Youbet Looking Beyond Racing for Growth

Youbet looks beyond U.S. for growth opportunities.

Flush off a quarter in which it saw increased handle and profit, said May 13 it would look at possibly establishing a presence in another country in an effort to expand its wagering offerings beyond horse racing.

The company reported a net profit of $1.17 million for the first quarter of 2009, an increase of 50.6% over the same period last year, and said the handle on its signature Youbet Express advance deposit wagering platform grew 29.9% to $123.98 million. Youbet said it benefited by regaining racing content controlled by Churchill Downs Inc. and Magna Entertainment Corp. after reaching agreements with the companies’ content provider, TrackNet Media Group.

Youbet officials reminded analysts in a May 13 conference call that after a restructuring year in 2008, this year’s corporate mantra carried plans for growth.

“The most important message is that we have been able to grow the business year-over-year while prudently investing in future opportunities and innovative marketing plans which will yield results in this year and beyond,” Youbet chief executive officer Michael Brodsky said in his opening remarks.

Youbet officials said that growth potential includes initiatives to add online wagering opportunities such as poker and other casino games should it become legal in the United States, or to residents of unspecified countries where such gambling is legal.

“Obviously, we’d look at a country that has broader wagering opportunities available to its residents, and in that case, we’d certainly look to go beyond horse racing,” said Youbet chief operating officer David Goldberg in response to a question. “Horse racing would be a significant component of what we do, but we would certainly look at anywhere we might be able to expand beyond horse racing as well.”

Recent legislation introduced by Democratic Rep. Barney Frank of Massachusetts may ultimately legalize additional forms of online gambling for U.S. residents, a proposal that Youbet has publicly lauded. But an analyst wondered if such expanded gambling could be “dilutive” to Youbet’s bottom-line.

“If we were to stand and do nothing and just continue with horse racing, there is a potential for that,” Goldberg said. “But the truth of the matter is that so much of this wagering is going on already, albeit illegally, so I don’t know if legalizing it is going to have a dramatic effect.”

But Brodsky said Youbet wasn’t going to abandon its current core business.

“(Horse racing) isn’t something at all that we are going to walk away from,” he said, noting investments into new technology such as conditional wagering platforms rolled out during the quarter. “We think this it is still a terrific opportunity and we are going to stick with that.”

Brodsky added that Youbet feels many of its customers are already engaged in other forms of online gambling.

“As we spend time with our customers, surveying our customers, and talking to them about what they are doing online, a huge portion of them are engaged in other sites of an illegal nature,” he said.

Youbet’s other primary business unit, totalizator company United Tote, produced a loss of $1.2 million from continuing operations, and saw a decline of 17% in revenues during the quarter. Company officials blamed the results on lost contracts and an overall decline in handle in North America. Youbet in the past has said it was looking at possibly selling United Tote, and officials said May 13 the company was still exploring strategic alternatives.