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Thursday, Mar 28, 2024

GAMBLING—Betting on the Horses

youbet.com seeks success in daily racing form partnership The year 2000 was not exactly the winning ticket for Youbet.com Inc., the online horse wagering company that recently moved its headquarters from West Los Angeles to Woodland Hills: -Legislation that bans online wagering in California has hindered the company’s efforts to beef up its customer base here on its home turf. -Recently, Youbet.com received notice from Nasdaq that it has 90 days to come into compliance with its minimum bid price of $1 or be de-listed. -The company’s net income loss for the third quarter of 2000 was $3.97 million, following a loss of $7.24 million for the same quarter the previous year. Fourth-quarter earnings have not yet been released. -And on Dec. 1, Youbet.com slashed 31 jobs, or 29 percent of its staff. It now has 85 employees. Naturally, Executive Vice President and CEO Ronald W. Luniewski has an explanation. He said part of the free fall in stock price is due to the demise of so many dot.coms over the last 18 months. “There’s no doubt we suffered because of the lack of investor confidence in the industry,” Luniewski said. “Just having that little ‘dot.com’ on the end of our name has meant something.” But there is good news. The online wagering industry was successful in late 1999 with changing language in the Interstate Wire Act of 1961 prohibiting the use of phone lines for transmitting gambling information. As a result, online horse wagering is currently legal in 42 states. And Youbet.com added 13 racetracks to its network last year, bringing the total number of partner tracksacross the country, Canada and Australia to 61. Those include the three major tracks in Southern California, Meadowlands Park in New Jersey and Churchill Downs in Kentucky. Luniewski said Youbet.com expects growth in 2001, primarily because of a recent five-year marketing agreement with Daily Racing Form (DRF), considered the industry bible, and the launch already in progress of its first pure Web-based product. Currently, subscribers must access the site by first downloading a CD-ROM. However, a new program, Youbetexpress, debuting later this month, will allow users to access the Web site directly. Once there, they can join, view races via live video stream, obtain handicapping information and other data from the site or through a direct link to DRF and, finally, place bets in real time (except for subscribers who live in states, like California, where Internet gambling is illegal). Staying positive “We keep very bullish at all times and we believe that earnings kill all ills,” said Luniewski. “The synergies that this marketing deal with DRF will give us are tremendous. These are exclusive marketing initiatives that we anticipate will have an enormous impact on our ability to attract a larger base of subscribers to our network.” As of September 2000, Youbet.com had approximately 16,000 subscribers. About 2,300 of them were in California. “Quite frankly, the timing of the new product and our arrangement with DRF will put us in good shape for the 90-day cure period, giving us the time to demonstrate our legitimacy in this marketplace,” Luniewski said. Meanwhile, the Daily Racing Form will feature Youbet.com’s link and market the site as its preferred wagering provider. Mandy Minger, vice president of marketing for DRF, said, “Youbet.com was chosen because it’s a proven company dedicated to horse racing with cutting-edge technology. “Through this partnership, we will be able to offer players a seamless way to place bets on line through a Youbet account. We know that our information goes hand in hand with what Youbet.com customers want and need.” Youbet.com did manage to show moderate growth in 2000. Third-quarter revenues for the period ending Sept. 30 were $1.38 million, compared to $1.13 million for the same period in 1999, an increase of 23 percent. And, as a result of the layoffs and other internal changes, the company was successful in reducing its third-quarter net loss by 45 percent from the same period the previous year. Robert Schroeder, an analyst with the New-York-based Taglich Brothers, Inc., said Youbet.com has clearly established itself as the key player in the online horse betting industry. He said the forthcoming Web-based product, combined with the DRF deal, will keep them ahead of their competition. “I do know that they are having problems but I believe they have enough cash to see them through profitability,” said Schroeder. “I think they certainly are the leader as far as offering a number of tracks and races and also in their video and audio streaming technology. Certainly, they are the first mover in the industry and their technology has always been ahead of the curve as far as their competitors are concerned.” Youbet.com does not accept bets directly. Instead, subscribers pay a monthly fee of $5.95 and open their own private wager accounts. All bets are transmitted directly to Ladbroke Racing Pennsylvania, a subsidiary of Ladbroke Group PLC, and then added to the wager pools at the track where the race is taking place. Winnings are paid at full track odds. For every dollar bet, 80 cents goes straight to the betting pool. Youbet.com and Ladbroke each receive 5 cents of every dollar, and the remaining 10 cents is split among the track, the state it’s in and horse owners. There are currently two other major players in the online horse racing industry: Los Angeles-based Television Games Network and Philadelphia’s The Racing Network. Both have cable TV stations and Web sites offering online wagering. Gambling figures rise The potential for building a customer base is significant. According to Luniewski, roughly $15 billion was wagered on horse racing in the United States in 1999, the last year figures were available. Roughly $11 billion was bet at off-track sites. Worldwide, $104 billion was wagered, 65 percent at off-track locations. Schroeder agreed California’s tough gaming laws are exacting a toll on the company’s ability to do business here. “I think the issues that are facing them are not their products, but low stock price, and also the uncertainty of online wagering,” Schroeder said. “They have run into problems in California, where legislation has been tough on the industry.” Luniewski said the company is based in California purely because of geographic preference. As for the move to the Valley from West L.A., he said, “The area just has so much potential for growth.” While Californians are free to subscribe to the Youbet.com network, gain full access to handicapping data and view races, they cannot place bets from the site. They can, however, use the data collected from Youbet.com to place bets over the Internet via wagering sites in other states, such as New York, or off-track betting locations across the country. Californians are free to subscribe to the service in order to get handicapping information but, if they want to place a bet on line, they must do so via out-of-state sites. Logic seems to dictate that growing interest in off-track betting would take a bite out of revenues at the tracks and, as a result, lower purses. Not so, according to Luniewski, who said off-track wagering has actually helped the race tracks draw new business, particularly by way of the Internet, where a good percentage of younger players are getting their first exposure to the so-called “Sport of Kings.” “We think people will always go to the tracks for the pure socialization of the event,” said Luniewski. “And there are about 9 million people on the Internet who play fantasy sports. So, the more people who bet, whether off track or at the track, the bigger the purses are.” Eric Wing, media relations director for the National Thoroughbred Racing Association, said eight out of every $10 bet on horse racing now comes from off-track sources. And, although he agreed new interest in the sport leads to more spending, he added that racetracks are monitoring the fast-changing pace of online horse wagering, just as they have done with off-track betting over the last 10 years. “I’m not exactly sure how much of that 80 percent is bet online,” said Wing. “It’s definitely something that all tracks are keeping an eye on because, by and large, it’s the people that represent the new business.”

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