Q3 2019 Earnings Call
Good day, ladies and gentlemen, and welcome to the Churchill Downs incorporated 2019 third quarter earnings Conference call.
At this time all participants are in listen only mode later, well conduct a question answer session and instructions will be given at that time.
Reminder, to conference call is being recorded I'd now like to introduce your host for today's conference Mr., an exact Gary Vice President Treasury waste management and Investor Relations.
Thank you Katrina good morning, welcome to our third quarter 2019 earnings conference call. After the company's prepared remarks, we will open the call for your questions. The company's 2019 third quarter business results were released yesterday afternoon.
We get started I would like to remind you that some of the statements. We make today may include forward looking statements. These statements involve a number of risks and uncertainties that could cause actual results to differ materially all forward looking statements should be considered in conjunction with the cautionary statements in our earnings release and the risk factors included in our filings with the FCC specifically the most.
His recent report on Form 10-Q , and Form 10-K .
Any forward looking statements, we make are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information or future events.
Thanks, Nick good morning, everyone.
Marcia will then provide a more in depth review of our financials for the quarter and an update on our capital plans.
After she is finished we will be happy to take your questions.
First a few comments on our third quarter.
Our net revenues were up 38% and adjusted EBITDA was up 42% over prior year.
Quarter over quarter net revenue growth benefited from among other things the acquisition of Presque Isle in January of this year and the opening of Derby City gaming in September of last year.
Generally the performance of our properties was encouraging and stable.
In line Wagering segment was a slight drag on our net revenue growth for the quarter, primarily due to the exit of a small number of high volume low margin customers in our velocity business I will talk more about that in a few minutes.
Our adjusted EBITDA growth for the quarter increased as a result of the 61% equity investment that we made in reverse does planes casino in March of this year. The contributions of Presque-isle in Derby City gaming as well as continued growth in Miami Valley gaming.
Expansion of HR, EMS and Kentucky.
In oil opportunities Miami Valley gaming and brick and motor sports Wagering and online wagering.
Let's start with Churchill Downs Racetrack, where our team is working on three major capital projects.
The first project is the construction of the equine Medical center and quarantine bonds that we announced earlier this year as part of our track safety initiatives.
Equine Medical center will enable state of the yard veterinarian care to be provided to our equine athletes.
Quarantine Barnes are part of our strategy to increase international participation during Kentucky Derby week as well as during the rest of the year at Churchill Downs Turfway Park and other regional race tracks.
Quarantine Barnes will enable international owners to shift our horses directly to lubel, making it easier on the horses and less expensive for the horse owners.
The second capital project is one we announced yesterday and $11 million renovation to the premium seating area. We currently call Millionaire's row, six that we'll be ready in early may of next year just in time for the 146 running of the Kentucky Derby.
Interest and upscale exclusive and unique experiences has grown significantly since the mansion was created for the 2013 Derby and now we have the opportunity to create another special World class experience for 320 of our most exclusive guest.
The timing could not be better as all of the mansion tickets are already completely sold out for 2020.
The third capital project is the most significant construction projects that we've undertaken at the track.
We will build permanent covered stadium seating one of the kind hotel experience.
And the historical racing machines facility, along the outside of the race track around the first term.
We anticipate that the project will cost approximately $300 million and based on its complexity and scope. We expect it to be completed by the end of 2021.
Our original objective called for completion by early May 2021 in time for the 147th Kentucky Derby. However, as we worked extensively with the architect and construction firm, we realized we needed to build and more time as you might imagine there were also a host of prerequisite permits and approvals that we need to obtain in addition to the fish.
Well construction process.
This is a very important project for our company.
It provides a strong foundation for long term organic growth for the Kentucky Derby.
The construction plans also contemplate the potential for future expansion the home of the hotel and Hrn facility as demand for these unique experience was grow.
From the ground floor to the top of the hotel. This is a seven story project I will describe the key components, starting from a bottom and working our way up to the top floor.
First there will be a new outdoor coverage the stadium seating with improved amenities adjacent to the track with capacity for approximately 4700 guests, which will replace the existing temporary seating that is built every year in that location for the Derby.
