Churchill Downs Inc (CHDN) 2009 Q4 法說會逐字稿

Good morning ladies and gentlemen, welcome to your Churchhill Downs fourth quarter and year-end results conference call.

(Operator Instructions).

I would now like to turn the program over to Ms. Liz Harris, who will now read your Safe Harbor language. Ms. Harris, you may begin.

Good morning, and welcome to Churchhill Downs Incorporated conference call to review the Company's results for the fourth quarter and year-end 2009. The results were released yesterday afternoon in a news release that has been covered by the financial media. A copy of this release announcing results, as well as any other financial and fiscal information about this (inaudible) being presented in this conference call, including any information required by Regulation G is available at the section of the Company's web site titled Company news, located at churchilldownsincorporated.com. We also note that a news release was issued advising of the accessibility of this conference call on the listen only basis on the phone and over the internet. As we begin , let me express that some statements made during 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 fact. The actual performance of this Company may differ materially from what is projected in such forward-looking statements. Investors should refer to statements included in the reports filed by the Company with the Security and Exchange Commission for discussion of additional information concerning factors that could cause our actual results of operation to differ materially from the forward-looking statements made in this call. This information is being provided as of this date only. And the Churchhill Downs Incorporated expressly disclaims any obligation to release publicly, any updates or revisions to to the forward-looking statements to reflect any changes in expectations. Members of our executive team are here will be available to answer questions after some formal remarks. We will begin now with our President and Chief Executive Officer, Bob Evans. Bob?

Thanks, Liz. Good morning everyone. We appreciate you taking the time to join us today for this discussion of our financial performance in 2009, and for the quarter ending December 31, 2009. After a few comments, I will turn this over to our CFO, Bill Mudd, who will take you through our financial statements in more detail. And after that we will be happy to take your questions. I will start with three general comments about last year. First, the value of our efforts to diversify our business became evident during 2009. We launched TwinSpires.com in 2007, and opened Fair Grounds Slots in 2008, so let's use 2006 as our base year. Since 2006, US Thoroughbred handle has declined 17% according to the Jockey Club. We've increased revenue every year since 2006, at more than 5% annual compound growth rate, after taking acquisitions into account. We announced last November the signing of definitve agreement to acquire Youbet.com. Also, last year we announced Churchhill Downs Entertainment Group first event, the HullabaLOU Music Festival. And in January of this year, we opened a new Calder Casino, so we hope the pieces are in place to continue this diversified growth trend in 2010.

Second, we made the company stronger. Despite a serious recession, and despite declines in US thoroughbred industries that have resulted in the two largest track operators, Magna Entertainment and the New York Racing Association, and the largest off track betting operator, the New York OTB, all filing for bankruptcy protection, we continued to grow while prudently managing our balance sheet. After spending $87 million on the America Tab and Bloodstock Research Company in 2007, and after spending $34 million between 2007 and 2009 on the Fair Grounds slots operation, after spending $27.5 million on the acquisition of 66.8 acres of land at Arlington Park, and after spending $66 million on the new Calder Casino, it's a total of $215 million. We ended 2009 with about $110 million in debt, a reasonable 1.7 times our trailing 12 month EBITDA. Late last year, in the middle of one of the most disruptive history of the US financial system, we put in place a new $275 million credit facility that can be expanded to $375 million, at terms we think are favorable. And we believe we now have the financing capacity to continue to grow going forward. And our most important assets the Kentucky Oaks and Kentucky Derby brands, they have never been stronger.

Third, on a relative basis we done well for our shareholders. Using the average daily closing price through the year, to reflect the fact that people buy and sell throughout the year, not just on December 31st. On that basis, we outperformed Penn National, Mountaineer Gaming, Magna Entertainment, the S&P 500, and the Russell 2000 Market Industries. And we were within two points of the NASDAQ composite. Of our comparative set only Youbet.com did meaningfully better for shareholders last year. Over the longer term since 2006, CDI common stock is down 11%, comparing our 2009 daily average closing price to the 2006 daily average. While we were down 11%, NASDAQ was off 19%, Penn National off 27%, the S&P 500 off 28%, the Russell 2000 down 29%, Youbet down 47%, Mountaineer down 78%, and Magna down 96%. Now on a personal basis, since I'm paid primarily in equity I'm not all that happy with our stock price, but compared to my other personal financial investments CHDN doesn't look so bad over the last three years.

