Youbet.com Inc., a provider of online wagering for horse racing, confirmed it has formed a partnership with Gemstar-TV Guide International Inc.
The deal, first reported by The Wall Street Journal on Monday, is expected to widen Youbet's market penetration by providing its subscribers with online wagering accessibility to the industry's premier racetracks.
Los Angeles-based Youbet (UBET) allows customers to place bets online to horse tracks in 39 states. Through its TVG Network unit, Gemstar-TV Guide, of Pasadena, Calif., operates a cable-TV channel dedicated to horse racing and also offers in-home wagering services.
The deal provides TVG with access to Youbet's technology and a share in Youbet's revenue from wagering activities. At the same time, Youbet will gain content from major horse tracks under exclusive contract to TVG, to which Youbet didn't previously have access.
TVG has exclusive contracts with 20 major horse-racing tracks, including Churchill Downs Inc. (CHDN) in Louisville, Ky., and Hollywood Park in Los Angeles, that account for about 45% of all wagering activity, said Youbet Chief Executive Robert Fell. "The biggest reason subscribers canceled with us or did not sign up is that we have not had
the major track content," he added.
Youbet has about 15,000 subscribers who pay a monthly fee of about $6 for basic access to track information and activity in 39 states that permit online-wagering activity.
Under the terms of the deal, Youbet will pay TVG fees based on a percentage of online wagers. Youbet has issued to TVG warrants to purchase as much as 19.9% of Youbet's 19.4 million shares outstanding.
The warrants are exercisable anytime within the next 36 months for a penny a share, or a total of about $4,000. In addition, Youbet will issue, subject to shareholder approval, a second warrant to TVG to acquire an additional 30% of Youbet's common shares for $41 million in cash, also exercisable within the next 36 months.
"By joining forces, TVG and Youbet.com have set forth a strategy that should further develop the emerging in-home wagering market while maintaining an economic system that is positive for all aspects of the industry as well as CDI," Thomas H. Meeker, Churchill Down's president and CEO, said in a prepared statement. "Although we are encouraged by
this agreement and have identified in-home wagering as a future growth component for our company, we do not believe that this agreement will materially impact CDI's earnings in 2001."
Youbet and TVG also have agreed to cross-license patented intellectual property and to mutually promote each other's brands. TVG's parent, Gemstar-TV Guide, has been aggressive in acquiring patents relating to interactive TV and Internet technology and suing companies it believes infringe on its intellectual property, so the deal also could alleviate fears of any potential patent dispute down the road.
Gemstar-TV Guide is 38.5% owned by Rupert Murdoch's News Corp. (NWS).
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