Online Betting Industry Suffers Record Losses Across the Board

Three more major online gaming companies have announced significant drops in their first quarter earnings. Coming just one day after the World Poker Tour Enterprise’s announcement of a $2.8 million loss in the first quarter Youbet.com, Magna Entertainment and Betbrokers have reported financial difficulties of their own for early 2008.

In what is normally the busiest time of the year for the largely horse racing centered company, Youbet.com suffered a 51.2% fall in net income from last year. This loss comes as the result of system malfunctions in the United Tote subsidiary as well as a controversy between Churchill Downs and the Kentucky Horsemen’s Benevolent and Protective Association. While the details remain unknown, all online bets were blocked for any race occurring on a Louisville Track except for Saturday’s Kentucky Derby.

In total, Youbet.com’s total revenue fell 14.3% to $24.5 million in Q1. This is cause for concern as the company is already precariously hovering above the mandatory minimum $1 stock listing on NASDAQ at $1.16. Should the listing drop below $1, it will be removed from the NASDAQ list all together.

Magna Entertainment is reporting an even direr situation. Following consecutive annual losses of $105.3 million, $87.4 million and $113.8 million for the 2005, 2006 and 2007 fiscal years respectively, Magna is reporting a $46.5 million deficit for the first quarter of 2008 alone. This comes as a foreboding turn of events for the sports book that has historically performed at its best during the first quarter due to its large horse racing component.

Frank Stronach, MEC’s Chairman and Interim Chief Executive Officer issued this statement:

We are very disappointed with our first quarter operating results, some of which can be attributed to weather and track drainage issues at Santa Anita Park beyond our control, and some of which reflect short-term disruptions as we continue to build out our Gulfstream Park commercial joint venture with Forest City. I remain fully committed to implementing the company’s previously announced debt elimination plan, and to seeing the operating results dramatically improved. I remain optimistic about MEC’s medium term prospects.

While no official plans to declare bankruptcy are in the works, with an accumulated deficit of $556.5 million, a working capital deficiency of $149.6 million, debts of $220 million set to mature soon and a public stock listing of $.40, NASDAQ has given Magna until August 11 to best the $1 mark or face delisting.

Betbrokers is also reporting losses, but much less severe than others. In its first annual report, the fledgling online sports book announced a loss of £2.74 million for the 2007 fiscal year. However, since acquiring competing company Winning Edge in September of 2007, Betbrokers has managed a modest operating profit of £14,165. In addition to its recent upturn, a £495,000 Loan Note installed in mid-March 2008 has added enough capital for the company to begin accepting bigger bets.

While the industry as a whole is experiencing record losses, it remains unclear just how much of this downturn is specifically attributable to a change in the online gaming market and how much is related to the recent American and global economic slowdowns.