Churchill second-quarter earnings up; renovation plans released
Churchill Downs Inc. had net income of $108.3 million in the second quarter this year, and the company will spend more than $200 million in the next two years on renovations at Churchill Downs racetrack in Louisville and at a casino south of the track, the company announced Wednesday.
The second-quarter net income result was a sharp turnaround from the second quarter of last year, when turmoil and shutdowns caused by the coronavirus pandemic led to a $118.8 million loss for the company. Net income for the second quarter two years ago, prior to the pandemic, was $107.1 million, on revenue of $477.4 million.
In a conference call Thursday morning, Churchill officials said they were pleased with the second-quarter results while outlining the capital projects the company intends to begin in the next several months to leverage the Kentucky Derby, the company’s signature racing event, and capitalize on the success at Derby City Gaming, the casino it opened at its Trackside training center in September 2018.
The bulk of the investments will be used to renovate several areas of the Churchill facility to convert relatively cheap seats into “high-end reserve seats,” according to Churchill’s chief executive officer, Bill Carstanjen. Churchill has invested heavily in renovations to the facility over the past 20 years as it seeks a greater differentiation in ticketing options to capitalize on the demand for Derby tickets among the wealthy.
At Derby City Gaming, Churchill plans to build a hotel and expand the casino floor to accommodate an additional 400 machines, the company said. Carstanjen called Derby City a “juggernaut” for the company’s cash flow and said that the $76 million in capital expenditures for the facility were designed to “invest where things are going well.”
“It’s clear that Derby City is working,” Castanjen said.
For the second quarter, Churchill had total net revenue of $515.1 million. For its “live racing” division, which includes results from its casinos in Kentucky, net revenue was $190.5 million, up from $30.3 million in the second quarter last year, according to its financial statements. Last year, Churchill did not hold the Derby in the second quarter, and its casinos were largely shuttered.
Churchill said in documents accompanying the financial statements that $97.1 million of the increase in the net revenue figure for its racing operations was due to results at Churchill Downs, largely because of the return of the Derby to its traditional date.
The renovations at Churchill racetrack will include three separate projects costing approximately $135 million, Churchill said. One of the projects involves an open-air section of the grandstand next to the “twin spires” approximately three floors up, while another will involve a temporary seating area around the first turn. Churchill also said that it plans to renovate its paddock, though Carstanjen said that the project remains in the planning stages and will not be completed until the Derby of 2024.
The grandstand renovation will convert the open-air bleacher seating next to the Winner’s Circle suites into “unique seating options with all-inclusive amenities,” Churchill said in a press release. The options will include 30 lounges for as many as 200 guests; 66 terraced dining tables for as many as 440 guests; 2,610 individual seats; and five private lounges for as many as 60 guests, Churchill said. The new area will be completed by the 2022 Derby.
The first-turn renovation will convert the temporary, open-air grandstand that Churchill makes available on Derby and Oaks days into a permanent, covered seating area. Ticketholders in the area will have access to a “climate-controlled hospitality venue” beneath the grandstand that also will have room for 2,000 additional ticketholders. The new area will be completed by the 2023 Derby, Churchill said.
“We believe that net revenue for these two areas combined will be substantially higher than it has been in recent years,” Carstanjen said, in reference to the grandstand and first-turn renovations.
At Derby City, Churchill officials said the new hotel will include 123 total rooms and that the company intends to market the rooms in conjunction with events at the track. Construction on the Derby City projects will start in early 2022, pending zoning reviews, Churchill said, and the hotel is expected to open in spring 2023.
According to Kentucky Horse Racing Commission records, the casino at Derby City has had net revenue of $117.4 million in the current fiscal year, running from July through May. Churchill operated 759 devices per day on average during the fiscal year at the casino, according to the records. Churchill also is still considering plans to open an additional casino in downtown Louisville, Carstanjen said.
Twinspires, Churchill’s account-wagering company, had net revenue of $135.6 million in the quarter, up from $121.3 million in the second quarter last year. Account-wagering companies continued to operate during the pandemic last year, and many experienced double-digit growth rates.
Although revenue increased $14.3 million on a quarterly basis, expenses at Twinspires rose $22.1 million, according to financial statements, from $74.7 million in the second quarter last year to $96.8 million this year.
Carstanjen and Marcia Dall, the company’s chief financial officer, said on the conference call that expenses for the quarter for Twinspires reflected a large marketing expenditure in the lead-up to the Derby for player acquisition. Carstanjen said that the marketing program “will fuel our growth in the future.”
Churchill’s casino segment – which does not include its properties in Kentucky – had net revenue of $186.0 million in the quarter, up from $37.3 million in the second quarter of last year. Most casinos were ordered closed by state and local health officials for most of the second quarter of last year.
During the second quarter, Churchill accepted bids for the redevelopment of its Arlington Park property outside Chicago, a track that it has said will be shuttered after the current meet ends in September (Churchill recently sent notices to its Arlington employees that they will be laid off at the end of the meet). Carstanjen would not identify bidders but said that the company expects to complete its evaluation of the bids soon and would announce details of the sale after the evaluation is complete.
The NFL’s Chicago Bears have acknowledged that the team made a bid on the property, after months of telegraphing their interest in the site for a new stadium. If the sale to the Bears is completed, it would mark the second time that a former Churchill racetrack property was sold to an NFL team, after Hollywood Park in Southern California was sold to make way for a stadium for the Rams.
Carstanjan also said that Churchill is planning to sell “excess property” at its Miami casino, which is located on the former spot of Calder Race Course, another racetrack the company has closed in recent years in favor of casino-only operations.