Failure Of US And European Legal Online Gambling Gives Rise To Legal Social Casino Gambling Market of 4 Billion USD AND Illegal Online Gambling

I recently revisited the phenomena of the growth of social casino and the demise of "legal" online gambling around the world. The robust  and mature social casino market, now exceeds 4 billion USD!   The illegal online gambling market is hard to quantify for obvious reasons. However, illegal online gambling transaction estimates are in the billions of dollars.   Conversely the legal online gambling market(New Jersey and Delaware) in the US is 8 million USD and the European market is 23 million USD.

So what is going on here and why has social casino and illegal gambling grown robustly and the legal online gambling market so slowly?

What Is Social Casino?  -  It is important to differentiate social casino from other online gambling environments. Social casino is primarily the creation of the Facebook social network. Early in Facebook's history they began to allow application developers to add apps into the Facebook environment. The apps themselves where accessible by all Facebook members without restriction. Zynga poker  was the first social gaming app introduced into  Facebook.  Zynga's poker app was a phenomenal success because poker is an inherently social game and at the time Facebook did not restricted the extent of social connections(viratlity) generated in their environment.  This allowed each user of Facebook to invite all of their friend connections in Facebook to join the game. Thus the term "virality". The success of gaming in the Facebook environment and the onslaught of other gaming apps entering the Facebook environment.

Social Casino Transcends State And Country Boundaries - Freemium and social casino games ado not require licensing and they do not have to respect country, province, state, etc. demarcations. This means that a social casino business can access players all over the world with the same or similar content. However, it also means that there is less of an opportunity to localize content.    

What is Virality? - Although not an official word in the dictionary virality is a commonly used term in the social network world. An application is "viral" or "goes" viral when participants access the app and begin to invite friends within their social network to access an application within the social network. 

Monetization In Social Casino - Facebook and other social and "freemium" online casino properties get around the definition of gambling (chance, consideration and prize) by altering the definition of prize. In a traditional gambling environment a player purchases chips(consideration) or credits in the Facebook environment  with "real" money and wagers those chips in a game of change. The chips can be redeemed or "cashed-out" for "real" money at the discretion of the player. In a social casino environment the chips/credits can not be converted back into cash/real currency. Essentially all converted chips stay in that state and can only be used during game play.   

Accessibility, Licensing And Illegal Online Gambling - The regulation of online gambling or outlawing of online gambling has had an interesting impact on the cultivation of "illegal" online gambling. Clearly the restrictions on online gambling have favored open environments such as Facebook and other "free" to play sites. However, there is an insidious  side to regulation of gaming as well that has driven players from around the world to "illegal" online gambling sites.  Gambling licensing costs can also be a real barrier  to entry. The state of New Jersey requires a $400,000 permit and a $250,000 responsible gaming fee to operate an online gambling business!!  Clearly the illegal gambling properties are not paying these fees.

It is clear that the combination of laws, fees and perhaps that lack of understanding or concern about the consequences of not providing operators with cost effective ways to enter, launch and maintain legal online gambling operations has lead to the success of Facebook gambling apps and unfortunately to a robust illegal online gambling industry. The Facebook gaming phenomena is a welcome alternative to traditional online gambling. However, the rise of "illegal" online gambling activity is not so great.

Kevin Flood is the CEO of Gameinlane, Inc. Kevin spent time at the Machine/Learning Lab at MIT as a technology transfer fellow engaged in model based reasoning, case based reasoning and rule based systems to enhance diagnostics systems.    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 in addition to launching online gambling operations in Europe. Gameinlane is also startup "friendly" understanding the unique value new gaming companies bring to the marketplace.  Kevin frequently speaks at gaming conferences around the world providing him with a unique perspective on this very interesting business sector. Kevin can be reached at kflood@gameinlane.com  and or twitter  at @kflow1776.

Gaming Blog "Kevin's Corner" Achieves Milestone of 130, 000 Visitors!!

Kevin's Corner traffic exceeded 130,000 visits last week marking a significant milestone in the Gaming blog!  Kevin's Corner   started 5 years ago as a "professional" blog targeting individuals and businesses engaged in the "gaming" industry. With over 200 individual  blogs  it provides a wealth of knowledge on a variety of different gaming subjects. It has covered, "real" money iGaming, social casino, freemium gaming, virtual currency transaction and the relationship between land based casino and online gaming operators. The blog continues to attract a global  audience  as  different gaming business models merge and converge creating  acquisition and business partnership  opportunities.

