Wounded by a bear market, increased competition and the continually hazy legal climate in the U.S., Youbet.com has certainly seen better times. Nevertheless the company continues to move forward in hopes of achieving a profitable business. The intranet race wagering service provider has launched a new Web-based betting platform in hopes of increasing its subscribers by the end of the year. But, the company’s future may be known sooner rather than later. Hanging above operations in the quarter is the threat of being de-listed by Nasdaq. To save itself, Youbet.com must be traded at over $1 for over 10 days before the end of May. Given the fact that the stock was at $0.44 on Monday, the future on the Nasdaq doesn’t bode well for the California-based company.
Last week Youbet.com was one of a handful of companies targeted by Michigan with a cease and desist letter.
IGN talked with Youbet.com CEO Robert Fell about the recent developments with the firm and its future, which according to him looks good. He said there were no new developments on the Nasdaq front but is hopeful the stock will rise as the company expands its options to its customer base.
IGN:Your company has yet to turn a profit since its inception, do you see a change on the horizon?
Robert Fell: The business plan is a very simplistic one for the future. Right now we want to build our core subscribers in the horse racing space in the United States. We currently have about 15,000 subscribers and we break even at about 30,000 so in terms of short-term (goals) we want to reach that 30,000 mark.
IGN: Do you have a target date for your break-even number of 30,000 subscribers?
RF: We said from the date of the introduction of the Web-based product, which was the middle of April, within 12 months we want to see our cash flow break even.
IGN: Youbet.com was one of the online gaming companies targeted by Michigan Attorney General Jennifer Granholm last week. Has the company released a statement regarding those actions?
RF: Ladbroke (which handles wagers placed from the Youbet.com network) received a letter and has taken a position that the Michigan AG is in error and wrong in his (sic) legal position.
IGN: What kind of revenue is being brought into the company?
RF: We have climbed tremendously. We were at a standing start of zero in 1998 and now we are doing over $100 million in handle. That translates to revenues of about $6 million a year.
IGN: With a break-even subscriber number of 30,000, how much money are you spending just to stay operational?
RF: Our burn rate, in terms of loses, is about $700,000 a month. Clearly as we get closer to 30,000 subscribers that loss goes away and we start to break into positive cash flow.
IGN: Why are you confident that in one year you can double your a subscriber base that took over three years to build?
RF: We have introduced a Web-based product so you don’t have a cumbersome install of a CD. We are offering the best content in the world from 61 racetracks around the world. We make it easy for people to come on board and within 20 hours be operative and gaming.
We found that some horse racing fans found that downloading the CD was a cumbersome exercise. So we said let’s elevate that. We now have a system that is easy to access and easy to use. The younger player, the newer player into the market, doesn’t want to wait for a CD. They want instant gratification. Those two markets, the existing one where customers felt it was a hassle to download a CD and the newer market where customers want instant gratification, this became a smart marketing decision for us.
IGN: Between Nasdaq and the California troubles (editor’s note: In 1999 Youbet’s offices were raided by the Los Angeles police department. The company no longer accepts bets from California or New Jersey residents.), Youbet.com has certainly been through some troubled times. What are the biggest challenges facing your company today?
RF: We have developed a sports product whose biggest issue is the legality and legislation. There are 21 countries which have some form of online gaming, but the rules and laws and abilities to do it differ from country to country. If you want to operate, as we must operate, within the laws of the United States you have to be in line with all those laws. You want to ensure that your technology is fair, honest and can adapt to the needs of all the places around the world and all the types of games that might be legal in those types of places. The Internet market is not necessarily the same as the previous gaming market. Phase two of our plan is to address those international markets.
IGN: Right now your focus is U.S.-based, how will you go about taking on a global approach?
RF: We want to be the leading live-event wagering company in the world. But we want to operate legally, so we would endeavor with a gaming partner to go out into other parts of the world with a sports related live-event product within the legalities of the country and never violate the law.
IGN: Any plans to venture into the wireless arena or interactive television with your technology?
RF: We want to be wherever one can wager. We have developed a wireless product and we are going to launch a wireless product and we will be involved in interactive television. Clearly we have the technology to do so, and as these two areas emerge we will be there.
IGN: Have you set a target date for the wireless platform?
RF: I think by the end of the year we will launch our wireless product. Interactive television I think we will wait for greater penetration.
IGN: Will your global approach entail more than just horse racing?
RF: In terms of horse racing we feel we have a product that can be adopted all over the world. But we are focused on proving we can be profitable in the United States. We have $10 million in cash, so we don’t need to raise capital. We want to use that well and get the cash flow positive and take our horse racing all over the world. Then with a partner we want to take a sports product all over the world.
IGN: The state of Oregon is currently contemplating a law that would allow Internet sports wagering only through a closed-loop system. This is the same type of system that Youbet.com’s technology is based on. Do you see that as a trend in state regulation?
RF: State governments always seem to go on their own. I think Oregon can take a lead in horse racing, but in regards to other states I think closed-loop systems will work and I think Web-based systems will work. I don’t think there will be a trend to one or the other. State governments will figure out on its own what to do, and we will abide by it.