Churchill Downs Incorporated 2007 First-Quarter Conference Call Transcript

Operator

Good day, ladies and gentlemen, and welcome to the first quarter 2007 Churchill Downs Incorporated conference call. My name is Shanique, and I will be your conference coordinator for today.

I would now like to turn the presentation over to your host for today's conference call, Ms. Julie Koenig Loignon, vice president of communications. Please proceed.

Julie Koenig Loignon - Churchill Downs Incorporated - Vice President of Communications

Thank you. Good morning, and welcome to this Churchill Downs Incorporated conference call to review the Company's results for the first quarter of 2007. 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 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 at the section of the Company's Web site titled “Company News” located at www.churchilldownsincorporated.com. Let me also note that a news release was issued advising of the accessibility of this conference call on a listen-only basis via 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 the Company may differ materially from what is projected in such forward-looking statements. Investors should refer to statements included in reports filed by the Company with the Securities and Exchange Commission for discussion of additional information concerning factors that could cause our 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.

Today, in addition to President and CEO Bob Evans, and Principal Financial Officer Mike Anderson, Executive Vice President and Chief Development Officer Bill Carstanjen, and Executive Vice President of Technology Initiatives Vernon Niven, have joined us today to respond to questions that arise in the question and answer portion of today's teleconference. Bill is a member of the board directors of TrackNet Media Group LLC and Vernon is also President of our account-wagering company, TwinSpires. I will now turn the call over to Bob Evans, our president and CEO.

Bob Evans - Churchill Downs Incorporated – President and CEO

Thanks, Julie. That's always my favorite part. Good morning everybody, thank you for joining us today.

I hope you had the chance to read through our financial reports for the first quarter. Net revenue from continuing operations was up about 32 percent year over year due primarily to our Louisiana Operations, where we raced 57 days at Fair Grounds Race Course in 2007, versus 12 days in 2006, which was during our temporary meet at Harrah's Louisiana Downs, and also where we reopened our OTBs at Metairie and Kenner. I'd note that net revenue was up despite a $1 million decline in year-over-year revenue at Calder, where we conducted 20 days of simulcasting in 2006, but did not this year as that matter is now in the courts in Florida.

Operating expense from continuing operations increased about 23 percent, due primarily to the additional expense of running a full meet at Fair Grounds. G&A expenses from continuing operations dropped by approximately 8 percent year over year as the effect of our corporate staff downsizing and expense reductions in 2006 was reflected in our results.

Finally, we reported a 20-percent improvement in EBITDA from continuing operations. On a diluted-per-common-share basis, EPS at negative $0.61 was $0.18 better than last year, and $0.13 better on a continuing operations basis. Needless to say, we're very pleased with these results, and we'd have to go back to 1999 to find a quarter that was this strong. I know that the Company was much different then. It consisted of Churchill Downs racetrack, Ellis Park and Hoosier Park. Hollywood Park had yet to be acquired, as did Fair Grounds or Calder Race Course. So it was a much different business back then and we had to go back seven years to find a quarter this good.

Now while the financials look good, I think the most important thing about the first quarter is that it marks the point in time where we pretty much have put the business back together in the form in which we want to take it forward. A significant amount of time has been spent in the last two years rebuilding our facilities, and restructuring our business. Just a couple of illustrations: We've now fully recovered from the hurricanes that significantly damaged Calder and Fair Grounds, and all but one of our OTBs in Louisiana is now reopened. We're working on the temporary slots operation there, where we expect to have 225 slot machines in operation this fall, and we are proceeding with the planning phase of the construction of the permanent slot machine gaming facility where we expect to have up to 700 slot machines operating by the fall of 2008. We have realized most of the gains from insurance proceeds, net of losses, that we'll receive as a result of the natural disasters we experienced at Calder and Fair Grounds back in 2005.

There are still a few million dollars of business interruption claims outstanding that are being negotiated. We've closed the sales of both Ellis Park and Hoosier Park, and we have replaced the racing surface at Arlington Park with a synthetic surface known as Polytrack. Arlington’s meet is now underway and off to a very encouraging start. But I would caution you here that they have only raced three days so far, so it's probably far too early to draw any overall conclusions.