Kevin Flood started the blog  to encourage  an open dialogue on a subject that was becoming increasingly complicated as new forms of online gaming began to emerge and merge into a complex interwoven environment of land based gaming, online gambling, social casino, virtual currency transactions and real money transactions. The international nature of gaming and the various laws  and preferences impacting gaming made for an interesting and, perhaps, confusing mix of laws, player populations and revenue models. Kevin's own experience as a game developer, game publisher  and executive for  US  based land based casinos exposed him to many of the influences that guided gaming behavior and business models. His experience launching  online gaming operations in different countries and in different environments made him realize that there are also similarities across borders that could be shared and discussed in a public forum.

The following  blogs are the top 5 blogs in terms of volume. Although volume is a good indicator of popularity it is not necessarily  an indicator of  "value". Kevin's Corner has attempted to address many aspects of gaming for  a variety of different business  sectors. In some cases a blog that has not hit the top five in terms of volume has been very useful for its  targeted audience and the information it provided.

Number 1 -Game Analytics - Big  Data and Business Intelligence  -  With over 2500 views this blog has received the  most attention and still continues to get   high traffic views based on how important making sense out of all of the data that games and game businesses produce.  Games are unique based on the amount of data that games can produce. It is a lot harder to understand the significance of, and patterns within data, then to collect it. Planning ahead for what you really need to know and being flexible in how to add new data and new data types into the mix is the key to good gaming business intelligence. Understanding player behavior and player (state) is challenging.  Where a player is(state) in terms of the lifetime value of the player is critical for the success of a gaming business. Having comprehensive analytical systems that  individuals or even a staff of analysts pealing through the data is not uncommon as a slight difference in game content and marketing strategy can make a meaningful difference in revenue, player retention  and player acquisition.

Number 2 -What Is the Better Gaming Business Model? - With the advent of social networks, social casino, freemium play, virtual currency and various new notions of what constitutes a game of chance , skill or for fun it is easy to become confused as to what is the right gaming model for a business. The source of revenue for the models, consumers of the content , marketing approach and revenue per player differ widely across gaming business models.   This makes the choice of a gaming model difficult. In the end, the gaming business model of chose has to fit the knowledge, skills, investment capital and legal framework that fits the organization.

Number 3 - Will Social Casino Games Be Subject To Regulated Gambling Laws?  - In the early days of social casino there was much speculation that social casino would be categorized as "real" gambling. Facebook credits(virtual currency) where at the heart of the controversy. Gambling is traditionally characterized as an activity that includes chance, consideration and "prize".   Government entities and traditional online gambling regulators where skeptical about the use of virtual currency in social casino games as a prize.  After a lengthy debate on the subject of virtual currency, regulators concluded that virtual currency that could not be converted or "cashed out" into a traditional currency obviated the "prize" definition of gambling. Therefore, avoiding the need to "regulate" social casino.

The regulator's decision not to regulate social casino may also have been influenced by the  realization that the social casino and "real" money gambling populations had different characteristics. Traditional gambling attracted a smaller audience relative to social casino.  Also, social casino was heavily influenced by the social network that hosted the games with the network itself being as important, if not more important then the game play itself.  The  poor "conversion" of social casino players to "real" money gambling players also had an influence on the regulators decision.  Some players prefer social casino  over real money gambling and others prefer freemium or virtual currency games. The social casino businesses have also been careful to make a clear differentiation between their models and online gambling business models. 

Number 4 - The Merger Of Social Casino, Online Gambling And Land Based Casino Models. - Similar to number 3 in terms of content and interest blog number 4 also received a lot of attention as a number of businesses began to develop, acquire and launch a number of  gaming models. However, merging of these models has been difficult as the audience, risk and governance of these models is  very different.  Operating the  gaming models as separate and distinct businesses has proven to be the most rational and successful way to operate  these discrete models.

Number 5 - Zynga Under Investigation  By The US Justice Department -   The popularity of Zynga poker in the Facebook  social network did catch the attention of the US Justice Department as it was one of the first really large social casino businesses using Facebook virtual currency credits as a way to monetize players. The sheer size of the Zynga poker community averaging thousands of players interacting at  peak time did draw the attention of US authorities.  However, with no cash out possible the JD had little to stand on without changing the "definition" of what "prize" meant in a gambling  context. Prize is something of "tangible value" that can be exchanged and used to purchase other items of tangible value outside the origin of the currency generated. Facebook made sure that this could not happen, therefore, obviating the need to either shutdown Zynga or forces the company to change its revenue model.

