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Segment Information
 9 Months Ended
Sep. 30, 2016
Segment Reporting [Abstract]  
Segment Information
NOTE 12 — SEGMENT INFORMATION
We manage our operations through six operating segments:
•
Racing, which includes Churchill Downs Racetrack ("Churchill Downs"), Arlington International Race Course ("Arlington"), Fair Grounds Race Course ("Fair Grounds") and Calder Race Course ("Calder");
•
Casinos, which includes Oxford Casino ("Oxford"), Riverwalk Casino ("Riverwalk"), Harlow's Casino ("Harlow’s"), Calder Casino, Fair Grounds Slots, Video Services, LLC ("VSI"), 50% of EBITDA from our joint venture, MVG, and 25% of EBITDA from our equity investment, SCH;
•
TwinSpires, which includes TwinSpires.com, Fair Grounds Account Wagering ("FAW"), Velocity, Bloodstock Research Information Services ("BRIS"), Bluff and I-Gaming;
•
Big Fish Games, which is a global producer and distributor of social casino, casual and mid-core free-to-play, and premium paid games for PC, Mac and mobile devices;
•
Other Investments, which includes United Tote and Capital View Casino & Resort Joint Venture ("Capital View"); and
•
Corporate, which includes miscellaneous and other revenue, compensation expense, professional fees and other general and administrative expense not allocated to our other operating segments.
Eliminations include the elimination of intersegment transactions. Our chief operating decision maker utilizes Adjusted EBITDA to evaluate segment performance, develop strategy and allocate resources. Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization, adjusted for the following:
Adjusted EBITDA includes:
•
Changes in Big Fish Games deferred revenue;
•
50% of EBITDA of our joint venture, MVG;
•
25% of EBITDA from our SCH equity investment; and
•
Intercompany revenue and expense totals that are eliminated in the Condensed Consolidated Statements of Comprehensive Income.
Adjusted EBITDA excludes:
•
Big Fish Games adjustments which include:
◦
Acquisition-related charges, including the change in fair value of the Big Fish Games earnout and deferred consideration liability recorded each reporting period
•
Stock-based compensation expense;
•
Calder exit costs; and
•
Other charges and recoveries.
As of January 1, 2016, we modified our definition of Adjusted EBITDA to exclude depreciation and amortization from our 50% joint venture, MVG and our 25% equity investment in SCH. The prior year amounts were reclassified to conform to this presentation. We also prospectively implemented a change in accounting estimate for corporate expense allocated to other operating segments to use an activity based allocation rather than a revenue based allocation.
We utilize the Adjusted EBITDA metric because we believe the inclusion or exclusion of certain recurring items is necessary to provide a more accurate measure of our core operating results and enables management and investors to evaluate and compare from period to period our operating performance in a meaningful and consistent manner. Adjusted EBITDA should not be considered as an alternative to operating income as an indicator of performance, as an alternative to cash flows from operating activities as a measure of liquidity, or as an alternative to any other measure provided in accordance with U.S. generally accepted accounting principles. Our calculation of Adjusted EBITDA may be different from the calculation used by other companies and, therefore, comparability may be limited.
The tables below present net revenue from external customers and intercompany revenue from each of our operating segments, Adjusted EBITDA by segment and reconciles Adjusted EBITDA to Comprehensive Income:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in millions)
2016
 
2015
 
2016
 
2015
Net revenue from external customers:
 
 
 
 
 
 
 
Racing:
 
 
 
 
 
 
 
Churchill Downs
$
8.7

 
$
7.9

 
$
140.1

 
$
136.7

Arlington
24.0

 
25.0

 
49.8

 
48.9

Fair Grounds
5.1

 
5.3

 
28.9

 
30.4

Calder
0.7

 
0.6

 
2.0

 
2.0

Total Racing
38.5

 
38.8

 
220.8

 
218.0

Casinos:
 
 
 
 
 
 
 
Oxford Casino
24.4

 
22.3

 
65.4

 
60.8

Riverwalk Casino
10.6

 
12.0

 
35.7

 
37.7

Harlow’s Casino
11.7

 
11.8

 
36.6

 
37.5

Calder Casino
19.0

 
18.5

 
59.8

 
58.7

Fair Grounds Slots
8.5

 
8.8

 
27.9

 
29.9

VSI
8.6

 
9.0

 
27.9

 
27.6

Saratoga
0.2

 
0.3

 
0.6

 
0.3

Total Casinos
83.0

 
82.7

 
253.9

 
252.5

TwinSpires
54.7

 
50.4

 
172.3

 
156.5

Big Fish Games:
 
