National Council Of Legislators From Gaming States Winter 2016 Meeting Summary(NCLGS)

I had the pleasure of attending NCLGS in Orlando Florida this year(2016). I have attended a number of "Gaming/Gambling" related conferences over the years  but had never attended NCLGS. I was pleasantly surprised by the agenda, participants and the dialogue that ensued during the conference.

NCLGS is an extremely important and influential group  composed of legislators, lobbyists and gaming regulators form around the country(USA). In addition to regulators the conference had representation from   gaming content providers,  land based casino operators,  native american casino operators, iGaming operators and game content providers. 

The 2016 conference's focus can be broken down into a number of broad categories.

Commercial Land Based Casino Health And Welfare - This group excludes the Native American casino's which will be addressed later. It is composed of the Classic Atlantic City and Vegas land based operators. These are the entities that helped to define what gambling regulation is today and are still the primary focus for land based regulation in the USA. It is clear from regulators and casino operators that these entities show  great promise as demonstrated by Atlantic City's recent gaming table revenue growth and challenged as demonstrated by Las Vegas flagging gaming table revenue.  

Vegas - The gaming table revenue in Vegas is falling and so are the numbers of people engaging in gambling in Vegas. Two factors play a role in this decline.  

 Alternate Entertainment - Vegas has done a  good job in creating a "destination" resort      environment  for tourists form around the world. The strip is filled  with throngs of people walking the strip. The shows are packed and in some cases the trendy restaurants and clubs. However the casino floor for the most part is only partially occupied. So what are these people doing in Vegas if they are not gambling? It appears that the alternate entertainment in the form of shows, restaurant, rides, etc. is drawing the crowds and not the casino floor.

 Changing Demographics And The Millennials  - The conference spend a significant amount of time pondering the impact of the millennials on and off  the gaming floor. There was clearly a consensus amongst the conference presenters that   the gaming "content" currently offered by land based casino's is clearly off the mark when it comes to the millennial demographic.  This consensus generated a number of ideas on what the gaming content should be to improve the likelihood that millennials will be encouraged to play gambling content oriented games.

Socially/Interactive Games - It is clear based on the success of console  and "social casino" games that social or at least interactive games are what this demographic group prefers to engage in. Of course, poker is the ultimate and traditional form of social gambling. However, there are many more games that could be based on current console gaming platforms that could be adapted to a gambling content.

Skill Gaming And Fantasy Sports - Much time was spent on the subject of  fantasy sports and its alleged  categorization as a skill game. One can argue both sides of this debate. However, these debates are almost irrelevant because it is clear that the combination of social and skill gaming is clearly a winner when it comes to attracting millennials to Las Vegas and other land based operations.

Online/Internet Gaming And the Poker Conundrum -   The online poker juggernaut continues to plaque and perplex the regulated gambling authorities and industry. How can you possibly outlaw the all american past time and online gambling in general. There was direct reference to New Jerseys' growing success in these online domains. Undeniably these sectors have to be addressed by US gambling regulators  if there is to be any future for "gambling" in America. You can not hide your head in the preverbal ground and ignore this. The  most paradoxical aspect of ignoring the online domain from a regulatory perspective is that this approach  provides  opportunity for illegal online gambling operators.  

Native American Indian Land Based  and Regional Casinos - The most interesting, amazing, uplifting and in some cases heart breaking subjects at the conference was the advent and growth  of the native american indian land based casino initiative. The native american representatives made a compelling case for how important these casino's are for their constituents. They provide funding for schools, housing, jobs and healthcare that would otherwise never happen without gambling revenues. Essentially, a very real positive use of funds generated by their land based casino initiatives.

Overall, NCLGS was an honest and informative get together to discuss legal gambling in the USA. I commend the professionalism of the participants and the honest dialogue that accompanied the conference.  The conference also highlighted serious issues that regulators and existing land based operator face. The world is changing in terms of gaming and gambling content and the existing operators, although aware of these challenges, appear to be either slow to address them or in a bit of denial about the future of both land based gambling trends and iGaming.

  Kevin Flood is the CEO of Gameinlane, Inc. Gameinlane  has developed, launched and operated Internet gambling sites in Europe.   The company engages with land based casino  operators, online gambling operators, social casino operator and game developers to assist them in determining their strategy and implementation  of game content.  Gameinlane   develops "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.

  

Putting United States Online Gambling Back On The Tracks

There has been much soul searching, questioning and angst over the recent launch of online gambling(iGaming) in New Jersey, Delaware and Nevada.  California is on the fence contemplating  legalization and Pennsylvania is also in the mix of states wanting to step in. However, the launch of legal online gambling/iGaming/iGambling in the currently active states has been less then a textbook implementation with many interest group questioning the viability of online gambling in other US states. This is giving pause to new states that want to engage with legalizing US online gambling.  In all due respect to the states that have launched iGaming, it is not uncommon for first adopters in any business sector to experience a delta between expectations and reality. Mistakes will be made for a number reasons. Expertise, knowledge, staffing, funding, etc. all play a role influencing the outcome of new businesses and business models.

