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Saturday, March 6, 2010

Why Is It Important To Prepare For Legal Online Gambling In The US?

I am not sure if online gambling will ever be legalized in the US. If it occurs when it will occur, what form it will take or what restrictions will be associated with it. However, if one believes or hopes that it will occur waiting until the last minute to jump in could be a dangerous strategy.


Branding - Just because a company has an online gaming brand in Europe or Asia does not mean it has a recognized online brand in the US. Building brands online specific to a market is important because it establishes credibility and potentially results in an aggregation of online players prior to the legalization of online gambling in the US. This prior aggregation of online players can provide an advantage to online gaming brands when legislation changes. When the change occurs the online brands can market to their online players converting them to online gamblers.

PartyPoker and Zynga have US online gaming/gambling brands. They also have accumulated large numbers of free and micro-transaction players. If handled properly, a large number of those players can be quickly and instantly converted to gambling players.

If an operator waits to the last minute to build awareness of their brand they will already be competing in a crowded market with operators that have acquired most of the potential US online gamers.

Land Based Casinos - Having had the opportunity to launch online brands in Europe for land based casino brands taught me how difficult it is to establish online brand awareness for a well branded land based casino.

Branding a land based casino as an online brand can be as challenging as branding a completely new business. Just because you have a "great" offline gambling brand does not necessarily entice players to use your online property. This is especially true if the space is already occupied by well known online gaming brands.

Casinos should start to move online now establishing legal online gaming propositions to begin to build brand awareness, to get an understanding of online player characteristics and to begin to determine how many of their land based players will become online players.

Payment Processing - I work with many legal online gaming companies in the US. They range from skill game, sweepstakes and stock trading models. They all struggle getting payment processors to accept their transactions even though they are legal operations. I am not sure exactly why this is so difficult. However, I suspect the alien and suspicious nature of online gaming is a red flag for processors causing them to hesitate to handle online gaming transactions.

If a company waits to the last minute to establish their US payment processing relationships they could find themselves in a frustrating situation trying to launch an online gaming business without the ability to process payments. If an operator is interested in participating in online gambling in the US they should begin identifying US payment processors and secure relationships now even if they do not intend to launch an online gaming business in the immediate future.

Operational Acumen - Operating an online gaming operation is non-trivial involving technology, software development, legal work, player support operations, and online marketing expertise. Existing online gaming operators will have an advantage entering the US market because they have existing operations and knowledge of how to acquire and retain players. The one caveat might be the requirement by the US authorities to have all of the personnel and gaming machinery located in the US.

If this is the case it is another reason to get started now sorting out where to put the operation, hire staff, setup hosting arrangements, build technical infrastructure and to establish the proper hosting relationships.

Game Selection - Just because an online game is popular outside of the US does not mean it will be popular in the US. We see this in land based casinos as well as online. We also know that a popular land based game may not be popular online.

Each country and culture has its own bias related to game play. The online community has its bias relative to land based play. Operators will have to spend time researching what mix of online games work for the US audience.

The social or casual gaming space will prove to be most challenging for traditional offline and online gambling operators. These games are becoming very popular in the US and could be the predominant gambling type games when it comes to pure player numbers.

Operators will have to spend time researching and experimenting to determine what game and game collections are popular in the US. In some cases this may require operators and game developers to modify existing games, build new games or license games from third parties.

Demographics - Generally speaking online gamers are younger then land based gamers. This could have a significant influence on the games they will play, when they play and how much they wager. Getting an online presence in the US early is important to figure out the age breakdown of US online gamblers. This will influence how to market to the gamers and what game mix works for them.

Game License - With almost absolute certainty operators will have to obtain an online gambling license to operate in the US. With equal certainly the authorities will be more likely to grant licenses to operators that already operate in the US.

The licensing process could be a long drawn out affair that will favor companies that have relationships with federal, state and indian gaming authorities. Gaming companies need to be talking to and working with these groups and agencies, prior to legislative changes, to establish their credibility and make the authorities aware of their operations and the individuals involved in the operations.

Conclusion - The time to start US gaming operations is now if a gaming operator has any chance of being successful in the legal US online gambling business. The development and execution of a successful US gambling strategy will require significant effort, funding and planning to differentiate it from the numerous other companies that want to enter the space. A number of companies have started the process requiring interested parties to accelerate their planning for the "possible" opening up of the US online gambling market.

There is also great "risk" in early preparation for legal gambling in the US. No one is absolutely sure it will happen and how it will unfold. A concentrated investment in one area could prove to be wrong resulting in money spent in the wrong place or at the wrong time.

The collapse of the UK gambling bill is a discouraging historical precedent. Under full support of UK legislators a gambling bill was drafted vetted and moved forward to implementation. A late awareness, by UK constituents, of the bills full magnitude and scope caused it to be scaled back significantly. This caught many land based casinos off guard. They had invested large sums in property purchases and setting up operations. For the most part this investment was wasted.

A wise and thoughtful management team will set aside a prudent amount of funding for US operations and then decide on how best to invest the funds to make sure that it establishes a foundation for moving forward if the US gambling laws change.

When and if an online gambling bill is passed the companies that have established US online gaming brands, operations, and a preexisting player base will be the winners.


Klas Moberg said...


Interesting article. I agree with all your points and would especially enhance the legal issues. You said in the article:

" The licensing process could be a long drawn out affair that will favor companies that have relationships with federal, state and indian gaming authorities. Gaming companies need to be talking to and working with these groups and agencies, prior to legislative changes, to establish their credibility and make the authorities aware of their operations and the individuals involved in the operations."

This will be the most important point of them all. All others you can copy or buy, but, political positioning takes time and money. Look at the Nevada Gaming Board and their licensing process. I imagine that a on-line license process will be just as in-depth and precise.

My best tip to those who are about to look in to the US Market is to engage somebody who truly knows the US land based licensing procedures and has the network and knowledge to guide you, politically, through the upcoming license procedures.

Klas Moberg

SimEFP said...

Really interesting article !

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