Tech Talk—Gemstar Stakes Claim on Future of Online Gaming

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Investors are suddenly betting on online wagering company Youbet.com Inc. after the Woodland Hills company inked a deal with TVG, a unit of Wall Street darling Gemstar-TV Guide International.

Money-losing Youbet.com’s share price soared 75 percent by the close of trading May 21, the day the deal was announced.

It was good timing. Youbet.com’s stock has been in the cellar, trading for less than a buck a share since February. On March 23, it closed at $1.17 per share.

The deal with TVG, which operates a horse racing network via cable and satellite, adds horse tracks that had been under exclusive contract to TVG to Youbet.com, expanding its market penetration.

But it’s probably market consolidation that is of most interest to investors. The deal puts TVG in a position to become a majority shareholder in Youbet.com. The Gemstar-TV Guide unit will receive warrants to purchase up to 51 percent of Youbet.com’s common stock.

“The end result could be that TVG could take control of the company, and if that’s the case, they’re a great, deep-pocketed partner to do so,” said Youbet.com’s CEO Robert Fell. “One has to do what’s best for shareholders.”

As part of the deal, TVG will gain access to Youbet.com’s technology and gain a share in Youbet.com’s revenues from wagering activities.

Youbet.com will gain access to TVG’s patented wagering technology for online and telephone applications and access to the additional tracks.

Youbet.com lets customers watch and, at least in 39 states, wager on horse races. The company does not actually accept or place bets. Wagers are accepted and placed only by a state-licensed wagering entity. Youbet.com’s wagering information is transmitted to Ladbroke, an agency in Pennsylvania.

The bulk of Youbet.com’s revenues come from subscription fees of $5.95 per month per person and from collecting 50 percent of the commissions to Ladbroke from wagers placed by Youbet.com users. It also makes money by selling handicapping information.

Youbet.com reported a net loss for the first quarter ended March 31 of $2.3 million (12 cents per share), compared to $3.4 million (17 cents per share) in the like year-earlier quarter. Its first-quarter revenues were $1.6 million, down from $1.7 million in the like year-earlier quarter.

Last week, Fell said Youbet.com had its busiest week ever, processing $2.6 million in online bets, thanks to the May 19 Preakness Stakes.

The Preakness is the second race in horse racing’s Triple Crown, which begins with the Kentucky Derby and culminates with the Belmont Stakes.

Horse racing, a particular passion of Fell’s, is only the beginning of Youbet.com’s betting and gaming pursuits. Fell intends to make Youbet.com the global brand for legal online wagering and other forms of legal online gaming.

“There is tremendous growth in online wagering all over world,” he said.

Youbet.com, for example, is holding discussions with major casinos and will partner with them when appropriate, according to Fell.

Online communication is the ideal medium for live sports event wagering, Fell said, because it allows instant access to databases that bettors need and the ability to sort and analyze wagering information. Bettors can also place bets anywhere at anytime, as long as it is legal, he said.


Future Shock

With valuations of tech companies still falling, VCs cowering and the future of L.A.’s messy tech economy uncertain, a dose of Alex Lightman’s foresight is in order.

“The word for the future is augmentation,” Lightman said. “Breast augmentation is only the beginning.”

Lightman, CEO and co-founder of Charmed Technology, a Beverly Hills-based MIT Media Lab spin-off that develops and sells cutting-edge miniaturized computer devices, said augmentation will revolutionize the local economy.

“At some point, somebody sooner or later will find a way to get permission to do elective surgery to implant mechanical things. I don’t advocate it, but I know it’s coming,” Lightman said.

Lightman’s no kook. An MIT grad, he is a widely respected authority on wireless broadband. In the various management and engineering positions that he has held during his career, Lightman has almost always been poised where entertainment and technology converge.

Before we wake up for coffee and a surgical implant, Lightman is betting that we’ll turn to devices that can be worn on the body.

That’s where Charmed Technology comes into play. Lightman’s vision for the company, which is partially funded by discount brokerage guru Charles Schwab, is “to incorporate the wireless Internet into fashion, lifestyle and health applications by creating inexpensive wireless mobile devices that will allow individuals to access the Web anywhere and anytime through wireless technology.”

L.A.’s diverse tech economy and the sheer volume of tech talent puts L.A. ahead of any city in the world, Lightman said. It’s also one of the few places in the world where an “Amgen-meets-Disney scenario” could unfold, he added.


Genesis Questions

Documenting the rise and fall of dot-coms in documentary films and in non-fiction is a popular pastime lately, but none of the tales told so far rivals the intrigue of GenesisIntermedia Inc.

Arms dealers, short sellers and possible deception have all come into play at the Van Nuys interactive and direct company in recent weeks.

Last week, GenesisIntermedia announced that it has given shares now worth more than $3 million to investment manager and TV commentator Courtney Smith, who helped send the stock soaring after he recommended it on several cable news programs.

To add to the hype, GenesisIntermedia director of investor relations Rob Bleckman had been referring news reporters to Smith, who Bleckman identified as an analyst for the company.

“I think they’re on to something,” Smith told the Business Journal earlier this month. He later said GensisIntermedia “could be a billion-dollar company.”

It was not only talk like that that helped drive the share price.

Earlier this month, shares of the company rose because of short selling.

Adding to the intrigue, one of GenesisIntermedia’s largest shareholders is former Saudi Arabian arms dealer Adnan Khashoggi. He increased his stake in the company to 44 percent last month.

Khashoggi and GenesisIntermedia CEO Ramy El-Batrawi own 90 percent of the company. With so few shares available to buy, the trading of just a few shares can cause major fluctuations in the price.

Courtney Smith and officials from GenesisIntermedia were not immediately available for comment.

Staff reporter Hans Ibold can be reached at (323) 549-5225 ext. 230 or [email protected].

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