 The delta between pre-existing expectations and  the reality of the actual  online gambling business experience in America is now propelling us to sort out all of the factors contributing to a well run iGaming experience and get on with the business of US iGaming.

There are many moving parts  involved in the implementation of any new business. iGaming is an especially challenging e-commerce venture due to the regulatory climate, business acumen,  consumer "expectations" for the product,  marketing, geo-location  and payment processing constrains are a sample of a few unique factors influencing this sector. This "rather special" domain narrows the field of organizations that should and can  be involved in American Internet gambling.

 The following are specific areas to be addressed or reevaluated in the era of the launch and or relaunch of iGaming/Internet Gambling in the USA.  The one advantage we have is that the initial  attempt at launching iGaming in the US has given us insight into what works and what does not work. It also shows us  how US Internet gambling differs from European iGambling requiring America to take its own unique approach to the business sector. 

Who Is In Charge? -  There are many moving parts, functions and organization that need to be coordinated in the implementation of an iGaming roll out with a number of  activities requiring attention  and timing to assure that the overriding  business model is successfully launched. This requires a single individual and or  associated organization  to take responsibility for the successful introduction of an iGaming regime within a state, interstate or on the federal level.  Without this single point of contact there is no place to go to fully understand the status of, schedule for, cost of, organization involved, licenses granted, content approval, legislative interaction, payment processing, marketing, technical platform approval, etc.  

The State Of California has made a bold and thoughtful move and has assigned Richard Shultz to this position. The other states have or are   either currently engaged in iGaming  are contemplating if they should do the same. Of course, no single individual is going to have knowledge in all  iGaming areas and will have to engage with "experts" in each silo to fully master the knowledge base required to successfully engage and launch an iGaming regime. This individual is the go to person for a sign-off on a launch, creation of the business plan, coordination  of the moving parts, and of course, the place to go when things go wrong. This single point of contact appeared to be noticeably  absent in  the New Jersey iGaming launch  resulting in a 'who is on first" reaction to inevitable diversions  from the assumed plan.    

Business Plan - iGaming is a business like any other and should have an overriding business plan  like any new business. iGaming is complicated because of the involvement of government and  associated regulation. However, this is not dissimilar to a banking operation and therefore not alien to the investment community.  The overriding business plan should take into consideration the basics, such as market size, cost of marketing, staffing, regulation, technology, licensing etc. ,and, of course the overall expectations for when revenue will be generated and when the  "stated" plan will go "profitable".

 This business plan will reveal how very complicated and challenging an Internet gambling  business is to launch and manage. In many cases some investors, governments and vendors will simply pass on the investment plan and opt out.  Despite this overriding complexity of developing a full on business plan it is very important for each state to go through this form of rigor with all of the moving parts engaged in the development and scrutiny of the "plan" to assure that the service providers, operators and the governing body fully understand the plan, its  benchmarks and how to compare them against  the actual numbers . Of course, plans very seldom match reality.  The plan also has to acknowledge these what if scenarios. How should the business, investors, regulators and politicians react to delta's in the plan?  

 This process could result in overall optimistic predictions which is the case with most start up operations. However reviewers of the plan and plans should be knowledgeable enough to know when the predictions have gone to far and  the likelihood of plan execution.

Payment Processing - One of the important reasons why Internet Gambling has fallen so far behind its stated financial goals is the fact that major US credit cards can not be used to wager online. This is such a fundamental requirement for  any e-commerce operations it almost seems surreal that a launch would even be attempted without it. This does reinforce the need for someone being "in charge" of the launch and the details of the iGaming business plan before a launch.

Over Zealous Location Constraints - State by state Internet gambling requires only people that are residing and located in  a legal gambling state to gamble on the state sanctioned gambling sites. This requires a knowledge of where the person is playing from and if they are a resident of the state. Unfortunately,  IP filtering is not an exact science and can place people outside the gambling zone when they are actually in it and the government databases used to verify residences inevitably can be inaccurate about the current address and even the correct spelling of a persons full first , middle  and last name. This can  lead to frustrating denials of service for many players. This has impacted New Jersey players. This is one case where European experience can come in handy. The Europeans have faced this same dilemma and have solved it by engaging "reasoning" and filtering verification that does a good job in accepting the valid residents of a jurisdiction.  Also, the requirement for people playing on a laptop to also have a phone to precisely geo-locate them is absurd and only further adds to the frustration associated with IGaming access in America.

The European iGaming Model Is It The Right Model For America? - America has relied heavily on the Internet gambling expertise cultivated in Europe to guide its Internet gambling programs in the US.  Much of the  American iGaming legislation, vendor selection and expertise is directly associated with business, organizations and individuals  involved in European iGaming. In many cases these decisions where made without properly assessing the iGaming business in Europe.  No critical analysis was done to determine if the European approach is the right choice for the USA. For example, Europe recently went from a .com model to a country by country iGaming regime that has largely decimated the iGaming business in Europe forcing consolidation, higher cost of operation and lack of innovation, etc. The stuttering start of US iGaming might be a good point to reassess the European direction and critically scrutinize what is right and what is wrong with that  model as it relates to the US.   We clearly need an "American" model and not a European model if we want a robust and healthy iGaming business in the USA.

