Youbet.com Has Strong Quarter; Eyes Expansion

Youbet.com registered double-digit increases in handle and total revenue for the first quarter of 2005, which helped boost net income for the online wagering company from $15,000 in the first quarter of 2004 to $1.03 million this year.

Youbet.com chairman and chief executive officer Charles Champion called the results positive and noted the online wagering company is heading into what has been its best-performing quarter with momentum. The company, he said, with its growth strategy, which involves the acquisition of an offshore wagering service and development of account wagering in Nevada.

First-quarter handle jumped 23%, from $71.7 million last year to $88.2 million this year. Total revenue, which includes commissions from handle, jumped 25.1% from $14.8 million to $18.5 million. Net revenue, or what's left after racetrack and licensing fees are paid, was $6.1 million for the first quarter of 2005, was up 12% from $5.4 million in the first quarter of 2004.

Operating expenses for the Woodland Hills, Calif.-based company increased from $14.8 million last year to $17.6 million this year. Track fees made up almost half of the operating expenses at $8.6 million, followed by general and administrative costs ($3.1 million). Another $3 million went toward licensing fees and payments to the TV Games Network.

"The record first-quarter results reflect our industry leadership position in terms of product offerings, player services, technology, and wagering compliance, all of which contribute to a highly entertaining and trusted experience for our growing customer base," Champion said in a release. "This industry position, as well as our ongoing commitment to raise the bar in all of these noted areas of our business, is leading to higher levels of handle and improved bottom line results.

"While we expect that our core business will continue to grow at a healthy rate, we are also moving forward on expansion initiatives. To that effect we continue to make progress on completing our proposed acquisition of International Racing Group. The due diligence process for this acquisition is continuing to move forward, and we currently expect to complete this accretive transaction during the second quarter."

IRG, known in industry circles as Holiday Beach, is based in Curacao. It 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.

In comments made April 22 at the Association of Racing Commissioners International convention in Lexington, Champion called IRG a "good-practice company" that would complement Youbet.com activities. He said the industry must come to terms with rebates and other incentive programs.

"We're taking a fairly significant amount of handle, running it through a clean pipe, and getting back into pari-mutuel pools," Champion said. "(Rebates) are a fact of life, a reality. Our industry gives out rebates in all different ways. There needs to be a formulaic approach."

Champion acknowledged he "stepped on a land mine" when Youbet.com implemented a rebate program for more than 40 customers in a test designed to bring money into pari-mutuel pools. He defended the test but said he could have "spent more time talking about it" with racetrack partners.

Champion said Youbet.com doesn't allow arbitrage wagering, or computer-assisted batch betting, which track officials believe allows users to win at a much higher rate. Champion called it a "vacuum cleaner" for the pari-mutuel industry.

Youbet.com continues to pursue international account wagering, "private label" platforms for interested tracks, and development of account wagering in Nevada, where pari-mutuel betting takes place in casino race books.

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