CDI reports $82 million loss in 2020

Churchill Downs Inc. had a net loss of $81.9 million in 2020 on sharply reduced revenue, according to financial statements released on Wednesday night, with results impacted by the rescheduling of its most famous races, the temporary closure of its casinos during the year, and a nearly $100 million legal settlement related to its prior ownership of a mobile gaming company.

The net loss for the year is the first in decades for the company, which has built itself over the past 15 years into a casino giant while also leveraging its lucrative signature races, the Kentucky Derby and Kentucky Oaks. In 2019, the company had net income of $138 million, after a year in which it posted net profits of $353 million (with a large portion of that figure coming from the sale of a mobile gaming company).

Revenue for the year was $1.054 billion, down from $1.330 billion in 2019, according to the financial statements, a difference of $276 million. While total operating expenses in 2019 were $1.114 billion, total operating expenses in 2020 were $993.8 million, a difference of $121 million.

In its financial statements, Churchill revealed that it took a $95.4 million loss on its “discontinued operations” to settle a lawsuit filed in 2016 over whether a mobile-gaming app it owned at the time, Big Fish Games, offered illegal gambling. A judge in August, 2020, approved a class-action settlement related to the lawsuit that requires Churchill to pay a total of $124 million. Churchill sold Big Fish in 2018.

The losses in revenue for the year were most acute at Churchill’s flagship racetrack in Louisville, where the Derby this year was held on Sept. 5, four months after its traditional date, and without fans in attendance. Churchill typically draws 150,000 to the track on Derby Day and over 100,000 on Oaks Day.

In a statement accompanying the financial results, Churchill said that the “loss of ticket revenue, fewer sponsorships, and lower wagering during Derby week” led to a $121.8 million decline in revenue compared to revenue generated during the 2019 events of Derby week. In total, revenue for the year for the operations of Churchill Downs, which also includes revenue for a casino near the track, was $142.8 million, just over half of the revenue number of $274.2 million last year.

Churchill’s other casino properties also suffered from a large loss in revenue during the year, dropping from $692.4 million in 2019 to $441.4 million last year. In a chart accompanying the financial results, Churchill noted that most of its casino properties operated at 50 percent capacity after they were allowed to re-open, most in mid-summer.

In a conference call held on Thursday morning, Bill Carstanjen, the company’s chief executive, said that he expects governments to gradually relax casino capacity restrictions in 2021 as more and more people get vaccinated for the coronavirus. Carstanjen also reiterated that the company plans to sell “40 to 50 percent” of its seating capacity for the Derby and Oaks this year.

“We won’t be all the way back this year, but we certainly expect to do much, much better in all categories in 2021,” Carstanjen said.

Carstanjen said that Churchill intends to re-start its project to build a casino at Turfway Park in northern Kentucky now that the state legislature has passed a bill clearing up the legality of gambling devices in operation at Kentucky tracks. However, Carstanjen said that the company is now re-considering its plans to build a hotel and casino at the Louisville track, in large part because of concerns over whether those projects might negatively impact Derby City Gaming, the casino Churchill already operates at its nearby Trackside training center. Churchill spent $100 million to build the facility.

“Derby City gaming has just become a juggernaut,” Carstanjen said. “So we have to make sure we maximize that opportunity.” Earlier in the call, Carstanjen said that the on-site Churchill projects would need to be done “more cost effectively” but said that company officials “are not ready to discuss our revised plans today.“

Revenue from on-line wagering during the year was up 40.5 percent, from $290.5 million in 2019 to $408.3 million in 2020, as betting nationwide migrated to account-wagering companies such as Churchill’s Twinspires.com because of bans or restrictions on spectators at nearly all tracks and betting sites in the U.S. last year. In the statements accompanying the financial results, Churchill said that total handle for its on-line operations jumped 36 percent in the year.

Despite that increase, Twinspires.com lost its leading position in the account-wagering market during 2020 when TVG, its closest competitor, was better able to leverage its position in the television market to draw a far greater share of wagers to its account-wagering operation. Beginning in the second quarter of 2020, TVG’s handle began growing at a more than 100 percent annualized rate, according to records maintained by the Oregon Racing Commission.

Company officials played up the growth in on-line business during the year, and Carstanjen noted that Twinspires.com is a “very profitable business,” contrasting that performance with the company’s experience so far in the sports-wagering marketplace. Churchill has been attempting to gain toeholds in all of the markets that have legalized sports betting, but Carstanjen said that the sports-betting segment of the company “operates at a loss at this time.” He told analysts that the company intends to pursue growth in the market with a focus on building a profitable business, rather than building market share.