Land Based Casino Involvement - US iGaming regulators and license issuers have looked to the US land  based casino to   guide the iGaming effort in the US. In some cases they have received the first licenses with government entities directing true iGaming operators to seek their licenses through the casino operators. The irony of this prejudice is not lost on the casino's themselves and anyone that has been involved with the casino industry.

 In point of fact there is virtually no similarity between land based casino operations and online iGaming.  The US land based casino operators are exceptionally good at terrestrial operations. They are the envy of the world and have exported this excellent model to Macau and Singapore. However,  they have consistently struggled when attempting to launch online gaming(European) ventures. In response to their experience they have decided to wisely withdraw from Europe and have not attempted to build up internal iGaming expertise within their organizations.  We have also witnessed the Steve Wynn and Sheldon Adleston grand standing on a ban on US Internet gambling. They may fully realize that this is not a business they know and understand or perhaps they want every out of the business so they have time to sort it out for themselves?

Social Casino - It is hard to ignore social casino(freemium or virtual currency) in the context of launching and operating an online gaming  business in the US.  In point of fact many of the people playing social casino games in North America are the exact same demographic that normally play slots in US land based casinos.  No, there has been no hard evidence that there is or could be conversion directly from a social casino game to an online gambling slot game! However,  This is not a reason to ignore the social casino audience. Leveraging a clever advertising campaign through social or terrestrial  media directly targeting  the social casino audience might be a very shrewd way to kick start a US Internet gambling businesses.

Affiliate Marketing - Europe has traditionally leveraged affiliate marketing organizations to drive traffic to IGaming properties. This same approach is being taking in the US. However, this is another area where Europe is very different then America. Most affiliate leads come from people that have wagered on sports events through online sports book operators in Europe.  European sports wagering is legal and a very good business. It have been in existent since the .com era and remains viable and profitable. Consequently,  the online sportsbooks  have a robust pool of sports wagers that they can funnel through affiliate networks to online casino operators. The US is completely different, so where are the affiliate marketers getting their leads? Essentially, affiliate marketing my not be the preferred Internet gambling marketing tool that it is in Europe requiring a very different  marketing approach to attract and retain US online gambling customers.

We have passed the irrationally exuberant stage of US Internet Gaming and are now facing  tackling  the practical necessities of operating "real" profitable Internet gambling businesses in the US. Some people and organizations are disappointed with  and shocked by the initial launch. However, they should not be given the way the launch was orchestrated. This is not cause for abandoning Internet gambling in America. Instead it is great opportunity to reinvigorate the effort, reorganize and bring new organizations and people into the effort to launch new properties and reorganize existing ones.

 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.

Sobering Up On The Future Of US Internet Gambling(iGaming)

The launch of Internet gambling(iGaming) in three US states; Nevada, New Jersey and Delaware have many individuals and  groups discussing the early results of these implementations. Investors, land based casino operators, iGaming platform providers, legislatures, politicians, gaming content consumers and investors have been pondering the roll-out  comparing preexisting expectations against the reality of iGaming in the USA.

The subject matter is rich with comparisons and debates referencing  the European iGaming experience and US iGaming business  plans that where drafted prior to the actual launch of any live iGaming businesses in the US.  The salubrious and intoxicating expectations associated with US  iGaming are now being tempered against what is really happening.  As with any expectation jammed venture such as a new business or even a marriage, reality is always a wake-up call highlighting  the delta between expectations  and or the reality of a "relationship(s)".

iGaming evaluations can be  somewhat confusing because certain interest groups publicly predicted expectations they knew where overly optimistic. The goal, apparently, was to prognosticate potentially overly optimistic outcomes for the purpose of gaining public support for iGaming legislation or to obtain working capital  that would allow the prognosticator to enter the US market. One can argue the efficacy of this approach. However, this is a common strategy used by non-gaming related businesses promoting themselves for the purpose  of raising funds or going public on an exchange.

At two ends of the spectrum we have a binary evaluation of the roll-out assessing if the roll-outs have been successful or not. The middle ground is also being explored taking into consideration the preexisting goals of various participants and interest groups and what is actually happening. 

So what is the general consensus and how are each of the vested interests reacting to the reality of iGaming in the USA?

Investors - With revenues far from being close to iGaming business plan predictions and the overall roll-out across the nation being slow, it is highly likely that some investors are not pleased with what is happening. However, as previously stated, savvy investors know that the majority of initial business plans they review and approve include overly optimistic expectations.  The entry into new markets is always highly speculative even if a similar business model has been introduced into a another geographic area and culture.  The well healed investor has probably done some predictions of their own based on other historical introductions of regulated business ventures such as banking or investing.  In addition, their motivation to invest may be more closely allied with the limited supply resulting from  a regulated as opposed to "open" market.  Ironically, the gaming licenses themselves may be the real value proposition for investors.

