Youbet.com Purchases Offshore Wagering Company

Youbet.com has closed on its acquisition of International Racing Group, a Curacao-based account-wagering service, for $3 million. The purchase price includes $2 million in cash and $1 million worth of Youbet.com treasury stock.

As part of the deal, Youbet.com acquired an IRG-affiliated company called It's All Good Buddy Inc., which is based in Nevada. The sellers will get 166,668 shares of Youbet.com stock and, based on the future performance of IRG, could receive up to $9.7 million plus annual earn-out payments over the next three years.

According to a filing with the Securities and Exchange Commission, the sellers could receive up to $1.9 million a year in three annual installments based on handle generated by IRG, which will be operated as a separate entity. They also may get up to $500,000 a year based on handle thresholds, and if a target handle is reached in one year, they could get an additional 1% of any handle that exceeds the target amount. A final payment of $2.5 million is possible should an aggregate handle threshold be met over the three-year period.

Youbet.com plans to use the companies to expand its account-wagering business, which continues to grow. The company is headquartered in Woodland Hills, Calif., and operates a wagering hub in Oregon.

"One of our core growth strategies has been to broaden the scope of our advance deposit wagering offerings through acquisitions of pari-mutuel wagering entities that we believe will be accretive to our operating results," Youbet.com chief executive officer Charles Champion said in a release.

Champion said changes to IRG operations would be based on the recommendations and requirements of an independent wagering compliance committee, its racetrack relations department, and other resources.

As for Youbet.com finances, Champion said the company is confident it will achieve 2005 diluted earnings per share of $0.18 from current operations based on the timing of the acquisition. He said operating results "will benefit almost immediately," and that the IRG acquisition would add about $0.02 in diluted earnings per share in fiscal 2005.

IRG, known in industry circles as Holiday Beach, was named but not charged in an 88-count federal indictment that alleged illegal gambling earlier this year. The company, which offers rebates, handled $140 million in 2003 and $210 million in 2004, according to figures provided by Youbet.com.

Youbet.com said IRG has contractual agreements with the more than 90 Thoroughbred, Standardbred, and Greyhound tracks on which it takes bets.