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Thursday, September 27, 2012

Impact Of Stalled US Internet Gambling Legislation On Internet Gambling And Social Casino Operators

We appear to be in a state of limbo with US Internet gambling legislation. When the year started there was optimism that there would be Federal and or a State legislative changes that would allow Internet gambling in the US. Although some states have made progress in this area the progress has been minimal and isolated to certain states with small populations.  This has been disappointing for a number of vested interests and for some, a relief that they would not have to do anything or change their business models to adjust to actual Internet gambling in the US.

The question now is what should all of the potentially impacted entities do in the absence of any significant change in Internet gambling law in 2012?

Land Based Casino's - This group, with a few exceptions,  for the most part is the most relieved that they do not have to take any action in 2012. They can go along with their traditional land based gambling business model without having to deal with the threat or the opportunity presented to them by a change in Internet gambling legislation. 

Is complacency really a good strategy for these operators? I would argue that complacency is absolutely the wrong strategy for a number of reasons.

Inevitable Internet Commerce Domination - Irrespective of the timing of legal Internet gambling in the US or if it happens at all, Internet commerce and information exchange will dominate consumers mind share in the foreseeable future. For this reason casino operators have to figure out a way to be successful in this space if they have a hope of running successful land or Internet businesses in the future.

The prospect of US Internet gambling forced many of the land based operators to quickly address the deficiencies they have in the area of Internet marketing, social media marketing, player acquisition and retention through Internet channels etc.  The Internet gambling threat actually worked in their favor resulting in new business units being formed and education of key management staff on how best to leverage the Internet to drive business to their land based operations. 

Social And Freemium Gaming For Land Based Operators - One of the positive outcomes of the inevitable reality of Internet gambling in the US has been the exploration of freemium/social gaming as a real option for land based casino operators even if Internet gambling takes years to be enacted. The freemium/social option is a good one for the casinos because it will enable them to develop Internet commerce, marketing and online player acquisition  skills without having to deal with Internet gambling regulations. The freemium/social approach will help the casino operators to develop Internet gaming skills in the absence of any clear direction from State of Federal Internet gambling authorities. It will also allow them to experiment with conversion between land based and Internet gambling/gaming propositions.

Facebook, , Mobile, Web Freemium Casino Operators - Businesses have been operating freemium, casual, subscription, skill based, etc. games for years. We all know about the early gambling type games in Facebook and in mobile environments and their successes and challenges. Now that US Internet gambling has been put on ice  operators in this space will become potentially very important acquisition and strategic partnering properties for any business that wants to be ready when "real" Internet gambling is approved in the US. This space is already extremely competitive  with many properties launching social/freemium style casino games. This trend will continue with the top properties commanding very high valuations. The communities that have been and will be build around social casino offerings are already extremely large and they are growing. Although competition is fierce and revenue per player declining this is still a sector that should be considered as a viable standalone business.

European/International Focused Internet Gambling Operators - For a number of reasons this business sector is currently under extreme downward margin and increasing operating cost pressure in the EU. The recession in the EU is causing some of this pressure. In addition, The EU has capitulated to a country by country gambling regulation regime that has resulted in  increased cost of operation for European iGaming operators and a collapse of the liquidity centric online poker market. These operators desperately need a US legal iGaming marketplace to keep their businesses going. Some European operators have invested in hosting facilities in the US and have sought iGaming licensing in the US to prepare for a change in legislation.

The European gambling operators(some based in Israel) should continue moving forward with their US ambitions despite the uncertainly with legislation. Licensing is key. Now that the imminent threat of legal iGaming in the US has abated it might be a good time to pick up State   licenses and hosting arrangements for a price less then what they what have paid for three months ago. 

These operators have also begun to embrace  the social/freemium model as a way to keep their businesses healthy in the current confused iGaming environment  and to potentially acquire players in the event that iGaming happens in the US. This has been a very wise decision given the absence of any clear notion of when iGaming will become legal in the US. The freemium model can and will be a business on its own outside of iGaming.  iGaming operators have the skills to dominate this space if they want to.

In conclusion, uncertainty and delay in the enactment of Internet gambling in the US is no excuse for relaxing and complacency. In fact, it is a good time to reevaluate Internet gaming in general and to increase investments in Internet gaming outside of traditional gambling. Waiting for the US Federal or State  governments to act before a business has an operational Internet gaming business model will most likely be an acknowledgement that such a business has decided to concede this business sector to someone else.

Kevin Flood is the CEO of Gameinlane, Inc. Kevin writes  about online games and their impact and integration into iGaming and E-commerce environments. Kevin is a frequent speaker at online game events and conferences in Asia, Europe and the US. Kevin and his Gameinlane team are currently working with online gambling, social gaming and e-commerce companies integrating social gaming with online gaming operations and integrate game mechanics into e-commerce applications.


1 comment:

SuziQ said...

With the national elections and the end of state legislative sessions, this is no surprise. You'll see activity pick up again after the New Year.