Churchill Downs Inc (CHDN) 2003 Q4 法說會逐字稿

Good day everyone and welcome to the Churchill Downs Incorporated Conference Call.

At this time for opening remarks and introductions, I'd like to turn the call over to Mr. Ogburn. Please go ahead, sir.

Good morning and welcome to this Churchill Downs Incorporated Conference Call to review the company's results for the fourth quarter and full year 2003. The results were released yesterday afternoon in a press release that has been covered by the financial media.

A copy of this release announcing earnings and any other financial and statistical information about the period to be presented in this conference call including any information required by Regulation G is available through section of the company's Web site entitled Investor Relations at www.churchilldownsincorporated.com.

Let me also note, a release has been issued advising of the accessibility of this conference call on a listen-only basis over the Internet.

As we start, let me express that some statements made in this call will be forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that include projections, expectations or beliefs about future events or results or otherwise are not statements of historical facts. Actual performance of the company may differ materially from that projected in such statements.

Investors should refer to statements included in reports filed by the company with the SEC for discussion of additional information concerning factors that could cause or actual results of operations to differ materially from the forward-looking statements made in this call.

The information being provided today is of this date only and Churchill Downs Incorporated expressly disclaims any obligations to release publicly any updates or revisions to these forward-looking statements to reflect any changes in expectations.

I'll now turn the call to Tom Meeker, President and Chief Executive Officer.

Good morning and thanks for joining us this morning. I'm going to make a little departure this morning in terms of the format of the call.

What I'd like to do is first of all make a couple of general comments about our performance in 2003.

Then I'll turn it over to Mike Miller, our CFO, and he'll go over the details as it relates to 2003 and make some general comments about 2004.

Then I'll take the mic back and what I'd like to do is just plot a course and give you some high points of our strategic plan as we move through 2004 and beyond.

I think that will be very helpful for you to understand exactly what we're trying to do with the company as we proceed through 2004 and beyond.

So, with that, let me just make a couple of comments about 2003 and as expressed in the press release, I was generally pleased with the performance of the company in 2003.

Obviously, we faced a number of anomalies and challenges related to the subsidy cut in Indiana, the workers' compensation problems in California and the new smoking ban that went into place about August in Florida.

All of these had negative impacts on the company.

But on the other side of the equation, there were a number of bright spots.

The performance of Churchill Downs racetrack was exceptional during the Derby week activities and the Spring Meet that followed. They moved into the fall meet and with the demolition of the clubhouse, they were challenged significantly, but despite this challenge they proceeded well and performed well even under the bale of construction during the fall meet.

I was also encouraged by the progress we made at Ellis Park where we improved the cost structure and their meet particularly in the area of simulcasting was exceptionally good. We revamped the racing program down there and produced positive results.

And finally, I continue to be very pleased with the efforts undertaken by the CDSN team in achieving further deployment of our CDSN signal and generating increased revenues for the company. So, on balance, 2003 given all of these factors was a good year for the company.

Now, let me turn it over right now to Mike Miller who will go through the results of 2003 and give you a glimpse into 2004 in greater detail.

Mike?

Thank you, Tom. Good morning everyone. We have quite a bit to cover this morning. So I plan to confine my prepared remarks to the full year results only and we'd speak to the fourth quarter during the Q&A period if you have any questions.

I'm also going to deviate slightly from our normal approach to reporting the financial results. I am going to start today with the supplemental schedule of net revenues and EBITDA by our operating units as each has certain unique challenges as well as opportunities.

First let me speak to net revenues. For the year, our revenues were less than prior year by $14.6 million, which is quite understandable given just a few facts.

During 2003, we raced 48 or approximately 7% fewer days. The majority of this drop, 38 days, was at Hoosier Park.

But three of the larger tracks, Churchill, Hollywood and Arlington lost a few days as well.

You should know that for the full year of 2003, Pari-mutuel revenues represented an excess of 75% of our consolidated net revenues.

There were other challenges to revenue production for 2003 as Tom has alluded to. As we have previously reported, the opening and the second track in Indiana and the decision of the Indiana Horse Racing Commission to evenly split the riveboat subsidy between the two operators resulted in 9.5 million revenue decline at Hoosier.