Consumers/General Public - It is not completely clear as to what the reaction of the public is to "legalized" US gambling in certain States. Yes, the numbers and revenue are lower then expected. However, is this a result of overly optimistic business models, frustration/dissatisfaction with the iGaming proposition or overly restrictive  age/location scrutiny that excludes valid players. Is the heavy influence of European iGaming operators and their content causing dissatisfaction with the actual gaming content?  After experiencing the initial legalized iGaming content will seasoned iGaming players return to their tried and tested "illegal" sites that many of them actually "trust" and enjoy? 

State Governments/Legislatures - Certainly governments that forecasted optimistic iGaming revenues for their states are subject to criticism  if those revenue models are not being achieved. However, if the objective of overly optimistic revenue predictions was a planned strategy to assure that iGaming legislature would be passed, perhaps,  in a convoluted way,  the first step goal was achieved and it will be a wait and see situation to determine if the actual revenue generated over time will be appreciated and used in a way that will placate the voting public.  States like California planning to legalize iGaming are in a different situation. They have to take into consideration the new "normal" of iGaming proposing plans that contain more realistic  predictions. How will this influence state legislatures contemplating iGaming in their States?

Federal Enactment Of iGaming - We have seen from the likes of Sheldon Adleson and Steve Wynn that certain high profile US land based casino  operators are not in favor of federal or state legalization of iGaming. One can argue that their logic and reasoning for not wanting iGaming  is flawed.  Of course, their are equally politically powerful land based operators such as Caesars and MGM that are very active in iGaming in the US and will no doubt make their own public proclamations about their will to influence federal iGaming legislation.  We will see how the congress reacts to these competing interests. 

American Indian Nation - Although no native American Indian tribe(to my knowledge) has legalized iGaming within their territorial boundaries they are closely watching the events occurring in active iGaming jurisdictions.    They are sovereign nations within the US and have the legal rights, similar to state governments, to launch iGaming businesses. They are also land based casino operators in many US states providing them with  knowledge of  "gambling" regulation and operations.  Their relatively small land based consumer foot print makes their decision to operate iGaming operations more challenging as they look at the numbers in New Jersey, Nevada and Delaware.   Do they move forward at this point or do they wait at the sidelines and see how the federal debate evolves or perhaps collaborate with other tribes to create higher liquidity and lower risk for any one tribe?

In conclusion,  we are seeing  US states launch iGaming businesses  and we are gaining important insights into the economic impact of iGaming in the US.  Operators, governments and consumers are becoming more familiar with the right iGaming "product" for the US and are learning more about the operational reality of US iGaming. In point of fact, the current American iGaming model is an import from the European model where Europe   moved from a .com to a .co implementation. The impact, in Europe, of this change was quite sever causing a significant increase in the cost of operation and a decrease in overall revenue for operators. Some countries such as France have proven to be what one might characterize as a "failure" while other European country implementations have proven to be successful in term of "break even" financial models.   Canada has also moved along with their iGaming initiative conceding  control of those businesses to lottery operators in each province.

These experiences either directly or indirectly give America  plenty of data  to draw on to eventually come-up with an  iGaming business model that works for consumers, voters and legislatures.  We can all agree that there is still much to learn about the economic viability of US iGaming and how best to achieve a balance between the need to control, drive revenue, achieve profitability  and please the general gaming public. The public consumers of iGaming content will be the most important group to understand because they will make the ultimate decision if iGaming succeeds in the good old USA. 

Kevin Flood is the CEO of Gameinlane, Inc. Kevin, has developed, launched and operated Internet gambling sites in Europe.   Kevin and Gameinlane   develop "social" 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

  

More Indication Of Challenges With The American Approach To Legalized Online Gambling

The poker and gaming blog AgentMarco was first to break the story that the Santa Ysabel Native American Indian tribe in Southern California has decided they are frustrated with  the California legislature and their own tribal compatriots approach to legalizing online gambling in California.   This frustration has lead them to go rogue with the announcement that they are going to launch their own online "real" gambling poker room for California state residents without any confirmed  California legal authority to do so.

They are claiming that the American Indian nation is a sovereign nation within the United States and ,therefore, has the right to offer Internet gambling to California residents.  This is further confirmation that California and other  states in the  United States are struggling in their attempt to offer Americans safe and commercially viable Internet gambling content. Governor Brown's recent decision to  engage outside gaming attorneys is another indication that Sacramento  is pondering  how best to enact legal Internet gambling in California.  This confusion, combined with  historical American Indian rivalries is causing some tribes to become frustrated and impatient with the "process".

    The Sheldon Adelson Federal initiative is creating even more confusion  despite its irrational allegation that Internet gambling will hurt land based casino operations. Clearly there is no evidence that this is the case putting into question what  is Mr. Adelson's point and goal?

