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Youbet.com Signs Deal, Looks Toward Expansion

Woodland Hills-based online gaming company Youbet.com has kicked off 2005 with a flurry of activity which company officials hope will lead to an expansion of the firm’s profile in the industry. Starting at the beginning of the year, Youbet.com began a deal with Magna Entertainment Company, a Canadian firm that owns race tacks and horse racing facilities in Maryland, California, Ohio, Florida, Oklahoma, Oregon, Pennsylvania and Texas. The contract yallows Youbet’s horse racing service subscribers access to live video feeds and online wagering at all the horse races at Magna tracks next year. This includes the Triple Crown and the Preakness Stakes. Additionally, Youbet has launched a more active advertising campaign, sending a Youbet bus around the city to increase its name recognition. The bus comes in addition to the regular advertisements Youbet places in racing newspapers. “The bus principally runs tours all across Southern California. Our signups have increased locally since the bus has been traveling around,” Charles F. Champion, Youbet’s chairman, president and CEO said. After a lengthy stretch in the red, the company has recently posting improved earnings statements. In the third quarter of 2004, Youbet reported $17.2 million in revenue with a net income of $4.0 million. In the comparable period in 2003, the company reported revenue of $14 million with a net loss of $618,000. Champion attributed the increased profit margins to a business model reliant upon fixed costs. “We put in place a business model two and a half years ago that is finally showing profits now 93 to 94 percent of our costs are fixed, so any incremental increase in handling bets makes a significant contribution to profit margin. We’ve been disciplined in our costs, but have worked to grow our handle and customer base,” Champion said. Youbet’s business model has also earned praise from analysts, as Roth Capital Partners LLC recently upgraded Youbet’s status, touting it as a strong buy. The stock closed Thursday Jan. 13 at $4.50 a share, up from a low of $2.29 where it was mired in late August. “We believe Youbet’s outlook for continued growth remains healthy. While Youbet’s business development outside of account wagering has not yet reached anything definitive, we believe management remains committed to expanding its business from both a geographic and a market perspective,” Roth analyst Jeff Martin wrote. According to Champion, Youbet does indeed want to expand its content beyond horse racing. While the United States maintains laws against gambling on non-horse racing sports activity, many foreign nations have no such restrictions. “We’ve just launched efforts into taking the platform internationally. We’re interesting in signing up residents and customers from other nations to diversify the website into other arenas of sports wagering,” Champion said. “It’s legal in the United Kingdom as well as a number of South American countries. We’d like to be a site for all sports wagering, from cricket to football, to soccer to rugby.”

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