GIGSE 2014 San Francisco Conference Summary

 The 2014 GIGSE   online gambling and social gaming conference lead off debate set an interesting tone to this years  conference in an unexpected way. Three former politicians; Willie Brown former Mayor of San Francisco, Edward Rendall former Governor of Pennsylvania and Robert Miller, former Governor of Nevada dove right into the hotly debated topic of legalized online gambling in the US. The debate reflected some of the on-going political debate  on the subject recently intensified by Sheldon Adleson's flat out attack on the roll-out of online gambling in the US.

Edward Randall and Robert Miller took a very different  stance in regard to online gambling relative to Mr. Adleson and were strong proponents of it. Nevada has already legalized online poker and may very well legalize online casino games in the near future. Edward Rendall  was also an advocate of responsible online gaming legislation based on his state's strong and financially beneficial roll-out of land based casino gambling.  He sees no conflict between the land based and online gambling industry pointing to research that there is no evidence, at this time, that online gambling will impact offline gambling revenue. 

Willie Brown took the contrarian view that "if you can not see it or touch it you can not regulate it". Mr. Brown, being the passionate  public speaker that  he is, was quite animated diving right into the potential dangers of online gambling to land based casino revenue and the prospect of organized crime syndicates laundering online gambling proceeds.  He also wound-up the crowd with the threat that every child under the age of 12 years old would be gambling on their mobile phones. Many of  the conference attendees  were shocked by his position and his passionate defense of land based casino and objection to legalized online gambling.    However, I am sure there are plenty of land based casino business affiliates that harbor the same feelings. Bringing these fears to the surface in an animated way helped to drive home to a sympathetic audience that the "every" day person and voter may not see the world in the same way that the audience does.

 Despite the former mayor's impassioned critique of online legalized online gambling in California it is unclear what position average California voters take on legalized iGambling in California. The debate in California thus far has been primarily in Sacramento. The track record there has not been great given the indictment of a number of state senators that have supported online gambling in the legislature.  This has further muddied the waters in the state capital even though the State has hired Richard Schuetz as Commissioner of the California Gambling Control Commission to sort out the mess and to give credibility  to the effort.  

Social Casino Games - The conference held a complete multi-day track addressing the ever growing strength and growth of the  "social" casino industry. For those not in the business, social casino games are gambling style games where you can place a bet but you can not cash out any of your winnings. In many cases the games are almost identical to slot games and table games found in land based casinos and online gambling sites. This allows social casino games to be unregulated. The sector has actually outgrown the online gambling market in recent years in terms of game play. It's revenue is somewhat muted because of the small transactions involved in the games however the worldwide estimate of revenue from this sector is 4.1 billion USD.   

 I had the pleasure to chair some of the program  and was struck by the growing "maturity" of this sector. It is clearly getting harder to break into this space and the businesses that have been in this sector for some time appear to be getting a solid hold on the market. Ironically, many of the established European online gambling operators,  US land based casino operators and game suppliers to the land based casino industry have become very active and successful in this sector.  However, the maturity of this sector is also leading to stiff competition because the game content that consumers appear to enjoy is very closely related to traditional online slot play and easily copied.   It will be very interesting to see how and if consolidation occurs  in this sectors over the next year.  There are also forces at work internationally that are advocating some form of regulation of this market. However, the reasons for regulation have been hard to substantiate. There is no concrete evidence that social casino play contributes or leads to a propensity to play "real" online gambling games.  In addition, online gambling operators in Europe have tried unsuccessfully to convert social casino players to "real" money gambling venues.  

US Online Gambling(iGaming) - Online gambling has been introduced and is operational in Nevada, New Jersey and in Delaware. However,  the roll-out of online gambling in these states has been less then stellar based on perhaps unrealistic  expectations set prior to legalization. This situation is placing a drag on the further roll-out of online gambling in the US and consolidation within the states that have legalized it.

This debate was carried on in a number of venues at the conference with state compacts being considered to potentially pool players and increase liquidity.  However, it is clear that after the shock,  confusion and in some ways muted response by online gambling consumers in the states where online gambling is legal there is hope that lessons have been learned and the "fix" is on the way.

 Liquidity is the overriding culprit for  the slow start. However, the liquidity issue is really a symptom caused  by poor planning,  credit card transaction oversights, overly zealous IP and location based rules and the misunderstandings between land based casino operations and online gambling operators.  Also, expected numbers of concurrent players were exaggerated going into launch. The experience in the European market should have been taken into consideration when prognosticating  the impact of a country by country or state by state online gambling model in the US.  

