Youbet had a loss of $357,000, or one cent a share, in its second quarter, down from income of $2.2 million (six cents per share) in same period last year, the company reported Aug. 7.
"We are disappointed in the second-quarter results," said Charles Champion, Youbet chairman and CEO, during a conference call with investors. "As you know, there have been mitigating circumstances. Our business was unexpectedly disrupted when TrackNet refused to sell us any of its Magna and Churchill content, most notably the 2007 Kentucky Derby."
TrackNet Media Group, a signal-selling partnership between Churchill Downs and Magna Entertainment, has shut out simulcasts of its races to TVG and Youbet.
Youbet's off-shore outlet, International Racing Group, "took the brunt of TrackNet's restrictive content policy," said Champion. IRG handle declined $34 million over year-ago figures. Total handle during the second quarter at IRG was $188.5 million, compared with $217.2 million a year ago.
"IRG's performance will improve as soon as our content offering returns to normal," Champion said.
He said revenues from Youbet's United Tote subsidiary declined to $7 million, down $700,000 from the second quarter last year.
"On the bright side, Youbet Express topped last year's handle for the period by $5 million, rising to an all-time quarterly record of $130.2 million, again making us the largest ADW company, serving more customers and providing more handle to tracks than any other ADW company," Champion said.
"More importantly, we increased the yield in the unit to an impressive 6.7%, meaning even with the truncated Magna and Churchill schedules, we posted solid improvements in net online revenues during the quarter."
Youbet Express reportedly handled $132 million, up $5 million, or 4%, from the year-ago quarter.
One analyst asked Champion if TrackNet was attempting to "starve you out, or is it a bigger battle that you just happen to be caught in the cross fire of?"
Said Champion: "We are clearly caught between two large players in TrackNet and TVG. Their business models are diametrically opposed to one another. We are the ground, at times, that is being fought over. We pretty much have the largest content offering in the largest number of states and that was by design.
“Back in 2001,when the sublicense agreement was signed, we recognized that content was important and the company was willing to give up 19-20% of itself, along with paying upward of $100 million over the last six or seven years of that agreement in order to offer our customers all of the content.
"We are the guys in the middle between this," he added. "There are a lot of people in this beside TrackNet and TVG that have now taken a more active interest in it all. The one thing it has done is woken the industry up to the potential of ADW and the problems that exist within it.
"Now you have people on the playing field like TOBA--the Thoroughbred Owners and Breeders Association--and other horsemen's groups. Now it's become a major priority for them. Regulators are getting more educated as to what is going on, and that's why, I think, before the end of the year, we should see some resolution to this issue and everyone will realize the value of content but also the value of distribution.
"As I've said at a couple of meetings, and I really mean it, individuals that go around and say distribution is king I think are incorrect. People that go around and say 'content is king' I think are (also) incorrect. I think the customer is king, and I don’t think they can be owned. You've got to provide services and products to them at a margin that they are willing to pay."
Going forward with Youbet, management has implemented cost-cutting and revenue enhancement initiatives of about $5 million to offset lower revenue expectations. For the full year, earnings per share guidance has been revised downward to 13 to 16 cents per share, compared with previous annual guidance of 15 to 17 cents per share.
Youbet stock, traded on NASDAQ, closed Aug. 7 up three cents at $1.73 a share, just two cents above its 52-week low.