03/31/2008 11:00PM

Youbet reports $27.3M loss for 2007


Youbet.com, the online horse race broadcast and wagering company, lost $27.3 million in 2007, including $17.9 million in write-offs for two of its businesses, according to financial statements the company issued on Monday night.

The loss is a significant sign of trouble for Youbet, one of the most widely used account-wagering operations in the United States. Even without the write-offs and several non-recurring charges totaling $5.2 million, the company's $4.4 million operating loss is a sharp increase over the company's 2006 operating loss of $2 million. In addition, Youbet ended the year with $6.6 million in cash, compared with $21.1 million at the beginning of the year.

Founded in 1995, Youbet has struggled to turn a profit for most of its existence, and is now facing a significantly restructured account-wagering market due to the emergence of competition from new account-wagering operations launched by Churchill Downs and that company's partnership with Magna Entertainment on the sale of racetrack signals.

Gary Sproule, Youbet's chief executive officer, said on a conference call Tuesday morning with financial analysts that the company would focus in 2008 on retaining existing customers and steering those customers to high-yield signals.

"We believe 2008 will be a key turn-around year for Youbet and we look forward to getting back to basics," Sproule said.

Youbet's stock closed on Tuesday at 72 cents, down 9 cents, or 11.1 percent.

The 2007 write-offs include a $9.9 million charge to account for the closing of International Racing Group, an offshore rebate shop that Youbet purchased in mid-2005 for $3 million in cash and $9.7 million in future payments to the former owners. Youbet closed the operation earlier this year after revenue sharply declined because of an ongoing investigation by the U.S. Customs Enforcement and Immigration department into the activities of some of IRG's customers. Youbet has said that IRG itself is not a target of the investigation.

The write-offs also include an $8 million impairment charge on United Tote, a bet-processing company that Youbet purchased early in 2006 for $31.9 million in cash and the assumption of $14.7 million in debt. In a release accompanying the financial statements, Youbet said that it was considering selling United Tote, which was purchased in part to facilitate computerized robotic-wagering programs that customers of IRG used to make bets.

Revenue in 2007 was $138.2 million, a slight increase over revenue of $136.4 million in 2006, according to the financial statements. However, total expenses increased from $137 million to $161.6 million, including the impairment charges.

According to Youbet, handle through its domestic account-wagering operation increased 4.4 percent in 2007, from $463.8 million to $484.2 million. However, handle declined in the fourth quarter of 2007 compared with the fourth quarter of 2006, falling 8.8 percent, from $116.8 million to $106.5 million.

Handle through IRG was $231.7 million in 2007, down 22.5 percent from the 2006 total of $299.2 million. IRG handle in the fourth quarter - when the investigation was announced - was $13.6 million, a 79.3 percent decline from the 2006 fourth-quarter total of $65.4 million. IRG was closed in February.

Youbet also said on Monday night that it has received a notice from Nasdaq that its stock faces delisting if the share price of the company does not exceed $1 for a 10-day trading period prior to Sept. 29.