 Although the issues with the way the roll out has occurred and the actual content that the consumer has access to is greatly responsible for the lack of robust player numbers most iGaming experts will agree that  the industry can restore consumer confidence in legalized US online gambling allowing it to move forward in a responsible and profitable way.

States like Delaware and Nevada are somewhat challenged because of their relatively small population base. We have seen how the balkanization of  online gambling in Europe from a .com approach to a country by country implementation has resulted in extreme consolidation in the online gambling business in that region. The US is starting out without having gone through that phase. However, the discussion about state "compacts" is being bantered about conceding that US online gambling in its current state by state format could be challenging.

Native American Indian Tribal Representation - GIGSE has had very strong representation from the American Indian tribal groups over the past several years. This group is heavily dependent on their land based casino's supporting and funding many American Indian initiatives. In many  ways their casino's have helped to sustain many tribes and create jobs for their community.  Consequently, they are very interested in the impact and  or opportunity that online gambling poses. The prickly aspect of online gambling for them is "liquidity" given their relative small geographic  focus.  The success of relatively small online casinos launched in Malta, Isle of Man and Alderney may point to an indication of how an Indian casino could flourish in online gambling in the US. In addition, there has been no proof that online gambling negatively impacts land based casino gambling.  

It could be argued  that the US online gambling sector is already over regulated in the US and the  social casino sector under regulated. The interesting dynamic and friction  that this creates could lead to one group being penalized for being successful and the other group being given leeway to relax regulation to increase revenue. For example, are state compacts inevitable?  Will social casino be subject to some form of taxation to offset lowered online gambling revenue? Will social casinos have to conduct age identification, etc. ?  However, after listening to the politicians it could be very challenging to get states to agree to cross state lines on revenue share, regulation and player ownership.  Also, constructing and enforcing regulation is a time consuming and expensive undertaking making it less likely that social casino will be subject to regulation unless the regulation is very simple. Making voters undergo more referendums before the iGaming model has proven its worth is unlikely.

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.

  

  

Why Is Social Gaming So Important For Online Gambling Companies?

I had the pleasure of participating in a GIGSE panel discussion this year where I was asked to comment on the role of social gaming in the context of the potential legalization of online gambling in the US.

I indicated that social gaming should be a critical strategic consideration for any company interested in taking advantage of the future prospect of legalized online gambling. I also implied that even if US online gambling is not legalized or takes a long time to happen a serious look at  social networks and social games should be a part of any gaming companies strategy.

I pointed to the success of Zynga as an example of how a social gaming strategy has created perhaps the most successful online gaming company to date.

Despite Zynga's  impressive numbers many of the people in the audience dismissed Zynga or any other social gaming company as irrelevant and inconsequential relative to online gambling. The reaction I received from many attendees was a bit shocking to me.

The argument's they used to support their position are as follows.

1.) The majority of social gamers are under the age of 18.

2.) The social gaming experience is different then "real" online gambling.

3.) There is no money in social gaming. Revenue per player is very low.

4.) There are only a  "few" high virtual currency transactors in social gaming.

5.) Zynga's lead generation to online gambling operators has been very poor.

6.) Social gaming companies do not know how to operate real gambling sites.

Although some of these arguments have merit others do not or are taken out of the context of the intricate online gaming ecosystem.

The following are items online gambling companies should take into consideration before they completely dismiss social gaming.

1.) Average Age Of Facebook Players -Just about everyone has a Facebook ID. The average age of Facebook members is now 35 years old and getting older. The 18 to 25 year old age group is a significant portion of Facebook membership. This is the perfect age group profile for online gambling. If you have every played in Zynga poker you will see (their pictures) that many of these players are the traditional age group for online gamblers.

2.) Social Games Are Different For Online Gambling Games - Yes the social game experience is different from an online gambling experience. Of course it is, because online gambling is not allowed in Facebook. Companies like Zynga have shrewdly decided to offer a game experience that matches the social environment. This is one of the reasons why Zynga has 250 million players and online gambling companies are not even close to these numbers.

3.) Social Games Will Change If Online Gambling Is Legalized - If online gambling becomes legal in the US and Facebook embraces it (which they will in a clever way) online gaming content in Facebook will change making it more gambling like. The gaming companies will not change their current casual offering. Instead they will offer a different game experience and upgrade casual gamers into the gambling operations. Even if the conversion rates is in the single digits the numbers are astounding. Also, Goolge, Apple, Yahoo, Amazon, EA, etc. and other major online companies that have large numbers of online profiled transactors will create online gambling games and seek to convert their current visitors to online gambling.

