Churchill Downs’ Bets On Casinos Are Paying Off

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Horses and their riders round the fourth turn at the 148th Kentucky Derby last year at Churchill Downs. (Photo by Andy Lyons/Getty Images)

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Churchill Downs

is best known as the iconic racetrack for the Kentucky Derby, but it’s increasingly becoming a gaming company. Consider that Wednesday afternoon the company reported better-than-expected first-quarter earnings mainly thanks to the success of its casinos.

Churchill Downs posted revenue and earnings per share for the three months ending in March of $559.5 million and $1.96. That excludes the dispersion of assets such as the $86.2 million after-tax gain on the sale of its Arlington Park property in Illinois to the Chicago Bears. Wall Street had been looking for revenue of $545 million and earnings per share of $1.73.

On a year-over-year basis, revenue was up 54% and earnings 66%. The main reason: Revenue from gaming in the first quarter rose 40%, to $251.6 million, while Ebitda (earnings before interest, taxes, depreciation and amortization) for that segment increased 42%, to $129.5 million. Indeed, gaming generated $35.8 million more in revenue than horse racing and $47.4 million more in Ebitda.

How completely times have changed. It was only 15 years ago that the company’s casinos threw off $61 million in revenue, just 13% of the top line. Last year’s figures: $756 million, or 42% of total revenue.

That trend should continue after Churchill Downs closed on its deal to buy most of Peninsula Pacific Entertainment’s casinos and gaming centers for $2.75 billion in November. That same month, the New York State Gaming Commission approved the state casino license changeover to Churchill Downs Inc., giving the property’s new owner control over the upstate casino.

Those deals paid off in the first quarter, with New York and Iowa properties acquired in the Peninsula Pacific transaction contributing $26.5 million in Ebitda to Churchill Downs. Of the eight states where Churchill Downs now has gaming operations, New York contributed the most revenue, with $44.5 million.

Wall Street cheered the results in after-hours trading, sending shares of Churchill Downs up 1.5%, to $255.61.

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