Casinos and slots in other states, along with Kentucky Derby Week, keep Churchill Downs afloat, and more is in the cards, said Robert L. Evans, Churchill Downs Inc. chairman and CEO.
In remarks made Tuesday with stock analysts on the Louisville-based company's record 2011 earnings, Evans described how Churchill has shifted from racing to gambling — and how it will change again in the future.
"To millions of people worldwide, Churchill Downs means the Kentucky Derby, the Kentucky Oaks, and Churchill Downs means Thoroughbred racing," Evans said. "And while that's what our brands mean, it no longer is our business model."
Seven years ago, Churchill owned seven racetracks and had more than 650 days of live racing; now it has four tracks and 384 days of live racing. Demand for live racing, as evidenced by plummeting handle, has fallen even faster than expected, Evans said.
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Now racing is unprofitable except for the Oaks and Derby, and simulcasting is unprofitable when the tracks aren't racing live, he said.
"Live and simulcast racing in 2011 — again excluding Oaks and Derby — became cash-flow negative," Evans said. "That means in order to keep operating live racing and operating simulcasting when we aren't racing live, we have to invest new cash on which we get negative returns. Not only is that a really bad business model, it is an unsustainable business model."
Churchill now relies heavily on its gaming division, online wagering through TwinSpires.com, and "the now refreshed and expanded Oaks and Derby Week," he said.
Evans said Churchill will continue to pursue expanded gambling opportunities in Kentucky and in Illinois, although it will not back a subsidy model being floated in Illinois.
"In Kentucky, those of us in favor of expanded gaming lost a pivotal vote in the Kentucky Senate on February 23. Senate Bill 151 would have put gaming on the ballot this November in the form of a constitutional amendment that would thereby have let the people of Kentucky decide this issue once and for all," Evans said. "We got procedurally outmaneuvered by Senate President David Williams, who seems to prefer his opinion to that of the 87 percent of Kentuckians who are in favor of letting the people decide."
Evans thanked Gov. Steve Beshear, bill sponsor Sen. Damon Thayer, R-Georgetown, Agriculture Commissioner James Comer and the senators who supported the bill.
He also left open the door to renewed action, perhaps this year.
"While the issue may not be dead in 2012, it looks as though we'll have to continue to fight in 2013 and if necessary beyond that," Evans said.
He said that "rationally" Churchill should "abandon hope" of getting gambling in Kentucky and Illinois.
"But frankly we just can't do that. Thoroughbred racing is such a part of Kentucky's heritage and Churchill Downs' history that we can't just walk away." Instead, Evans said, Churchill will increase the resources and attention on the issue until gambling passes.
In the meantime, he said, Churchill will pursue other opportunities in Kentucky and in other states:
■ Churchill Downs, Evans said, will be making "some exciting changes" to the Louisville track property to be announced after this year's Derby, on May 5. "For now, a tease: Coming for 2013, the Mansion at Churchill Downs."
■ Churchill earlier this month announced a joint venture with Delaware North to develop a 2,500-machine slots facility and new harness track in Ohio.
■ With the acquisition last month of Bluff.com and related magazines and Web sites, Churchill is poised to enter the online poker market, which Evans said could be a multibillion-dollar market if enough states pass legislation to allow it.
Evans said more announcements related to the poker market are expected later this year.
The Kentucky Oaks and Derby Week have been one of the few bright spots for Churchill's racing revenue. Evans said they will continue to grow with new sponsorships and increased betting on the "future wager" which allows bettors to place bets well in advance of the races, and even bet on "all other 3-year-olds."