Analysts: Churchill Downs' sale of Big Fish Games settles some q - WDRB 41 Louisville News

Analysts: Churchill Downs' sale of Big Fish Games settles some questions, raises others

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Louisville-based Churchill Downs Inc. is selling its biggest division, Big Fish Games. Louisville-based Churchill Downs Inc. is selling its biggest division, Big Fish Games.
Churchill Downs bought Seattle-based Big Fish Games in 2014. Churchill Downs bought Seattle-based Big Fish Games in 2014.

LOUISVILLE, Ky. (WDRB) --  Churchill Downs Inc.’s decision to sell its biggest division – social games operator Big Fish Games – streamlines the company’s business but also raises questions about how it will replace the profits that Big Fish generated, according to analysts who follow the company.

Churchill Downs said Wednesday evening that it would sell Seattle-based Big Fish for nearly $1 billion, only three years after Churchill Downs acquired the “freemium” games provider.

Churchill Downs executives once touted Big Fish as a “growth opportunity” to complement the company’s more mature businesses of horse racing, casinos and online wagering.

“It was so different than the rest of what Churchill Downs was,” said Adam Trivison, an analyst at New York-based Gabelli & Co.

Big Fish’s performance was “pretty choppy” following the 2014 acquisition, Trivison said in an interview Thursday.

While Churchill Downs earned a 14 percent return on the cash it invested in Big Fish, Trivison calculated, the pace of the division’s growth became a distracting issue for executives.

“It just dominated the conversation; it was just sucking all the air out of the room,” he said.

Still, Churchill Downs stands to lose more than 20 percent of its annual profits with the Big Fish sale, Hilliard Lyons analyst Jeffrey Thomison wrote in a memo to clients on Thursday.

While Churchill Downs’ other segments are more profitable, Big Fish is the company’s biggest component, having generated 37 percent of its $1.3 billion in revenue in 2016.

“We were a bit surprised by this development and consider the (earnings) reduction a significant issue to address,” Thomison said in the memo.

In his own note to clients, Trivison said the sale of Big Fish is an “unequivocal positive” because it “allows management to focus its attention and capital on, what we view as, more attractive parts of the business,” such as the Kentucky Derby.

In a press release Wednesday, Churchill Downs said it could use up to $500 million of the proceeds of sale to return cash to shareholders through stock buybacks. It also plans to double-down on its existing businesses.

“We will refocus our strategy on our core assets and capabilities including growing the Kentucky Derby, expanding the casino segment, TwinSpires.com and other forms of real money gaming, and maximizing our thoroughbred racing operation,” Churchill Downs CEO Bill Carstanjen said in the press release.

The $990 million sale of Big Fish to Australia’s Aristocrat Technologies, Inc. is expected to close early next year.

Reach reporter Chris Otts at 502-585-0822, cotts@wdrb.com, on Twitter or on Facebook. Copyright 2017 WDRB News. All rights reserved.

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