Churchill Downs has long signaled interest in online gambling. The Louisville-based company tried to build its own gaming platform to edge into the space, but Luckity didn't provide enough return on investment, so Churchill pulled the plug.
Now, Churchill is buying a big stake in online gambling to work its way in from the other side.
With a deal valued at as much as $885 million, Churchill's purchase of Big Fish will give it one of the top mobile "casino" style game platforms, although it doesn't pay real money as Luckity did.
In a conference call Thursday with investors and stock analysts, Churchill Downs CEO Bill Carstanjen said the Big Fish acquisition "gives us new products, new customers, new geographies and new sizeable growth opportunities that are large enough to matter. With the trends we see in mobile, in smartphones, tablets and other handheld devices and the growth we see in mobile and online games, particularly social casino games, this segment is a logical adjacency for us."
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Social casino games are a huge and growing market. SuperData Research, which tracks trends in online games, estimated that by 2015, the worldwide market for casino-style play across all platforms will top $4.4 billion — without actual gambling.
Big Fish Casino has some of the top-grossing games in the space, Churchill said.
Still, Big Fish hasn't had a Candy Crush, Angry Birds, Minecraft, Temple Run ... or even a Clash of Clans, Pearl's Peril, Fruit Ninja or Words With Friends. In other words, no breakout hit.
"We actually like that," Carstanjen told the analysts. He cited Big Fish's broad portfolio, which includes more than 3,500 PC games and 450 mobile games, which generated $25 million in net income in the third quarter, according to figures released by Churchill Downs.
But Big Fish wouldn't mind a big hit. Carstanjen said the deal builds in a $50 million bonus to Big Fish founder Paul Thelen if the company hits $1 billion in "bookings" — in-app purchases — in 2016, which would be more than triple its bookings of $312 million over the past four quarters.
Churchill executives said Big Fish, which also has premium games and free-to-play non-casino games, plans a major marketing push in 2015 for some new and recently launched games.