We've recaptured the video and account wagering rights to Churchill Downs’ and Fair Grounds’ races, and we have formed TrackNet Media Group with Magna Entertainment Corp. to improve the distribution of those rights in both the simulcast and account wagering markets. We recapture these rights to Arlington Park's races this summer and to Calder's races before their 2008 spring racing season begins in April of next year.

We've taken a 50 percent interest in HRTV, Horse Racing Television, which ensures that our races will be available via television going forward, and we've built and launched just last week our account wagering platform, Twinspires.com. To put this all another way, we've repaired and reopened the physical assets that we want to keep, we've sold the physical assets that don't fit our strategic plan, we've created some important new intangible assets with respect to the wagering and video rights to and the online distribution of our races, and we've largely rebuilt a smaller core leadership team that we need to pursue growth. In short, we are ready to move forward.

Now a bit on the Kentucky Oaks and Kentucky Derby (this year being my first). The weather gods were not kind to us this past Derby weekend. It rained pretty much nonstop on Thursday, and on Oaks Day on Friday, and rain was threatened in the forecast until late morning on Derby Day on Saturday. Friday and Saturday attendance was down a collective 3.3 percent over 2006, primarily from our general admission patrons. Oaks attendance was clearly affected by the rainy weather, down 7.4 percent on Friday. Derby attendance at 156,635 was 901 people short of last year's level, and the third-highest attendance in Derby history. Total combined Derby and Oaks Day handle was off 3.2 percent from 2006. Oaks Day handle at $33.6 million was up 1.5 percent from the 2006 level and set a new record. Derby Day handle at $168 million was off 4.1 percent from 2006, but was still the second highest ever. If you want some additional information on attendance and wagering at this year's Kentucky Derby and Oaks you can find that in the press releases that we issued over this past weekend.

NBC Sports coverage of the Kentucky Derby was seen this year by 13.8 million viewers, up 7 percent from the 2006 telecast. We tried a couple of new things at this year's Derby, including a 30-minute Red Carpet show that preceded the 90-minute traditional Derby telecast. The Red Carpet Show garnered a 3.2 overnight rating and an 8 share, which are very respectable numbers for a first-time program. And we believe the Red Carpet Show strengthened the rating of the 90- minute Derby broadcast that followed.

We also introduced and had a bit of fun with a text message game called "Lucky U" in which NBC viewers could win $10,000 and a trip to the 2008 Derby by texting the horse they thought would win the Derby and being chosen through a random drawing. Over 50,000 people entered by sending a text message and another 40,000 did so by NBCsports.com. This promotion aired four times during the Derby telecast, and the response level doubled each time the promotion aired. Things like this, the Derby Red Carpet Show and the Lucky U text-messaging game that we think are ways not the only ways but ways in which we can expose Thoroughbred racing and the Derby to new fans.

As most of you know we launched Twinspires.com on May 2. To say the least, customer response has been literally overwhelming. While our online sign up process worked as expected, we clearly were not fully prepared for the number of people who wanted to open twinspires.com accounts via telephone. We were buried. Despite, at times, ridiculous and unacceptably lengthy delays of people waiting on hold, still approximately 9,500 customers established and funded twinspires.com accounts in only three days. I really can't say enough about the level of effort that our twinspires.com team in Mountain View, Calif., our supporting corporate staff, the team at Churchill Downs racetrack who answered literally thousands of calls about our new ADW site last week, and our many business partners who put forward over a very short period of time to achieve this result. Our sincere thank you to all of you.

Finally, as we look to the remainder of this year, there are five primary areas of strategic focus. First, we plan to improve the quality of our racing and wagering products. Not that we enjoyed the reminder, but the unusually short fields in four of our Derby Day and Oaks races clearly cost us handle and taught us a lesson that the quality of racing matters. Secondly, we have the intent here of establishing Churchill Downs as the best distribution network in the business, be that our on track distribution and OTBs and simulcast facilities or through the Internet. Third, we plan to enhance entertainment value of our business. The Kentucky Derby Red Carpet Show and the Lucky U text-messaging game were just two examples of how we might achieve that objective. Fourth, we plan to better monetize our intangible assets such as our brands and licensing rights and create new ones. And fifth, we will continue to redefine our operating model to improve our customer service performance and reduce our cost structure relative to revenue. You can find more details on these five points in our recently released annual report to shareholders.