Let's take a look at the performance of our different businesses in 2009, starting with our racing business. Since the $15.2 billion peak in 2003, US thoroughbred handle has declined $2.9 billion or 19% according to figures published by The Jockey Club. $1.3 billion of that decline occurred in 2009, the industry handle off 10% last year compared to 2008. We did slightly better than the industry in 2009, CDI handle from racing operations was off 8%. And at the revenue line, things were even a little less negative. Total racing revenues from continuing operations, which include pari-mutual commissions, admissions, food and beverage, et cetera were off 6% when compared to 2008. There is no early evidence that things will improve with racing in 2010. We only have January data so far, but US thoroughbred handle was off 12%, in the first month of the year according to the Jockey Club, and I doubt February will look much better.

Despite these trends in handle, we continue to make important investments in our racing business. To highlight just a few this spring all video of races at all of our tracks will be broadcast in high-definition format. Other than Keeneland race track, our tracks are the only tracks with high-definition video. We will have install track lighting at Churchhill Downs racetrack, and we will conduct six nights of night racing this year. We are funding the televising of six Kentucky Derby prep races over three weekends in March and April on NBC Universal's networks. And we intend to work over the next several years to try and make the kind of successful programming changes to those racing telecasts we have been making to the Kentucky Oaks and Kentucky Derby telecasts. We've taken an leadership position on safety and racing, and all of our tracks are fully accredited by the NTRA's Safety and Integrity Alliance. And we have developed what we believe is a productive on-site, online marketing model, that integrates the marketing activities of our tracks and other tracks with our online Twinspires.com business to grow racing's customer base. These initiatives alone represent over $10 million investment in racing.

However, making these types of investments, not to mention the considerable capital investment required to maintain our tracks, can not continue in the absence of a business model that provides adequate return on capital. US thoroughbred racing can be a profitable business but earns it's cost of capital, but likely on a much smaller scale. In the absence of some other form of revenue or subsidy or willingness on the part of track owners to simply eat the losses, the necessary determinant of which tracks survive, and which won't, will be, who has the right to conduct the casino gaming. We have that right at Fair Grounds and Calder. We don't at Arlington Park and Churchhill Downs. We will take a careful look this year at the long-term economic viability of our racing assets, and their potential alternative uses.

Let's move next to our online business. Closely related to racing is our online business, specifically our advance-deposit wagering or ADW, Twinspires.com, our Bloodstock Research Information Services or BRIS, or handicapping and breeding information business, and our 50% ownership interest in the horse racing television network, HR TV and it's online counterpart, hrtv.com. Online business handle is up 41% last year compared to 2008. Our online business revenue from continuing operations was up 32%, and EBITDA was up 121%. I'm very grateful and sincerely want to thank all of the over 200 full time equivalent employees at Twinspires.com and BRIS's offices in Mountain View California and Lexington, Kentucky, at HR TV at Santa Anita racetrack in California, and at the outsourced software development outsourced customer call center and outsourced data center companies we use in conducting our online operations, and the finance, IT, HR, and legal folks at our corporate offices in Louisville who support this business daily. You all contributed to a great year for Twinspires.com.

Youbet.com, as you know we announced on November 11th our intent to merge Twinspires.com with youbet.com. Here is the time line of that transaction to date. We filed our first Hart-Scott-Rodino, or HSR Act pre-merger notification with the Federal Trade Commission and Department of Justice on November 25th, 2009. On December 24th, at the request of the DOJ, the agency to which the transaction had been assigned, we voluntarily pulled and refiled our HSR notification, in order to give the DOJ more time to review the deal. On January 25,, 2010, the DOJ issued what is called a second request for information and documents related to the merger. We and Youbet are in the process of assembling our respective responses, and we plan to submit them within the next several weeks. The parties are also talking informally with the DOJ staff to try to address the agency's question in a more focused manner.

