Churchill Downs Inc. (CHDN) is a Louisville, Kentucky-based owner and operator of pari-mutuel wagering properties and businesses in the United States. It is the parent company of the famous Churchill Downs racetrack, home of today’s Kentucky Derby, and owner of several other thoroughbred and standardbred racetracks, as well as a number of off-track betting (OTB) facilities and casinos across the country. The company is considered to be the most profitable track owner in the horse racing industry.   

Churchill Downs’s business model has evolved over the last 20 years, or so, and when simulcasting became more commonplace in the early 1990s, CHDN expanded its holdings and delved into the simulcasting industry. Under then President and CEO Thomas H. Meeker, Churchill Downs also began to acquire and/or build more racetracks.

In 2006, Robert Evans took over the helm at Churchill and the company subsequently diversified its business model even further. Notably, CHDN acquired Youbet.com LLC in 2010 and melded it into its Gaming and Online Businesses division, as well as purchased Harlow’s Casino Resort & Hotel. During the same year, the company built Calder Casino, a slot facility adjacent to its Calder Race Course.

More recently, Churchill Downs inked an agreement to acquire the assets of Bluff Media, an Atlanta-based multimedia poker content, brand, and publishing company in February of this year. Terms of the deal were not disclosed, but the transaction may well provide the company with new business avenues should there be a relaxing of state and federal laws related to Internet poker in the United States. This was followed in quick succession by a March joint venture agreement between Delaware North Companies Gaming & Entertainment, one of the most innovative gaming and racing operators in the United States, and Churchill Downs. According to the terms of the  transaction, the two companies have formed a new entity, Miami Valley Gaming & Racing, LLC, which will purchase Lebanon Raceway in Lebanon, Ohio and develop a new video lottery terminal (VLT) facility with up to 2,500 VLTs and a harness racetrack.

Despite the recent spate of acquisitions, the company’s balance sheet is still in decent shape. Notably, at the end of 2011, Churchill Downs had $27.3 million in cash on its ledger, no easy feat when you consider that the company paid down $137.5 million in long-term debt during the year. What’s more, in early December the company’s board of directors announced that it had upped CHDN’s dividend by 20%, to $0.60 a share annually. 

Finally, the evolution of Churchill Downs’ business model certainly seems to be paying off in spades. Indeed, the company posted record revenue comparisons last year, driven by the ongoing expansion of its Gaming and Online Businesses division. This higher-margined division has helped boost overall margins of late, and the bottom line is certainly reaping the reward. To wit, the company posted earnings of $0.25 a share in the December period, after quite a long run of historically generating net losses in that period due to the seasonality of live racing. The aforementioned diversification involving gaming and online wagering may well make that a thing of the past. Lastly, CHDN’s recent performance has certainly not gone unnoticed on Wall Street, with its stock price up approximately 20% between yearend 2010 and 2011. 

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.