And one last note, we continue with our CFO search, the search firm that we are using, Heidrick & Struggles, have presented a number of exceptional candidates and it seems likely to me that we will conclude this process some time over the next several months.

Now let me turn this over to Mike Anderson, our principal financial officer. He'll cover our first quarter results in more detail and then we'll be happy to take your questions. Mike?

Mike Anderson - Churchill Downs Incorporated - Principal Financial Officer

Great. Thank you, Bob, and good morning everyone. I will be reviewing the information as set forth in the tables to the press release that can be found under the “Company News” section that Julie referred to earlier, which is on our Web site, www.churchilldownsincorporated.com. And then, as Bob mentioned, following my comments we will open up for a Q&A, in which we'll try to answer your questions.

Let's begin by first reviewing the segment information, which is contained on the schedule that is titled “Supplemental Information by Operating Units” in the release. We start off by pointing out first that, due to the sale of Hoosier Park during the first quarter of 2007 and the sale of Ellis Park during the third quarter of 2006, the results of operations for those units now fall under the discontinued operations line item. Additionally, beginning this quarter you will no longer see the separate business unit titled “CDSN,” or Churchill Downs Simulcast Network, which was the former marketing and sales unit that focused on selling our export simulcast product. This sales function is now being handled by TrackNet Media Group LLC, which is the new venture that Bob refer to that we formed with Magna Entertainment during the first quarter. As such, all of the simulcast export revenues that previously were recognized by the CDSN business unit will again show up at the racetrack level including the prior period in 2006 that had been restated to reflect that.

Now, starting at the net revenues line on that schedule at the top, Arlington Park showed revenue growth during the quarter, primarily as a result of being designated as the host track in Illinois for eight additional days during the quarter versus last year. As you may recall, the Illinois Racing Board each year designates a Thoroughbred “host track” during January and February when traditionally there is no live racing in Illinois. And this designation allows the host track to collects certain simulcast fees during that time.

For Calder, net revenues decreased in the quarter, due to the simulcast operations that we enjoyed during January 2006 for 20 days, before the Florida courts ordered us to stop last year in response to a challenge of such simulcasting activities. And again, as Bob mentioned, this issue still remains in the hands of the Florida court system.

In Louisiana, net revenues jumped $12.6 million over 2006 levels, primarily the result of our reopening of the New Orleans track, and nine OTB facilities. After Hurricane Katrina we were only able to run 12 live race days in 2006, and even then had to run it at Harrah's Louisiana Downs, which is a host site far removed from our traditional home market in New Orleans. After our traditional Thanksgiving Day opening resumed last November, we enjoyed a successful traditional 80-day meet, which ran through mid March. So with 45 more live race days in the first quarter, having a full quarter of simulcast and video poker operations, which we didn't get to enjoy a full quarter of last year, and continued strong video poker performance, we regained our first quarter revenue stream and at even a higher level than we enjoyed in 2005 with the Louisiana operations before Katrina. Total net revenues from continuing operations grew nearly 33 percent over first-quarter levels last year, again driven by Louisiana operational performance.

Now down at the EBITDA level towards the bottom of that page, Churchill Downs Racetrack reduced its first quarter EBITDA loss thanks to some utility savings during the warmer than normal January, marketing expense savings, and some unfilled positions during the first quarter. Calder's EBITDA loss was reduced as well during the first quarter. Calder received a $784,000 final insurance settlement for property damage resulting from Hurricane Wilma in 2005. Additionally, lower insurance costs from better workers’ compensation experience also helped to offset the loss of simulcast revenues that we enjoyed in January 2006. Louisiana Operations, as we mentioned, with its revenue growth enjoyed 45 more live race days and a traditional live race meet in New Orleans, which includes ancillary revenues such as admissions, food and beverage and other revenues at the track that we didn't enjoy last year. And also two of our OTBs and video poker operations were not up for a full quarter in 2006, so we benefited from having the additional OTBs in service in 2007 as well.

The other investments category include the start-up costs for our new ADW platform, Twinspires.com, which was launched last week as Bob mentioned, as well as our investment in Racing World in the United Kingdom, which now features programming from HRTV, the U.S. horse racing television network, owned jointly by the Company and Magna Entertainment. Corporate EBITDA likewise enjoy improvement in the first quarter due to the personnel changes in late 2006, as well as a reduction in marketing expenses during the quarter.