On December 23, we filed our S-4 registration statement with the Securities and Exchange Commission. The S-4 registers the material information related to a merger or acquisition, the SEC advised that the S-4 became effective February 25, 2010. Youbet has now scheduled a shareholder meeting and a shareholder vote on the merger for April 6, 2010, in Woodland Hills, California. In addition, we reached a settlement with the Youbet shareholder plaintiffs who had filed complaints related to this transaction. This settlement is subject to court approval, and certain other conditions. We are agreeing to modify our disclosures, and there will be a limited payment of attorney fees and expenses that we expect will be made by a insurance carrier. We are finalizing the paper work and seeking the court approvals which we expect to obtain. Subject to approval of Youbet shareholders, the receipt of required regulatory approvals, and other customary closing conditions, the transaction is expected to close in the second quarter of 2010.

Turning now to our gaming business, our gaming revenues were up 23% in 2009, due to the effect of the full-year operation of the slots business at our Fair Grounds race course, which opened in November 2008. Fair Grounds Slots hit a very solid year, generating $10.7 million of EBITDA, on what was a $34 million investment between 2007 and 2009. EBITDA from Fair Grounds Slots increased $4.4 million or 70% compared to 2008. Our video poker business across New Orleans more closely followed the slow down in the US gaming industry, and more specifically the declines in New Orleans and Louisiana. Video poker revenues from continuing operations were down about 4% for the year. We opened the Calder Casino on time and under the $85 million budget on January 22nd. Congratulations to Tom O'Donnell and the entire Calder team for making this happen. I know they are particularly proud of being the only casino to pass the Florida state pre-opening inspection on the first try.

We said in our Q3 earnings call on October 29th, that the Calder Casino would produce about $80 million to $100 million in the annual full-year gross gaming revenue. We have now been open a little over five weeks, and we are still comfortable with that range. We would caution those who are look at the early numbers filed with the state of Florida of three things. First we did no marketing whatsoever prior to the first weekend of operation, since we didn't know if we would pass inspection on the first attempt. We have over 45,000 customers in our data base, and we can begin direct marketing in earnest. Next, in the second weekend of operation, we had the NFL's Pro Bowl at adjacent Sun Life Stadium to contend with. And in the third weekend of operation, we had the Super Bowl, also at Sun Life Stadium. So we've had three, let's call them, normal weekends out of six so far, which isn't much data to base any analysis on, but we are pleased that we are seeing sequential increases each week.

And finally, for those who are looking at our gaming EBITDA numbers for Q4 and for the entire last year, remember that we incurred a little over $3 million in preopening costs throughout 2009, prior to the opening of the Calder Casino. These cost will not reoccur going forward. Next our newest business, the Churchhill Downs Entertainment Group, we announced on November 30th, that CDE would launch it's first event, the HullabaLOU Music Festival, this summer on July 23, July 24, and July 25. The talent line-up for HullabaLOU is now about complete, 65 world class acts on five stages over three days. We are pleased with early ticket sales, and I believe we sold 19% of our inventory so far, with five months remaining before the event. And we start our HullabaLOU marketing efforts just this month. CDE is also developing other entertainment concepts that we will announce later this year.

Let's spend a minute on this year's Kentucky Oaks and Kentucky Derby, which are now 58 and 59 days away. As you know, Kentucky Oaks and Kentucky Derby ticket sales and collections are running ahead of last year's pace, including sales of our temporary corporate hospitality space. In addition we launched online ticketing system in Q4 and sold over $1 million online already, in 2010 night racing tickets, Oaks and Derby tickets, and tickets to new premier food event on the Thursday night before Derby, which is called Taste of Derby. Let me make a few comments specifically about the fourth quarter, three things of note about Q4. Our video poker business in New Orleans deteriorated markedly in Q4, compared to the first nine months of the year, due mainly to the downturned economy in Louisiana, and increased competition from truck stops. This trend continued in January, but the business picked up nicely in February. Racing continued to struggle in Q4 as it had throughout the year. In Q4, Churchhill Downs ran five fewer days, and Calder ran four fewer days, but we were surprised with the weakness in the Q4 racing performance. This trend has unfortunately continued in to early 2010.