Kevin's Corner continues to cover global gambling topics of all, types and  varieties. Reflecting on what has been the most sought after gaming content subject  over the past 5 years certainly reinforces what is "popular". However, the popularity of a blog does not necessarily indicate its "value" to all audiences. Thus, making it an important goal of Kevin's Corner to continue to cover many different topics.  Kevin's Corner subjects are often recommended by members of the gaming community as the community seeks to decipher what is really going on in the space and to engage others in a open dialogue about the future of gaming. If you would like a subject covered lets us know. Please send your suggestions to kflood@gameinlane.com.

Kevin Flood is the CEO of Gameinlane, Inc. Gameinlane  has developed, launched and operated Internet gambling sites in Europe,  social casino,   freemium and subscription gaming in the US.   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 in an online context.   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 in addition to launching online gambling operations in Europe. Gameinlane is also startup "friendly" understanding the unique value new gaming companies bring to the marketplace.  Kevin frequently speaks at gaming conferences around the world providing him with a unique perspective on this very interesting business sector. Kevin can be reached at kflood@gameinlane.com  and or twitter  at @kflow1776.

 

Is It Gambling, Skill Or Play For Fun? "The Confusing Intersection Of Fantasy Sports, Social Casino, Skill Gaming And Traditional Gambling"

I have to believe that at this juncture a person, business or regulator entering the US online gaming space must be totally confused as to what is "real" gambling and what is not and what is regulated and what is not. Even for a veteran of the online gaming space the world has become confusing, if not downright contradictory and perhaps even a bit strange.  The traditional definition of "gambling" has been "an activity that involves three elements; "chance", "consideration" and "prize". In a a game of "chance" a players' knowledge and acumen are not factors in the outcome of a game. However, this definition has been stretched by the advent of virtual currency, skill gaming and fantasy sports creating a bit of confusion over what is or is not gambling.

Even before the advent of the "skill" game category people have argued that poker and blackjack are skill games and not games a chance. The dictionary definition of skill actually identifies poker as a skill game. "poker is a game of luck and skill"!!  Despite this definition  poker and blackjack retain their "gambling" status. Fantasy Sports has further complicated the  gaming universe making for an even more confusing world of conflicting and perhaps misleading notion of what is or is not fun, gambling, skill or "other". Fantasy sports is "categorized" as a skill gaming yet "unregulated".

  Facebook And Social Casino - Confusion over what is or is not gambling intensified with the launch of gambling game content in social networks. The first real challenge to the notion and definition of online gambling started in 2009  when "social" casino entered the scene in the form of Facebook games  leveraging Facebook "credits"  as a wagering currency. These games allowed  game/gambling publishers to launch gambling style games in the Facebook environment without being subject to a "regulatory" process or regime.  Facebook "virtual" currency credits could be purchased but not redeemed allowing game developers. operators  and Facebook to  circumvent the traditional  "prize" element of online gambling law.    The term "social" became attached to any gambling style games that used virtual currency as a transaction currency. The term "social casino" has now extended beyond Facebook  gambling style games and includes all "gambling" style games played on mobile and web that are either freemium(no virtual currency) or virtual currency based. Essentially, no "cash" payout and no social network required.

Fantasy Sports - Coincidentally, and perhaps serendipitously "fantasy sports" entered the scene in 2009 as well with the launch of FanDual and eventually the launch of DraftKings fantasy sport businesses. One of the factors leading to the creation of fantasy sports is the fact that "traditional" online sports wagering is considered illegal in the US.    In  Europe online sportsbook is legal and a very successful business model.    Interesting to note is that wagering in fantasy sports is with "real" money and not with virtual currency. Thus, North American fantasy sports operators are not much different then their European "real" sportsbook cousins.

Legal US Online Gambling - Further complicating the online gaming/gambling world is that  states such as New Jersey, Delaware, Nevada, etc. are offering  regulated  gambling content online. This market is estimated to grow to 5.2 million in 2020!!

Land Based Casino's  - US land based should also get a mention here as it is apparent that the online online gambling has not impinged on their revenue and growth. In 2014 the land based casinos  raked in 34 billion dollars in revenue!!   Players are engaged in both venues.  There are US land based casino operators that still fear the impact of legal online gambling even if there is no proof that online gambling has any negative impact on land based casino businesses. It could be argued that operating a land based and online gaming/gambling business may actually improve revenue and traffic for both forms of gaming/gambling. 