Now if you would, please turn to the table that is titled “Condensed Consolidated Statements and Net Loss” or the traditional income statement. And again, as I just mentioned, we grew total net revenues from continuing operations by nearly 33 percent or roughly $11.7 million for the quarter. Our gross loss was reduced from $6.6 million to $5.1 million again due primarily to the strong performances of the Louisiana Operations, as well as some expense reductions. Also keep in mind that our operations absorbed increased property insurance expenses that followed the hurricane season of 2005, specifically at Calder and in Louisiana and didn't fully hit our income statement until our insurance renewal on March 1, 2006.

Below the gross loss level SG&A expenses were reduced by 8.7 percent, again driven by our corporate expense reduction efforts in 2006 and reduced corporate costs as it related to the search for a new chief executive officer last year. Insurance recoveries, net of losses of $784,000, as I just mentioned, relate to the final proceeds received from Hurricane Wilma damages versus $997,000 in 2006, which relate to net interest proceeds received for both Louisiana and Florida operations for hurricanes Katrina and Wilma. As it relates to 2005 property losses in Florida and Louisiana, we have received all the insurance proceeds for the property damage portion of our claim. And again as Bob mentioned we do have some outstanding business interruption claims as it relates to Hurricane Katrina in New Orleans, and we continue to negotiate with our insurance carriers on that.

Our effective income tax benefit rate from continuing operations maintained relatively flat at approximately 38.8 percent. Our net loss from continuing operations improved from a $9.9 million loss to an $8.4 million net loss, a $1.5 million improvement to our bottom line. Our fully diluted earnings per share from continuing operations for the quarter likewise improved by $0.13, down to a $0.63 loss per diluted share. And our total diluted EPS, including discontinued operations improved by $0.18 down to a $0.61 loss per diluted share.

And the last schedule, if you turn your attention to the schedule titled “Condensed Consolidated Balances,” I'll briefly review some changes here. Of the $27 million in cash and cash equivalents, approximately $21 million is invested in money market funds or other short-term investments. Our restricted cash balance is down due to the payout of purses at the Fair Grounds during the first quarter with their meet ending in mid March. Our accounts receivable balance dropped significantly since year end because of the continued collection of Kentucky Derby billings, and live meet settlements throughout the quarter. Both assets held for sale and liabilities associated with assets held for sale at year-end relate to Hoosier Park and are now off our balance sheet at the end of the quarter, which coincides with our March 30 sale of Hoosier Park.

Down to the “Liabilities” section, accounts payable, purses payable and accrued expenses all decreased during the quarter due to the wind up of the Fair Grounds meet and the continued settlement of simulcast-related payables from the fall live race meets. Dividends payable were paid out in January of this year in the first quarter. Deferred revenues increased since December as a result of additional first-quarter billings of Kentucky Derby-related and live race meet memberships at Churchill Downs that will be recognized as revenues in the second, third and fourth quarters. At March 31, 2007, there were no outstanding borrowings under our $200 million bank revolver. The entire balance of our long-term debt on the balance sheet here represents the convertible notes that we issued in 2004 in connection with a share repurchase. Also, I will note that on May 2, last week, we just amended our bank revolver by reducing the overall commitment size from $200 million down to $120 million, and decreased the overall cost of borrowings and commitment fees in doing so.

Now in closing, overall, as Bob mentioned, we're very pleased with our first quarter performance. The Louisiana Operations, which include the live meet in New Orleans, rebounded strongly after over a year of rebuilding efforts. And we continue to be pleased with our video poker results as well. And now, certainly coming off the post-Derby high, when initial results last week didn't seem encouraging, even considering the bad weather on Kentucky Oaks day, and the smaller field sizes on a few races on Kentucky Derby Day, we still continue to analyze the results of Oaks and Derby, as well as the opening days and weeks of our live race meets that have just begun at Churchill Downs, Calder, and at Arlington. And we also continue to improve our already rock solid balance sheet with more invested cash and no bank debt to put us in a great position to effectively deploy our capital towards new growth initiatives. With that, now I'll turn it back over to the operator to field some of your questions.

