06/02/2005 11:00PM

Youbet says it won't send clients offshore


Youbet.com will not move any of its current account-wagering customers to an offshore rebate site known as International Racing Group that the company purchased on Thursday, the chief executive of Youbet, Charles Champion, said on Friday.

"One thing we are definitely not going to do is take a Youbet customer and convert him into an IRG customer," Champion said. "That is something we are going to be very sensitive about."

Champion's pledge comes amid concern from some racing officials about Youbet's purchase of IRG, a rebate shop located in Curacao. Youbet closed a deal to buy the shop on Thursday for $2 million in cash, 166,000 Youbet shares, and future considerations that could total $9.7 million in payments over the next three years.

For several years, the racing industry has been debating the value of rebate shops, which award cash back to high-rolling customers based on handle and have grown exponentially over the past five years. Several racetracks have restricted the availability of their signals to rebate shops, including IRG, citing an indictment released earlier this year and the belief that players at the sites have unfair advantages over other bettors.

Like other rebate sites, IRG is able to award rebates because the site retains a far larger portion of the revenue from a wager than nearly any domestic betting operation, including Youbet. That dynamic has raised concerns that Youbet would transfer many of its best customers from its existing service to IRG, cutting into the industry's revenue stream.

Champion, however, said that Youbet's customers will not be offered any deal to switch to IRG, and he also said that the two services would be marketed separately. IRG will specifically target players who are betting on horse racing through offshore bookmakers, Champion said.

"We're not interested in going after customers who are already betting into the parimutuel pools," Champion said.

Earlier this year, IRG was one of five sites named in a federal indictment that accused more than a dozen people of running an illegal gambling operation. IRG was not charged with a crime.

Champion said that Youbet checked IRG's current customer lists against several international lists of known criminals, and said the checks did not uncover anything untoward.

The concern surrounding rebate shops has had financial repercussions on IRG, accounting for the relatively low price paid by Youbet and the performance-based payments. Last year, IRG had handle of $215 million, according to filings with the SEC, but handle in the first quarter of 2005 dropped to $27 million, or $108 million on an annualized basis.

Champion said the decline was attributable to decisions by the New York Racing Association, Churchill Downs Inc., the New Jersey Sports and Exposition Authority, and other track operators to stop sending their signals to the site after the indictment was released. Churchill and the New Jersey authority have since resumed sending their signals to IRG, Champion said.