At Hollywood Park, as well as with all of Southern California racing, on-track business has struggled to keep up with the impact of the workers' compensation problems, which has generally resulted in shorter field sizes.

The industry has proposed a bill recently that was approved by the General Assembly to alleviate this problem that is been vetoed by the Governor. We're hopeful that this bill will be reintroduced later in the session and will accompany on broader workers' compensation relief package that the Governor has been talking about.

At Calder from the date of the smoking ban that came into effect in mid-2003, we have experienced decline in on-track attendance in handle, which appeared to be consistent with the experience of all Pari-Mutuel facilities in Florida.

We are hopefully near to reaching a partial resolution of this issued at Calder through the construction of a facility that will comply with new standards.

At Arlington, we had increases in on-track attendance and are now focusing on marking efforts to ensure that this activity translates into increased handle as well.

Also at Arlington, we were the beneficiaries of very successful breeders stuff in 2002, which unfortunately we can't hold every year and did not repeat at the Churchill Downs facility in 2003.

So I don't leave the wrong impression, there were some bright spots in the Pari-Mutuel front as well in addition to the increases in Arlington.

Tom spoke to the record Churchill Downs Spring Meet including our record Derby and Oaks handle during 2003. Ellis Park, which is part of Kentucky operations, had a very strong race meet and we have refocused our attention on these units operations.

Finally CDSN continues its strong show in the interstate simulcast arena, growing its revenues by $7 million over 2002 and increasing its market share by approximately 3% to 4%.

For 2004 in spite of the ongoing challenges to on-track business that exist at everyone of our track locations, we currently anticipate increase in revenues over 2003 of approximately 2% to 3% driven largely by more favorable racing calendar, continued growth in CDSN, greater penetration of our Twin Spires Program, which is our player infinity program and increased revenues at Churchill Downs from our master plan expenditures.

Shifting now to EBITDA section, first overall comments. We remain steadfastly committed to efficiency and cost control while at the same time acknowledging that our future earnings growth will not be a function of cost cutting, but rather revenue growth.

Our overall EBITDA margin for 2003 was 15.5%, compared to 14.5% for 2002. There are some one-time items in 2003 that must be considered and evaluating this performance such as the property tax re-funded Arlington and the adverse impact of the loss of subsidy revenues at Hoosier Park.

In 2002, the percentage was adversely impacted by the $4.5 million impairment charge at Ellis Park. The impacts of these non-recurring items make comparisons between 2002 and 2003 problematic. However, we are pleased with our 2003 performance particularly in light of the revenue decline and we would appear to continue to set the standard for our industry.

Looking ahead, we expect to maintain margin performance between 14 and 15% for 2004 despite the challenges we have and will discuss and the continued investments we are making to position ourselves for the future.

To complete my review of operations I will turn back to the P&L and mention just a few more items. Included in our total operating expenses but not a part of the EBITDA discussion, is approximately $20.4 million of depreciation and amortization which is up $800,000 from 2002 primarily due to partial completion of the master plan which was put in service during 2003.

In the other income category, the increase in interest income is a direct result of the interest component of the Arlington property tax refund. And the interest expense category once again we have benefited from continued beneficial rate climate on our judicious application of our free cash flow to reduce debt.

In addition, we are being served well by the two new credit facilities that were put in place in early 2003, which contain favorable rate spread and flexible covenants. We are extremely pleased by the confidence placed in us by our financial partners.

Looking ahead to 2004 for these categories, we anticipate increases in both depreciation and interest expense driven a both (inaudible) by master plan expenditures at Churchill Downs. All of the above discussion result in a fully diluted EPS performance for 2003 of $1.80, consistent with the guidance we provided now for several months.

The increase from 2002 results although the product of many variables can largely be explained by removing 21 cent impact on 2002, the LS asset impairment charge. That concludes my comments on the operations. Let me shift now to the balance sheet.

The variances from 2002 to 2003 are much more predictable and therefore more easily explained than they are for operations.

Looking at the working capital account, typically the fluctuations are as a result of the timing of race meets and related settlement of wagers. That still primarily true with the only difference being the receivables, accrued expenses and deferred revenues have increased as a function of the master plan, both from construction spending as well as billings for the full compliment of the Jockey Club suites, which are now fully online. The growth in other assets is attributable to three factors.

