Churchill Downs Inc. net income rises in third quarter

Churchill Downs Inc. had net income of $4.2 million in the third quarter, up $700,000, or 19 percent, over the same quarter last year, even as revenue for the company in the quarter jumped 61 percent to a record $279.8 million, according to financial documents released Wednesday.

Third-quarter results were boosted by $103.5 million in revenue from Big Fish Games, the social-gaming company Churchill purchased late last year for a price that could hit $1 billion when all costs are taken into account. The quarterly revenue figure for Big Fish, which Churchill hopes to develop into a major player in the Internet gambling market, exceeded the quarterly revenue figure for each of Churchill’s three other operating divisions.

The big numbers, however, did not have a major impact on the company’s bottom line, in large part because of significant jumps in the company’s administrative expenses and its research and development, both of which were related to Big Fish. Administrative expenses in the quarter jumped 36 percent to $24.6 million, up $6.4 million, while research and development costs were $10 million. Churchill only added R&D costs to its financial documents after the Big Fish acquisition closed.

The quarter’s net income figure was also affected by “Calder exits costs” of $12.7 million, according to the financial documents, which were incurred as part of an impairment charge related to the “planned demolition of the Calder grandstand.” Last year, those costs were $2.3 million.

Churchill has leased Calder’s racing operations to another racetrack company while seeking options to develop the racetrack property. Churchill still owns and operates a casino on the Calder grounds.

Revenue from racing operations at Churchill three’s remaining tracks was $40.9 million in the quarter, down 12 percent, but the company said the division had a better overall performance this quarter than during the third quarter last year due to lower costs.

Revenue from the company’s online operations was $50.3 million, up 9 percent. In a statement accompanying the financial results, Churchill said that handle through its online companies was up 9.4 percent in the quarter.

Revenue from the company’s myriad casinos was $82.7 million, up 1 percent. Revenue for casino companies across the U.S. has been flat in recent years as the market reaches its saturation point and the industry struggles to attract new customers or develop new games.

Also in a statement accompanying the financial documents, Churchill said its board has approved a plan to repurchase $150 million of the company’s stock. As of the close of trading Wednesday, Churchill had a market cap of $2.5 billion. Over the past several years, the company has issued tens of thousands of stock options to its executives. Repurchases under the program “may be made at management’s discretion,” the statement said, “on the open market … or through privately negotiated transactions.”

Churchill officials have scheduled a conference call for Thursday morning to discuss the quarterly results with analysts.