Churchill CEO: 'Historical racing' won't produce much revenue; HullabaLOU at risk

Churchill Downs estimates that expanding its gambling options to include "historical racing" machines would add only $2 million to $3 million annually to the Louisville track's purses, said Bob Evans, Churchill Downs Inc. president and chief executive.

In a conference call Thursday with stock analysts to discuss second-quarter earnings, Evans also said he did not see how historical racing could compete against nearby casinos, particularly in terms of amenities.

"We are concerned about the competitiveness of a historical racing machine operation, which almost certainly would not have the hotel, the pool, the golf course, the entertainment showrooms, the conference facilities, the multiple restaurants, the shopping, the poker and the table games that exist at our casino and racino competitors," Evans said. "At this point, our principal competitive advantage would be that our historical racing machine operation would be geographically closer to the Louisville population base."

Evans said the money generated from historical racing machines, which look like electronic slots but are pari-mutuel betting, pales next to that from video lottery terminals.

By comparison, VLTs at Hoosier Park and Indiana Downs, which competes for horses with the Louisville track and Churchill's Arlington Park in Chicago, were able to boost purses by $52 million in 2009, he said.

The Kentucky Horse Racing Commission in July restructured regulations to allow tracks to take bets on historical races such as the "Instant Racing" games in place at Oaklawn Park in Arkansas.

The machines take bets on randomly selected previously run races; the bets are pooled, so payouts vary according to how much has been wagered in the pool.

Evans said the tracks appreciate the move by the commission and Gov. Steve Beshear, but he said Churchill, at least, predicts that any impact from them "will be minimal."

The tracks and the state immediately filed a petition in Franklin Circuit Court in Frankfort asking the court to rule on the constitutionality of the changes. That ruling is pending, and the new rules also face legislative review.

"It will likely be well into next year before any racetrack in Kentucky is in a position to install these machines," Evans said. He said that "it will probably be quite some time before we decide" whether to put them in.

Churchill Downs has been working to broaden its revenue base from live racing to online betting, slots operations in New Orleans and Florida, and other kinds of entertainment.

But the track's inaugural HullabaLOU music festival last month was a big financial disappointment, losing more than $5 million, or twice what Churchill budgeted.

Given that, Evans said Thursday, the question might be why the track has already announced that the three-day festival will be back next year.

He said Churchill hopes the event will work like night racing, which was introduced to the Louisville track last year and lost money until the second year.

"We learned a lot with HullabaLOU this year, and I guess we should have. It was an expensive education," Evans said. "And we believe we can make the changes to revenue and cost necessary to make this a significant asset for the company. If we can't, HullabaLOU will not continue, long-term."

Churchill's entertainment division in the first six months reported expenses of $1.5 million associated with the festival; full financial results of the event will be reported in the next quarterly earnings statement.

Evans said Churchill officials had anticipated attendance of more than 100,000 at the music festival, but it drew about 78,000. He blamed the difference on two things: the slumping overall music industry box office and the near-record temperatures in July in Louisville.

He indicated that the festival will be revamped for 2011, saying that key factors — such as the acts, the number of days, the month it would be put on and ticket prices — have yet to be decided.

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