Hoping to save a sinking ship on the Nasdaq exchange, Youbet.com, Inc. announced a deal yesterday that resulted in its stock price skyrocketing. The move could ultimately save the company from a delisting.
The popular interactive race betting service announced a deal with TVG, the interactive horseracing network of Gemstar-TV Guide, that will make it easier for gamblers to bet online.
Through the deal, Youbet.com will get TVG's wagering technology and content from leading horse races that are under exclusive contract to TVG, such as the Breeders Cup.
In return, TVG will get a portion of Youbet.com's betting revenues and stock warrants that could lead to TVG buying a controlling stake of the online gaming company.
Following the announcement of the deal, Youbet's stock price shot up by 81 percent to $1.36 on the Nasdaq.
TVG is a 24-hour interactive horse racing network available nationwide through cable and satellite systems. The group has exclusive simulcast and interactive wagering rights to live racing from leading racetracks in the United States as well as intellectual property covering interactive wagering technology for a wide variety of communications platforms.
The agreement gives Youbet.com a non-exclusive license to utilize TVG's patented wagering technology for online and automated telephone applications and a non-exclusive right to video stream and accept online pari-mutuel wagers on horse racing from virtually all of TVG's exclusive partner racetracks. Youbet.com will make the tracks available to Youbet Network subscribers concurrent with the company’s operation of a new Oregon-based hub for the acceptance and placement of wagers, expected to commence within the next several months.
The deal comes with deadline from Nasdaq, requiring that Youbet's stock trades at over $1 for 10 consecutive days, looming. The stock price had been hovering near $0.50 for the last month.
Youbet.com Chairman and Chief Executive Officer Robert Fell addressed the agreement in a conference call yesterday and feels that the deal was important for Youbet's survival.
"Nearly one-half of today's pari-mutuel wagering dollars are directly connected to the TVG-affiliated racetracks that we can now add to our online network. That equates to substantial opportunity for Youbet.com," Fell said during the teleconference.
A large chunk of that betting is conducted during the Triple Crown and Breeder's Cup races, events Youbet will be able to capitalize more on, according to Fell.
"The Youbet Network will now be able to facilitate wagering on the internationally recognized championships in horse racing--the Breeders' Cup, which is the single largest racing day, and the Triple Crown, which includes the Kentucky Derby, the Preakness and the Belmont Stakes," he said.
Just last month in an exclusive interview with IGN, Fell stressed the importance of the Triple Crown and the publicity and coverage that comes with it in getting new subscribers aboard.
He reiterated those feeling again today, but admitted that Youbet will have much more leverage than in the past.
"We will cover the Breeders' Cup in November of this year and the 2002 Triple Crown," he said. "Even before we had the right to accept online wagers for these events, The Breeders' Cup and the Triple Crown brought peak levels of activity to our Network. These events will have a significant effect on growth in our network operations in the future as well as the ability to attract a wider audience of sports fans."
Under the terms of their agreement, Youbet.com will pay to TVG fees based on the handle generated by Youbet.com from wagering activity and issue to TVG warrants to purchase Youbet.com common stock. In connection with the agreement, the company has issued to TVG warrants to purchase up to 19.9 percent of the number of Youbet.com common shares outstanding on the date of the agreement at an exercise price of $0.001 per share, exercisable within the first 36 months of the agreement.
Subject to approval by Youbet.com's stockholders, the company will also issue to TVG a warrant to purchase up to 51 percent of the number of Youbet common shares outstanding on the date the warrant is exercised (including the shares issuable upon the exercising of the first warrant) at an exercise price determined to be $2.50 per share, subject to adjustment. The second warrant will also be exercisable during the first 36 months of the agreement.
The fees payable to TVG under the long-term track content and patent license agreement have a two-tiered structure, based on whether Youbet.com's stockholders approve the issuance of the second warrant to TVG. Upon shareholder approval of the issuance of the second warrant, TVG will receive approximately 5.5 percent of the handle generated by Youbet.com from wagering activity at the TVG exclusive partner tracks and 3 percent of the handle generated by Youbet.com from wagering activity at four additional tracks. Youbet.com will also pay to TVG a portion of the fees that it receives from Youbet subscribers.
If the issuance of the second warrant is not approved, TVG will be entitled to receive approximately 5.5 percent of the handle generated by Youbet.com from wagering activity at all Youbet Network tracks.
TVG officials see the agreement as another avenue for the company to broaden the exposure of its tracks.
"The track content and patent license agreement with Youbet.com is part of a sound growth strategy for TVG, provides recognition of our intellectual property position and enhances the revenue potential of our content rights," Mark Wilson, president and CEO of TVG, said.
Wilson said Youbet has agreed to the sharing structure set up with its tracks which sees a certain percentage of the proceeds going back to the horsemen.
"The relationship is also very beneficial to our track partners," he said. "Youbet.com has agreed to adopt the TVG/NTRA Services Source Market Fee revenue sharing program, which is an important element in promoting industry best practices for providing fair compensation to racetracks, horsemen and breeders from wagering."
Youbet.com and TVG have agreed to cross-promote the Youbet and TVG brands. Additionally, upon exercise of the warrants, TVG will have the right to be represented with substantially proportional membership on Youbet.com's Board of Directors.
In addition to Youbet's 61-member tracks in the United States, Canada and Australia, through this agreement, the company will now be licensed to deliver content from and facilitate wagering activity for most of TVG's exclusive partner tracks.
These include three premier tracks in New York (Aqueduct, Belmont Park and Saratoga) as well as most of the remaining top racetracks in the United States, including tracks in the Churchill Downs Incorporated Simulcast Network (including Churchill Downs, Hollywood Park and Arlington Park) as well as Del Mar Racetrack, Keeneland Racecourse, Oak Tree Racing Association and Turfway Park.
While the Triple Crown will help Youbet land more casual bettors, Fell is confident that the stable of other TVG tracks will be attractive to the more frequent horseracing fans.
"We view TVG as an ideal content partner," Fell said. "Through this relationship, we gain access to a highly concentrated group of premier tracks affiliated with TVG, thereby completing Youbet.com’s network of wagering venues. Youbet subscribers will now enjoy accessibility to virtually 100 percent of the industry, the best racing in the U.S. on a truly year-around basis."
In conjunction with the deal, Youbet.com received approval by the Oregon Racing Commission for a multi-jurisdictional license to operate a licensed online pari-mutuel wagering facility located in Oregon.
Presently, TVG partners with NTRA Services, LLC, a for-profit subsidiary of the National Thoroughbred Racing Association, the "league office" and central marketing organization for thoroughbred horse racing in the United States, to operate an Oregon-based hub for the acceptance and placement of wagers at TVG partner racetracks.
Under the terms of the track content and patent license agreement, Youbet.com will open and operate a new Oregon state-licensed wagering facility. Youbet.com and TVG will explore operational synergies in this area, according to Fell.
Youbet.com currently transmits information for wagering acceptance and placement through the Ladbroke, Pennsylvania wagering entity. Ladbroke is entitled to renegotiate the terms and conditions of its agreement with Youbet.com or terminate its agreement based on Youbet.com entering into the current agreement with TVG.
Youbet.com doesn't know what actions the Ladbroke entity intends to take with respect to its agreement with Youbet.com.
Fell admits that he can't worry about that right now. He doesn't think that Ladbroke will sever ties immediately with Youbet and he believes that the two parties could probably work an agreement out for the future. In the meantime, Fell is looking ahead and hoping that the dark days are behind his company.
"This really puts us on the map," he said. "Both nationally and industry-wide, as both the content and technology leader."