Casino boosts quarterly revenue for Churchill Downs Inc., but online revenue declines

Churchill Downs Inc. had net income in the third quarter this year of $15.2 million on a sharp gain in revenues, but the company also posted a rare quarterly decline in revenue for its online wagering operations, according to financial statements released this week.

Revenues for the company in the quarter were bolstered by results from Derby City Gaming, a casino Churchill opened in September of last year. For the quarter, revenue from Churchill Downs, the racetrack, and Derby City Gaming combined were $32.7 million, up from $11.8 million during the third quarter last year, when the casino had a soft opening. Of the $20.9 million increase, $20.2 million was attributable to Derby City, Churchill said in a release.

Notably, revenue from Churchill’s online wagering operations declined from $72.1 million to $70.4 million. The revenue for that segment includes twinspires.com, the racing industry’s largest account-wagering operation, plus Velocity, a high-rollers’ account-betting operation that provides generous rebates to its customers.

Churchill said in the release that the decline in online revenue was “primarily due to the exit of certain existing high-volume/low-margin customers in the Velocity group.” Robotic-wagering teams and high-rolling partnerships that patronize rebate shops are highly sought after in the racing industry despite the low margins attached to their business, and customer flow from one rebate shop to another is common.

Handle through twinspires.com was up 7.9 percent in the quarter, Churchill said, in line with historical growth rates at the account-wagering operation. Active players increased 2.6 percent in the quarter, Churchill said.

Churchill launched an online sports-betting operation in New Jersey last year in partnership with a local casino, and net losses from that operation were $100,000, Churchill said, due to the fact that “sign-up bonus incentives in New Jersey outpaced gross revenue.”

Churchill’s casino revenue in the quarter was $178.6 million, up substantially compared with the revenue figure of $110.5 million in last year’s third quarter. The gain was primarily due to acquisitions reflected in this year’s third-quarter number, including the purchase of Presque Isle Downs and Casino in Pennsylvania and an increased equity investment in Ocean Downs Casino and Racetrack in Maryland.

Interest expense was up sharply during the quarter, nearly doubling from $9.9 million in last year’s third quarter to $18.9 million this year. For the year, Churchill has had interest expense of $52.0 million, compared to interest expense of $29.2 million in the first nine months of last year.

During the quarter, Churchill bought back 202,449 shares of its stock for a total outlay of $25 million. Churchill also said in its financial statements that its expenses for “increased salaries and related benefits at the corporate level” were $2.3 million higher in the quarter compared to the third quarter last year.