Gemstar Deal Gives Internet Firm a Leg Up in Wagering.

YOUBET.COM Inc. is betting on its own daily double to reach profitability halfway through next year.

Two recent developments are expected to help the Woodland Hills-based online horse race wagering company.

A May 21 partnership agreement with TVG, the 24-hour horse racing network owned by Gemstar-TV Guide International, means that nearly all the nation's racetracks will be Webcast by Youbet.com, up from just 55 percent.

The deal caught the eyes of Wall Street, which quickly raised Youbet.com's share price from an annual low of 30 cents just before the deal to a close last week near $1.18.

That's still not where Youbet.com stood last August -- around $2 a share -- but kept it from getting de-listed from the Nasdaq.

Youbet.com is an information-only site that allows wagerers to make educated bets on live races, Web-cast over a private network on the Internet. The state-licensed wagering companies actually place the bets, but Youbet.com makes revenue from transaction fees as well as subscription fees and merchandise sales.

"They have a 25-yard lead on a 40-yard dash," said Mike Taglich, president of Taglich Brothers, the sole research firm that follows the company. (Taglich receives payment from Youbet.com to put its research on the Internet but it does not serve as its investment banking firm.)

The TVG deal gives Youbet.com access to 81 racetracks in 39 states, almost all the tracks in the country. It also gives it access to an additional 45 percent of the industry's "handle," which is the 20 percent of each wager that is given to the track, the state licensing entity, the horsemen and the wager facilitators.

For every dollar wagered, Youbet.com makes 5.5 cents, Fell said.

The company also plans to open its first state-licensed wagering facility in Oregon in late August. It has been using a state-licensed facility in Pennsylvania owned by Magna Entertainment Corp.

"Gemstar affords us the ability to have 100 percent of the tracks, so you can hear, see and wager on 100 percent of the tracks," Fell said. "Oregon allows us to have a hub facility that has been licensed and approved by the state of Oregon to accept wagers."

Gov. Gray Davis' signing this month of a bill that allows California horse racing viewers the ability to bet by phone or over the Internet is also expected to be a boon. The new law becomes effective the beginning of next year.

California alone potentially could create a $20 million to $30 million annual addition to the industry. The announcement boosted Youbet.com's shares temporarily by 30 cents. Youbet.com so far has helped horse betters make wagers in 38 states. Including California, the states that currently exclude legalized phone and Internet horse betting are: Alaska, Colorado, Georgia, Hawaii, Mississippi, Missouri, Nevada, New Jersey, North Carolina, South Carolina and Utah.

New Jersey has pending legislation that would allow Internet and phone betting on horse racing.

Youbet.com reported a net loss of $3.2 million (17 cents per diluted share) for the second quarter ended June 30, down from. net income of $3.5 million (18 cents) in the like year-earlier quarter. Second quarter revenues were $1.7 million, vs. $1.5 million in the second quarter of 2000.

Net income in second quarter 2000 resulted from a $6.9 million gain as part of a buy-back of $18.9 million in senior convertible notes.

Despite the loss, Taglich Brothers expects Youbet.com to report EBITDA (earnings before interest, taxes, depreciation and amortization) of $2.5 million, or 11 cents per share, for fiscal year 2002.

Much of that expectation is based on a steadily increasing subscriber base, which is anticipated to reach 43,000 by year's end, including the newly approved California wagerers and pending New Jersey legislation. The company had 17,000 subscribers by end of second quarter.

Fell, who also placed the first half of next year as a target for profitability, said the company would need to reach only 24,000 to 30,000 subscribers to reach that goal.

YEAR (Dec.31)                     2000     1999
Revenue (millions)                $6.0     $3.8
Operating Expenses (millions)     22.2     26.8
Operating Income (millions)       16.4     23.0
Net Income (millions)            (1.7)   (24.5)
Earnings Per Share             ($0.09)  ($1.45)

SUMMARY

Business: Provides online network of horse races

Headquarters: Woodland Hills

CEO: Robert Fell

Market Cap: $22.4 million Dividend Yield: N/A [*]

Total Liabilities: $3.6 million P/E Ratio: N/A

Long-Term Debt: None

(*.) Youbet.com Inc. does not pay dividends.

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