CDI 'Well-Positioned' to Make Other Deals

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Churchill Downs Inc., which announced Nov. 11 plans to purchase Youbet.com and its United Tote subsidiary for about $126.8 million, is on the lookout for other prospective purchases in the area of Internet wagering.

During a Nov. 12 conference call on which the Youbet.com deal was discussed, CDI president and chief executive officer Robert Evans said the mix of equity and cash that will be used for the purchase is designed for the future. He said CDI can “preserve its balance sheet” for future deals.

“We’re well-positioned to pursue other online business opportunities as they develop,” Evans said.

In 2007, CDI acquired AmericaTAB, Bloodstock Research Information Services, and Thoroughbred Sports Network for $80 million. AmericaTAB and Brisnet.com operated advance deposit wagering platforms that were absorbed by the CDI-operated TwinSpires.com.

Evans said ADW and on-track wagering on live racing are the two areas for potential growth in pari-mutuel handle.

In its third-quarter earnings report released Nov. 11, Youbet.com said handle for the three-month period was boosted by the return of content controlled by TrackNet Media Group—a partnership between CDI and Magna Entertainment Corp.—but same-track handle was down $12.9 million from the third quarter of 2008 “due to the overall economy and fewer racing days at several racetracks.”

Youbet.com president and CEO David Goldberg said there were bright spots, including a 14% year-over-year increase in new customers and a 6% year-over-year increase in average number of weekly bettors.

“These positive factors allowed the company to deliver handle figures on par with the prior-year quarter, despite an overall industry handle decline of 10% during the quarter,” Goldberg said.

For the third-quarter of 2009, United Tote revenue dropped 12% because of “track closures, a general decline in wagering, reduced racing days, and lower equipment sales,” Youbet.com said in its earnings release. Loss from continuing operations was $900,000 compared with $600,000 in the third quarter of 2008.

For the first nine months of this year, revenue and sales for United Tote were down 15% to $16 million from $18.9 million for the same period in 2008. Youbet.com purchased United Tote for $31 million in 2006.

Churchill Downs racetrack is a United Tote customer. Other CDI-owned tracks—Arlington Park, Calder Casino & Race Course, and Fair Grounds Race Course & Slots—have contracts with AmTote, which is owned by MEC.

The AmTote contracts expire over the next few years, Evan said, but have early buyout provisions. He wouldn’t comment given the fact the Youbet.com deal won’t be finalized until the first or second quarter of 2010.

Evans did say the tote component is an attractive aspect of the Youbet.com deal. The National Thoroughbred Racing Association, through its Safety and Integrity Alliance, will branch out into wagering security and integrity next year, and tote protocol will be part of that process.

Evans said United Tote is a “stable, established system,” though concerns about the “financial viability and stability of tote system providers and the need to improve the integrity of tote system wagering are well-established.” He said CDI can use United Tote to “directly address those problems” and “improve tote system stability, performance, and integrity.”

Also during the Nov. 12 conference call, Evans and other CDI officials said it’s too soon to say what the combined TwinSpires.com and Youbet.com platforms will look like or even be named.

“We are limited as this time to discuss the future,” Evan said.

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