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Churchill Downs Inc.'s Future Staked On Tech, Games — Not Horses

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Louisville’s Churchill Downs Inc. bills itself as a racing, gaming and online entertainment company anchored by an iconic event, the Kentucky Derby.

But for CDI, the Derby is a small anchor.

The publicly traded company has evolved over the years, and horse racing now accounts for about a quarter of its operations. And it is no longer CDI’s biggest moneymaker.

The company’s latest quarterly results -- released last week -- showed a net revenue of $279.5 million for the first three months of the year, down about 3 percent from the same time last year. Meanwhile, CDI’s racing segment posted a loss.

CDI’s racing operation does well during the springtime with the Derby and Oaks races, but it loses money three quarters of the year, noted Cameron McKnight, a Wells Fargo senior analyst who tracks the gaming industry.

Despite a down quarter, CDI has been riding high lately, its stock trading near all-time highs. That’s because the company is -- at its core -- an entertainment operation, buoyed by successful gambling and social gaming platforms.

CDI has four racetracks, five casinos and a few hotels. It runs Twinspires, an online horse wagering platform.

The company also has a network of off-track betting parlors. And it bills itself as one of the world’s largest producers and distributors of social games. Those are the addictive games you play on your phone or computer, with names like Jackpot City Slots, Sunken Secrets and Bush Whacker 2.

CDI attributed its jump in revenue last year to the success of the social gaming operation, Big Fish Games, which CDI purchased in December 2014.

McKnight likened CDI to other “leisure companies” and has previously compared its operations to The Madison Square Garden Company and Live Nation, which run sporting events, concerts and other entertainment events.

Horse racing, after all, is in a downshift. Churchill’s annual report noted that North American consumers are attending fewer races and betting less. But people will still pay for entertainment.

“Consumers generally are much more apt to spend on experiences today than they are on stuff,” McKnight said.

For Churchill, an ideal Derby day might include someone who plays cards at one of its casinos, lounges at the bar and places some big bets on the Twinspires gambling app, then kills time between races playing a mobile phone game.

“You could call that the trifecta,” McKnight joked.

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