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Monday, July 29, 2013

Gauging The Impact Of A Regulated Social Casino Game Sector

The saber rattling has begun with government officials and legal experts threatening to “regulate” the social/freemium gaming sector. Fears of a potential crossover between “real” Internet gambling and social casino are driving the call for regulation. European and Australian legal and government officials are especially concerned about the threat of problem gambling amongst under aged social and freemium game players. It appears that legislation restricting access to social casino games is inevitable. With the unfolding of legal Internet gambling in the United States it is only a matter of time before the US also takes a position on social casino regulation. Many social casino operators appear to be oblivious to the onslaught of a regulated environment and the nature of the restrictions that will be potentially placed on them. The impact on social casino revenue, player access and cost of acquisition could be significant if regulation constrains player access, game content, iteration on gaming content and affiliations with “real” Internet gambling operations. So how should the social/freemium game sector react and prepare for a regulated industry?

Regulated European Internet Gambling Model Influence - Europe, and especially the UK has a long history of regulating Internet gambling. There is a well established body of law, processes and procedures that have been created to control and enforce Internet gambling law. This regulator regime will most likely be the canonical model used to create and enforce social casino gaming regulation. A study of this regulator model, its architects and enforcement will provide social casino operators with a good idea of what is to come and how to react to it. Within this body of law are a number of key components that could have a direct impact on social casino operators.

Problem Gambling Assistance -  Perhaps the first and  most benign regulation that will most likely be enforced is the need for social/freemium casino operators to post problem gambling help group information during the registration process,  in the game  or  upon entry into a game.

Age  Restrictions - Influencing underage players to gamble is another very sensitive area that has been addressed in the “real” gambling space and will be part of any regulation of the social/casino industry.   The age requirement will probably be 18 years of age. So anyone below that age will not be able to play social casino games.

In most cases social casino operators are not asking a player for their age details. Even if they are or do it is unlikely that players are going to give an honest answer to this question.  They may also object to the need to give detailed information about themselves such as government ID numbers. In some cases the players are not old enough to have these ID’s.

The European Internet gambling industry is very familiar with this form of player screening. The Internet gambling industry  has also learned that compliance with this restriction is not as strait forward as one might expect. There are a number of vendors that provide age and location services for European Internet gambling industry and they may also be used in the social casino arena. These services are valuable. However, they are based on government databases and government databases rarely cover  100% of a population.   This delta could be very high in the United States and other locations where government ID’s are not mandatory.

Location Restrictions - Where are you social casino players coming  from? If restrictions on social casino require a player to be from a particular, state, province, administrative sector, etc. a social casino operator will have to make sure that only players from those locations are accessing their games. “IP filtering” services or databases with IP addresses are usually used to filter players to determine their location. The services and the databases are actually quite good including proxy server(s) in their databases. However, IP address and associated services are never perfect and do have challenges on state, province and country borders resulting in some players being rejected and others accepted when they should not be. A combination of automated and manual screening processed may have to be used to determine the location  of players given the target market age group of social/freemium gamers.

Submitting Physical ID Documentation - In the event that a potential player’s ID information is not contained in a database then physical ID checks will be required to gain access to game content. In a social setting where many players may be under the age of 18 obtaining this information may difficult. Given this reality do you let the player engage in the freemium game or not and only ask for ID info if a transition to an online gambling venue is possible? This decision may be complicated by an “affiliate” relationship between a social casino and “real” money gambling operation. Which organization will be asking for this information and when? Will it be at the point of deposit of real real money or at the point where a player is transferring money out of their account?

Game Outcome Randomness(RNG)  – Many social game outcomes are not random. Instead the game is created to produce a result at a certain stage of the game. In a conventional gambling environment this is not allowed because the practice could give a player  false expectations about an outcome for the purpose of encouraging a player to play more.   Regulators might require all social casino games to be truly random reducing the ability of a game operator to manipulate the game giving players false impressions about the likelihood of winning. The incorporation of randomness in a social casino game will change the monetization model of a game and potentially the amount of time a game is played.