Operator

Our first question comes from the line of Tim Rice, with Rice Voelker. Please proceed.

Tim Rice - Rice Voelker - Analyst

Good morning. I was wondering if you could give some clarification to the strategy involved with the signal and the effort to get TVG to cooperate on widening distribution for the signals for everyone. I'm a little bit lost as to what the endgame is here.

Bob Evans - Churchill Downs Incorporated – President and CEO

All right. Tim, this is Bob. Let me take a quick shot at it. If that isn't enough depth, ask again and I will go deeper. Our end game is, as we've said all along, is that we want every account-wagering platform, including TVG, Youbet, the whole gang, we want every account-wagering platform to have access to the wagering rights from all races at all tracks, at whatever prices can be negotiated between the tracks, the platforms and with the approval of the relevant horsemen's associations in each of those states. So that's where we want to end up. The reason we want to end up there is I think that gives us the broadest distribution as an industry, and it also creates sort of fair and balanced competition between those account-wagering platforms and that competition is what will drive innovation. Innovation is how we are going to have to go out and get new customers to come and play this game of Thoroughbred horse racing. So that's the game.

The path to that end, there's sort of nothing we could do about it at this point. There are two ways we will get to the end game that I just described. One is that TVG will decide that they want to make the content that they control exclusively available to all platforms. We have sent them a number of proposals on that front and have not heard back from them in any substantive form. And secondly, eventually their exclusive contracts will end with various tracks, and we hope those tracks will see the merit of the model that I have just described and will elect to make their content available to all ADW platforms on a nonexclusive basis. So that's the plan.

Tim Rice - Rice Voelker - Analyst

What it seems to me is the only ones of any consequence here that they possess are Keeneland, Del Mar and NYRA and obviously the NYRA situation could change dramatically in the very near term? Do you know what kind of timing TVG’s exclusivity with Del Mar and Keeneland involves and what kind of shot you guys would have at that when it does expire?

Bob Evans - Churchill Downs Incorporated – President and CEO

Well, of course we know exactly when those contracts expire, but it's not up to us to disclose that information. So I'd direct that question to someone else other than us. No, I don't see a scenario under which any track wouldn't want to make their content available on a non-exclusive basis. We are not saying a track has to use HRTV if they want to continue to put their races on TVG television, go for it; we're fine with that. We just believe that the wagering rights should be available to all ADW platforms, and then let's all go out and compete and try to attract customers to our business.

Tim Rice - Rice Voelker - Analyst

Fair enough.

Operator

Our next question comes from the line of Steve Wisnefski with Stifel, Nicolaus & Co. Please proceed.

Steven Wisnefski - Stifel, Nicolaus & Co. - Analyst

Thank you. 'Morning guys.

Bob Evans - Churchill Downs Incorporated – President and CEO

Good morning.

Steven Wisnefski - Stifel, Nicolaus & Co. - Analyst

Two quick questions for you: First, do you guys think you might have rushed getting TwinSpires out there a little too quickly? We've heard over the past couple days that you know you talked about the phone lines, but we've heard feedback in terms of people on the trying to get on the Internet. It seems like a lot of people got error messages trying to get in and it seemed like the system was overwhelmed. So do you think you maybe rushed a little too quickly, and if so, what you think the financial impact if you could kind of quantify how many people maybe you lost out in terms of not being able to get on?

Bob Evans - Churchill Downs Incorporated – President and CEO

Steve, let me toss this one to Vernon Niven who's here. He's been sleeping, or not sleeping on this matter for the last couple of weeks. Vernon?

Steven Wisnefski - Stifel, Nicolaus & Co. - Analyst

All right, sure.

Vernon Niven - Churchill Downs Incorporated - Executive Vice President, Technology Initiatives

Sure. Hi, this is Vernon Niven. I think it's fair to say that spending roughly 120 days total, from the time we started to talk to vendors to going online is probably a world record in this business. And, I fully admit there were some issues online that caused customers frustration. We know what those issues are, we know that they were not very widespread online. The biggest -- by far the biggest -- issue we had was the help desk queue. We fixed the problems with that. The main thing we experienced, really, was we did not expect so many people to want to register over the telephone, as Bob mentioned earlier, and that caused a whole lot of people to be frustrated by waiting in line behind other people.

