The owner of bookmaker TwinSpires will shutter its online sports betting business for consumers this year, citing concerns about the ability to make money in the industry’s currently hyper-competitive environment.
Kentucky-based Churchill Downs Inc. had “high hopes” about the potential of legal sports betting after the landmark 2018 Supreme Court decision that allowed for wagering to spread across the United States, CDI chief executive Bill Carstanjen said Thursday morning.
“However, the online sports betting and online casino space is highly competitive with an ever-increasing number of participants that the states have licensed,” the CEO added during the company’s fourth-quarter earnings call. “Many are pursuing maximum market share in every state with limited regard for short-term or potentially even long-term profitability.”
Since CDI doesn’t see this business model producing acceptable profit margins for at least several years, if ever, the company has decided to exit the online sports betting and internet-based casino gambling business it offers consumers over the next six months, Carstanjen said.
While the Kentucky Derby host will still operate retail sportsbooks that it says are profitable, CDI will try to sell market-access rights to other operators where appropriate. The company also remains committed to taking bets on horse racing via TwinSpires where allowable, according to Carstanjen.
Spending troubles
CDI's online sports betting ambitions appear to be a casualty of the frenzied customer-acquisition activity among operators in the U.S.
In that environment, companies have launched expensive marketing campaigns and made generous sign-up offers to bettors as they try to carve out market share for themselves. The chief executive officer of Bally's Corp., Lee Fenton, said during their latest earnings call on Thursday that operators are still engaged in “irrational spending.”
But the elevated expenses have made it tough to turn a profit by taking bets online, leading some bookmakers to actually start cutting back on spending. CDI’s decision shows a total shutdown is not off the table either.
“This isn't the result we wanted when we started this business back in late 2018,” Carstanjen said on Thursday. “But it is the prudent next step forward for our company.”
Carstanjen's comments came after CDI reported its final financial results for 2021, with the company booking a profit of $249.1 million for the year. The net income was well up from a loss of $81.9 million that CDI booked for 2020.
At the moment, the TwinSpires online sportsbook is available in just a handful of states, such as Arizona. However, in November, TwinSpires accounted for only about $1.5 million of the more than $466 million of legal sports wagering that took place in the state.
Churchill Downs said adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for its TwinSpires unit were down year-over-year, to $78 million for 2021 from $112.9 million for 2020.
“Adjusted EBITDA for 2021 decreased $34.9 million from the prior year due to a $27.1 million increase in the loss from Sports and Casino due to increased marketing and promotional activities and a $7.8 million decrease from Horse Racing primarily due to the decrease in net revenue,” the company noted in a release.