This will be priced higher than the temporary seating, but we'll have a lower price point than the other new sections, we are constructing.
During the Kentucky Derby the amenities in the gaming facility and on the floor itself will also provide a hospitality area for approximately 3400.
Of our existing guess who have seats that are not otherwise affected by this project.
Collectively these two areas can hold more than 1700 guess.
Also on the second floor, there will be additional dining for 150 guess the hospitality room, providing spectacular views of the track.
On the third floor, there will be another balcony overlooking the race track for 250 guess.
On the third through six floors, there will be 90 to track facing hotel suites with private balconies.
For the Derby each suite will come with 12 access passes that will allow the suite to serve as sleeping accommodations at night and entertainment space for guest during the day if desired.
On the third through six floors. There will also be 60 non track facing suites with eight access passes per suite.
In addition, there will be for presidential suites facing the track with Windows on two sides and private balconies.
One suite on each flow of the floors three through six for entertaining up to 20 guests at the Derby.
The total there will be 156 hotel rooms, and approximately 5500, new reserve reserved seats available for Derby.
In addition, 6700 of our existing customers will have access to additional amenities during the Derby.
The fair grounds Convention center or just passing through on ice 65, the major north South Interstate highway in this region of the country, who want to stay at a wonderful hotel and enjoy our HR and facility and other amenities.
We're really excited about this next phase of our expansion. Obviously it is critically important we execute carefully and correctly on all phases of this major project, we have the experienced team to do that.
Now, let's turn to our second organic growth initiative, the expansion of Hrn facilities elsewhere in Kentucky.
Derby City gaming continues to perform above our initial expectations generating in the third quarter.
$9.5 million of adjusted EBITDA from our 65 million dollar investment.
We are proud of what our team has accomplished and building Derby City gaming and we are applying this knowledge and learnings as we build our 200 million dollar Oak Grove racing and ATM facility and begin our preparations to invest an additional $100 million a turfway park.
We are continuing to build the ATM facility at 128 room hotel and are targeting a summer 2020 completion.
We plan to open the ATM facility with approximately 1400 machines and have regulatory approval for up to 1500.
Regarding our recent 46 million dollar acquisition of Peripherally Park.
We're going to construct and HR m. facility with up to 1500 machines as well as other amenities, including a sports bar and simulcast area.
We plan to begin demolition of the grandstand EFT meet ends in April and we are targeting completion of this project by the summer of 2021.
The addition of the Hrn facility and other improvements to the property will increase the per structure and quality of Thoroughbred racing Interpolate park and indirectly across the entire Kentucky circuit.
We will add a new dirt track to complement the existing synthetic surface and upgrade the barn area.
After completion, we will look at upgrading the profile of the current road to the Kentucky Derby preparation Turfway Park and will perhaps add one or more additional road to the Derby preparations.
Across Derby City Gaming Churchill Downs Racetrack Oak Grove, and Turfway Park, we have a great deal of opportunity.
We have a lot of work to do to maximize our pool full potential and we look forward to that challenge.
Our third organic growth initiative walls around our three project in Illinois as a result of the expanded gaming Bill that became law in June of this year.
First we announced during the third quarter that we were not pursuing the casino license for Arlington Park due to the competitive environment and the challenging economic returns in light of the additional taxes reconciliation payments and increased purse contributions that Arlington Park would have to pay if it obtained a casino.
We've committed to race at Arlington in 2020 and have been awarded race States. We've also committed to race at Arlington and 2021, if we were awarded race states for that period.
We will continue to explore all of the potential options with respect to Arlington Park, and the future of Thoroughbred racing there, including other potential locations for the racing license to be utilized in the Chicago land area or other areas of Illinois, where it may be more economically viable.
We plan to apply for sports betting license for Arlington and are awaiting the sports betting regulations to be issued by the Illinois Gaming Board.
Second rivers Casino and desk claims, which we owned 61% of through our equity investment in Midwest Gaming has applied for an additional 800 gaming positions as it is permitted to do under the expanded gaming Bill.