Finally, we incurred in excess of $3 million, in unusual costs in Q4. Preopening costs related to the Calder Casino, which as I said earlier, totaled over $3 million for the year, amounted to about $1.8 million in Q4. And we spent about $1.4 million in legal and other professional fees in Q4 related to the Youbet merger, to protecting our business in light of various actual and pending bankruptcies across the thoroughbred industry, and in pursuing the so-called Molaro Bill money in Illinois. Let me give you a quick explanation on this Molaro Bill matter. Officially this is known as the Illinois Horse Racing Equity Trust Fund, or HRETF, which thank goodness, which is why we call it the Molaro Bill.

During the fourth quarter, we received approximately $24 million from the State of Illinois, as Arlington Park's share of the money paid by certain river boat casinos in Illinois and Illinois's race tracks pursuant to the 2006 Molaro Bill. $10.4 million of the $24 million will be retained by CDI and Arlington Park, and $13.6 million of the $24 million paid to the Arlington Park purse account. We are holding all of these funds in escrow, they appear on our balance sheet as restricted cash, but they are not yet reflected in our income statement due to the court order to escrow the funds pending the outcome of litigation. Additional funds are due CDI and Arlington Park, and the purse account under the 2008 Molaro Bill, but we have not yet received any of those. We will now be happy to take -- oh -- not yet, I have to turn it over to Bill Mudd first, and then we'll be happy to take your questions.

Thank you, Bob. Good morning everyone. I will review the information as set forth in the tables to the press release that can be found in on our Company website, www.ChurchillDownsincorporated.com. Following my comments, I'll turn it back over to Bob before we open it up the call for questions. Let's begin by first reviewing the segment information which is contained on the schedule titled, supplemental information by operating unit in the press release. As a reminder from our previous calls, the discontinued operations section of our financial statements and tables contain the operations of Ellis Park and Hollywood park, my comments will focus on operational performance from continuing operations for the fourth quarter and full-year. As Bob mentioned in his opening remarks, according to figures published by the Jockey Club, handle on US thoroughbred racing was down 10% during 2009. Net revenues from external customers for our total racing operations fared a little better, seeing decline of 6%, year-over-year, or reduction of $19.5 million.

At Churchhill Downs racetrack, total year revenues from external customers decreased $8 million, or 7%, over 2008. We ran a total of 66 days in 2009, 12 fewer than 2008 or 15% reduction. Handle on Churchhill Downs racetrack also was also down 15% for the year, while net pari-mutual revenues were only down 6%. The comparatively better performance in revenues is driven by better export pricing for signals, coupled with better mix towards higher paying distribution channels like advance-deposit wagering. Revenue for this facility from external customers fell 12% in the Q4 on a 19% reduction of race days. At Arlington Park, net revenues from external customers decreased $1.8 million, or 2% for the year. During the Q1 of 2009 Arlington Park recognized $4.3 million in revenues related to source market fees that were previously held in escrow. Aside from this one time item total year revenues decreased 7%, consistent with the handle decline of 7%. I will reminds you that we do not conduct live racing at Arlington in the fourth quarter.

Our Calder racing operation saw net revenues from external customers declined by $3.4 million or 5%. Pari-mutual revenues from out of state customers increased 55%, due to the signal disruption in 2008, over purse contributions from our slots facility. Unfortunately these gains were more that offset by 19% reduction in our on-track business, which we believe is in part driven by casino construction disruptions. Fourth quarter net revenues from external customers at Calder were pretty consistent with a 7% decline. Our Fair Grounds racing operation net revenues from external customers decreased by $6.4 million, or 12% for the year. We believe that abnormal weather conditions impacted our results. During the Q4 we had to take 46 races off the turf course due to wet conditions. This compares to 18 races taken off the turf during the fourth quarter of 2008. Since turf races producing more handle than dirt races, and changing surfaces at the last minute results in smaller fields, this dramatically affected our revenue during the fourth quarter.

Bad weather coupled with the simulcast signal disruption with the Mid-Atlantic Coop over pricing drove our fourth quarters revenues from external customers for this location down 18%, or $2.3 million. Our online business grew revenues from external customers to $70.9 million during 2009, an increase of $16.9 million or 31% growth versus prior year. Online business handle group 41% for the year to $330 million. The growth in handle and resulting pari-mutual revenues were driven by increases in our customer base, coupled with open access to horse racing content. In an open content environment, ADW businesses compete on a level playing field for customers, with technology features in marketing. We believe our success in this segment and our growth are direct reflections of our strong product offering. Fourth quarter results were equally impressive with revenue growth of 44%.