Outside of that, the system performed flawlessly as far as wagering. We had no integrity issues whatsoever, and we added almost 10,000 accounts in four days, processed 100,000 transactions with no issues. So from that standpoint the system integrity was perfect, and we're happy with that. That said, we are gathering, or we have gathered, all of our e-mail, all of the feedback from the help desk. We've got hundreds of ideas for improving the site, and we are rapidly working on the site to improve it in time for the Preakness Stakes. So stay tuned.

Steven Wisnefski - Stifel, Nicolaus & Co. - Analyst

Okay, great. Thanks. And then second question. Bob or Mike, in terms of the liquidity of your shares, you talked about this in the past in terms of trying to improve that. Is that something that is still on the radar screen for you guys? And if so, what steps are you kind of looking at to improve that?

Bob Evans - Churchill Downs Incorporated – President and CEO

Yes I understand the issue completely, so I would share your perspective on that. We are not doing anything at the moment. We've got a lot of other things going on. But I do believe that's an issue we will have to come back and address some point in the future. But to be honest, it's not something in our short-term…three-, six-month…kind of time frame.

Steven Wisnefski - Stifel, Nicolaus & Co. - Analyst

Got you. Okay guys, thanks a lot.

Bob Evans - Churchill Downs Incorporated – President and CEO

Thank you.

Operator

Our next question comes from the line of Steve Altebrando, with Sidoti & Company. Please proceed.

Steve Altebrando - Sidoti & Company - Analyst

I just want to could you guys give a little more color how, with the new distribution strategy, how that's going to impact financials over the next couple quarters, and longer term as well? Where you see that going in 2008?

Bob Evans - Churchill Downs Incorporated – President and CEO

Well, Steve, Bob here again. We don't give guidance, and I'm not going to get in the business of forecasting, but let me see if I can explain the past. I will use the Kentucky Derby and Oaks weekend as my example, and maybe that will give you some insight.

If you look at the change in handle that occurred around Oaks and Derby, the first thing I'd observe is that there was some systemic problem in this. You know, Oaks set a new record; Derby went down a little bit from last year, which was the previous record. So if there was some systemic problem, we'd have seen the same around handle we would've seen the same results at Oaks and Derby and we didn't. One was up and one was down.

The big issue was field-size problems, what we would call the quality of our racing. So there were 23 races on Oaks and Derby Day. On 10 of those races, field sizes were down and the handle on those races compared to the same races in 2006 was down $7.5 million. If you want to look a little bit more closely at that, there were four races that really killed us, one on Oaks Day, where we were down three starters compared to last year, and three on Derby Day – one in which we were down three starters and the other two races unbelievably down four starters compared to last year. And these are not cheap races, by the way. These are races with multi-hundred thousand dollars purses. So we're not running for $5,000 claiming tags here. We're running for the real deal. Those four races, one on Oaks and three on Derby, cost us $6 million of handle, which explains almost the complete difference between 2006 and 2007 combined Oaks and Derby handle.

The other question in here that we've been watching carefully is account-wagering handle. So as you guys are aware, TVG and Youbet were unable to reach agreement with TrackNet Media and, therefore, their customers were not able to place wagers on this year's Oaks and Derby. Last year, 2006, those two platforms did about $11 to $12 million on Oaks and Derby. This year, of course, that was zero. However, if you look at AmericaTAB, XpressBet and TwinSpires, their handle increased from 2006 to 2007 by $6.2 million. So roughly speaking, of the $11 or $12 million we lost, we replaced $6 million or $7 million -- or about 55 percent of that.

But here's the rest of the story, as Paul Harvey would say. Everybody makes the mistake of equating handle to revenue if you're a track, and equating handle to purse if you're the horsemen. Now, what has changed here dramatically since last year is that the handle that we gave up was at much lower host fee rates then the handle that we got this year. And to give you the numbers, actually, for Oaks and Derby our effective host fee rate last year was 5.49 percent -- that's the rate at which handle converts to revenue and purses. This year was 8.25 percent, a 50% increase. So despite the $5 million or so reduction in account-wagering handle that occurred, the total effect, Oaks and Derby, on our revenue and on horsemen's purses was only down by $10,599 each day. So I would caution people not just look at the handle numbers, but to understand how handle converts to revenue if you're a track, and how handle converts to purses if you're a horseman.

