Comparing The Value Proposition Of Social Casino, Online Gambling, Fantasy Sports

In the blog addressing  the business of Fantasy Sports and Social Gaming and their relationship to Online Gambling  the question was raised about Fantasy Sports and Social Gaming as being  proxies for  "real" online gambling. This question is difficult to answer without an understanding of the "economics/analytics/operations" of these three game genres  and how  the three  business models are measured to determine the health, cost of acquiring a player and the value of a player over time. Essentially, based on the analytics how similar or how different are these models from each other and how would you gage the similarities or differences for the purpose of acquisition, partnerships or mergers.

 For the most part all three, and in fact, most online game genres use the same  or similar analytics to determine how games are performing from a financial perspective.  This helps to place the businesses within a single context for evaluation. However, the importance of specific measurements differ form one model to the next with certain combinations being more important then others.

The following are some common terms and categories that are used across online game genres and can, and should be, be used to determine what is the best business given the specific circumstances  of a business owner.

Customer Lifetime Value(CLV)/User Lifetime Value(ULV)/Player Lifetime Value(PLV) -  The CLV of a player is determined using a number of feeder  calculations such as the average amount of time a player remains as a member or part of a game community and the average amount  of spend(coin in)a player contributes during the average lifetime of a player. This term is used consistently across gaming categories. CLV can be an excellent number to compare the different game business models because it evaluates players over a lifetime as opposed to coin in on a specific day or for a particular campaign.

Cost Of Player Acquisition - The cost of acquiring a player is obviously a big part of  determining how a game business is operated, how much working capital is required to "seed" a gaming site and what methods will be used to acquire the players going forward. The methods for acquiring players are diverse and in some cases very different  from one game genre to another. Obviously the Customer Lifetime Value(CLV) should be greater then the cost of acquiring a player or a business will not survive.

 Affiliate Marketing - Affiliate marketing is mentioned as a special player acquisition marketing method outside of the general player marketing/acquisition  category because it is a unique form of marketing and used heavily in the online gambling sector. Affiliates can also be used in social casino and fantasy sports. However, the notion of an affiliate in social casino is more likely a public  affiliation with an existing online gaming property as opposed to an organization that exclusively operates an affiliate network. In the online gambling sector affiliates can and do  obtain player leads from other gambling business such as Sportsbook resulting in   a higher likelihood that the gaming business acquiring the leads  will obtain access to a class of players that have some history of gambling/wagering behaviour and, therefore, conversion.

Social Media - Clearly Facebook, Twitter ,Tencent in China, VK in Russia and other business that encourage connections between participants are excellent ways to acquire non-gambling players. Most of the social media platforms shy away from encouraging gambling references.   However, there are clever ways to  indirectly acquire gamblers through social media. Facebook itself is an odd social medial platform because it also hosts gambling applications in certain jurisdictions where it is acknowledged as "legal" to do so. Gaming applications  in particular have been a big revenue generator for Facebook and Tencent because they  provide a virtual currency platform that is primarily used to provide virtual chips for purchase in gaming apps.  It could be argued that Facebook and Zynga could never have gone public with  stock offerings without gaming and virtual currency purchases. "Virality" is a term used to describe the propagation of  friend notifications  within a member/players social media network. This is some times called the "K" factor. Initially, Facebook allowed uninhibited connection within their network. Zynga was the first gaming site launched in Facebook during this period. They took great advantage of this "free" marketing. Facebook has since stopped virality for all intense and purposes and shifted to an advertising model resulting in the growth of their revenue stream and the increased cost of marketing gaming properties within Facebook and leveling the playing field for game businesses operating within Facebook.

Good Old Fashion Online Marketing - With virality all but dead within Facebook and Twitter evolving into more of a paid advertising platform for business and gaming properties, old fashion online marketing has become the standard way to acquire players,  Essentially, ads must be purchased in these platforms to drive player acquisition. This trend may also give rise to "affiliate" marketing for social media players given the increase rise in the cost of acquiring players within social media platforms. However, the affiliate cost has to take into consideration the actually revenue per player in these environments.

So, given the marketing standardization for gaming across the globe,  the continuing dominance  of Facebook as "the" social networking platform and the entrenchment of online gambling regimes in Europe and in the United States  how are the three gaming models standing up in terms of player acquisition and revenue per player? Should these models converge? Should they stand alone. Which model is more economically viable?

Fantasy Sports - A Bloomberg study indicates that $70 USD is a consistent amount to acquire a fantasy sports player with an expected lifetime value of $100 USD.

Social Casino  -  Another study comparing social gaming to "real" online gaming in 2012 indicated that in 2012 Zynga generated about 2 cents per player with a player base of   9.2 billion active users.  The question is what was the cost of acquiring and retaining those players? Their current stock price may reveal the reality of that business model.   Compare this with a UK online casino operator  generating 48 million USD with only 40,000 active players.

Online Gambling In The United States - With all eyes and wallets pointed to the new and emerging legal online gambling roll-out in the US(Nevada, Delaware and New Jersey) we see some disappointment with the projected numbers versus the  actual numbers. However, if you look at revenue per player in the gambling sector versus the social/freemuim sector the evaluation takes a decidedly different tact.  Cost of acquisition must also be taken into account in the comparison. The online gambling sector relies heavily on an "affiliate marketing" strategy to acquire players. The cost of acquiring a player via this method is pricey.  Affiliate marketers can charge up to 50% of a players revenue "coin-in" or a flat fee of up between 600 to 800 USD. However, these players have proven to be "transactors" in the gambling domain.

It is clear that although the statistics that determine the health and welfare off the three primary gaming models are consistent, the variation in the numbers can be extreme when comparing the three models. This should also indirectly imply how different these models really are despite the fact that they are all included in the "gaming" universe. This obvious, but some time overlooked, observation is sometimes lost in the merger and acquisition process when a gaming business in one sector  is acquiring or merging with a gaming business in another game sector. Further complicating multi-dimensional gaming businesses is the differences that exist in the operational models of the businesses and of course the "cultures" of these businesses.

Essentially, a decision to  engage in a new and different gaming model is a difficult one that requires expertise and experience outside of the current gaming model of the business pondering an expansion. Some times it is best to stick to what you know and outsource what you do not. With that said game content can be leveraged across business domains and delivery platforms. The expectation of being able to up-sell into another model or allow a player to retreat to another model to retain them has not proven to be successful.

Kevin Flood is the CEO of Gameinlane, Inc. Kevin, has developed, launched and operated Internet gambling sites in Europe.   Kevin and Gameinlane   develop "social and real money" casino games for third parties. Kevin has worked for and with US land based casino operators helping them evaluate social casino and iGaming platforms for the purpose of joint ventures and acquisitions. Kevin can be reached at kflood@gameinlane.com.