Updated on 08/12/2010 9:10PM

Churchill's income declines for quarter


Churchill Downs Inc. had net income in the second quarter this year of $27.6 million, down 10.7 percent compared to net income of $30.9 million in the second quarter of last year, according to financial statements released late on Wednesday.

Revenue in the quarter was $200.5 million, according to the statements, an 11.4 percent gain over revenue of $180 million in the second quarter of 2009, entirely because of gains from the company’s casino operations and account-wagering business. However, operating expenses increased 17.4 percent, from $116.9 million in the second quarter of last year to $137.3 million in the second quarter of this year, a $20.4 million gain that accounted in large part for the decline in net income.

William Mudd, Churchill’s chief financial officer, said during a conference call with analysts on Thursday morning that $4.5 million of the additional expense in the quarter was related to depreciation and amortization on Churchill’s new casino at Calder Race Course in Florida and the operations of Youbet.com, which Churchill purchased in a deal that closed June 2. In addition, Mudd said Churchill recorded a $1.3 million charge as an asset impairment on Youbet’s technology.

While revenues from Churchill’s racing operations were down 2 percent in the quarter, revenue from Churchill’s account-wagering business increased from $20.8 million in the second quarter of 2009 to $29.4 million in the same period this year, according to the statements. Robert Evans, Churchill’s chief executive, said that handle through the company’s twinspires.com operation was up 11 percent in the quarter, and that total handle for Churchill’s account-wagering operations was up 30 percent during the first six months of the year.

The Youbet acquisition – which valued the company and its subsidiary, the bet-processing company United Tote, at approximately $133 million – made Churchill the largest account-wagering operator in the U.S. Combined, the two companies had $814 million in handle in 2009.
Evans said the company has not decided which brand name it will retain for the account-wagering companies when and if the operations are completely merged.

“We might continue two brands, but I doubt it,” Evans said. “Whatever it is called, I don’t want to change the customer experience.”

Churchill has sought to rapidly build up its account-wagering operation to take advantage of the one area of growth in racing at a time when the industry is under significant economic stress. In addition, Evans said that the acquisition will place Churchill at a competitive advantage should the federal government legalize other forms of internet gambling other than horseracing. Last week, a House committee passed a bill that would allow the federal government to license and tax internet gambling operations, but the legislation is being given long odds to pass this year.

“We will continue to be active participants in this debate,” Evans said.

Revenue from the company’s casino operations at Fair Grounds in New Orleans and a casino at Calder Race Course in Florida increased from $15.4 million last year to $28.2 million this quarter, according to the statements. The casino at Calder opened in January this year. Evans said revenue was “flat” at the Fair Grounds property.

During the quarter, Churchill Downs hosted the Kentucky Derby and Kentucky Oaks, the two most lucrative betting days of the year for the company. Handle on the 13-race Derby card this year increased 4.5 percent compared to 2009, from $156 million to $162.7 million, and handle on the Kentucky Oaks cards this year was up 20 percent, from $30 million to $36 million.