The transaction costs incurring connects with our new credit facilities, the increase in cash surrender value of insurance policies we own in connection with our executive deferred compensation plan, and temporary first overpayment positions at the Hollywood Park and Arlington Park.

Plant and equipment grew significantly during 2003, fueled by the master plan. Total investment and capital for the year was almost $50 million with $28 million being attributable directly to the master plan. I would add at this time in our budgeted capital for 2004 is approximately $93 million with $74 million being related to the master plan. The increase in current portion of long-term debt relates to the impending maturity of the partner finance debt of Hoosier Park.

We intend to extend the maturity just low after discussion with our minority partner in Hoosier. Finally, our long-term debt decreased slightly from year-to-year even after incurring the almost $50 million in capital spending I just mentioned.

That concludes my remarks on 2003. Before I turn back to Tom, let me expand somewhat on our 2004 guidance of $1.70. I have already addressed the significant components of our earnings forecast but would like to include our reconciliation of sorts of 2003 compared to 2004. There is a multitude of moving parts and I wish we had the benefit of some live racing before we project the full year. But as you know that is never the case.

The $1.70 includes estimate of slightly lower EBITDA from the 2003 levels primarily the result of the 3.1 million non-recurring tax refund at Arlington. Other than that the increased revenue I spoke of, will cover our normal inflationary increases in wages, benefits and various insurance coverages as well as funding additional operating expense investment for our CRM initiative in the range of $2 million which Tom will speak to further.

Also in 2004, we anticipate approximately 6 cents necessary increased depreciation expense as more of the master plan improvements come on line. The increase in first quarter loss over 2003 is directly due to the increased expense loads we've discussed without offsetting revenue increases, which primarily were a result after the first quarter. That concludes my remarks on the financial statements.

After Tom's comments about our strategic plan and the future, we will respond to any of the questions you may have. Tom.

OK. Now I will spend a little time explaining exactly where we'll be going over the next couple of years. During 2003, the board and the management team went through rigorous process of reviewing our strategic plan as we've done each year.

But, last year we spent a considerable amount of time looking at it in detail. Late in the year, the plan was approved and the plan is both aggressive and requires management to focus on a number of key objectives both short term and long term. And here then are the essentials of the plan.

First, brand development. Over the last several years, we have been very successful in establishing a number of brands within our company, the Kentucky Derby, CDI, CDSN, twin towers, all represents brand that is we hold. Clearly, these brands particularly the Kentucky Derby and Churchill Downs represent a significant value driver for the company.

As we look to the future, we must protect those brands and aggressively pursue new opportunities to translate those brands into added shareholder value. Brand development is not simply a single concept but has a number of facets clearly identified in the plan.

In 2004, we will be working on such things as extending the triple crown media contract, which expires in 2005, held currently by NBC. Broader initial distribution increased media rights and expanded media coverage of the triple crown events will be objectives we hope to achieve during these negotiations.

In support of the Kentucky Derby and Churchill Downs brands, we will continue to move towards completion of the new Churchill Downs as part of the Phase II program, which is scheduled to be completed in 2005.

By far, though the most exciting part of our brand development effort will be our new customer relationship management initiative. We will be spending approximately $2 million in additional operating cost during 2004.

But by doing so, we'll be making a new Churchill Downs. This is not simply a technology exercise, but will touch virtually every part of the company and every person in the company and in the end result in a significant culture change for the organization. And, here are some of the things we will be doing.

Initiating transformational business change management program, which among other things will reward individual performance in the area of customer service. The key thing there of course is change.

And the company is prepared and will be prepared in the future to react to new changes in the economy, new changes or new environment competitive environments and with clear focus on the customer at every turn.

Designing a customer feedback as satisfaction measurement program will be part of the overall CRM effort. Increasing the Twins Spires club to a point where 80% of the business that we conduct will be transacted through this program.

Our objective in 2004 is to reach 40% of the total throughput. Develop customer intelligence that will allow us to collect, collate and use information about our customers in developing offers, programs and services tailored to meet the needs of the customer.

Developing an ability to segment our customers is a key element. By that we'll be able to deliver new offers, products and services that meet the particular need of a particular customer segment.