5.) Making Money In Social Gaming -Many online gambling companies that come to me to help them understand the social gaming world are appalled at the relatively small monetary transactions per player. They become discouraged by these numbers not realizing that if a gaming company can create a gaming application that has a viable social component and a good social network marketing strategy the shear numbers of players will make up for the lower transactions per player. No this is not an easy thing to do. However, if successful, social gaming can begin to pay for itself.

In contrast to online gambling companies, social gaming companies use a variety of game "monetizationr" techniques to make money from social gaming. In gaming advertising, virtual currency, virtual goods, lead generation for other social applications, etc. In aggregate these numbers start to add up. Virtual currency and good sales alone are climbing to rates equal to and exceeding online gambling revenue. It is estimated that the virtual world will be generating 5 billion USD per year in the not too distant future.

6.) Player Profiling And The Online Gaming Ecosystem - Treating  online gambling and social gaming players as distinct and separate individuals is not realistic given the large numbers of players engaged in social gaming. Inevitably there is an intersection between these two groups. In the past two years social gaming companies with the help of third party companies specializing in social network profiling have begun to take a look at all of the Twitter, Facebook, Google search, etc data to decipher the likes and dislikes of people on the web. Evaluating and making sense of this data is not easy. However, some progress is being made to provide hints as to the propensity of an individual to buy a certain product, play a certain game, travel to a specific destination, etc. There is still much work to be done to in this area and privacy issues abound. However, with the increasing amount of information we are all contributing freely to the Internet there will be a time when  profiling will get to a point where we can successfully to move players to and from different environments with a high degree of accuracy and increased moneitization.

7.) Marketing And Player Acquisition On The Social Web - An online gambling company has to learn how to market to players within the social web even if they believe that social gamers are not the target audience. Everyone is in a social network of some kind and online gamblers are no exception. Developing a productive and effective social networking marketing program is non-trivial and requires a very different approach then tradition web, affiliate, e-mail, physical, etc. marketing. Ironically, social games are one of the most effective ways to market products and services because they do have the potential to get close to a truly viral application. This is the holy grail of social marketing and and should be a goal for online gaming companies even if they never launch a social game of their own.

8.) Social Games As A Separate Business Unit - At the ICE conference in London this year I had the opportunity to help organize a special session on social game monetization.  It was revealing because it came to light that traditional gambling companies like 888 and BetWin are creating separate social gaming business units not related to their gambling properties. These companies realize that the future of online gaming is within social networks. This is where the growth and innovation will be. They want to be in it and be just as successful as Zynga and other high profile social gaming companies.

It is clear that  many online gambling companies do not fully understand the importance of  social networks and social games in the context of online gambling and distinct social gaming applications. Some of them do and are taking steps to explore how to be successful within social networks and to launch social games that can stand on their own taking advantage of the social graph. This space is certainly evolving quickly making it more difficult to get into the social space and establishing expertise and brand awareness. Despite this a presence in social networks is becoming mandatory for any company wishing to maintain market share and to grow. The sooner an online gambling companies embraces this reality the better off they will be.

Kevin Flood is the CEO of Gameinlane, Inc. Kevin writes extensively 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.

2010 GiGSE Montreal Conference Summary

Accolades go out to Ewa Bakun for pulling the Montreal conference together and reigniting the debate over the direction and form that online gambling will take in North America.

The GiGSE conference brought together individuals and companies interested in the state and direction of online gambling in North America. The original conference had been suspended after the enactment of US gaming legislation in October of 06. The shocking, confused and abrupt way the legislation was enacted caused the online gambling industry to take a step back, propelled the industry into react mode resulting in a lack of cohesive, and in some cases, rational discussion and debate about the next steps in the march to a realistic approach to managing online gambling in the US.

With the passing years the true impact of the the 06 bill have been realized with individuals and companies adjusting accordingly. It now appears that the US and Canada are beginning to recognize that online gambling is not necessarily "evil". In fact, it is a mainstay of online entertainment that can be a meaningful source of revenue for state, federals and local governments.

Legalization Environment - No doubt the biggest question in the attendees minds was the question of the form and time-line for legalization of online gambling in the US.

