Churchill's First Quarter - Racing Down, Gaming & Online Up

Churchill Downs Inc. has just released its financial results for the first quarter of 2009.  No real surprises: Churchill lost a total of $4.8 million for the quarter, compared to a modest profit of $742,000 for the same quarter last year.  But in fact, Churchill's overall performance this year was substantially better than last, since the 2008 results were inflated by the inclusion of a $17.2 million insurance payment with respect to the damage inflicted by Hurricane Katrina on the Fair Grounds in New Orleans. Without that one-time payment, Churchill would have lost $16.5 million in last year's first quarter, a much bigger loss than the company reported for the current year. This year's one-time payments, by contrast, were much smaller, principally a $4.3 million settlement with respect to source-market fees owed to Arlington Park by TVG.

As we should expect by now, income from live racing continues to stagnate, if not decline, while revenue from gaming -- notably, the new casino at the Fair Grounds -- and from the Twin Spires internet wagering site continues to grow.

Net revenue from racing operations for the quarter was actually up fractionally, from $38.835 million last year to $38.984 million this year, even though Churchill's parimutuel handle dropped by 6%.  Still, that's better than the 9% decline reported by Equibase for handle nationwide in the first quarter.

But the significant increases were in net revenue from online operations, up from 14.144 million last year to $16.650 million this year, and, especially, in gaming revenue, now that the permanent slot facility at the Fair Grounds is up and running.  That segment increased from $12.474 million in net revenue on the frist quarter of 2008 to $17.875 million this year.

So the corporate types at Churchill seem to have the numbers to validate their long-term strategy of focusing growth away from the race track.  And that probably means continued tension between Churchill and the horsemen who race at its tracks.  Unless Churchill is willing to share its Twin Spires revenues with horsemen in the same proportions as it shares on-track betting money -- as the New York Racing Association does with betting handle on its NYRA Rewards site -- the corporate suits will continue to favor the online business over live racing, and the horsemen will continue, rightly, to feel taken advantage of.