Developing customer service centers where CDI employees will be able to respond to customer inquiries without having them put in a queue or sending them to another point in the company. Developing a company-wide MIS system to afford management the ability to monitor progress toward these objectives in a timely manner.

In the operation of our tracks, developing and continue develop signature days we have been so successful with in the past such as the Kentucky Derby days, the Arlington Park Million, California Gold Rush, and all of these days have been imminently successful and we're looking at ways to transform reinvent keyword, our racing programs that allow us to maximize our revenue potential by creating special days across the breadth of our company.

One of the critical elements of the CRM effort will be to develop and deploy new customer interfaces for our wagering and today of course we are impeded by that because of the tote situation and I'll address that later on.

But it is important for us to be prepared today for the deployment of new technology such as PDAs, other interactive devices both broadband and at the track level, new customer interfaces such as self-serve machines, et cetera.

And finally, the program does involve an investment in technology. And this technology will provide us an opportunity for the first time to develop an intelligent customer intelligence base, which will allow us to segment our customer base and talk more effectively to our customers.

It is our view and will continue to be our view that the collection of data about our customers will afford us a competitive advantage in the marketplace as we move into this new competitive environment where technology and the speed of technology will be the key.

The second key element of the strategic plan concerns positioning CDSN as the product of choice in the interstate simulcast market. We have been very successful in doing that in the past as is evident by the fact that we only own 12% of the total races run in the United States but yet we enjoy 20% market share of the interstate simulcast market.

As we look to the future, CDSN and interstate simulcasting has two primary growth channels that can significantly increase shareholder value. The first, of course is domestic account wagering and the second being international simulcasting, both point to point and account wagering.

In conjunction with the NTRA and our strategic partners such as TVG, we will continue to pursue the expansion of these growth channels. Moreover, we will continue our efforts to develop marketing partnerships with Racetracks, OTB Operators, Casino Operators to ensure the broadest distribution of our point-to-point simulcast products.

We will also take an active role in expanding the entire simulcast market both domestically and internationally working with our partners in the industry. We must and will find a solution to the leakage problem of the offshore simulcast operators.

We must and will pursue expansion of legalized account wagering legislation in those states that have not passed such legislation and together with our other partners in the industry, we must work and will work to open new international markets for U.S. Racing.

The third component of the plan centers on diversification. Over the past five years, the company has pursued a horizontal diversification strategy that has focussed on targeting high quality racing operations, integrating those operations under the CDI brand and promoting simulcast sales under the CDSN brand. While our focus will remain on racing properties as the means to build scale for scale of our operation, we will also begin looking at adjacent business opportunities that will afford us an opportunity to leverage our brand technical skills and people.

Our acquisition strategy will continue to be grounded on one basic principle, namely we will buy assets which will provide us an opportunity to provide increase shareholder value, simply put we are not about the business overpaying for assets that we acquire. We will also concentrate on increasing our asset utilization of the real property that we own by exploring development opportunities on and around our existing facilities.

And at many of our facilities we do have excess land that we believe, we can monetize and develop additional revenue channels for the company. Alternative gaming continues to be part of our strategic effort. We continue to support alternative gaming legislation in those jurisdiction in which we do business. However, there is one caution here.

We see and have seen over the past several months and perhaps over the last year or so an effort to buy various legislative bodies to use racing as a means to short-term means to solve short-term budget deficits.

We believe that the industry at large and in our case, we will continue to pursue this positioning racing as an economic development opportunity for the states in which we do business to support their aggregate business economy as well as their entertainment economy and not simply as a means to satisfy to mitigate some short-term budget deficits.

In the end, if that's all we're doing, racing will be hurt and racing will not be able to achieve the returns it needs both from the standpoint of increased purses, as well as a return for the capital investment necessary to expand alternative gaming operations by the track operators.

Finally, in the area of management, the plan identifies various elements of increased management development within the company. While we assembled some of the best and brightest talents in the industry, we do have some work to be done and critical skills that we think we need to accomplish our strategic goals.

We recently shored up one of these critical skill sets by the addition of new CRM expert who brings to us wealth of experience in the CRM field having done work for NBA and number of other significant business operators. And he, Keith Shaw is the gentleman's name and he is working with us to flush out all of the details of our CRM program.