So what is going on here? The Europeans have had legal online gambling for decades and there is no indication that it fosters under age gambling or  crime syndicate involvement. Granted, Europe does not have a robust land based casino industry. Therefore, there is no way to determine from their experience if online gambling will steal customers away from land based operations. However,  illegal online gambling has been around for 20 years and has specifically targeted US citizens with great success. The biggest fear for illegal online gambling operators  has been the potential of a "legal" US gambling regime forcing the illegal sites  into oblivion.  Why do respected business owners and politicians want to encourage illegal gambling?  

It is also clear that the expectations for legal online gambling were greatly inflated to encourage the passage of Internet gambling law in the US. The reality of the commercial viability of legal Internet gambling is now being tested in Nevada, New Jersey, Pennsylvania and Delaware.  What will be the outcome of this experiment?  It is already clear that in some of these states reality is far different then the expectations set prior to legalization. 

Another juggernaut for the land based casino advocates is the amazing popularity of "Social Casino" It far dwarfs the player numbers compared to Internet gamblers. Ironically, the typical social casino player fits the exact same land based slot machine player profile. Ironically, it has no regulation and does not appear to need any. The irony of all of this is that social casino has no "cash out" resulting in players contributing but not financially benefiting.  

In the end  de-regulation of  Internet gambling, slowing the state by state proliferation of iGambling  or not legalizing iGambling in the United States is not going to stop Internet gambling in the US.  Also deigning the importance, by land based casinos, of the online channel is a bit nihilistic and potentially  self destructive for their  businesses.   Many land based US casinos and casino suppliers are "all in" with both iGambling and Social Casino. These early adopters are the winners in all of this. This may be the real reason Sheldon Adelson and Steve Wynn are trying to stop or slow down legal iGambling in the US. Their competitors are way ahead of them already and they realize they may not be able to catch them.

Kevin Flood is the CEO of Gameinlane, Inc. Kevin, has developed, launched and operated Internet gambling sites in Europe.   Kevin and Gameinlane   develop "social" 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

   

 

Is The Current North American And European Method Of Implementing "Legal/Regulated" Internet Gambling Fostering Illegal Online Gambling?

EU countries have had a legal structure for  Internet gambling for some time. It started cautiously with the UK setting up a regulatory framework  for sports wagering which was extended to casino and other forms of gambling formats hosted from British protectorates in locations such as Gibraltar, Isle Of Man, Malta, Alderney,  etc. This regulatory regime provided European citizens with a safe and audited Internet gambling experience. Apparently, EU countries who's citizens were gambling on these sites where less then happy about the prospect of their citizens gambling online without the countries themselves obtaining tax revenue from the activity. Thus, the move by countries such as France, Italy, Germany, etc. deciding to create their own legal Internet gambling infrastructure for  their citizens. The term "balkanization" has frequently been used to describe this trend inferring the  associated political and economic impact of this strategy. Unfortunately, a number of the regulated European Internet gambling properties have failed because of their lack of liquidity associated with the downsizing of their  gaming audience. 

During this phase of European repatriation of gambling regulation into individual EU countries the US and Canada were pondering the legalization of Internet gambling.  The Americans were heavily influenced by the direction that the Europeans had taken.  A debate ensued which pitted federalist against state's rights advocates arguing either for a federal or state by state regulatory regime. A similar yet muted debate had  occurred in Europe with some advocates wanting the EU governing body in Brussels to establish a pan European EU Internet gambling legislation. The EU governing body could not come to a consensus decision allowing for cross European Internet gambling law, therefore, each country proceeded on their own. Oddly enough the same situation has occurred in the US. No federal law is likely to be passed so each state interested in hosting  legal Internet gambling is charging off on their own. Nevada, New Jersey, Pennsylvania, Delaware, etc. have either legalized Internet gambling for their citizens or are about too.

One of  consequences  of this approach  to iGambling legalization by Europe, Canada and the United States is the unintended legitimization of illegal Internet gambling sites.  This legitimization is largely unintentional and caused primarily by a  combination of a "land" based casino  regulation bias and the assumption that the Internet can be "regulated".  Clearly the Internet is borderless despite the attempts to block IP addresses. In addition, clever ways to identify people that are or are not in a region that is gambling friendly are hard to implement and in many cases my deny people access that should have access to a legal online gambling property.  China has tried IP blocking  with limited success.

The other interesting challenge for governments attempting to restrict access to their Internet gambling properties is the lack of competitive rigor that is a normal part of competitive and open economies. Certainly there can be competition within the sanctioned online gambling properties. However, it is not to the level that an open economy offers. 

For example, I have spoken to a number of amateur and professional poker players that have decidedly migrated back to the "illegal" sites because of  the inferior quality of the poker experience on legal Internet gambling sites and the lack of "liquidity" on these sites. Poker and in some cases Blackjack and  Bingo require liquidity and "churn" to remain interesting.  Many online poker players have played on "illegal" sites for years and are quite happy with them. An incident where a potential player  attempts to access a"legal" Internet site and is rejected due to a close proximity to a border state that does not support Internet gambling also creates an incentive for that player to go back to their favorite illegal site or perhaps to search for one. 