Now let's look at the EBITDA performance by segment at the bottom of the page. Our racing operations EBITDA dropped 39%, or $22.1 million during 2009. This includes an insurance recovery of $17.2 million in 2008, related to Hurricane Katrina. EBITDA is down further by 12% or $4.9 million for the segment. This reduction is driven primarily by lower pari-mutual revenues at each of our facilities as discussed earlier. A $3.2 million decrease in Derby League profitability primarily related to lower corporate hospitality, pari-mutual wagering, and attendance-based revenues, and a $1.5 million per supplement at Churchhill Downs racetrack. Partially offsetting these losses were favorable items for the Illinois source market fees, net of purses previously held in escrow of $2.1 million, our real estate tax refund of $2.4 million, and insurance prime claim of $2.5 million.

In the fourth quarter, EBITDA for the segment decreased $2.1 million. This year, over year reduction is driven by a gain on the sale of land at Quad City Downs for $600,000 during 2008, five fewer race days at Churchhill Downs racetrack, and a very tough economic and industry environment. Our online business segment increased total year EBITDA by $7.6 million versus prior year, and $300,000 in the fourth quarter. This improvement was driven by revenue growth as discussed earlier, plus a $1.5 million improvement in HR TV profitability. Our gaming business total year EBITDA was down slightly, to $18.3 million during 2009. Improvements in Fair Ground Slots from full-year of operating our permanent facility were offset by $3.1 million or preopening expenses related to our Calder Casino, and reductions in video poker post gaming revenues at our OTB's. For the fourth quarter, EBITDA for the segment was down $2.2 million, driven by $1.8 million of preopening expenses for our Calder Casino.

Overall, EBITDA decreased by $14.7 million for the year. This reduction is primarily attributable to $17.2 million of insurance recoveries in 2008, otherwise improvements in our online and Fair Ground Slots businesses more than offset weakness in racing facilities, $3.1 million of opening expenses for our Calder Casino, and $1.8 million of cost associated with our pending merge with Youbet. Our fourth quarter total Company EBITDA decreased by $4.2 million, this reduction is attributable to the $1.8 million of preopening expense at Calder and $1.8 million of costs associated with Youbet.com merger and racing reductions previously discussed.

Now please turn to the condensed consolidated statements of net earnings. For the full-year, we grew total net revenues from continuing operations by 2%, roughly $9 million. This growth was driven by our gaming and online businesses. Unfortunately these growth drivers were not able the offset declines in racing, operations, pari-mutual activity in the fourth quarters as we recognized the net revenue decline of 1%. Selling, general and administrative expenses were flat to 2008, despite spending $1.8 million on Youbet.com transaction, nearly $800,000 defending our position on the Illinois Horse Racing Equity Trust Fund, and $1.6 million in preopening expenses for Calder Casino. Equity gains and losses in unconsolidated investments for the year improved primarily as as a result of improvements in HR TV. Our fully diluted earnings per common share from continuing operations for the year came in at $1.27.

Now if you could please turn your attention to the consolidated balance sheet in the release. Overall, total assets increased by $87.7 million. This increase in total assets is driven by couple of factors. First, our restricted cash increased $21.4 million, reflecting the receipt of $24 million, from the Illinois Horse Racing Equity Trust Fund, during the fourth quarter as Bob discussed. The other big increase is the property and equipment line of $82.8 million, as result of $67.1 million of additions related to the Calder Casino, as well as the purchase of Arlington land for $27.5 million. Total liabilities increased by $74.6 million, during the year. Three items drive this change. First, the $24 million we received from the Horse Racing Equity trust Fund is being held in escrow at the discretion of the court. This will not recognized as revenue and purse expense until that issue is resolved. As such, you will sea a new account, titled deferred river boat subsidy, in the current liability of the balance sheet. Another big driver of the increase in liabilities is the issuance of a note payable in the amount of $24 million for the Arlington land acquisition. Finally, borrowings increased by $28 million, primarily as a result of spending for the Calder Casino. With that, I will turn it back over the Bob for some final comments.

