Archives for July 2011

Caesars Entertainment Corporation (CEC)–formerly Harrah’s Entertainment—was acquired on January 28, 2008 by affiliates of Apollo Global Management, LLC and TPG Capital, LP in an all-cash transaction valued at approximately $30.7 billion, including the assumption of $12.4 billion of debt and the incurrence of approximately $1.0 billion of acquisition costs. As a result, the stock is no longer publicly traded.

CEC is the world’s largest casino company and owns two Thoroughbred racetracks outright (Harrah’s Louisiana Downs and Thistledown in Cleveland, Ohio) and one harness track (Harrah’s Chester in Pennsylvania). In addition, it owns a half interest in Turfway Park in Northern Kentucky near Cincinnati, Ohio. Keeneland racetrack in Lexington, Kentucky, owns the other half.

CEC is in a dilemma. On the one hand, it arguably has the best operating management of any casino company. Gary Loveman, the Chairman and Chief Executive Officer, is a former Harvard Business School marketing professor. When Dr. Loveman joined CEC (Harrah’s Entertainment at the time), his associates perfected the player rewards program—called Total Rewards—into perhaps the world’s best. Operationally, CEC has as a cadre of executives whose skill sets are as good as they get in targeting customers with the right messages and player inducements.

On the other hand, when Apollo Global Management and TPG Capital acquired CEC, they saddled the company with so much debt that it currently approaches a negative net worth. Not only was CEC loaded down with debt, but the timing could not have been worse. The purchase of CEC corresponded with the recession that pummeled gaming and leisure industries.

No matter how skilled CEC operating executives are, they cannot perform a miracle. For instance, in 2010, CEC had a profit of $532.3 million from operations, but when the interest on the debt was accounted for, CEC lost an astounding $1.292 billion before taxes. The interest expense was nearly $2 billion.

It is improbable that CEC will be able to earn its way out from under this heavy burden of debt and issuing new common stock would be hard to do at best. If CEC has to begin selling assets to pay down its debt and survive, it will end up as a much smaller entity.

Most of CEC’s racetracks would be attractive to buyers. Harrah’s Louisiana Downs and Harrah’s Chester are racinos and Thistledown is scheduled to become one. Thus these should be marketable. Turfway Park would be appealing to a buyer only if the Commonwealth of Kentucky approves alternative gaming at racetracks.

Copyright © 2011 Horse Racing Business

The Horse Racing Business of July 16, 2011 carried an analysis titled “How Well Managed is Churchill Downs, Inc.?” The post contained the assessment that “…the facts paint a picture of a masterful job [by management] of shepherding CDI through turbulent times, the turbulence caused largely by a languid economy and a pari-mutuel industry in free fall.” Yesterday’s CDI release of operating results for the second quarter of 2011 corroborates this observation and demonstrates a corporate strategy that is working exceedingly well for shareholders:

LOUISVILLE, Ky., July 27, 2011 (GLOBE NEWSWIRE) — Churchill Downs Incorporated (“CDI” or “the Company”) (Nasdaq:CHDN – News) today reported business results for the second quarter and six months ended June 30, 2011.

“This was the first quarter to fully reflect the impact of our growth-through-diversification strategy that we adopted a few years ago,” CDI Chairman and Chief Executive Officer Robert L. Evans said. “Revenues, EBITDA and net earnings from continuing operations set all-time records in the second quarter [emphasis added] despite having to close our Harlow’s casino property for 25 days due to Mississippi River flooding.”

Net revenues from continuing operations for the quarter grew 16 percent compared to the prior-year period–to $249.7 million from $215.4 million–primarily due to the continued expansion and growth of CDI’s Online and Gaming business segments, which now include the Company’s 2010 acquisitions. CDI’s Online and Gaming segments recorded increases in net revenues from continuing operations of $16.7 million (up 56 percent) and $13.6 million (up 38 percent), respectively, when compared to the second quarter of 2010. The Online segment’s results for the second quarter of 2011 include three months of Youbet.com results as opposed to approximately one month of Youbet.com revenues reported during the second quarter of 2010. CDI’s most recent acquisition, Harlow’s Casino Resort & Hotel, generated $9.5 million in net revenues during the quarter, despite being forced to close for 25 days in May due to Mississippi River flooding, while Calder Casino’s net revenues improved $3.5 million over the comparable period in 2010.

Net earnings from continuing operations for the period were $40.0 million, or $2.36 per diluted common share, an increase of 41 percent from net earnings from continuing operations of $28.3 million, or $1.90 per diluted common share, in the second quarter of 2010.

This Thursday night (July 28, 2011) at Yonkers Raceway an amazing 3-year-old pacing filly, See You at Peelers, will try to add another victory to her 20-for-20 lifetime record. She likes the Yonkers’ track, where she is 4-for-4 including a win last month against colts in the $300,000-plus Art Rooney Pace. (Art Rooney was the founding owner of the Pittsburgh Steelers and a legendary gambler and racehorse owner, whose family owns Yonkers. His racetrack winnings were used to purchase the Steelers’ franchise.)

See You at Peelers will face seven fillies from post position seven in a division of the New York Sires Stakes; starting from the seven slot is a handicap on a half-mile track. She is the highest ranked horse in American harness racing and has won over $1.2 million thus far.

When was the last time that a top-flight 3-year-old Thoroughbred had 20 starts by July of his or her sophomore year? Says something quite laudatory about the durability of their distant relatives in the Standardbred breed and the willingness of harness horse owners and trainers to race their charges against all comers.

Best of luck to harness racing’s version of Zenyatta on Thursday night.

Copyright © 2011 Horse Racing Business