Updated on 09/15/2011 12:15PM

Youbet makes a deal with TVG


Youbet.com, the online wagering provider, and Television Games Network have reached a licensing agreement that will allow Youbet to take bets for the first time on some of the country's premier tracks such as Churchill Downs, Hollywood Park, Keeneland, Belmont, and Saratoga, officials for the companies said Monday.

The agreement will eliminate one of Youbet's biggest barriers in attracting subscribers while giving TVG a nearly cost-free source of new revenues in 34 states. Under terms of the agreement, TVG has been given the opportunity to buy a controlling stake in Youbet in the next three years.

Youbet officials said Monday that they believed they would be able to offer wagering on the TVG tracks by late summer or early fall.

Under the new arrangement, Youbet will be able to accept wagers for the first time on the Triple Crown and Breeders' Cup races.

Youbet's stock gained 61 cents on Monday, up 81 percent, and closed at $1.36. The stock closed above $1 for the first time since early January, a month before NASDAQ notified Youbet that it would no longer list the company if its stock did not consistently trade above $1 by late May.

Youbet had been barred from offering wagering on many premier racetracks because of exclusive contracts those tracks had signed with TVG, a 24-hour interactive horse racing network owned by communications giant Gemstar-TV Guide. The arrangements blocked Youbet subscribers from betting on tracks that account for 45 percent of the $15 billion horse race wagering market in the United States, including the six tracks owned by Churchill Downs, the three tracks operated by the New York Racing Association, and Keeneland Racecourse, Oak Tree at Santa Anita, and Del Mar.

Previously, Youbet's highest-profile tracks were Gulfstream Park and the winter meet at Santa Anita.

Robert Fell, the chief executive officer of Youbet, said he expected that the agreement would have an immediate impact on the company's ability to attact subscribers and increase betting handle when the deal takes effect this summer.

Youbet has 17,000 subscribers and accepts wagers from residents of 39 states. Last year, the company accepted $97 million in bets. TVG, which is available in 6.5 million households through the Dish satellite system and local cable in Louisville and Lexington, Ky., took in $18 million in wagers last year while accepting bets from residents of only four states.

Youbet officials have said that the company needs 30,000 subscribers by the end of the year to reach a break-even point. The company, which has lost $41 million the past two years, recently laid off one-third of its staff and pared its marketing expenses by a third to cut approximately $4 million in annual costs.

Under the new agreement, Youbet will pay TVG 5.5 percent of wagers through its system on a race from one of TVG's licensed tracks, and Youbet will be required to pay fees to racetracks and horsemen equal to the fees paid by TVG under its so-called "source-market fee" formula. TVG currently collects 5.5 percent on each wager through its own system, and it typically pays the signal track 3 percent on each wager while awarding 10.5 percent to the track and horsemen in the market of the bettor.

In another development, Youbet officials said Monday that they have been licensed by Oregon regulatory officials to operate an account-wagering hub in the state, which could jeopardize Youbet's current relationship with Ladbrokes, the Pennsylvania-based operation recently acquired by Magna Entertainment, the racetrack operator. Youbet has relied on Ladbrokes to process bets placed by Youbet subscribers since Youbet was launch in 1998.

Cutting out Ladbrokes and opening its own betting hub would allow Youbet to eliminate the middle man in its betting transactions. Ladbrokes currently pays Youbet a fee equal to 5 percent of each wager.

According to Ron Luniewski, Youbet's chief operating officer, Youbet does not plan on cutting Ladbrokes loose.

"We're going to market the hub equally with the Ladbrokes service and let the customer decide," Luniewski said.

Youbet officials have hinted in recent weeks that the company was close to an agreement with a racing partner, in part to resurrect its sagging stock price. Youbet's stock, which once traded as high as $23, has slid steadily since the middle of 1999, five months after the company's initial public offering.

If the shareholders of Youbet approve the plan, TVG would be given a warrant to purchase up to 19.9 percent of Youbet's stock for one-tenth of one cent per share. The warrant could be exercised in the next three years. At the time TVG exercises the warrant, the network could also buy up to 51 percent of Youbet's outstanding stock, at $2.50 a share.