We are currently looking to fill certain other positions in the company, which are critical to long-term accomplishment of our strategic goals, and they include such things as new COO, a new Chief Technology Officer and increased resources in our human resources area.

Internally, we are also implementing a company-wide management development/succession program that will focus on developing the company's future leaders and providing an orderly transition for individuals who may be leaving the company for retirement and other purposes as we move into the future.

Beyond those things which we believe we have to do, we also believe that Churchill Downs and its management team has to be thoroughly involved in all of the various industry efforts that are ongoing today. We will continue to put as a top goal strengthening the overall business activity of the racing industry.

As in the past we will take a lead in finding critical solutions to industrywide problems, be they the offshore problem, the leakage problem identified before, or rationalizing the tote services that are provided to the industry, including such things as focusing on increased security in our Tote system that we currently have deployed for U.S. racing.

We will continue to be part of any solution industrywide solution and we will remain committed to retaining a leadership position in the industry, but I underscore our intent is not to control the industry.

It's an exciting time for the company and provides the right mix of opportunity and challenge. We have aggressive leadership; hard work and a clear focus will provide the company long-term growth and increased shareholder value. To achieve these objectives, we will have to sacrifice short-term earnings with a view towards long-term growth. That is exactly what we see happening in 2004.

With what we are doing with the construction-taking place at Churchill Downs, a racetrack in 2004 and with the increased commitment we are making to such things as CRM effort, 2004 will indeed be a re-positioning year for the company.

As we move to 2005 and beyond, I firmly believe that you will see Churchill Downs returning to a growth curve that we have enjoyed in the past years.

With that, I'll now turn it over back to the operator and open it up for questions.

Thank you.

[OPERATOR INSTRUCTIONS]

We'll go first to Tim Rice (ph) of Rice Fulcrum.

Well, Good morning. Tom, in the past, you have spoken pretty clearly that you were only interested in being a content provider. And it sounds like your comments this morning leave the door open for possible investments or ownership of either an account-wagering platform or a television product. Is that a fair assessment?

Well, we have been in the past totally committed to a horizontal strategy and it may very well be and it was evident just recently when we acquired the remaining 40% of Charlston Broadcast that we are looking at vertical integration.

The rationalization of the account wager and distribution system in the United States or there has to be rationalization of that process. Whether or not we would invest in some account-wagering platform is open today.

One of the things we firmly believe from a customer centric approach to this problem, account what - not problem, but this opportunity account wagering, there are some critical factors that we believe have to be present in the formation of a new paradigm in terms of how the industry delivers account wagering services to our customers.

First and foremost it has to be a system that affords the customer a unified account. It seems ludicrous that our customer have to maintain 4, 5 accounts depending upon the nature of the product that they want to bet on, be it over TVG, U-Beat, American Tab, Express Bet, et cetera. And in the long term, we believe there is a solution that will allow a unified account to be maintained by our customer and affording the individual content as a means to control the customer database so that individual content providers can reach their customers directly and afford to the extent necessary of competitive opportunity for a content provider.

While I can't comment directly on whether or not we are going to pursue a vertical integration strategy or have any targets I will say your assessment is right. We are open to looking at vertically integrating some of our operations, be they in the account wagering platform area or other areas.

Your principal competitor has recently commented that a single television product is in the best interest of all the parties in the industry. Do you see any movement in that direction, either on the part of your competitor or on the part of TVG to make such unification?

Well, I can't comment about our competitor. A single television program for the industry at this point doesn't make sense because there's not enough bandwidth to get a single - get all of the races on a single program.

As we move into the digital environment and we see a greater deployment of broadband delivery systems, the ability of the industry to deliver virtually to anyone, anywhere over a myriad of different platforms races selected by the individual patron becomes more of a reality. And what we need to do is position not only our content, but the rest of the content within the United States so that it can deliver over multi platforms in this, you know broadband area.

One last quick one. I know over the last couple of years I have repeatedly asked about an international distribution and you've said you were interested in it, but not a whole lot has happened. It sounds like may be they are just moving a little quicker now? Can you expand on that a little bit either in terms of geography or what means might be employed to do it?

Well, understandably, if you look at the deployment account wagering deployment in the United States and recognize that it is taking us a long way to reach a point where we have I mean 17 jurisdictions with account wagering legislation passed, you can understand why the international deployment has been so slow.