First phase involves utilizing existing space, whereas the second phase requires the completion of an expansion of the parking garage and construction of new space for positions and related amenities.
Reverses pursuing renovation efforts and is working with the Illinois gain board to obtain required approvals, including a request to commence land based gaming as permitted by the expanded gaming Bill.
Reverse has begun the build out of it sportsbook, which is expected to open by the end of the fourth quarter and is planning to apply for sports betting license also as part of phase one the sports bar will be converted into a sportsbook as soon as rivers obtains approval to do so from the Illinois game Board.
The third project in Illinois, as our joint bid with Rush Street gaming, our partner and reversed as planes for the casino license and Waukegan.
Our fourth organic growth initiative, which we announced yesterday is the 100 million dollar hotel parking garage and expanded gaming floor at our Miami Valley Gaming facility, our joint venture with Delaware North in Ohio between Cincinnati in Dayton.
The project involves the construction of a 194 room hotel and a 1000 car parking garage as well as the expansion of the game, Florida include an additional 250 VLP.
The Miami Valley Gaming facility has been a very successful Greenfield project since we built it in 2013 and this expansion will support is continued growth in the coming years. It will be financed at the joint venture level, which currently has no debt.
Our fifth organic growth initiative relates to the expansion of expansion of sports betting and I gaming as states continue to legalize it.
We are pleased with the impact that retail sports betting is having on our bricks and mortar casinos. Both through the returns generated directly by sports wagering on premises and through increased slot and table game play. We currently have to retail operations in Mississippi, and one at Presque Isle and Pennsylvania.
In addition, we're going to launch retail sports betting in Indiana through our partnership with rising Star Casino in mid November pending final regulatory approval.
Our bed America online platform went live in New Jersey earlier this year.
The views New Jersey to test, our systems and refine our online strategies.
It is not a market, where we are making any money.
I believe there are 18 separate operators as a result of the Jersey regulations permitting multiple skins for each brick and mortar casino.
In the saturated market some operators are being extremely aggressive player acquisition offers.
Some states may be like this and where we see that we will be very careful if we don't see away to acquire customers at an amount consistently below their lifetime lifetime value, we will not do it.
Cannot make up a per cap negative return with volume.
We currently anticipate launching or online offerings in Pennsylvania, and Indiana late in the fourth quarter pending regulatory approval.
We believe it may take an extended period of time for the online markets no not the brick and mortar markets in each state to become profitable based on the upfront marketing spend.
Needed to acquire and retain online customers, we will be very very judicious and our spending going forward as we work to build this business over the long term.
With all of our Greenfield activities and growth initiatives. We've been asked occasionally if we have the organizational capacity to support all of our initiatives.
The answer to that question is simply yes.
We've always had a strategy of pursuing both acquisitions in Greenfield investments that being said, we did add additional resources to supplement our team over the past couple of years to increase our capacity to build greenfields like Derby City gaming because we saw that we would have a fighting chance to land several greenfield opportunities. It is working out well for us.
Our team is fired up and we feel fortunate to have so many ways to grow the company.
Now I'd like to turn the call over to Marcia to provide some additional details on the third quarter and an update on capital management. After that we will answer any questions. You may have thank you Marcia.
Thanks, Phil and good morning, everyone as Bill said I will provide some details on our third quarter 2019 financial results and then provide an update on our capital management plan.
We reported net revenue of $306 million in the third quarter.
$85 million are 38% compared to the prior year quarter.
Derby City gaming contributed $20 million as this increase.
Obviously, the gaming celebrated its one year anniversary if its opening in September so the quarter reflects a full quarter if results compared to a partial month of results last year.
Obviously, the gaming continues to demonstrate strong growth in the market as as we have mentioned in the past it will benefit from additional game titles from a new supplier in the future.
The remainder of the increase was primarily driven by revenue growth from our gaming segment, including the addition of fresco aisle in January of this year the consolidation of Ocean Downs revenue as a result of acquiring 100% ownership of the property at the end of August last year, and the assumption as a management agreement for Lady luck Casino anemic.