Thanks, Bill. We will be happy to answer your questions.

(Operator Instructions).

Our first question comes from Steve Altebrando .

Hi, guys, how are you?

Good morning, Steve.

Morning.

The release mentions that you expect continued growth in 2010 is that on EPS basis?

Yes, I got a caveat, based on the timing of the Youbet transaction, and the cost associated with it. Obviously some of the costs in terms of making that thing happen I haven't completely ran through yet. But, yes.

Okay. What are you assuming as a 2009 base EPS? The $1.27 you mentioned?

Yes.

Okay. And then in terms of Calder, generally the facilities have been shown a lot of seasonality. Would you expect your facility to follow suit, or are you seeing a bit more of a local customer base?

Yes. I would say first of all you are right, there is seasonality in the winter months. And we see that with our competitors. The difference that I think we will see some seasonality, Steve, but I don't know it will be quite as dramatic, and here's why. We have a very local customer base, for one. And the second factor is, that when you are racing, and you are running live racing you see a bump then -- in casino patrons, And remember, at our Calder facility, we run nine months out of the year, so that should help in the weak periods.

Okay. And CapEx, do you guys have estimate for 2010? And just to make sure my math is right, is there still for 2010, maybe about $25 million of Calder spending that is going to fall in 2010?

Let me see here, it would be about $20 million I think today, we said about 65.5, so it would be probably a little less than $20 million. In terms of a 2010 CapEx, do we have that? I will have to get that to you, Steve. That's it, thanks, guys.

Thank you.

(Operator Instructions).

Our next question comes from Ryan Worst.

Good morning, guys. Just follow up on the CapEx question. I guess you said $20 million for Calder. I mean, where do -- what do you consider the $p10 million that you are investing in the racetrack operations that you spoke about, Bill, is that more of a maintenance CapEx number and what do you expect for full-year maintenance for this Company?

Let me get the -- Mike has went to get the CapEx numbers for 2010, in final respect. In terms of the $10 million, part of that money has already been spent, because we have already put HD into facilities at Churchill Downs and Fair Grounds Racetrack. The big expense that will hit this year is the night racing expenses for lights, which is -- was that a public number? It's about $4 million in lights, which'll predominantly hit in the first quarter, as they are being installed now. There is about another $2 million we will spend on HD at Calder, and Arlington for HD television.

There is a, as Bob discussed a couple of million we will invest, which really won't be CapEx, it will be more of operating expenses related to television, of televising of the prep races. In terms of 2010 capital, remember we still have $24 million which we will pay out in mid-May related to the Arlington land. Then of course, you got the $20 million left from Calder casino, outside of that, we expect to spend maintenance capital $3 million on racing, probably another $1 million dollars held in escrow, that we will allocate as needed in emergency capital. We got a few other things that we will spend money on, ADW obviously will spend $5 million on that this year. Then we got some other safety and ROI growth projects that we will spend a money on, that will be about a $1 million

Okay, given then the --

And then obviously, just so you guys know, obviously Youbet transaction has cash component to that, excluding any cost associated with legal fees and or investment bank fees, that will be another $45 million or so.

Right. Okay. And Bill, those one time fees for the Youbet acquisition and the Molaro Bill, where were they accounted for in terms of the different operating segments?

Yes, most of those actually are booked at the corporate level, and the corporate cost, because of most of our corporate costs associated with centralization of HR and IT and legal and a number of other things ,are allocated out to each one of those segments. So each segment gets about 80% of that, and it's allocated based on revenues. So to give you I guess a more direct answer on the $1.8 million, about $700,000 of that went to racing, 200 of that went to online, 200 went to gaming.

And that's on the -- the1.8 was the preopening number. So do you mean the $1.4 million?

Oh, sorry, $1.4 million, correct. Sorry.

Could you go over those numbers again, I'm sorry?

Yes, of the $1.4 million, that was legal fees and fees associated with the Youbet, of the 1.4, 200 is corporate, 200 is online, 200 is in gaming, and 700 is in racing.