 
 
 
 
 
 
Social casino
44.3

 
47.4

 
138.3

 
145.4

Casual and mid-core free-to-play
56.1

 
32.6

 
162.5

 
86.5

Premium
23.7

 
27.3

 
75.0

 
85.6

Fair value adjustments
(1.8
)
 
(3.7
)
 
(6.2
)
 
(17.5
)
Total Big Fish Games
122.3

 
103.6

 
369.6

 
300.0

Other Investments
4.5

 
4.0

 
12.9

 
12.1

Corporate
0.4

 
0.3

 
0.8

 
0.8

Net revenue from external customers
$
303.4

 
$
279.8

 
$
1,030.3

 
$
939.9


 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in millions)
2016
 
2015
 
2016
 
2015
Intercompany net revenue:
 
 
 
 
 
 
 
Racing:
 
 
 
 
 
 
 
Churchill Downs
$
0.9

 
$
0.7

 
$
8.2

 
$
6.3

Arlington
1.9

 
1.7

 
4.5

 
4.1

Fair Grounds
—

 
—

 
1.0

 
0.9

Total Racing
2.8

 
2.4

 
13.7

 
11.3

TwinSpires
0.4

 
0.3

 
1.0

 
0.8

Other Investments
0.7

 
0.8

 
3.0

 
2.7

Eliminations
(3.9
)
 
(3.5
)
 
(17.7
)
 
(14.8
)
Intercompany net revenue
$
—

 
$
—

 
$
—

 
$
—


Adjusted EBITDA by segment is comprised of the following:
 
Three Months Ended September 30, 2016
(in millions)
Racing
 
Casinos
 
TwinSpires
 
Big Fish
Games
 
Other Investments
 
Corporate
Net revenue
$
41.3

 
$
83.0

 
$
55.1

 
$
122.3

 
$
5.2

 
$
0.4

 
 
 
 
 
 
 
 
 
 
 
 
Taxes & purses
(11.2
)
 
(28.1
)
 
(4.0
)
 
—

 
—

 
—

Platform & development fees
—

 
—

 
—

 
(45.2
)
 
—

 
—

Marketing & advertising
(1.1
)
 
(3.0
)
 
(1.0
)
 
(26.3
)
 
—

 
—

Salaries & benefits
(10.3
)
 
(13.4
)
 
(2.3
)
 
(6.2
)
 
(2.7
)
 
—

Content expense
(3.9
)
 
—

 
(26.0
)
 
—

 
—

 
—

SG&A expense
(4.0
)
 
(5.4
)
 
(3.0
)
 
(4.4
)
 
(0.9
)
 
(2.2
)
Research & development
—

 
—

 
—

 
(8.8
)
 
—

 
—

Other operating expense
(10.5
)
 
(10.0
)
 
(4.5
)
 
(3.9
)
 
(0.9
)
 
(0.2
)
Other income (expense)
0.1

 
7.3

 
—

 
(0.3
)
 
0.1

 
—

Change in deferred revenue(1)
n/a

 
n/a

 
n/a

 
(3.8
)
 
n/a

 
n/a

 
 
 
 
 
 
 
 
 
 
 
 
Total segment Adjusted EBITDA
$
0.4

 
$
30.4

 
$
14.3

 
$
23.4

 
$
0.8

 
$
(2.0
)

 
Three Months Ended September 30, 2015
(in millions)
Racing
 
Casinos
 
TwinSpires
 
Big Fish
Games
 
Other Investments
 
Corporate
Net revenue
$
41.2

 
$
82.7

 
$
50.7

 
$
103.6

 
$
4.8

 
$
0.3

 
 
 
 
 
 
 
 
 
 
 
 
Taxes & purses
(11.2
)
 
(27.5
)
 
(3.6
)
 
—

 
—

 
—

Platform & development fees
—

 
—

 
—

 
(36.1
)
 
—

 
—

Marketing & advertising
(1.1
)
 