 Hopefully,  governments that have either decided to "regulate" Internet gambling or are considering it properly assess their motivations for doing so in a commercial context. In the end, if the regulated jurisdiction wants to generate meaningful revenue, cultivate successful Internet gambling businesses and  actually protect their citizens from the dangers associated with illegal Internet gambling they need to offer their citizens a competitive, accessible,  safe and secure environment that rationally approaches the Internet gambling arena. Modeling Internet gambling regulation solely based on land based regulation models is admirable. However, the contrast between these environments is stark requiring specific regulatory consideration for each sector to ensure a safe commercially viable gambling experience. Illegal Internet gambling sites that initially were fearful of a regulated legal Internet gambling world have now realized it is actually good business for them as long as they are assessable and offer a superior online gambling experience relative to the regulated properties.

Kevin Flood is the CEO of Gameinlane, Inc. Kevin, has developed, launched and operated Internet gambling sites in Europe.   Kevin and Gameinlane   develop "social" 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

    

         

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.

  

  

US Land Based Casino's Taking Very Different Views On Online Gambling And Social Casino Gaming

We have seen a flurry of announcements and proclamations recently related to the US online gaming and gambling positioning of the large Vegas based casinos.  The Sands, Wynn, Caesars and MGM have all publicly announced their views or interest in the online game space. The evidence unfolding is that there is very little online strategic gaming consensus amongst the top tier US land based operators.   What is this all all about, how does the discord impact US focused Internet gambling and is there any common ground amongst the US land based casino operators?

The Sands And Sheldon Adelson - There has been much press about Mr. Adelson's public proclamation that legalized online gambling in the US is "bad" for the land based casino business. He is opposing it and is going to lobby US states and  the federal government to stop the expansion of legalization. Why is Mr. Adelson so worried about online gaming in the US? 

Contrary to most other US land based operators the Sands has not taken the  online gaming space seriously or initiated any online initiatives. The assumption is that they have not because their primary focus has been in  land based casino development. Based on the public details of Mr Adleson's business he is indeed doing very well around the world with his land based operations. However, does he  believe that online gaming is now going to be a threat to his core business? If he does this a very controversial position because it is unclear that  online gambling  will take business away from  land based casino operations. In fact, some would argue that it drives traffic to the land based operation. Is the Sands just too late to the market and not prepared for online gaming? Conversely, is there something fundamentally anti competitive about US online gambling law or is the law too competitive not allowing US casino monopolies to own the space? Essentially, the reason or reasons  for Mr. Adelson's public opposition are difficult to quantify or qualify without knowing  the cause for his concerns.

Caesars and Gary Loveman - Caesars has taken a very proactive approach to online gaming in the US,  assuming  "real" money online gambling will be slow to roll out in the US the company has invested in social gaming/social casino properties. This preemptive, and perhaps an adjunct strategy to "real" money online gambling,  has resulted in the purchase of Playtika and Pacific Interactive. These  acquisitions are well documented. 

However, most people are unaware that Mr Loveman, as CEO of Harrahs,  launched a UK based casual/social gambling site called Luckyme about 10 years ago offering a number of casual games such as bingo, Yahtzee, etc. in a subscription service model similar to EA's Pogo property in the US.  Clearly, Mr. Loveman believes that social/freemium games have a place in the pantheon of gaming options offered by land based operators. The cost of acquiring gambling players in the UK made this model unworkable. However, lessons were learned about the popularity of this style of online gaming.  It also indicates that Caesars may be a believer in the convergence argument that espouses a close relationship between social/freemium games and "real" money gaming. However, their strategy could also indicate that  Caesars  is investing in social casino because it is unrestricted, legal, ubiquitous, has a lower operating cost relative to "real" money online gambling  and it  monetizes at an impressive rate.

Wynn And Steve Wynn - The Wynn's online gaming strategy has never been fully developed although Mr. Wynn has indicated that given the right "conditions" he would enter the space. He was rumored to want to buy  Zynga at one time. However, for some reason that deal was not consummated.  Perhaps this was a good thing given Zynga's fall from grace.  He has recently been quoted as being interested in operating an online casino in the US. However, he feels that at this time he does not believe that either the market and or the US regulatory online gambling regime will lead to a positive business "entrepreneurial" environment for online gambling in the US.   Much can be read into this assessment. However, it appears that the combination of the cost of licensing, restricted state populations and game content does not add up for Wynn. Unlike Caesars, Wynn has not commented on their current social casino strategy. This could mean that they may take another look at this sector given their earlier interest in Zynga. 

MGM and Jim Murren - MGM has been in and out of the online gambling space having launched an online gambling operation in the UK tens years ago. They closed the site due to the highly competitive UK market and the lack of brand awareness for MGM in the UK. They have also been in the social casino space with the funding of MyVegas and integration of the social game into their land based property. Essentially, they have the most well integrated online/offline game strategy  driving players to their land based operations. They are also busy exploring "real" money online gambling licenses in various states. We do not hear a lot about them in the press as it relates to online gambling, however, they may in fact be one of the biggest winners in the space if they have a combined offline, real money and social casino gaming implementation strategy.