Alan in March of this year.
Our third quarter, adjusted EBITDA was up $26 million or 42% compared to the prior year quarter.
Approximately $8 million of adjusted EBITDA growth for the third quarter was driven by our Churchill Downs segment with nearly $9 million coming from the continued growth of Devry civic gaming, but very strong margins.
So downs race track had a slight decline as we expected in adjusted EBITDA related primarily to the addition of resources to support its growth over the coming year.
Approximately $27 million of adjusted EBITDA growth for the third quarter was generated by our gaming segment.
The addition of Presque-isle Island, Nima colon and an equity investment in reverse this planes in March of this year collectively contributed approximately $26 million of the increase.
Nima Cowen benefited from the elimination of the entrance fee for the casino in June .
We saw growth in adjusted EBITDA from increased attendance at our two Mississippi gaming properties, primarily as result of the launch of retail sports betting in August of last year.
We also benefited in the third quarter from solid operating performance and Miami Valley Gaming and Ocean Downs.
These benefits were partially offset as we expected by decrease a colder from expenses related to the highlight operation and from a decline at Oxford, driven primarily by the impact of a new market entrant in the Boston area.
As you can see from the supplemental information in our press release, our same store wholly owned casino margin was 31.9% for third quarter 2019 down 140 basis points compared to the prior year quarter and was solely attributable to the revenue pressure, Oxford and from increased expenses related to the.
Calder highlight operation. Excluding these two properties same store wholly owned casino margin would've been up 30 basis points.
As Bill discussed our sports betting and I gaming business was a slight drag on net revenue growth for the quarter, primarily due to sign up bonuses that we offered in the new Jersey market, but more than offset the revenues. It was generated in the state during the quarter.
Our core Twinspires business, which excludes the velocity group had handle growth of 7.9% well the industry declined by 1.9% during the quarter.
The industry was impacted by race cancellations due to weather and one less week of racing at Belmont.
Our core Twinspires business had a 2.6% increase in active players and the 1.1% decrease in revenue per player for the quarter compared to the prior year.
From an adjusted EBITDA perspective, our online wagering business declined $5.8 million as we expected primarily due to the costs associated with the launch of our online sports setting I gaming operations and increased marketing spend in New Jersey.
We will maintain our focus on growing growing our more profitable transfers players and we feel good about the outlook for twins first business going forward.
As Bill stated, we will continue to be prudent with our marketing spend in the online sports betting and I gaming space.
Turning to net income third quarter net income from continuing operations was $15 million compared to $58 million in the prior year quarter.
Our press release highlights the five items that impacted the compare ability of our third quarter net income from continuing operations with the primary item being the $42 million after tax gain on an ocean Downs Saratoga transaction and the third quarter of 2018.
We did increase in legal reserves in third quarter by approximately $3 million, primarily due to the proposed settlement of a legacy EPA issue at fair grounds.
Excluding these items, we have a 7.7 million dollar after tax increase in income from operations and equity investments that was partially offset by $5.1 million of higher after tax interest expense as a result of higher outstanding debt balances and $2.2 million for.
It is a higher effective tax rate due to an increase in income attributable to states with higher tax rate.
Third quarter cash flow from operations with $46 million up $73 million from the prior year quarter.
We benefited from significant growth in operating cash flow driven primarily by growth in adjusted EBITDA and an increase in distributions from an equity investment and lower cash pay taxes.
And finally regarding capital management, we spent $12 million on maintenance capital on third quarter, which was $5 million higher than the prior year quarter due primarily to the timing of payments for slot capital purchases and maintenance capital related to our newly acquired property.
We've sent $38 million year to date on maintenance capital and continue to expect to spend $45 million to $55 million of maintenance capital for the year.
We currently anticipate 2020 maintenance capital to be in the same range.
Regarding project capital, we spent $21 million in the third quarter, primarily on construction spend oak Grove and the quarantine barring any claim medical facility at Churchill Downs Racetrack.
