Churchill's net income dips despite record revenue

Churchill Downs Inc. had net income of $55 million and record revenue of $409.2 million in the second quarter of 2015, according to financial documents released Wednesday.

Revenue was up 35 percent compared with the second quarter of last year, almost entirely due to the acquisition by Churchill late last year of the mobile-game developer Big Fish. Churchill’s racing operations, bolstered by its Kentucky Derby in May, generated revenue of $155 million, leading all of Churchill’s segments for the quarter.

In a statement accompanying the financial documents, Churchill said this year’s Derby week produced $6 million in “additional profit” when compared with last year’s performance. Churchill has been increasingly leveraging the brand of the Kentucky Derby over recent years to take advantage of its singular status on the American sporting landscape.

Churchill’s account-wagering company, twinspires.com, and its other racing-related online operations generated revenue of $60.7 million in the quarter, according to the statements. Handle through its online operations was up 8.6 percent during the quarter, the company said. Its casinos generated revenue of $83.8 million, while Big Fish generated revenue of $104.5 million.

Since the acquisition of Big Fish in a deal that could cost $1 billion, Churchill has been positioning the company to take advantage of any loosening in gambling laws or a reinterpretation of the legality of online gambling.

Although revenue for racing operations in the quarter was down 3 percent, or $4 million, profitability in the segment improved over last year’s second quarter because of the strong Derby week numbers and the cessation of live-racing activities at Calder Race Course in Miami. Calder’s racing operations showed a net loss in the second quarter of last year as the track battled head-to-head with nearby Gulfstream Park and lost a significant share of its simulcasting fees.

Net income also was down in the quarter, from $57.3 million last year to the $55 million figure this year. In the second quarter this year, Churchill had $9.8 million in “research and development” costs, a line item that did not appear last year, presumably because it is related to Big Fish’s operations. Churchill also had $8.2 million in acquisition-related charges in the quarter tied to the Big Fish deal.