Updater of the Downs

When the board of directors of Churchill Downs Inc. chose Cincinnati native Robert L. Evans to succeed Tom Meeker as president and CEO of the storied racetrack company, a lot of people around Kentucky said, "Who?"

The 54-year-old Evans began his three-decade executive career with Caterpillar

Inc., where he founded and headed the wholly owned subsidiary Caterpillar Logistics Services, then moved to a Mazda Motor vice presidency in 1990, followed by senior executive stints at technology-services companies such as Accenture Ltd., Aspect Development Inc. and Silicon Valley's Symphony Technology Group. He served on boards of a lot of client companies, recruited and built management teams, revamped distribution systems, and came up with new business and marketing strategies.

Huh? Does he know anything about the quarter pole and the backstretch? Can he tell a furlong from a fetlock?

Some took it as a bad sign when Evans, having taken the CDI helm in August 2006, showed the door to 22 employees, a third of the corporate staff, in December. "There was a bloodletting at Churchill Downs last Friday," Stephanie Rickert wrote in a letter to the Courier-Journals Reader's Forum section. The fired employees had been there many years, she said, and she blamed the turn of events on a sort of inferiority complex in Louisville's leadership. Even legendary Kentucky sports pundit Billy Reed, still scowling over the board's placement of lawyer Meeker in CDI's top job 22 years earlier, complained in his pre-Derby blog last spring that Churchill Downs had become "Bottom-Line Downs." He expressed resentment that even the media guide forthe Kentucky Derby had been pared down, and dismissed the hew honcho as "Meeker's successor, Robert Evans, whoever he is."

But Evans' first year as CEO has come and gone, and board members led by Downs chairman Carl F. Pollard are far from apologizing. A number of other racing experts back them up. Bob Evans, Pollard said, is just what the board was looking for when Meeker was nearing the finish line. And he and others say Evans is just what racing, and breeding,. and the Bluegrass area as we know it, all need to have a shot at survival.

"There are plenty of people around who can run a few racetracks," Pollard said, but what Thoroughbred racing needs for the long term is to be found in "the gaming industry, entertainment and technology," fields that require different skills. "Bob came up through technology," he said.

Churchill Downs has had a remarkable run since Col. Meriwether Lewis Clark Jr. came back from England in 1873 with ideas for some. land his uncles, John and Henry Churchill, had south of that day's Louisville. He'd put a first-class racetrack on it, and started a feature race modeled on England's Epsom Derby. Impresario Matt Winn took the track over in 1902, and its fame eventually overshadowed even Epsom Downs, the legendary racecourse that had inspired it.

But the colonel's bright idea came way more than 100 years ago now, and Pollard and his supporters say the attraction of a horse race has changed, not altogether for the better. Today's equivalent of the young blades who used to ride streetcars to the track in their finery have other entertainments to distract them - including flashy casinos a short distance away. "Horse racing is swimming in a draining pool," board member David Grissom said.

The trick will be not to go swirling down with the water. And the thing to grab on to, the board and other Evans supporters say, is a broader audience - a worldwide one that they believe is accessible through interactive technologies. Richard Wilcke, executive in residence at the University of Louisville's equine industry program and a strong believer in Evans' approach, noted that the days when people went out to the track to bet have been slipping away for years anyway. First there was simulcasting, through which patrons could watch races on a screen and make bets in off-track settings. Twenty years ago, Wilcke said, 90 percent of betting occurred at the track. Now 80 percent is off-track, through simulcasting and a variety of phone and Internet services. "So how do you market?" he asked. "Do you keep trying to get people to Churchill Downs? Or do you market to people wagering in other ways?"

Evans, with his background in applying logistics-services technology and turning companies in new directions, could talk the talk board members wanted to hear. "Consider the Derby today," Evans said in August. "You get 160,000 or so at the track, a few hundred thousand more at parties, and six or seven or eight million more via television. That's a small drop in the bucket of world population. Why can't we take the Derby to everybody, using the Internet?"

"My goal," he said, "is to get the level of interest from under 10 million to 50 million."

That would be a good thing for Kentucky's manicured green pastures, sturdy plank fences and picturesque frolicking foals, Pollard said. "Racing is what drives the breeding, and breeding drives the farms."

Grissom said Evans has been walking the walk, too. "He's come out of the blocks very fast," Grissom said. "In a short time, he's done just what we wanted." He said Evans has performed impressively against "an almost Byzantine way of regulating" in an industry with different rules in different states. He said working with owners and trainers who are "used to getting their own way" is sometimes "like herding cats." But he expressed confidence that Evans will get the industry "moving in a coordinated direction toward saving itself."

