Spinning Out of the Downturn?

Since becoming the CEO of online wagering company Youbet.com, Michael Brodsky has focused on changing how the company runs. That has been primarily in making it more web-enabled, not a surprise in that Brodsky has a background in e-commerce sites dating back to the mid-90s. A website to sell variable annuities that later was acquired by Ameritrade; an online flower seller; and an online travel site bought out by Orbitz are the ventures that Brodsky was involved with before first joining the Youbet board in 2007 and then becoming chief executive in April 2008. “My background is online businesses and the direction that I have been moving the company is a shift to a more online perspective; a marketing, ROI-driven sort of strategy,” Brodsky said. Youbet employs 325 people in the Youbet Express online division and the United Tote division that supplies and manages the equipment used to process bets and calculate odds at horse tracks. For the quarter ending Sept. 30, Youbet reported a net income of $2.7 million, or $0.06 per diluted share, on revenues of $29.3 million. Question: What made you interested in taking the CEO position? Answer: I came to first know the company as an investor. The firm I managed was the largest shareholder in the company and wanted to get more involved and I joined the board in June 2007. Over time there were changes that occurred in the company that led the board to believe I was the right person to come in and shift the direction of the company. 2007 was a bad year for the company. We had our largest loss ever; a lot of things with our partners weren’t going right. We ultimately ended up needing to discontinue the operations of one of our divisions and sell a company we acquired just 12 months before. The board really looked to me to reorient the company, focus the company on its core business, and that is what I’ve done. I think that has worked, thankfully, for our results since then. Q: There has been a lot of comings and goings in the executive ranks in the past year. Do you think you have brought stability to the company? A: I think so. We have brought on some great new people. (Chief Marketing Officer) Jeff Grossman, we brought another gentleman (Michael Ziegler) from Hollywood Park who has been an assistant manager there and in the racing industry for 13 years and one of the real veterans of the racing business to deepen our relations in the horseracing field. The third guy is a gentleman who left Ticketmaster, David Goldberg, and was one the top guys managing that business for a number of years. He’s very well attuned in terms of the intersection between the event and venue-oriented experiences and e-commerce. The combination of Jeff’s experience as an e-commerce marketing executive, David’s at the intersection between offline events and online, and Mike’s as a racing executive is a terrific combination of skills and experience that I think will take the company to the next level. Q: Can you talk more about restructuring the company? Have there been any layoffs? A: Over time there are people who have not fit in with the new strategy so some of them have looked to go other ways. There have been a handful of people that have gone but there is not an exercise of big reductions in staff. The real objective is to find the right positions and that is what we are focused on. Q: So what takes place at the Woodland Hills headquarters? A: A variety of different functions. There is the overall management. We have the track management group, the marketing group who is responsible for our third party relationships. We are responsible for the horseracing page at CBS.com and ESPN.com. We have relations with the Daily Racing Forum and then obviously the direct relations with our customers. That is all managed here. We have a division responsible for maintaining all the content and keeping it up to date who is running today, what are the tracks, who are the jockeys. We have a customer service group. All of our engineering and technology is based here so all the front end is done here. Q: How is the down economy affecting Youbet? A: Generally speaking in past recessions or downturns the view has been that the gaming sector has been more resilient than other sectors. We are in a different circumstance now than in other times. That said, I think one of the things that we are hoping will offset it is all the hard work we are doing to improve relationships with our customers and get more customers to the site. So far I am hopeful. But time will tell. Q: Earlier in the year Youbet was delisted by Nasdaq and then were re-listed several months later. What were the circumstances behind that? A: It seems like a bigger deal than it really is. Nasdaq has certain rules for stocks that trade under a dollar. If it stays under $1 for a certain time they give you a notice you might be delisted. As we have now sustained a period of over $1 the risk of that has gone away. Q: What challenges is the industry overall facing? A: I think the biggest struggle will be how we move on from how to fight over the limited pie we have and turn it into how do we expand the pie. Really what we should do is innovate and grow; bring in new customers, do new things, offer new products, better customer service. This industry has not been focused on that. It has been focused on how do we fight over the limited business we have here. It is a huge opportunity to do it. This is a great sport. It is a fantastic experience if you go to the track. It’s a terrific experience online. If the industry can say let’s focus on doing more to grow that is what is going to make this thing win. If they don’t we are stuck in this purgatory, which is a shame for me as the manager of this business. Q: How is Youbet going about bringing in new customers? A: One of the things we are doing is trying to create tools and experiences that make the proposition of working with us and our site more compelling and easier and more familiar compared to other e-commerce sites. The goal is to get more people to pay attention. We are uniquely positioned to do that because a lot of our customers are people with jobs who can’t go to the racetrack on a Thursday afternoon. We can send them e-mails and alerts and text messages to stimulate the behavior. If we can do that that is good for us, of course, but it is good for Hollywood Park, it is good for the people who own the horses; it is good for everybody in the industry. That is the role I’d like to see Youbet play. Q: Having been involved in so many e-commerce sites, what lessons have you personally learned and what has the online business world learned? A: E-commerce is a business of numbers and discipline. A lot of business would go on gut. E-commerce is about analysis and testing. Where a lot of things you think are right turn out to be wrong. The reverse is also true. That is what we have put into effect here. The traditional offline marketing maxim is that ‘Half my marketing dollars work; I don’t know which half.’ With online marketing, you do. You know what’s working. You can test for it and do more of it. That’s what we are doing here. Michael Brodsky Title: CEO, Youbet.com Age: 40 Education: B.A., Syracuse University; a J.D. from Northwestern University School of Law; and an MBA from the Northwestern University JL Kellogg Graduate School of Management Most Admired: My father. He is a fabulous role model. Personal: Married, two children