CDI reaches deal to sell Big Fish Games

Churchill Downs Inc. has reached an agreement to sell its mobile-gaming company, Big Fish Games, for nearly $1 billion, three years after acquiring the business, the company announced late on Wednesday.

Churchill will sell Big Fish for $990 million in cash to Aristocrat Technologies, an Australian company. Churchill had purchased Big Fish for $485 million in cash in 2014, but the deal had other riders attached that raised the total price to $885 million.

In a release, Churchill said that the money raised from the deal would be used for “general corporate purposes, which may include investments to support organic growth and acquisitions, debt reduction and share repurchases.” Specifically, Churchill said its board has authorized as much as $500 million from the sale to buy back shares.

Churchill’s debt at the end of the third quarter this year was $510.7 million, according to its balance sheet, up from $313 million at the same time in 2016.

Big Fish was Churchill’s first foray into the mobile-gaming market, a highly unpredictable business in which blockbuster games can create outsize returns for companies that manage to release a game that goes viral and has staying power. At the time Churchill bought the company, Big Fish had one such game, Gummy Drop, but over the next three years, the company failed to release a game with a comparable reach, even though Big Fish’s products continued to generate steady revenue numbers for Churchill.

“Big Fish is a very successful business with a bright future that will be best realized by being part of Aristocrat’s strategy and vision for their online and mobile gaming platform,” said Bill Carstanjen, Churchill’s chief executive, in a release. “We will refocus our strategy on our core assets and capabilities including growing the Kentucky Derby, expanding the casino segment, Twinspires.com, and other forms of real money gaming, and maximizing our Thoroughbred racing operations.”

According to Churchill’s financial statements, Big Fish had net revenue of $486.2 million in 2016, up from $413.7 million in 2015. However, operating expenses jumped from $340.1 million in 2015 to $398.9 million, not including $39 million in research and development costs for the company’s products, a separate line item on Churchill’s income statement that was added after Big Fish was bought.