This is why I'm confident that as other tracks consider how they want to distribute their account- wagering rights in the future, they're going to find this economic model, not to mention the broader distribution, attractive when they get control of their signal.

Steve Altebrando - Sidoti & Company - Analyst

Okay, thank you. I was also kind of alluding a bit more towards start-up costs, the impact of the loss on HRTV, where you see that going. I mean, you're starting the ADW here. I would imagine we should be prepared to see some additional costs someplace, or are these being capitalized and it won't have much of an impact near term?

And then on HRTV, the loss you'll now be sharing and I guess how you see that improving going forward? Whether increasing advertising is the key to diminishing that loss and if you think Churchill's content will improve that factor?

Bob Evans - Churchill Downs Incorporated – President and CEO

Yeah.

Steve Altebrando - Sidoti & Company - Analyst

Cost side, mainly, is what I'm thinking.

Bob Evans - Churchill Downs Incorporated – President and CEO

While I would love to answer all those in detail we're not going to do that. Let me just reference one thing. If you look at the EBITDA statement, or more precisely referred to as the supplemental information of our operating unit, under the EBITDA block at the bottom are Twinspire.com's costs and revenues are included in the other investment line. We launched it a few weeks ago, first of May, give or take a couple days, so you can look at those numbers and get some sense of what we're spending on that.

Steve Altebrando - Sidoti & Company - Analyst

So pretty minimal.

Bob Evans - Churchill Downs Incorporated – President and CEO

That's your characterization, but I don't share that.

Steve Altebrando - Sidoti & Company - Analyst

Mike, could you give a just an update on capital expenditures for 2007? I think last time you hadn't had an estimate yet for the backstretch improvements, I think it was at the Churchill property?

Mike Anderson - Churchill Downs Incorporated - Principal Financial Officer

Right. We continue to maintain a $15 million to $20 million run rate for maintenance type capital expenditure. This year keep in mind that we've had some extraordinary capital items and we will continue to have some this year. We added two dormitories, one in Chicago or Arlington Heights that we've finished in April, and a dormitory that we are currently building from our statutory requirements down there with the horsemen, to complete a dormitory down in New Orleans. We have also invested roughly $11 million towards the installation of the Polytrack at Arlington Park, and as we've mentioned in earlier calls we are beginning to build out as a temporary slot facility at our existing buildings in New Orleans, as well as beginning, concurrently, the construction of a permanent stand alone facility for slot machines that will open in 2008. The temporary facility should be up and running by October of this year. So, $15 million to $20 million maintenance capital expenditure, and then those extraordinary items that will pop up throughout the year with Polytrack, the two new dorms and the slots facilities later this year.

Steve Altebrando - Sidoti & Company - Analyst

Do you have just a very rough estimate of the capital expenditure for the dormitories? Are we talking a couple million, $10 million?

Mike Anderson - Churchill Downs Incorporated - Principal Financial Officer

It's roughly $3 million to $4 million.

Steve Altebrando - Sidoti & Company - Analyst

Okay, okay. Just the last question I have on HRTV. I asked this earlier but I had several at one time but I guess how what ideas do you have as far as improving financial results for that station? Is a matter of your thinking adding content will improve advertising revenue? What you're looking at to improve that segment?

Bob Evans - Churchill Downs Incorporated – President and CEO

Steve, this is Bob. We have what I would call very preliminary plans on this front. We haven't really developed those to the point where I believe, if we execute will get the results. I would say we're still formulating how to better improve the economics of HRTV. And we're doing this with Magna Entertainment, right? So we're just a 50 percent owner.

Steve Altebrando - Sidoti & Company - Analyst

All right, thanks a lot.

Bob Evans - Churchill Downs Incorporated – President and CEO

Thank you.

Operator

There are no additional questions at this time.

Bob Evans - Churchill Downs Incorporated – President and CEO

All right, well, listen. Thanks very much for joining us. Hopefully you watched the Kentucky Derby over the weekend and had a good time. The Queen was here, she seemed to be extremely happy with the affairs and I look forward to talking to all of you in about three more months. Thanks again.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.