(3.2
)
 
(0.7
)
 
(21.9
)
 
—

 
—

Salaries & benefits
(9.5
)
 
(12.8
)
 
(2.6
)
 
(5.4
)
 
(2.8
)
 
—

Content expense
(3.6
)
 
—

 
(23.6
)
 
—

 
—

 
—

SG&A expense
(4.3
)
 
(6.9
)
 
(3.1
)
 
(3.8
)
 
(0.7
)
 
(1.7
)
Research & development
—

 
—

 
—

 
(9.9
)
 
—

 
—

Other operating expense
(11.4
)
 
(10.0
)
 
(4.2
)
 
(3.9
)
 
(0.8
)
 
(0.2
)
Other income (expense)
0.2

 
4.4

 
0.2

 
(0.3
)
 
—

 
—

Change in deferred revenue(1)
n/a

 
n/a

 
n/a

 
10.9

 
n/a

 
n/a

 
 
 
 
 
 
 
 
 
 
 
 
Total segment Adjusted EBITDA
$
0.3


$
26.7

 
$
13.1

 
$
33.2

 
$
0.5


$
(1.6
)
 
 
 
 
 
 
 
 
 
 
 
 
(1) Change in deferred revenue is included in Adjusted EBITDA only for Big Fish Games.

 
Nine Months Ended September 30, 2016
(in millions)
Racing
 
Casinos
 
TwinSpires
 
Big Fish
Games
 
Other Investments
 
Corporate
Net revenue
$
234.5

 
$
253.9

 
$
173.3

 
$
369.6

 
$
15.9

 
$
0.8

 
 
 
 
 
 
 
 
 
 
 
 
Taxes & purses
(52.7
)
 
(84.6
)
 
(8.8
)
 
—

 
—

 
—

Platform & development fees
—

 
—

 
—

 
(135.2
)
 
—

 
—

Marketing & advertising
(3.8
)
 
(9.5
)
 
(5.2
)
 
(106.2
)
 
—

 
—

Salaries & benefits
(31.4
)
 
(38.2
)
 
(6.9
)
 
(18.4
)
 
(8.2
)
 
—

Content expense
(12.0
)
 
—

 
(83.4
)
 
—

 
—

 
—

SG&A expense
(11.9
)
 
(15.8
)
 
(8.6
)
 
(13.6
)
 
(2.5
)
 
(6.2
)
Research & development
—

 
—

 
—

 
(29.3
)
 
—

 
—

Other operating expense
(38.8
)
 
(29.4
)
 
(15.6
)
 
(11.8
)
 
(2.6
)
 
(0.5
)
Other income (expense)
0.4

 
21.6

 
—

 
(1.2
)
 
0.3

 
—

Change in deferred revenue(1)
n/a

 
n/a

 
n/a

 
5.0

 
n/a

 
n/a

 
 
 
 
 
 
 
 
 
 
 
 
Total segment Adjusted EBITDA
$
84.3

 
$
98.0

 
$
44.8

 
$
58.9

 
$
2.9

 
$
(5.9
)

 
Nine Months Ended September 30, 2015
(in millions)
Racing
 
Casinos
 
TwinSpires
 
Big Fish
Games
 
Other Investments
 
Corporate
Net revenue
$
229.3

 
$
252.5

 
$
157.3

 
$
300.0

 
$
14.8

 
$
0.8

 
 
 
 
 
 
 
 
 
 
 
 
Taxes & purses
(52.3
)
 
(83.4
)
 
(8.2
)
 
—

 
—

 
—

Platform & development fees
—

 
—

 
—

 
(103.0
)
 
—

 
—

Marketing & advertising
(5.4
)
 
(9.4
)
 
(3.7
)
 
(76.7
)
 
—

 
—

Salaries & benefits
(30.3
)
 
(38.2
)
 
(7.5
)
 
(16.5
)
 
(8.3
)
 
—

Content expense
(11.3
)
 
—

 
(75.9
)
 
—

 
—

 
—

SG&A expense
(13.0
)
 
(17.9
)
 
(8.6
)
 
(12.6
)
 
(1.8
)
 
(4.5
)
Research & development
—

 
—

 
—

 
(30.0
)
 
—

 
—

Other operating expense
(41.2
)
 