Managed Economy - Many social casino games do not have managed economies where currency inflation is managed to maintain the overall “value” of a currency. Without management a currency will inherently become hyper inflated reducing the value of the currency. This leads to large accumulation of currency by players without a corresponding increase in the value of their assets. Will this practice be prohibited in a regulated social casino environment? Does the amount of currency accumulated by a player influence their commitment to a specific game?

Change Control And Game Auditing - Social game operators frequently change game content, game mechanics, monetization locations and game outcomes to adjust to the evolution of a game and a gaming community. In a regulated environment  game modification is limited to areas of the game that do not significantly impact the outcome of the game.  Changes that impact payouts and encouragement to deposit and discourage withdrawal  can also be restricted. Games are subject to an extensive audit by third parties to make sure the game is fair and the game “system” cannot be manipulated by employees. Change control will be a part of a regulated social casino industry. Change control in a social/freemium environment may be less restrictive then in a gambling environment. However, it is unclear at this time what the social/freemium change control restrictions and game auditing restrictions will be.

Back Ground Checks For Employees And Investors -  People that work for an Internet gambling operation are subject to background checks to determine if they have criminal records. In some cases executives of gambling companies are subject to financial audits to make sure that they are solvent and their sources of income are obtained through legal channels.   Investors may also be scrutinized to assure regulators that the source of funds is obtained from legitimate sources. Social casino companies may not be subject to this level of scrutiny unless they form alliances with gambling operators.

Converging Social and Real Money Internet Gambling Business Model - The blatant attempt to merge social and real money online casino gambling by an operator or game developer will create a very real wake-up call for regulators and consumer safety advocates. Despite this both social and “real” money gambling operators are working hard to bridge this gap technically, administratively and financially. Will regulators allow a business to own and control both game assets.

Game Hosting/Transaction Environment - Many freemium/social games are hosted in cloud environments and in hosting facilities that are not secured from an Internet gambling regulatory perspective.  Will social casino companies be forced out of cloud environments and into “secure” hosting environments. If so, this may have a significant impact on the cost of running and operating a social casino business. Denial of service attacks and intrusion probes by third party systems and bots is a constant threat in an online gambling environment. Software and hardware systems to deal with this form of disruption is required in a gambling environment. If social casino games can be used to transition players to a gambling venue will these systems also be required for social casino operators?

Game Auditing - Internet gambling games are subject to rigorous code reviews by external agencies to make sure a game is fair, random and not subject to hacking or syphoning by t employees or external bots and intrusion probes. Social casino shops are accustomed to changing code and publishing releases at a rapid rate with no audits or interruptions. This may come to an end if the outcomes of social casino games influence a player’s ability to move back and forth between traditional gambling venues and social casino environments.

Marketing Restrictions - Social/freemium casino businesses operate in a  relatively unrestricted marketing environment. They do not have to take into consideration the age, location, implicit or explicit messaging contained in their marketing campaigns. This may all change in a regulated environment. Any potential reference to “real” gambling” will be subject to scrutiny and perhaps be banned.  Implied or subliminal  references to “real” gambling may also be banned.

There are clearly  ramifications to the association of social/freemium casino style games with “real” money gambling games.  Regulators in the UK and Australia are  already thinking about how they will regulate the social/freemium casino sector because of the implied association with “real” gambling. The rest of Europe and the United States are not far behind.  Social casino/freemium and “real” money gambling operators need to take the potential of a regulated social/freemium game sector into consideration when developing business plans that involve an independent social/freemium gaming business or a convergent one that seeks to transfer players between social casino and Internet gambling venues.  Social/freemium social casino’s should not take the threat of regulation lightly. The impact on their business model could be significant. A proactive self-regulated approach is recommended to demonstrate to regulators that a formal set of legal guidelines in not required.

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.

Gauging The Impact Of A Regulated Social Casino Game Sector

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