Other Casinos - Stations Casino purchased the poker platform provider  Cyberarts  which runs the Nevada Ultimate Poker property. A number of other regional US casinos have been actively exploring the online gaming space and we will see what they implement in terms of social or  "real" money gaming. The smaller regional properties  will probably wait until online gambling legislation opens in the  states they are operating in  before they make a serious entry into the online gaming space.

It is clear that the some of the US Vegas land based casino's have been actively involved in the online gaming space for some time. The roll out of legal online gambling  in the US is now occurring and the early signs are indicating that the nature of the introduction  is causing some land based operators to think twice about entering the legal US online gambling market while others are steaming ahead.  

 Freemium/social casino continues to interest the land based casino operators as an alternative to or complement to their land based and perhaps real money online gambling  businesses. It is very interesting to see IGT become an "operator" of social casino as opposed to being exclusively focused on  a supplier of services to land based operators. Although their  earlier purchase of the Wagerworks online gambling platform and operation of that service in Europe did  indicate that they may have more  "operational" ambitions.  Will the other land based casino platform and game content suppliers follow the lead of IGT?

   The states may have to rethink their online gambling strategy and licensing structure having relied too heavily on the European online gambling model where large casinos are not present and social casino has not necessarily been exploited as a proxy for real money gambling. The US land based casinos need to have a stake in US online gambling for political and economic reasons. Without land based casino buy-in US online gambling could find itself facing some serious headwinds.  Freemium/Social gaming could be the big winner in all of this if legal US online gambling falters.

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.

         

Unraveling Zynga's Internet Gambling Strategy

Zynga’s recent announcements regarding their internet gambling strategy has confused  business analysts, game publishers, game developers,  internet gambling experts, Zynga employees and land based casino business managers causing them to reassess  their relationship with Zynga and their own approach to the opening of the US internet gambling market.

The confusion and debate about Zynga’s short and long term association with internet gambling  has been driven by two seemingly conflicting actions.

Party/Bwin Zynga UK Introduction Of  Internet Casino Gambling Platform – Zynga has decided to forego the development of their own “real” money internet gambling platform and has opted to have Party/Bwin launch the UK Zynga   gambling brand using the Party/Bwin gambling platform and gambling operation. Essentially, Zynga has recognized that there is a significant  difference between their current social casino games and operations  deciding that, for now, it would be wiser to have a company with expertise in the internet gambling space  run their UK internet gambling business.

Executive Decision To Not Pursue A Nevada Internet Gambling License – Zynga has recently gone though an upper management change  and the new management has decided that investing in a Nevada internet gambling license is not in the best interest for Zynga at this time.   They have decided that the core social/freemium business should be their primary focus. It appears that working on a Zynga internet gambling platform and launching a US facing internet gambling business will consume valuable time and resources that could be better deployed improving the social/freemium game business.

So how do we interpret these potentially conflicting actions. Is Zynga in or out of the  internet gambling business?

Apparently, Zynga is not completely out of the internet gambling business. If they were they would have shutdown the Party/Bwin/Zynga UK internet gambling effort in addition to the pull-out from the Nevada Internet gambling business.

The recent reluctance to enter the Nevada internet gambling business could  be a recognition that the Nevada market is too small to support a meaningful internet poker gambling community.  In addition, Ultimate Poker has recently launched a “real” money internet poker business in Nevada further questioning the viability of the Nevada poker market if two poker brands are active in the state.

The slow roll-out of legal internet gambling in the US could  have influenced their decision to not get a gambling license in the US.  Is poker a viable gambling product in the US if the US continues to pursue a state by state roll-out of internet gambling?  Is the ratification of a federal bill the only way poker can be successful in the US?

Struggling Social/Freemium Business – There is no doubt that Zynga’s core business is struggling and this business must be put back on track before a significant  amount  of resources are invested in developing an internet gambling games, a gambling platform and a marketing effort that targets internet gambling players.

Low Conversion Rates Of Social/Freemium To Gambling Players – There is mounting evidence that social/freemium casino players are not easily converted to “real” gambling players. Zynga was no doubt counting on a significant amount of their social/freemium player to migrate to “real” gambling when they first contemplated a move into the gambling space.. With this expectation in question where would Zynga’s  gambling players come from if they did launch a gambling operation?

Testing The Power Of The Zynga Brand – In many ways the Party/Bwin launch of  Zynga  in the UK is a test of the power of  Zynga as a gambling brand.  The games are not Zynga games and the operation is not run by Zynga.  Essentially Zynga has licensed their brand for use in the UK  gambling market.  This will be a very good test given the hyper-competitive UK internet gambling market. If Party/Bwin can take marketshare away from other well known gambling brands in the UK using the Zynga brand the future of internet gambling for Zynga may become more important in it’s  evolving business strategy.

Overall, despite the confusing nature of Zynga’s recent internet gambling announcements and actions,  Zynga is not necessarily “out” of the internet gambling business. The UK experiment will give Zynga much insight into the viability of getting into the internet gambling business themselves. The timing and nature of the roll-out of legal internet gambling in the US will also have a significant impact on Zynga’s decision process.