Actually, although he has spent the better part of a decade in Silicon Valley, Evans, 54, does not really stick out in Kentucky like a little green man driving a stagecoach. His father owned a few racehorses and raced them in Ohio and Kentucky. His brother, Tom Evans, has operated Trackside Farm outside Versailles, Ky., for more than 20 years, and Evans himself has owned, bred and raced Thoroughbreds over the same time period. Since 2003 he's lived on his Tenlane Farm, a 260-acre breeding business across the road from his brother. He actually is the first horse breeder to run Churchill Downs since Johnson Camden was president from 1918 to 1927.

Still, Pollard said none of the board members was acquainted with Evans when they started looking for someone to replace Meeker. They hired Heidrick & Struggles International Inc., a London-based senior-level executive search firm, and told it to look beyond the racing industry, at gaming, entertainment and interactive technologies.

"We were looking for someone who could pull together all of the various influences," Grissom said, "somebody who could rationalize them into a coherent direction." The search firm came up with Evans, ironically just down Interstate 64. Evans said he considered himself too young to be retired but hadn't sorted out what he wanted to do next after co-founding and managing Symphony Technology Group of Palo Alto, Calif:, an investor in -software and services companies. "I knew I would do something. I just didn't know what," he said.

Wilcke, U of L's gaming and horse-racing expert, said it was a happy juxtaposition of a company looking for a man and the man ready to jump in. "Bob was a great choice," Wilcke said. "Everybody thinks he is a class individual. He's a hard-nosed businessman, and he doesn't want to be the guy who presided at the decline of the industry."

That makes Evans reluctant, Wilcke said, to do things the way they've always been done: "He's very realistic; he's not bound by history or tradition. But he loves the sport." Wilcke said horsemen generally believe, though, their best interests lie with as many races as possible and they are "sensitive to any hint that restructuring will mean fewer races."

Evans has thrown some broad hints that his view of the path that will keep the industry viable does include fewer races. Between the tracks and the owners and breeders, he told the Thoroughbred Farm Managers' Club in August, the industry is losing $1.5 billion a year. "I think we have too much product out there. In the U.S., we run 52,000 Thoroughbred races per year versus a total of 117,000 in the rest of the world combined. I see consolidation in the industry producing fewer races, bigger purses and bigger handle until racing becomes economically viable and profitable enough to invest in the facilities and horseflesh to sustain itself over time."

He said that was a factor in the sale by Churchill Downs Inc. of Ellis Park, Hoosier Park and Hollywood Park since he took over the company. "We're generally in an oversupply situation," he said, "so we don't want to own supply."

Evans admitted he gets a lot of mail suggesting that Thoroughbred racing needs to take a cue from NASCAR, which has a total of 76 race days per year, compared to 7,375 race-day equivalents at Thoroughbred tracks. He said he believes that if Thoroughbred racing reduced daily racing and concentrated on sequencing special events, such as Kentucky Derby-Kentucky Oaks weekends - say 41 weekends a year -it would make, rather than lose, big money for the industry.

The owner of a singular event as transcendent as the Kentucky Derby has to take a hard look at such a possibility, U of L's Wilcke said. "The Indianapolis 500 used to be the most important event in motor sports. Now it pales beside NASCAR. If the Kentucky Derby would undergo the same fate, it would be a tremendous blow to the sport."

What you have to do, Evans said, is to "create a growing business. Growth is the magic elixer" that makes the difference between a dying business and a thriving one. In order to grow horse racing, he said - something Evans obviously believes he can do - it will be necessary to attract new bettors, and that means people under 40, "the technology crowd" who access the Internet on their cell phones. "They use it for shopping and to book travel. They sort of live their lives in a tech-enabled world. If we can present racing that way, there's probably some growth there. We have to invent a new way of playing the game," he said.

Wilcke says that's dead on. "I've had horsemen tell me Evans doesn't care about horses; he cares about computers," Wilcke said. "But that misses the point. Computers are a means to an end. If you're not relevant technologically, you're going to miss a whole generation."

Evans said the process will be something like the repackaging of poker, which has become a television attraction. Marketing and promotion has brought it a "significant new customer base."

To get Churchill Downs Inc. headed in that same direction, he said, "we've done a lot of stuff over the past 12 months." He mentioned live appearances at the Downs by the Rolling Stones, the Police and Queen Elizabeth II. "I guess we've got a thing for the British," he said. He spoke of putting the Fair Grounds, which is a Downs track in New Orleans, back together after Hurricane Katrina, and doing the same for Calder Race Course in Miami after Hurricane Wilma. Arlington Park, a fourth CDI racetrack outside Chicago, got a $10 million synthetic track.