We've paid $53 million related to project capital to third quarter and expect our 2019 total project capital to be in the range of $100 million to $120 million based on the updated timing of cash payments related to outgrow downtown.
Looking ahead to 2020, we anticipate the project capital spend will be $300 million to $350 million our investment in the expansion Oak Grove, and Turfway Park and Kentucky.
Adjusted to drive nearly two thirds of this project capital with the remainder primarily sent a Churchill downs racetrack for the new sixth floor premium reserve seating area and the initial phases of our hotel and historical racing machines facility.
We will have some other smaller projects at our other properties as well in 2020.
As Bill mentioned the extension at Miami Valley Gaming and expansion that reverses plants casino, we funded by those respective joint ventures.
Regarding shareholder returns our board has authorized to 7% increase in our annual dividend to be paid on January Threerd 2020 for holders of record on December six 2019.
We repurchased $25 million overstock in third quarter, and we have $200 million of remaining share repurchase capacity under our existing program.
Our dividend and share repurchase programs to reflect our continued commitment to returning capital to our shareholders.
Our net leverage on a reported basis at September Thirtyth remains relatively low at 3.1 times on a pro forma basis is 2.8 times, which includes 12 months trailing adjusted EBITDA for the three acquisitions that were completed in the first quarter.
We have significant capacity based on our cash on hand ongoing cash generated from operations unused credit facility and relatively low leverage to support continued growth through acquisitions and organic investments as well as our dividends and opportunistic share repurchases.
With that I will turn the call back over to Bill. So he can open the call for questions Bill Okay. Thank you Marcia.
Everybody at this time, we're going to open up the line for questions firewall.
Ladies and gentlemen, if you have a question at this time. Please press Star then the number one key on your Touchtone telephone.
Your question, it's been answered I always try to move your cellphone, but can you. Please press the pound key.
For your first question, we have David Katz from Jefferies. Your line is open.
Hi, good morning, everyone.
Good morning.
Good morning so.
No I I don't want to get sort of bogged down on the current quarter, because I don't fit.
That's not really all that consequential.
But I do want to talk about investments and I gaming and sports betting and I heard your commentary.
Should we be thinking about that as something that is investment spending so that revenues and costs are leading to just something that is neutral, meaning no not much profitability or should we be thinking about it as something where there is actual.
Where it can be a drag on the totality of earnings how would you have us thinking about that.
I think with respect to online.
Similar to my recollection of when we started twinspires, it's going to be in the investments stage until the market settles down until it.
Until there is some clarity and until the investments have been made so, particularly in the online space, where your expense with respect to recruiting a customer.
There is recognized upfront, but the value of that customer is recognized over time as as they wager with you. This is a business built for for showings.
Some losses and some investment in the early stages. So I think in any context the nature of this of this space.
Gonna have a period of investment.
Right now and the point I was really trying to make strongly was there some irrational behavior I think going onto what you've seen a market like new Jersey, and we have to be careful to process through that because.
Irrational behavior doesn't seem rational over time.
It doesn't become rational overtime. So we want to be careful that we don't drift down business models and we've always been very careful about this and twinspires.
We don't drift down business business model that we don't fundamentally believe and by that I mean.
We don't want to spend more to acquire customers than we think those customers can be worth to us overtime. So as we get data we sharpened our view on how much customers are worth but right now there's a lot to learn about the space and for US. There's there are a lot of lessons we can take from our experienced previously in twinspires, but still there's a lot that's new here.
Sure. So we have to invest to learn we have to invest to gain experience and we have to invest with patients that the nature of this business means you invest up front and it takes a while to get a return but that said we often we also have the balance against.
Long term irrational behavior, if we see it because we won't participate in markets long term that we don't think we will be making money in.
Right.
And I agree with you that to the.
Hotel Racino project to Churchill Downs is among the most exciting for the company.
And I appreciate the detail that you've provided.
I think many of us or trying to assign some value to it.
And.
Trying to figure out.
How we might model something like this for the future.
Two questions one how could you you know what guidance could you give us or I know that's not the guidance is not necessarily the best way to ask the question but.