Okay. Then, can you talk a little bit about the online margins. looks like they declined in the fourth quarter. and then also on the wagering side, looks like wagering was up close to 40%, online in the fourth quarter, could you talk about the drivers to that in terms of what tracks you had access to versus last year, and other things that might impact that number, on a year-over-year basis.

Okay. First let's talk about the margin rate obviously 44% and having 300 fall through, was not what you would expect in terms of profitability fall through. The big swinger there is obviously $200,000 of legal fees associated with Youbet and Horse Racing Equity Trust Fund that gets allocated out. And the other big factor is there is about a $500,000 dollar swing year-over-year in sales and SG&A. And the reason for that is, in the prior year we ended the year a little bit weaker than what we had planned. So there was reversal of previously accrued compensation cost. This year they ended much stronger than what we expected so there was an incremental accrual. So that year-over-year swing was $0.5 million, so that was a big driver on why that didn't fall through.

Okay, and then also, was there a purse settlement in Calder for like $1.5 million, could you just refresh my memory as to when that was recognized?

Yes, that was at Churchill, happened in the third quarter, and that is a nonrecurring item. So as part of -- there were disputes going back and forth over the contract, the old purse contract and how we treated wagers placed on online businesses owned by Churchill. And that contract predated the acquisition of America Tab and BRIS. On top of that, we had an old dispute in Calder at the time. So netting that together we signed a agreement with the Kentucky Horsemen, we agreed to help beef up the purses by $1.5 million dollars. That $1.5 million was an expense in the third quarter, but we paid out over the next three years. So that will actually help us keep our purses competitive with racetracks that have casino gaming.

To answer your other question Ryan, on what content we had in the fourth quarter, we did pick up access, remember in the prior year of 2008 we did not have Churchill Downs. Because of the dispute going with Kentucky Horsemen related to the $1.5 million we just discussed. We also didn't have Keeneland, Oak Tree and a number of other TVG exclusive tracks like Los Alamitos. Now everyone has all content, we basically had most of the content all of last year, with the exception of few TVG exclusives which we didn't pick up until the middle of last year, so that's kind of washed itself out at this point.

Okay. Then just getting back to the CapEx, Bob, said in the press release it's difficult to justify a return or hard to get an acceptable ROI. In light of that, why you make those investments, and is there any other alternative as this you could do such as buying back your stock?

Ryan, I think that's a good question. I didn't say you can't get a return, I just said it's becoming increasingly difficult. If you look at what we are investing in, it's less than physical assets and more what I would call intangible assets. Granted, some these are operating expenses and not capital dollars. But for example, televising the three weekends of Derby prep races was really part of trying to build our business around the Kentucky Oaks and Kentucky Derby. So the short answer is any big dollar expenditure on racing be it capital dollars or operating expense dollars is getting very carefully scrutinized. Because we are just having a hard time convincing ourselves it's a good investment to make. And as I said in I my comments a bit while ago, we are going to take a close look this year as the long-term economic viability of all of our racing assets, so that we make the decision that you discussed in your question carefully at every point of the call. So it's a tough moment in racing for capital dollars or expense dollars being spent.

Okay. Any more color on the kind of the Derby weekend relative to last year, in terms of how much ahead you are versus last year? And whether or not you can make up that kind of $3.5 million dollars that you lost in 2009?

Obviously we have the information but I just don't want to get in to disclosing all that at this point in time. As I said in my comments, we are running ahead on both sales and collections from where we were last year.

Okay. Great, thank you.

Yes, thank you.

Our next question comes from Jeffery Thomison.

Good morning. I wanted to shift gears a little bit and talk about your music festival. It sounds like the line-up is mostly set and solidified and our marketing is about to ramp up. But wondered if you had something to say about ticket sales, you mentioned about a 19% of your inventory. I just wondered if that was in line with expectation or hopes. And then on the expense component of this festival, Bill, I just wondered if you had color about when the bulk of these expenses will hit, and where they will hit on the P&L? And then lastly, I doubt that you will tell us, but was just curious if you had comment on where you expected a break even number to be in terms of ticket sales for this first year event?

