Setbacks for BetonSports

Spending his time assuring investors, analysts and the media that BetonSports.com is still on solid financial footing wasn't exactly what the company's CEO, David Carruthers, had in mind for the holidays.

"I remain very bullish about the core of this business, and we will prove to any critics out there that we are worthy of the reputation we have built over the past four years."

-David Carruthers

But a dip in the online sports book's stock price in early December and reports that the often aggressive operation had to scale back its media campaign forced Carruthers into recovery mode.

BetonSports issued a profit warning--due to a rough NFL season that hurt most bookmakers--and some in the industry speculated that the company, which operates online and telephone betting operations, was relying too much on its telephone platform and was suffering for it.

Carruthers said this is not the case.

"We have specific risk management policies that push higher-staking customers to the telephone, and that skews the difference between volume of bets on the Internet and cash placed on the Internet," he said. "The vast majority of our customers use both channels, and our business continues to migrate to the Internet."

Declining profits in late 2004, he said, were more a result of challenges in acquiring new players in the U.S. market.

Even with shares getting cut in half in December, Carruthers paints a rosy picture for BetonSports.com and cites sizable cash flow as a big reason for his optimism.

"This business is still profitable," he explained. "We still have $44 million of cash to invest in new opportunities, and we are holding our dividend. I remain very bullish about the core of this business, and we will prove to any critics out there that we are worthy of the reputation we have built over the past four years."

Carruthers said the crackdown on Internet gambling advertising in the United States also affected turnover.

"Radio has been very successful in the past," he said, "but we simply failed to attract new players in the densities we had planned for and expected."

If the Department of Justice was hoping to put fear into advertisers who accepted business from online gambling operations, he added, then it succeeded.

"It was even more disappointing that some radio stations where we had booked ads previously we were unable to secure our complete buy, or any buy, despite having signed contracts," Carruthers explained.

Shares in BetonSports have recovered slightly from the December fall, rising nearly 38 cents to $1.71.

The advertising situation remains a problem, but Carruthers expects player acquisition procedures to improve

"We will be back where we were before in a reasonable period of time," he said, "and we will not be sitting in the same place this time next year."

He also said the company has no regrets about going public last summer.

"We did this to fund the resources to become a truly global operator and cement our dominance in the U.S. market, and those targets remain in place," he said.