Can you help us figure out how to model.
Payback period or ramp up or return on that and secondarily should we be looking at the Churchill Downs, Kentucky Derby results as something that May see some construction impact between 20 and 21, while this is going on.
I think those are the two biggest issues there.
On the first question or two questions. There on the first question, which is how to think about the your expected return of capital investment.
I would say.
Two points in response to that and I have to be I have to be general because of the construct that.
That were in.
First I would say in general we've identified to the to the market that we target.
Construction projects internally with.
A five times multiple so we try to when we think about a year three EBITDA contributions, we try not to spend more than five times that.
Mature EBITDA run rate so five times multiple I would say when it comes to the Kentucky Derby, we're always willing to go higher than that but not massively higher than that so when we do our internal planning and again without providing projections or or promises about the future. That's how we plan.
For these projects generally for non Derby stuff, we try to be pretty disciplined about about a five time return, but when it comes with the Derby. We've we've had.
A better experience on a more positive experience more positive results in our previous projects.
So we feel comfortable going somewhat higher there.
Because of the track record of all their investment for the strength of our team.
With respect to construction impact during the period.
Of comes.
While we're doing the construction over the next over the next two years I think we'll manage that I don't really expect there to be a change in the flow and have a.
The trajectory of the performance of that have that facility. While we're doing construction will plan and that's a function of the strength of this team and the carefulness around which they plan.
We're not anticipating.
Any real construction disruption that is flowing to the bottom line.
Got it and then my last question is primarily around Illinois, where you know there again, there's a number of exciting opportunities that.
We are challenged to figure out the timing of.
And you know is there.
How can we think about rivers and the prospects that it could start to earn off of some of these opportunities say within the next 12 to 15 months right and similarly for Arlington Park, you know what what can we what should we reasonably be doing with our models around Arlington.
For 2020.
I know, it's hard to know.
You know, but.
We sort of got to do our job that way.
Well, we at the same challenges internally here.
The issue isn't.
Isn't really our behavior, it's the it's the fact that.
We have regulated businesses and and we don't control or even really influenced the timing of regulatory change or regulatory process. So it can make it hard for us to predict to how to think about.
How to think about when changes occur in our business models. So I think with Arlington I've said, all I should responsibly say, we we oh.
We can't proceed.
With respect to this gaming bill at that facility at that time, and that's something we think about and work on and it's something we're committed to figuring out because we think that we think there could be a good result for everybody. If we are.
Our responsible and thoughtful and player cards, right, but but we'll just have to see so we're anticipating at this point.
Running racing there over the next two years, although we hope that the there there's news over that period that really define the long term future with respect to what happens at rivers. It's the same thing that we have very strong.
Views and and plans around what we want to see happened there, but we can't determine regulatory approval for our expansion plans nor can we complete we predict when another casino will open in the in the Chicago or Illinois market, which is the triggering event for some of the changes in.
And the tax laws that we've talked about previously.
Previously.
So I think it's I think the state as Incented to move.
The move the process along I think the state wants to see more casinos in the market I think the state wants to see maximization of income from gaming and I think the work with all deliberate speed.
But thats the best inside I can give you at this time.
But hope hope to give you more into updates as we learn more ourselves.
Got it thank you very much.
Your next question Sir is from Joseph from Susquehanna. Your line is open.
Thank you good morning.
I wanted to ask.
About the Kentucky HR and.
Facilities in particular in Oak Grove.
[noise] are there any characteristics of that market you know your.
You'll launch basically in the summer as you suggested with the with the machines.
Obviously, the the analog is comparing them against.
Derby City and I was wondering if there any characteristics.
Of that market.
That make that comparison or what would make that comparison different.
Sure.
I would say the way to think about it is to look at.
The size of the population.
Of that region, Nashville, Clarksville et cetera to look at the wealth profile.
Of that population in the demographics in terms of age, but then also to factor in driving distance. So when we think about the derby more of the movable market for Derby City gaming and then.
In comparison think about Oak Grove.
Those are the key drivers population demographics in terms of age.