Well, three questions, and we will give you three different people to answer them. So I'll answer the first one, or the last one first, which is, you are correct we are not interested in disclosing break even or what we expect to do on this. Mudd in a minute can give you the details on where the expenses will occur. And sitting in the room with us, is Steve Sexton the President of Churchhill Downs Entertainment. So Steve can talk about ticket sales, and where we are there and what our marketing efforts are, so Steve?

So on your ticket sales question, we are pleased thus far because the general curve for music festivals across the country is very slow sales coming out for the date, until up about four months, three months prior to festival when people want to part with their money for a live event, so thus far selling 20% inventory we are very pleased with it. As Bob said the marketing efforts, really kick in later this month and as we move closer to the festival they will intensify. Bill?

Yes, and the in terms of expenses I would say in 2009, we do have a team of people who work for Steve that have been working on the various entertainment opportunities and venues, we spent $1.1 million of cost associated with that in the prior year. And in terms of the physical cost for the event itself, that will happen in the third quarter, basically the same time the revenues are recognized. There is kind of the base piece, team, and that will be more than just HullabaLOU. We already invested in that last year, that's in the results. And terms of the marginal economics of the HullabaLOUp itself, they will both recognized in the third quarter of next year.

Okay. And then just lastly, would you guys still be interested in still conducting your one night major concert acts that you have done a couple of in the past?

Certainly, we got a variety of pursuits ongoing right now. We don't disclose details, but we are certainly engaged and interesting in the one time, one off to some degree concert events as well.

And what would be the main reason that there hasn't been one since the Police, is it just the economy?

It's a -- there is a large combination of variables, mainly what acts are touring, how they are routing, are they playing stadium, are they playing arenas, there is just a large combination of variables, are they playing domestic versus international. So we actively and will continue to actively pursue our various acts, and we still have avid interest in hosting any of certain acts that align with our brands at Churchhill Downs.

Great, good luck with that.

Thanks.

(Operator Instructions).

And we do have a question from Steve Altebrando.

Hi, guys. Just quickly, I know it's not tremendously material but the account wagering tax, they have been discussing in Kentucky, I just wanted to get your thoughts on that.

Well, as a general rule, we don't like any taxes that go against revenue. The horse racing business seems to like the tax revenue, and if you make a profit, they want to tax the profit as well, which makes it kind of tough. Most businesses don't usually face both front end and back end taxes. But in this particular case given that the amount is pretty small, 0.5%, and how those funds are then are distributed, we think we can live with this one.

Would you expect other states to look at this? I'm not sure I understand the rationale that seems like it hurts Kentucky residents and Kentucky tracks.

Appreciate your observation. I don't know what other states may choose to do.

Right. Okay. Thank you.

Thank you.

Our next question comes from Jeff Chrzanowski .

Hey, guys. How are you doing?

Good morning.

Good morning, another tax question, I don't know if you covered it. The situation down at Calder, can you give me some little bit of an update there, in terms of maybe a time line or whatever, when a resolution is going to hit?

Well, I would like to. Wish the gang could give me definitive update too. It's the vagaries of the political process. We are pleased to see that the issue of reducing the tax on the slot operations conducted by the pari-mutual operators might get separated from the compact, and dealt with separately. I thought that was a great way to deal wit. But as far as handicapping that one, I have no great insight. So hopefully it turns out the way we want. Thanks, guys. You are welcome.

(Operator Instructions).

I am not showing anybody queueing up for a question at this time.

All right. Well, listen, thank you all for joining us. As we done over the last couple of years we pushed the business a little bit more in the entertainment direction. Steve was talking early about HullabaLOU, and some of the other things we will do. But perhaps our biggest entertainment event comes up on Sunday, March 14th, when our Chief Operating Officer, who is sitting here with us, Bill Carstanjen takes the starring role in the CBS show, Undercover Boss. So if you don't have anything else to do on Sunday, March 14th, I believe at 9:00 PM Eastern Time, or even if you do have something better to do, stop doing that, sit down, turn on CBS and watch Bill on Undercover Boss. Thanks very much, look forward to talking to you next quarter. Good bye.

Ladies and gentlemen, this does concludes today's program. You may now disconnect, and have a wonderful day.