Churchill Downs Incorporated’s casino and pseudo-slots operations offset a decline in the company’s online gambling operations in the third quarter of 2019.
On Wednesday, the Kentucky-based CDI reported revenue of $306.3m in the three months ending September 30, up 38.4% from the same period last year. Adjusted earnings grew 41.2% to $88m but net income plunged by nearly three-quarters to just $14.8m, although ‘adjusted net income’ was up $400k to $22.3m.
As with almost every gaming operator these days, CDI’s comparatives are a proper hodgepodge following seemingly never-ending expansions, mergers, acquisitions and lusty glances. The statutory net income plunge was blamed primarily on a $42.3m after-tax non-cash gain in Q3 2018 and $3m in legal expense.
Anyway, CDI’s mainstay ‘gaming’ (aka casino) segment reported revenue rising $68.1m to $178.6m thanks to $48.3m from expanded operations in Pennsylvania and $18.6m from taking full control of its Maryland operations. Do the math and you’ll see that the rest of the casino portfolio had a fairly flat quarter.
The ‘online wagering’ segment, which includes not only the TwinSpires advance deposit wagering site but also the new BetAmerica online sports betting and iGaming business, reported revenue falling by $1.7m to $70.4m. Online earnings fared much worse, dropping nearly 28% to $15m.
CDI blamed the online slump on “the exit of certain existing high volume / low margin customers” from Velocity Wagering Services, its Isle of Man-based ADW site for international racing bettors. TwinSpires’ Q3 betting handle, which doesn’t include Velocity, was up 7.9% year-on-year as active players rose by 2.6% but net revenue per active player fell 1.1%.
BetAmerica reported total revenue of $600k in Q3 but online sign-up bonuses in New Jersey resulted in a net loss of $100k for the unit. BetAmerica’s launch and increased marketing spend in New Jersey accounted for the bulk ($5m) of the online segment’s earnings decline.
Speaking on Thursday’s analyst call, CDI CEO Bill Carstanjen compared BetAmerica’s dismal early returns to what TwinSpires endured following its launch, saying “this is a business built for showing some losses and some investment in the early stages.”
However, Carstanjen said there’s been “some irrational behavior” in New Jersey’s online market and CDI wanted to ensure that what seems irrational now “doesn’t become rational over time.” Bottom line, CDI doesn’t want to “spend more to acquire customers than we think those customers can be worth to us over time” and CDI “won’t participate in markets long-term that we don’t think we will be making money in.”
Speaking of making money, CDI’s ‘Churchill Downs’ segment (aka racing), reported revenue nearly tripling to $32.7m in Q3, thanks to $20.2m from the new Derby City Gaming ‘historical racing’ pseudo-slots facility.
Derby City is going so well that CDI confirmed previously announced plans to spend $300m building another historical racing venue plus a 156-room hotel and permanent stadium seating at its flagship racetrack in Louisville. Work is expected to get under way in December with an opening set for November 2021. CDI also plans to spend $11m to create a “premium upscale experience” at Churchill Downs in time for the 2020 Kentucky Derby.
Finally, CDI said its Miami Valley Gaming & Racing joint venture with Delaware North will spend $100m to expand the Florida racino’s gaming floor as well as build a 192-room hotel and parking garage. The expanded gaming floor will add another 250 video lottery terminals, bringing the property’s total VLT count up to 2,200.