Are all bets on again?
A five-month investigation involving state and federal authorities into a Youbet.com Inc. subsidiary has been closed with no charges filed.
The Woodland Hills-based provider of technology and horse racing content said in October that it was being investigated because of wagering activities of “certain employees of the subsidiary and customers.” The investigation into the activities at International Racing Group, a high-end bettor concierge service, resulted in the seizure of $1.5 million in cash from the company.
Just the idea of federal authorities snooping around the business spooked investors, said Mark Argento, an analyst with Craig-Hallum Capital Group LLC.
Shares plunged 26 percent the day after the investigation was announced and have since dipped more than 60 percent.
“It was the perfect storm for them,” Argento scoffed. “Things got really bad really fast.”
The investigation coupled with declining business forced Youbet to shutter the struggling IRG unit last month. IRG was an offshore phone service for high-rollers, allowing them to place large bets on horse races.
But Argento has placed a “buy” rating on the company. The closure of IRG, which Youbet acquired in June of 2005, may actually help Youbet.com rebound, he said.
“IRG wasn’t a big part of Youbet’s core Internet-based business model,” Argento said. “The margins were lower and the technology used in the business wasn’t very expensive. So the decision to close up shop wasn’t a very hard one for management.”
Youbet announced last week the U.S. Attorney’s Office in Las Vegas agreed not to pursue any charges against the online wagering services provider or its subsidiaries. In exchange, Youbet said it would continue cooperating with authorities and would forfeit the $1.5 million.
“The decision to close IRG was necessary as we continue to focus our management priorities on improving profitability and shareholder value,” interim Chief Executive Gary Sproule said in February, adding that IRG had become unprofitable and showed no sign of turning around.
The closure will cost the company about $12.5 million, which includes the costs of shutting the business as well as severance for the employees and will more than likely result in several write downs on the company’s upcoming fourth quarter earnings, which are set to be released in the next two weeks.
It wasn’t specified if there would be layoffs at the Woodland Hills offices.
“This is a great move for them and it’s time for them to just push the reset button and move on,” Argento said.
Over the last year, the company has appointed a new chief financial officer, replaced its chief executive and has also put the likes of billionaire Jay R. (JB) Pritzker on its board, along with former Orbitz executives Michael Sands and Michael Brodsky.
“These guys are going to come in and clean things up,” Argento said. “Youbet is the best-of-breed in the online betting arena. They should turn it around.”