Wealth.
But then also driving distance that's a big advantage for Devry should there be city gaming. It is clearly closer to the Louisville population than surrounding a competition.
When we think about Oak Grove. Please also consider that's why we're adding some of these additional amenities the hotel the steak house the ballroom things that drive.
People being willing to get in their car and traveled to a destination. So.
It's a combination of all those factors we of course model. It carefully I know you guys do as well.
There are some that are very positive when you do the comparison.
And then there's some factors about oak Grove, they're not as positive, namely the distance were about 55 miles or so from Nashville.
But we are on the Interstate and we are the first exit on the Kentucky side of the border as you come up by 24. So those are the parameters that that help us determine what what the size of the market will be for US Okay fair enough. Thank you.
I wanted to ask you also a couple of questions in terms of the.
Online business.
Certainly the side that you're ramping in startup mode sports betting and I casino.
But I wanted to ask you maybe just a strategic question on how you think about using your existing scale with twinspires.
And no whether or not or how much time it'll take Q.
To possibly have a dual offering I know there dear friend bedding systems, but I.
Im just wondering when you think technology or evolve or the amount of work necessary to.
Be able to have.
Hey.
Both products for all three products on a on a given the app going forward.
Thanks. So that's a good question. This is bill Mudd, no I think going back to Bill's comments first of all on a new Jersey. We did entered that space. We were one of the last ones in.
I think the only wager we took last year on football is on the Super Bowl, when we rolled into and be a and we didnt have.
The ability to take MBK games early early.
Early in the cycle and now we do have the ability with the exception of the Houston rockets games because of our relationship with the owners of that sport.
Team.
The other thing about New Jersey is we don't operate Twinspires. There. So we had we didnt have a database of customers in New Jersey.
That we would we could tap into and acquire customers at a very reasonable cost so.
And when we when we jumped in the market as Bill said some of the spending thats occurring in New Jersey is very rational so as we enter these other states we do have.
A very robust twinspires business, we do intend to leverage that database of customers to help ramp up our.
Our online offering and hopefully provide a good base of business that would.
Allow us to spin profits to to market and do brand.
Brand spending.
As you as we think about adding those two.
Businesses together that certainly part of our long term roadmap, but I would say right now with the everyone of these states have their own kind of system because of the wire act they do have to be.
There's a lot of technology has to occur within the state right now the focus is building out that infrastructure, not adding sports horse racing to that to the same wagering app right now so it is clearly in the roadmap, but it's not the priority right now we will eventually get there, but right now it's more important for us to focus on.
On getting live and being in these markets that as a first mover so with that being said and of course retail is completely different retail.
Spending no higher customer so that's already a very nice and very profitable business and and those numbers actually built into our casino segment as Marshall stated so.
Yes, hopefully that okay. Your question no. It does essentially just to clarify I mean you.
Twinspires is offered in Pennsylvania, and Indiana currently correct or at least.
Historically that is.
Yes, correct. There that we are absolutely in Pennsylvania were absolutely in Indiana and were in Illinois.
And.
Yes, and if I can squeeze one additional question sorry.
Mike here, but.
Yeah, the traffic deltas that you're seeing at least I know it's early but.
Yes, maybe Mississippi is the most representative.
Example rate with respect to your Sportsbook or your retail offering there.
That.
You talked about this or at least references and some others also reference.
Setting up initially the retail sportsbook in it.
Adds traffic and I'm wondering basically is.
That amount of traffic.
Has been consistent since since your launch.
Again, I guess, Mississippi is the most representative market to be able to.
To assess that have meaning like you have the traffic patterns basically kind of been sustainable.
I guess the short answer is absolutely it has been sustainable.
Finally have eclipsed kind of a year over year basis, we can see it now the second thing I would say to that though is.
Every sport.
There is theres sporting seasons, obviously, the NFL behaves a little differently than baseball.
Versus MBJ. So it is little bit based on the calendar as well in terms of sporting events. So sure I would say that theres too late to think about that yes. The traffic has absolutely sustainable.
