TrackNet Takes Another Shot from Youbet

TrackNet Takes Another Shot from Youbet
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Youbet.com chairman and CEO Charles Champion directed more criticism at the controversial content alliance of Churchill Downs and Magna Entertainment May 8, telling analysts during an earnings conference that the partners in TrackNet Media Group “ended up shooting not only themselves, but an entire industry.”

Champion, in announcing first-quarter results for Youbet.com, said horse racing was going to suffer in the long-term unless resolve can be found in the volatile situation involving wagering platforms which are unwilling to consent to TrackNet’s distribution structure.

“TrackNet Media refused to sell the Derby simulcast to ADWs unless they dropped top content from other tracks,” said Champion of Youbet’s non-presence in wagering on the May 5 Kentucky Derby Presented by Yum! Brands (gr. I) card. “They presumed to be taking a shot at their competitors. Problem is, they ended up shooting not only themselves, but an entire industry.”

Champion said a drop in all-source wagering on the Derby card tells a big story, noting that last year’s combined $12.5 million handled by Youbet, its off-shore outlet International Racing Group, and TVG Network represented a 7% hole that couldn’t be filled.

“This year, the Derby attracted its biggest TV ratings in 15 years, but somehow, the industry managed to take a 5% increase in audience and turn it into a 4.1% decrease in handle,” he said.

“This blemish on our business, and this dent in our collective pocketbooks, could have been avoided. Had TVG, Youbet and IRG carried the races . . . the industry could have been heralding a new high point in its distribution methods as well as its fan interest.”

Youbet chief financial officer Gary Sproule said preliminary numbers suggest the company’s customer base was for the most part loyal on Derby day. He said comparative wagering on tracks other than Churchill Downs from 2006 and 2007 were practically identical for Youbet.com and IRG, recording $1.9 million and $1 million, respectively.

“Based on (our) analysis, customers didn’t shift to another ADW to wager on the Kentucky Derby card -- they just didn’t wager,” he said, estimating Youbet lost about 400 customers for the Derby.

In responding to an analyst’s question, Champion said he believes some large bettors elected to utilize illegal off-shore sites in reaction to Youbet’s inability to offer Derby day wagering.

“When it was announced by TrackNet that certain ADWs would not have content, we saw a massive increase of bookmakers advertising in marketplaces in or near tracks trying to get large customers,” he said. “I know for a fact that several of our customers this last weekend in fact didn’t go into pools -- according at least to the two that I talked to -- but instead chose to go offshore. That’s again a practice that isn’t helpful to any of us in the industry.”

One caller questioned the bonuses the Youbet management team was scheduled to collect for 2006, noting that the company’s stock price dropped from $4.69 in January of 2006 to $3.69 at the end of the year, and closed trading May 8 at $2.86.

“Nobody has made any money on this stock for many, many years,” said Michael Balkin, chief investment officer for Magnetar Capital, which is one of the largest institutional shareholders in Youbet stock. “I think the ultimate determination of how you get compensated is increasing shareholders value.

“So if that is a measure, then you guys wouldn’t deserve to take any bonuses. It’s hard to justify paying the CEO of a company $1 million when we had that kind of destruction of shareholder value.”

Champion countered that the bonus structure was determined by a separate compensation committee, and that he didn’t exercise available stock options in recognition of the company’s performance.

“No one felt this more painfully than I did last year,” said Champion, noting he personally controls 1.7 million shares and share options.

The company reported that revenues for the quarter improved 26% to $35 million from $27.8 million compared to last year. The increase, the company said, was driven by a 37% increase in handle to $202 million from $146.8 million. Most of the increase was attributable to IRG, which accounted for $43.9 million of the total increase in handle of $55.1 million.

Youbet reported net income of $1.59 million, up 17% from $1.35 million last year.

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