There are two things that I think are absolutely necessary to open up new international markets for U.S. racing.

One is increased scale and not one company can do that. You need to develop a U.S. racing product, which has, may be not all of the races, but all of the significant races and significant scale so that you can deliver a product through various time zones to any point across the world.

The second thing you need is some agreement to open up our markets for international racing. It is much the same way that - the same paradigm that exists in the United States. We can land our signal in various jurisdictions at various racetracks, if we agree to take their signals when they're operating live.

There is a third element that we are working on which concerns tax treaties with Holding and myriad of other federal international law issues.

And I think, by and large we're making good progress. The NTRA is moving in that direction and I think, on balance, I'm comfortable that that will not become an impediment to expanded international deployment.

Then, the final thing is the offshore issue. Right now you have deployed in the international marketplace, these offshore operators and how we approach that is subject to much debate within the industry today. Our opinion is that we should be actively competing with the offshore entities with our US racing products. So, I don't know if that answered your question, that kind of a broad blanket I gave you.

That's fine. Thank you very much.

[OPERATOR INSTRUCTIONS]

We will go to Ryan Worst of CL King and Associates.

Hi, Mike, one question for you. You mentioned the - in 2004, a non-recurring factor at Arlington Park, but you also in the press release said there is some factors at Hoosier Park, as well?

The factors at Hoosier park are really more 2003 compared to 2002, as opposed to '03 to '04. We do have few race days now in '04, but it's not really significant. Big comparison problems for Hoosier Park were '02 and '03 line.

The big impact is just the tax refund in '03 for Arlington Park?

Right.

OK. And then, I was wondering Tom, if you could talk about impact account wagering has had on California racing and Hollywood Park, in particular? I mean it seems like; you know $175 million wagered through accounts and in California at least that the results at Hollywood Park would be a little better.

Well, I think there is some cannibalization. We're trying to work through the numbers. There has been about a 38% increase, 39% generally. I think these numbers are through third quarter, in wagering on California signals through the TVG platform.

And we're trying to obviously handle doesn't drive it. It is the revenue component; we are analyzing those numbers as we speak. I think, at best we're talking about, given the limited deployment in it, if you note where TVG is deployed, TVG is deployed largely in the racing markets.

So you would expect cannibalization to occur there to a larger extent that if their TVG signal deployment was in some of the far-reaching parts of California and as we move to a further, broader distribution platform the incremental revenues that you should be able to obtain will be significantly larger. But, I think your analysis is about right. My sense is that you're probably talking about a wash with the decline in on-track handle versus -- on a revenue basis, decline on on-track handle versus the TVG revenue number.

OK.

That is a fair assessment, is it not?

EBITDA seems like it is down a lot more even though revenue - you are right that doesn't seem like there is much impact on the revenue side?

Well, I think you know, the business levels in California are suffering right now. I think if I had to point to one factor, it's the short-field problem largely driven by the poor business conditions in California. Not just for our industry, but for everyone with the workers' compensation thing and the migration as it relates to us, the migration of various trainers and their stables to other jurisdictions to avoid the workers' compensation thing.

Last year, we had an industry-wide consensus bill that made it through both Houses, both bodies of the General Assembly got to the Governor's desk and it was vetoed. The indication being that the reason for the veto was to not segment the racing industry into separate workers' compensation program and to put it into a larger workers' compensation solution that the governor is proposing this year.

So, I'm hopeful that we can find together with the rest of the business community in California, find a solution to this workers' compensation thing. I don't think that is the single panacea that will cure what is going on in California, but it will certainly move us in the right direction.

Ryan I would add too, in California most of the -- as any of our other tracks were little more revenue sensitive, meaning, a bigger portion of our costs because of the general business climate and insurance's out there are fixed in nature, such as a more dramatic impact on EBITDA when we have a revenue decline than of the some of the other places where a greater portion of our costs are variable.

OK. And then Tom, right now is there any way through your CRM system to impact the audience viewing your races and wagering on off-track, not at your own facility, but through account wagering and OTBs and how do you do that currently?

Yes.

Any way that you could provide information to those people?