(31.3
)
 
(14.1
)
 
(10.9
)
 
(2.4
)
 
(1.5
)
Other income (expense)
0.5

 
14.3

 
—

 
(0.8
)
 
0.1

 
—

Change in deferred revenue(1)
n/a

 
n/a

 
n/a

 
32.0

 
n/a

 
n/a

 
 
 
 
 
 
 
 
 
 
 
 
Total segment Adjusted EBITDA
$
76.3

 
$
86.6

 
$
39.3

 
$
81.5

 
$
2.4

 
$
(5.2
)
 
 
 
 
 
 
 
 
 
 
 
 
(1) Change in deferred revenue is included in Adjusted EBITDA only for Big Fish Games.

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in millions)
2016
 
2015
 
2016
 
2015
Reconciliation of segment Adjusted EBITDA to comprehensive income:
 
 
 
 
 
 
 
Racing
$
0.4

 
$
0.3

 
$
84.3

 
$
76.3

Casinos
30.4

 
26.7

 
98.0

 
86.6

TwinSpires
14.3

 
13.1

 
44.8

 
39.3

Big Fish Games
23.4

 
33.2

 
58.9

 
81.5

Other Investments
0.8

 
0.5

 
2.9

 
2.4

Corporate
(2.0
)
 
(1.6
)
 
(5.9
)
 
(5.2
)
Total segment Adjusted EBITDA
67.3

 
72.2

 
283.0

 
280.9

Change in Big Fish Games deferred revenue
3.8

 
(10.9
)
 
(5.0
)
 
(32.0
)
Selling, general and administrative:
 
 
 
 
 
 
 
Stock-based compensation expense
(4.9
)
 
(4.5
)
 
(14.3
)
 
(10.6
)
Other charges
(3.1
)
 
—

 
(3.4
)
 
—

Other income, expense:
 
 
 
 
 
 
 
Equity investments - interest, depreciation and amortization expense
(2.5
)
 
(2.2
)
 
(7.5
)
 
(6.4
)
Other (charges) and recoveries, net
—

 
(0.1
)
 
(0.4
)
 
6.0

Big Fish Games acquisition expense
(1.1
)
 
(2.8
)
 
(4.9
)
 
(17.4
)
Calder exit costs
(0.5
)
 
(12.7
)
 
(2.4
)
 
(13.5
)
Depreciation and amortization
(27.5
)
 
(27.4
)
 
(81.4
)
 
(82.1
)
Interest (expense) income, net
(11.1
)
 
(6.7
)
 
(32.8
)
 
(21.1
)
Income before income tax provision
20.4

 
4.9

 
130.9

 
103.8

Income tax provision
(11.7
)
 
(0.7
)
 
(49.6
)
 
(46.1
)
Net income
8.7

 
4.2

 
81.3

 
57.7

Foreign currency translation, net of tax
—

 
—

 
0.2

 
(0.4
)
Comprehensive income
$
8.7

 
$
4.2

 
$
81.5

 
$
57.3


The table below presents information about equity in income (losses) of unconsolidated investments included in our reported segments:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in millions)
2016
 
2015
 
2016
 
2015
Casinos
$
4.8

 
$
2.3

 
$
13.6

 
$
7.7

Other Investments
0.1

 
—

 
(0.1
)
 
0.5

 
$
4.9

 
$
2.3

 
$
13.5

 
$
8.2


The table below presents total asset information for each of our operating segments:
(in millions)
September 30, 2016
 
December 31, 2015
Total assets:
 
 
 
Racing
$
424.4

 
$
437.1

Casinos
621.8

 
631.3

TwinSpires
208.1

 
202.4

Big Fish Games
923.0

 
947.1

Other Investments
10.9

 
12.2

Corporate
36.5

 
47.3

 
$
2,224.7

 
$
2,277.4


The table below presents capital expenditures for each of our operating segments:
 
Nine Months Ended September 30,
(in millions)
2016
 
2015
Capital expenditures:
 
 
 
Racing
$
23.4

 
$
8.3

Casinos
9.7

 
15.4

TwinSpires
5.4

 
3.1

Big Fish Games
3.6

 
3.0

Other Investments
0.8

 
0.4

Corporate
1.2

 
0.6

 
$
44.1

 
$
30.8