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Casinos, online betting drive Churchill's improved profits

Churchill Downs announced Wednesday that its second-quarter profit jumped 45 percent, as it benefited from acquisitions in its online betting and casino gaming operations.

"This was the first quarter to fully reflect the impact of our growth-through-diversification strategy that we adopted a few years ago," Churchill Downs CEO Robert L. Evans said in a statement.

The company's net income increased to $40.1 million, or $2.37 a share, from $27.6 million, or $1.85 a share, in the same period a year earlier.

The company, which owns four racetracks including its flagship track in Louisville, saw revenue in the quarter increase 16 percent to $249.7 million. That came despite its core racing segment increasing sales by just 1 percent.

The racing segment's $148.2 million in revenue in the quarter, which included the Kentucky Derby and Kentucky Oaks, accounted for 59 percent of overall revenue. That's down from 68 percent of total revenue in the second quarter of 2010, as the company has diversified its operations.

For instance, its online operations benefited from a full three months of revenue from Youbet.com, which was acquired last year and only contributed one month of sales to the year-ago quarter.

The company's gaming segment benefited from the addition last December of Harlow's Casino Resort & Hotel, which generated $9.5 million in revenues during the quarter. The company noted that those sales came despite the location in Greenville, Miss., being forced to close for 25 days in May because of flooding.

The company estimated the closing caused a loss of $3 million in a financial measure called EBITDA, or earnings before interest, taxes, depreciation and amortization.

Churchill Downs is "working with our insurance carriers to recover that amount as part of our business interruption claim," Evans said in a statement. He will hold a conference call with industry analysts Wednesday morning to discuss the results.

The company said the racing segment improved its EBITDA by $9 million in the quarter compared to the same period a year ago. That jump was driven primarily by Kentucky Oaks and Derby Week, which saw a $6.4 million EBITDA increase linked to more sponsorships, admissions, broadcast rights fees and corporate hospitality sales.

The flagship racetrack of the company also saw a $2.9 million reduction in operating expenses in the quarter connected with a tax-increment financing agreement with the state.

Looking forward, Evans suggested four ways that the company will look to grow:

■ The improving economy should boost the company's existing businesses.

■ An Illinois gaming bill would allow the company to operate more slot machines.

■ Its online betting business could benefit as bettors shift to placing more bets online, as well as if Internet gaming were to be legalized in the United States.

■ The company has the capability "to continue to look for acquisition opportunities in regional casino gaming and elsewhere."

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