Absolutely. Over the last three years we've made substantial investments in the Twin Tower program, the Infinity program. That was a prelude to this overall CRM effort.

What we tried to do or have been trying to do over the last three years is test the concept of can we in a meaningful way collect data about our customers, including such things as their e-mail addresses, their actual addresses, and through a targeted approach, reach those customers with information and offers about our products and indeed the results that we've obtained over the last three years have been very, very impressive and to a large extent supported our commitment for this expanded CRM effort companywide.

Example, during the strike that occurred up in Illinois last year, the harness strike, which had a deleterious effect on all of the OTB operations in the Chicago-land area, half of those OTB operations are not owned by us. What we did is we identified through our Twin Spires Infinity Program, those customers who were in our market who attended ROTBs and made certain offers to them, send it them to come to the facilities more frequently and to wager on the CDSN products more frequently.

Well, we were a tick or two above where we were last year, the other OTB operations suffered to the extent of 15% to 20% loss. And that clearly -- we've done that at several locations. We've also done an experiment at Connecticut OTB, our non-owned OTB operation.

And all in all, it proved to us that data is king. If you're able to collect information as we are doing under the Twin Spires club program and as we will be able to do with an expanded CRM effort and various other platforms that we are deploying under CRM, technology platforms, we believe that we will be in a position to reach a substantial number of our customers and our objective is to get 80% of our customers running through Twin Spires club. And we will be able to influence their attendance, habits, as well as their wagering habits as it relates to our products.

Ryan, also for non-Twin Spires customers, we use promotional efforts directly with OTB operators to encourage them to have patron's eyes and ears on our product in their operation for those people we don't get too directly as the Twin Spires member.

So you have to have a relationship with like New York City OTBs. How do you get to those customers?

That is the challenge of the future. What we got to do is convince our partners, both our business partners OTBs, racetracks, et cetera to allow us to deploy such things as Twin Spires club program in their markets and in their facilities and show them the advantages that they will have allowing us to in-cent and make offers to their customers to come to their facilities and obviously wager on our products. But, they get the benefit of it. In fact, the margins are slighted their direction. They make more money on that.

Then, the other important part is that the new paradigm that exists in marketing partnerships it used to be that racing, as well as any other sports used to go tootling into the Anheuser-Busch in the world and say look, what a great facility we have, we generate X number of people at our football game or racing event or the Kentucky Derby or whatever it might be. And that's all well and good, but those days are long since gone. You in developing marketing partnerships, you have to deliver customers, be able to identify segment those customers for your marketing partner and develop new programs that will allow them to reach your customers with offers, programs, services and products that they're selling.

And we've seen the best example of that is on our Web site where we've developed a number of marketing partnerships with our partners recognizing that we're reaching a market segment that they're interested in reaching and through our collaborative effort, they're able to number one provide us some revenue and number two, reach those customers they want.

OK. Thanks.

Thank you, Ryan.

At this time there are no other questions in the queue. Mr. Meeker, I will turn the conference back to you for any additional remarks.

Well, let me make a couple of closing comments.

First of all, I'm as excited today about racing and the opportunities that racing has as we look to the future with various growth channels that will be provided to us with the deployment of technology. I'm also very, very encouraged about what we've seen in the infancy of our CRM effort and our ability to change the culture of our company, make the customer our focus and indeed let the customer control our businesses we move down the path of growth into the future.

The plan that we've got in place is aggressive, it is not grandiose. Its achievable and its consistent with what we have said in the past when we've identified certain things that our company is going to do and we have demonstrated that we can achieve the objective to fund.

And indeed, embodied in our plan and the things that I mentioned to you today are clearly achievable and we're focused on achieving those goals as we move down the road.

The final comment that I'll make is that 2004 will indeed be a repositioning year. Some of the expenditures that we're going to be making in 2004, the programs that we'll be putting in place in 2004, such as, even the hard asset construction that we're doing here at Churchill Downs, the benefits of those programs, commitments, investments, will not be felt until the years beyond 2004.

So, we are committed to a long-term growth strategy and this year, 2004, will be the year where we reposition our company directed towards long-term growth.

So, with that, again thank you for joining us this morning and look forward to talking to you next quarter.

And this does conclude today's conference call. We thank you for you participation. You may disconnect at this time.