Having sold Hollywood Park near Los Angeles; Ellis Park outside Henderson, Ky.; and Hoosier Park outside Anderson, Ind., CDI has launched TwinSpires, an advance-deposit wagering (ADW) service that permits patrons to watch races from a variety of tracks on computer screens and to make bets from the keyboard. ADW is the fastest-growing segment of the pari-mutuel industry. A short time after the launch of TwinSpires, it purchased additional ADW platforms and research information services that provide handicapping and pedigree information valuable to bettors, breeders and owners at the touch of a keyboard.

"But the most important thing we've done is, we've started down the path of building a team that is capable of doing a heck of a lot more," Evans said. The December staff reduction was a part of that move. "It was mostly about changing the mix," he said. He has since been pleased to find that people he needs to reach the goals he has set have been happy to relocate to Louisville from places like Chicago, San Francisco, Philadelphia, Atlanta and Boulder, Colo.

Evans declined to elaborate on any specific measures in the works or even provide the names of new hires and what they're charged to do, saying through CDI communications vice president Julie Koenig-Loignon that he's reluctant to tip the competition to his moves before he has them in place. "The new staff members we've hired are working on very proprietary projects," she said, "which is one of the reasons we did not announce their hirings or spend a lot of time talking about their backgrounds, etcetera, when they joined Churchill Downs."

"The online gaming space is very competitive, and discussing 'plans' versus actual results simply tips our competitors to what we want to do," she said.

Sue Schneider, president and CEO of the St. Louis-based Interactive Gaming Council, said that's judicious. "It is very competitive," she said. "There really aren't a lot of tracks in particular doing (high-tech services). You can bet others will be watching."

Evans said he expects growth on a "hockey stick model," where it rises steadily for a couple of years and then reaches "a tipping point" and takes off. "It's a technology adoption model such as those seen at Google and Yahoo," he said. "Enough people get involved and it becomes viral. You get dynamic growth."

There is an alternative, he said. "You've got an industry that is fundamentally unprofitable - for the breeders, owners and the tracks. You can ride it to zero by not changing anything."

Opening an account at TwinSpires.com is pretty much like opening any Internet account, except that you have to put up $50 and reveal your social security number and driver's license number, as well as agree to let the company check to make sure you gave your own.

The $50 is not a fee, but a mandatory first deposit, required by the law under which TwinSpires operates. You can use all or some of it to place bets, and you may get it back eventually if you don't lose your shirt. That's why the genre is called Advance Deposit Wagering. You aren't at the track, where you can fork your money over as you place your bets, so you put it in an account where the company can get at it no matter where you are. It's the fastest-growing segment of pari-mutuel wagering at the moment.

At the TwinSpires site you can bet on races at CDI-owned tracks and others lured in as partners, and watch a live feed of the race after you've placed your bet. It's designed to bring the excitement of homestretch thunder to your iPhone, and to tap into the entertainment spending of a generation that likes electronic access.

The site has a certain gentility to it. It warns, in an avuncular way, that gambling can get out of hand, and suggests that a person should play the horses for fun rather than as a way to make money. "Do not 'chase' losses," it says. "Accept them as the cost of entertainment." It suggests wagering with surplus money, not with the grocery or rent money, and recommends that you set a limit on the amount of time you spend gambling. "Balance playing the horses with other leisure activities," it advises.

Clicking around the site will tell you all you heed to know - how to put money into your account for betting (by credit card over the phone or by Internet, by bank wire, or in person at the bank inside Churchill Downs during race meetings). It tells you how to get your winnings out, if you ever have enough to concern yourself with. You can do that by phone or in person, but not by Internet, though the company hopes to offer online withdrawals at some point.

The rules are laid out: You must be 18 or older - 21 if you live in New Hampshire or Washington state - and you can't bet on the site at all unless you live in one of 14 states where such gambling is permitted. The states include Kentucky but not Indiana. If you live in Florida, you have to make your bets by phone.

The site provides access to information that can guide you in making your wager, some of which will cost you extra. You bet from a wagering page that makes the process self-explanatory. You place your bet, up to post time at the track where you are betting, and the wager is confirmed and accepted. At that point it becomes final.

Your money is commingled with that of bettors at the particular track, as well as that from other online and phone betters, and those bets determine the odds. TwinSpires is required to report winnings of $600 or more to the IRS or if the winnings are at least 300 times the amount wagered, and it will withhold taxes from winnings of more than $5,000 under the same circumstances, and send you a W-2 form.

Churchill Downs Inc. formed TwinSpires.com in early May of this year, and then immediately bought three older, more established, much larger ADW operations - to get a big footprint in the segment as quickly as possible, CDI president Bob Evans said. He has kept information on the number of customers the company's ADW units have pretty close to his chest. He won't disclose it "for competitive reasons." But he has said the three units the company purchased - BrisBET. com, TsnBET.com, and Winticket.com - had about 18 percent of the ADW market in 2006. Evans said he expects $175 million in handle from the three in 2008.