The States - It appears that there is legitimate interest and actions being taken by several states to push ahead to legalize online gambling within state boundaries(intrastate online gambling). California, New Jersey and Florida are leading the pack engaging consultants, drafting laws, exploring regulation and in some cases voting on legislation to legalize online gambling. It looks like New Jersey is the closest to actually enacting legislation. This renewed interest in legalizing online gambling within state borders is being driven by the budget crises that almost all US states are facing. They all need to find new sources of revenue and they are looking at online gambling as a means to generate this revenue.

It is unclear how the states will recognize online gambling revenue. Discussions include license fees, transactions fees, regulatory review fees, etc.

The Federal Government - Congressman Barney Frank has pushed ahead developing legislation to legalize online poker on the basis that it is a skill game and not strictly a game of chance.

The general consensus is that no legislation will be passed in 2010 on a state or federal level. The November elections could result in a reshuffling of state and local elected officials and we will have to see how that impacts the initiative going forward.

The Indian Nation - At least in California the Indian tribes are not united in their approach to the legalization of online gambling. The tribes have worked hard to establish their land based casino operations and the move on the part of state governments to legalize online gambling is making them nervous putting some tribes on the defensive. Essentially, the tribes want their sovereign rights to be recognized making sure that they get their fair share of online gambling proceeds.

This defensive position is unfortunate. Given the unique status of Indian tribes in the US they could have taken a more aggressive stance by challenging current state and federal authorities by moving aggressively to launch online gambling operations within their borders. I am sure it would start a firestorm of debate and challenge. However, in the end they may win the battle and significantly change the destiny and well being of the Indian nation.

What is Canada Doing? - I was really surprised that more attention was not paid to what the Canadians were doing in regard to online gambling legislation. After all we did have the conference in Canada and many Canadians did attend. With that said I spoke to a number of Canadians at the conference and it is apparent that the provincial governments and the Canadian government are moving ahead as aggressively if not more so then the US.

It appears that Canada wants to legalize online poker. I suspect they may actually do this well before the US government. If this is the case it will be interesting to see how the US reacts and what they will do when US online poker players begin to play poker on a Canadian site?

The individual provinces are entertaining online gambling for the same reason the US states are. They need new sources of revenue! The initiatives in the provinces appear to be built around their current lottery systems with the desire to add more gaming "content" with the goal of attracting more players and to further monetize existing lottery players by allowing them to play other games. This move appears to be part of an overall initiative to make lotteries more accessible online.

How Will New Legislation Impact Existing Online Gambling Operators? - It is no secret that Poker Stars and Full Tilt have largely ignored US law and are doing very well monetizing US players, building strong brand awareness and acquiring US players at a rapid rate. Many US and Canadian players assume online poker is legal and have no notion that it is not.

This puts many other operators at a disadvantage providing they wait until legislation occurs before entering the US market. If legislation does take two years to be enacted will the game be over for any new legal entrants? Even if the law prohibits gambling operations from outside a state or a country are players going to care instead going strait to the offshore operators that they are familiar with?

The US Casinos - Harrahs' head of Online Gaming provided the audience with insight in how the US land based casinos are approaching legal online gambling. Clearly, Harrahs, on the back of the WSOP brand is off and running building brand awareness, developing operational acumen and obtaining gaming platforms to make a go of it when and if legislation passes in the US. The one thing that people should recognize is Harrahs is already off and running in Europe and no doubt soon to be introduced in Asia. So they are not waiting around for the US laws to change. Harrahs is already in the online gambling business.

It is unclear what the other casino companies are up to and if they are even seriously interested in the online gambling space. Without any concrete evidence to the contrary the wait and see strategy may not be the wisest strategy for them. Waiting to the last minute may simply be too late if other online other gambling brands have already staked out their turf and have acquired large chunks of existing or potential online gamblers.

Entrepreneurs And Investors - There are certainly many investors and entrepreneurs creating new and interesting games and gambling models that have great potential for attracting a broader audience of players to online gambling propositions. Certainly the traditional online casino games will be part of the offering. However, they will not be the only games offered online. Expect casual games, fantasy sports, new mobile game models, iPad games and "social games" to be part of the mix.

Conclusion - It was great to participant in a revival of a coordinated interest in the newly emerging march to the legalization of online gambling in North America. Clearly, the world has changed since October 13, 2006. What we see happening is not necessarily what we expected after the enactment of federal gambling law giving rise to new optimism and acceptance of online gambling as a legitimate business.

The industry is still facing head winds and the vagaries of the legislative process. However, progress is being made with most of the attendees recognizing that legalized online gambling in North America is inevitable. It is just a matter of when and how.