Okay, well, thanks, a lot Presque Isle, we're seeing is presque Isle is well now the average bed size and what they bad on and where they bet parlays versus singles as a little different based on geography, and we've certainly felt the impact of.
The the northeast teams being bit more heavily.
Then then people in the south what's very interesting to follow some of that regional dynamics as well.
Makes sense, thanks, a lot.
Thank you.
Your next question is from Dan Politzer from JP Morgan Linings open.
Hey, good morning, everyone and thanks for taking my questions.
Morning to the first one.
Not to beat the dead horse here, but another one on online wagering, obviously theres a lot of competition here and there's.
A lot of promotion going on in New Jersey, but it's how do you think about the balance of growing this business versus the profitability there and I know you're obviously in the infancy stages here, but is there also an element of seasonality to that spend and I guess, how do we think about the cadence you over the next 12 months or so.
Sure So Dan I'll I'll take that one.
Yes, there is seasonality in online wagering.
And our country football is the biggest driver so.
Generally just like an horse racing you want to look at a calendar figure out when the best time than the best opportunities are to acquire customers. So football season as an excellent opportunity.
To do that.
In terms of.
How we think about new Jersey.
Again, you want to build a model in an understanding of how much customers are worth and as you get into a market do you don't have perfect information to how the customers in any given jurisdiction you're going to behave overtime. So you have to build your model as quickly as possible and change it.
Quickly based on actual data so in new Jersey, just like in any of the other state. If we don't see Amal if we if our model doesn't support spending above a certain level, we're not going to do that because it means we don't think the customer spend per customer is justified given the value of those costs.
Customers. So we're always going to be disciplined and we're always going to be careful and we're not going to move off our modeling, but just because other people are doing different things, but the but the wrinkle is always our learning and what we learn in a market of because we need data to populate our assumptions in our modeling so.
So we've learned a ton of new Jersey.
It'll make as much better prepared for the other states that that are to follow and that's how that's how we'll do this but I do think you'll see a dichotomy across different jurisdictions in the country, where some states will be profitable and other states will not seem.
As profitable in the short run or the mid term or even the long term and you'll see us behave differently across those states.
Got it understood. Thanks for that and then just as you pick in terms of your projects you know, there's a lot going on in Kentucky, certainly and I think there are some press reports that you guys were authorized for additional HR Ams above the amount that I think initially had said you plan to build that both Turfway Park and.
I guess that at the Churchill Downs Racetrack facility, how do you how do you think about the return and the profitability of adding machines and how do you kind of gets the right number there.
Well, we start conservatively, so we want to be very comfortable based on the demographic information that we have and our experience with HR EMS machines, we always want to be very careful when we start that that we're confident the market will support the number of machines. So we tend to go conservative.
And then and then have a some upsizing capability within the facility and also within our authorization from the regulatory authorities to add more machines as the market as we proved to ourselves that the market will support that so so generally when you look at us.
And you look at our planning in our announcements we tend to be very conservative when we start because it's easy to add machine. So long as you have a regulatory approval to do so so this is sort of the approach we take.
Get get the approval get the authority. So you can add more if you can prove to your team that you deserve more go ahead and get the authority in the approval to do so but start conservatively. Because these machines are free you have to go pay for them and so start conservatively make sure. The ROI is there and then add if you have.
The good fortune of discovering that the market will support the additional machines.
Okay got it great. Thanks, so much guys.
[noise].
I am showing no further questions at this time Oh, no lots of turn the conference back to Mr. Bill Carstanjen.
Thank you as always we really appreciate your interest in our company and your investment in our company.
We're obviously very excited about the investments that we're making right now.
Particularly around the Kentucky Derby. This is a special time.
We're disciplined I hope we've proven that to you over time, we're disciplined we're careful were long term and our and our outlook. We think the organic growth opportunities. We're pursuing well he helped make our company even a greater company going forward. So we're going to do the work now in the payoff will be in the mid term in the long term.
So we'll try to be good stewards of your of your of your capital and of your investment in US and look forward to talking to your next time, thanks very much.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day you may all disconnect.