clear what rate Churchill could get for its Derby simulcast in Japan. The company charges simulcast outlets the highest rate in the country for the Derby signal, approximately half of all betting revenue from the race. But the artificial limitation on supply imposed by the Japanese bill on the annual number of races imported to the country would put Churchill at a disadvantage in negotiations, considering that the approval for the race both this year and in future years rests with the Japanese authorities.