Youbet Settles Lawsuit in Virginia

Youbet Settles Lawsuit in Virginia
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A federal lawsuit between Youbet.com and several entities associated with Virginia racing has been settled, resulting in a renewed effort by the advance deposit wagering company to become licensed in the state.

A group of plaintiffs that include Colonial Downs and the Virginia Horsemen’s Benevolent Protective Association last September filed a federal lawsuit against Youbet, claiming the company had operated illegally without a license in the commonwealth, and sought hundreds of thousands of dollars in lost source-market fees in compensation, among other damages.

Youbet in a March 4 filing with the U.S. Securities and Exchange Commission said it had settled the lawsuit, and that all claims in the litigation would be dismissed. The settlement includes a $150,000 payment, and a promise from the company that it would “refresh” its application for a Virginia license.

"We are pleased that we were able to come to a mutually satisfactory agreement," said interim chief executive officer Gary W. Sproule in the SEC filing. A call from The Blood-Horse seeking additional comment was not returned March 4.

Peter Burnett, chairman of the Virginia Racing Commission, which later intervened in the lawsuit, told The Blood-Horse that the settlement also included an agreement from Youbet that it would pay an estimated source-market fee of approximately 7.84%, which was based on previous handle figures compiled by the company in the state. In court filings, Colonial Downs in previous negotiations prior to the lawsuit had sought an 11% rate, while Youbet had countered with a 3% rate.

The settlement was reached during a court-ordered Feb. 26 mediation conference in Virginia. Burnett said the commission was cognizant of the restructuring process at Youbet, which has gone through corporate changes in the last several months, including the departure of then chairman and CEO Charles Champion.

"The track and the horsemen had a far bigger dog in the fight,” Burnett said. “Our bigger fight (as the commission) was to get these guys licensed. We recognized the corporate upheaval at Youbet, and the corporate restructuring that they say is taking place. We recognize financial hardships related with that process.”

Calls for comment from the VHBPA and Colonial Downs were not immediately returned. Youbet in its defenses in the lawsuit called Virginia’s law regarding the licensing of ADWs unconstitutional.

The $150,000 payment will be spread “pro-rata” among the VRC, the VHBPA, the state’s harness horsemen, and Colonial Downs, said Burnett, who participated in the Feb. 26 settlement conference. Youbet in the SEC filing said the payment would be spread over four calendar quarters.

There are currently five ADW companies licensed in Virginia -- AmericaTab, EZ Play, TVG, TwinSpires.com, and XpressBet.com -- which combined were estimated to handle between $30 million to $35 million in wagers in 2007. Youbet was estimated to have handled an additional $10 million to $12 million from Virginia bettors last year.

The settlement, which has yet to be filed in Virginia federal court, apparently did not include an agreement for Youbet to take the Colonial Downs signal. Burnett said that could probably be negotiated later. According to a published report in January, Colonial Downs has put itself on the market to be sold. The track is co-owned by Jacobs Entertainment and the company's founder, Richard Jacobs.

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