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.










Unravelling Zynga's Internet Gambling Strategy

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

What Does Zynga's Launch Of An Internet Gambling Business Really Mean?

There has been much  commentary in the press and on blogs about Zynga's  anticipated and perhaps rather late entry into the Internet gambling(iGaming) business.  This topic has been discussed for years and it is finally here. Although Zynga is the 600 pound social/freemium game company in the room they are not the first cross over company to have a social/freemium business and an Internet gambling business under one roof. Gamesys' Jackpotjoy was one of the first "true" crossover entries into the combined social and iGaming  realm. However, Gamesys has come from the opposite direction having been in the  UK Internet gambling business for some years. Betable is an example of a hybrid introducing third party freemium game content within their Internet gambling platform.   From all indications Zynga's predecessors have not witnessed a meteoric adoption of gambling by the social/freemium sector. So the question remains why now for Zynga and what are the long and short term goals for the initiative?

 Bwin.Party  Launching A Zynga Branded Internet Gambling Business - The fact that Zynga is using a Bwin.Party gambling platform and not a Zynga gambling platform indicates how tepid Zynga's iGaming launch really is. In press releases Zynga is very open about this acknowledging that their social game platform, development resources, games, marketing acumen, etc. are not iGaming  enabled and not appropriate for Internet gambling. It also appears that Zynga is not actually operating the iGaming business. Essentially, Zynga's overall resource commitment to the  iGaming business sector is relatively insignificant. The details of the business deal between Bwin.Party and Zynga are unclear. However, it is most likely a flat annual fee and a revenue share where Bwin.Party receives most of the proceeds.  

Zynga iGaming Launched In Facebook And Not On Mobile Devices -  The launch of a Zynga iGaming in Facebook and not in a mobile device environment is somewhat counter to Zynga's stated goal of gaining more traction on mobile devices. One of Zynga's biggest strategic business mistakes was not giving more consideration to the growing mobile market.  Their stock and their revenue growth have been negatively impacted by their singular focus within Facebook. So, once again we see Zynga investing in the Facebook platform with their iGaming business. 

This decision could be interpreted in a two different ways. On the positive side Zynga is admitting that Facebook is their home turf. They have a big audience in Facebook and their social poker product and audience  could be used as an up-sell vehicle into their gambling product. The "convergence" approach could be a big win for them if they can prove that a meaningful percentage of their current social poker players can be converted to the iGaming product.  Historically, selling leads to iGaming operators in Europe has not proven to be fruitful for either Zynga or the European iGaming operators. Essentially, Zynga does not know how the profile of a Zynga poker player maps to the iGaming environment. They have never invested any significant effort in sorting this out. Will they invest energy and resources in social/freemium/igaming player profiling going forward?

Cost Of Player Acquisition And The UK Internet Gambling Market - The UK has perhaps the most mature regulated Internet gaming market in the world. This has a positive and negative side to it for Zynga. The positive is that the population is very comfortable with Internet gaming and the government has put into place a number of safeguards to protect the public form abuse and problem gambling. The process of hosting and operating a gambling operation for the UK population is clear and well mapped. The downside is that the iGaming market is highly competitive with player acquisition costs going as high as $600 USD.  Party is quite familiar with this but Zynga is not. So it will be interesting to see how Zynga will react to this market reality. Party and Zynga are certainly hoping that Zynga's social player DB can be leveraged to decrease the average cost of acquisition. Remember that Zynga is not launching an Internet gambling business based on their own platform. Party is launching their platform decoupled from the Zynga social player audience.  

iGaming Revenue And Analyst Expectations - Zynga has wisely down played  any predictions on revenue from iGaming. Despite this business analysts are insisting that the iGaming channel could be a significant revenue stream for Zynga. Zynga has been very clear in their communications and by their rather limited resource investment into iGaming that the Bwin.Party deal is an experiment with the goal of learning what the iGaming world is all about. They have no stated public revenue expectations from iGaming.

US Legal Internet Gambling - Clearly Zynga is most interested in  the US Internet poker gambling market and not in the UK market. This first introduction into the UK market will be an interesting yet limited learning experience for Zynga. The UK launch is essentially a Bwin.Party product with some Zynga branding. If Zynga wants to win in the US iGaming race they will have to be more aggressive and actually invest time money and resources into Internet gambling. The fact that they are not going to get much operating experience in the UK is a bit of a concern. Clearly, Bwin.Party, 888 and others will be much better prepared for the legalization of gambling in the US. 

In conclusion, the Bwin.Party launch of a Zynga branded iGaming platform in the UK is an experiment for both Bwin.Party and Zynga.  Zynga is not going to commit significant resources to this effort unless they see a working business model in the UK.  Zynga will learn something from the UK launch but not nearly enough to build and launch its own Internet gambling poker product for the US market. It may be that they will also concede this gambling market to Bwin.Party as well. 

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.