The complex and evolutionary nature of US online gaming  and online gambling regulation has created a confusing, and  complicated collection of laws, regulations, definitions and business models. The most recent ascent  of "fantasy" sports has made the environment even more confusing.

 Despite, the confusing and contradictory nature  of regulations and the lack of regulation gaming and gambling sectors of all kinds continue to grow and thrive.  Consumers continue to seek out   gambling style content no mater what the wager is the payout is. However,  The desire to "gamble accompanied by confusion over what is legal and what is not  has  given rise to very robust and successful "illegal" online gambling business sector  targeting US players. To date these offshore sites have peddled their businesses in a clandestine fashion. Despite this marketing approach they have grown successful offshore businesses targeting US players.

 The complexity of  the  online gambling/gaming  space combined with the continued demand by consumers for gaming/gambling begs the question; Should "gambling/gaming" of any format that involves "wagering" be folded into a singular regulated regime or should all regimes be deregulated with the exception of "problem gambling" legislation?  This is certainly a question that is worth answering yet very challenging from a practical perspective. Certainly the ultimate goal for regulation is the protection of citizens. However, if the laws are contradictory and confusing then the laws themselves lose their value and the respect of the citizens they protect.

Kevin Flood is the CEO of Gameinlane, Inc. Gameinlane  has developed, launched and operated Internet gambling sites in Europe,  social casino,   freemium and subscription gaming in the US.   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 in an online context.   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 in addition to launching online gambling operations in Europe. Gameinlane is also startup "friendly" understanding the unique value new gaming companies bring to the marketplace.  Kevin frequently speaks at gaming conferences around the world providing him with a unique perspective on this very interesting business sector. Kevin can be reached at kflood@gameinlane.com  and or twitter  at @kflow1776.

2016 London ICE Gaming Conference Summary

I have to say that  this year's  2016 ICE gaming/gambling conference held at the ExCel center in East London  was the best of the ICE conferences in recent years. The shear size of the show in terms of exhibitors, traffic and interaction was excellent. The special presentations provided in the seminars were educational facilitating good interaction between presenters and the audience. The  degree of online gambling representation was no doubt the  most improved aspect of the ICE experience. 

Exhibitor Vendor Show Room Floor - The number of vendors and  the opulence  of their booths represented on the show room floor was impressive with two extremely large vendor spaces providing for full exposure to Euro gaming. The vendors where large and small representing many of the European countries engaging in both land based and online gambling. 

Online Gaming - As opposed to many other places  on the planet where online gambling is illegal many countries in the EU have embraced online gambling creating formal regulated processes for this sector.  This has resulted in a booming online gambling market in the Euro Zone. In many cases the online business models  rival land based operations. This phenomena is unique to Western Europe as most regions outside of Europe have not embraced this  form of wagering as a legal activity. This appears odd to many due to the obvious transition in the world from terrestrial gaming to online gaming. Europe has acknowledged  this trend by creating a well regulated online gaming environment  supported by government agencies. Essentially, Europe has created an "economy" around this activity that benefits Europeans from a financial  and  player protection perspective.

Its All About Mobile Or Is It? Although most of the vendors are building games on the Android or Apple platforms (Microsoft was also mentioned in  a mobile context?) a number of game publishers indicated that the desktop is far from a dead platform.  In particular, poker and sportsbook were  mentioned in terms of desktop usage during game play. Essentially, any game that requires, encourages or enhances game play by having a number of windows open at one time works better in a desk top environment.    

The Importance Of Sports Wagering - Sports wagering by "punters" is clearly a mature form of gambling in Europe with sportsbook vendors competing aggressively to acquire and retain  punters/players.   This form of wagering has become extremely important as an online activity with many punters wagering exclusively at online venues and not in betting shops which are declining in numbers. This transformation is driven by the sophistication of online punters  and the  demographics of the online sports wagerer which is skewing towards a market dominated by 20 to 40 year old punters.  The popularity of online sports wagering has positioned sports books as a treasure trove of leads for online casino customers.  Sportsbooks are also the source of many leads for other gaming properties. However, the cost for these leads is pricey. Consequently, purchasing these leads has to be justified by meaningful revenue per player. 

Land Based Casino Activity - North American has historically been perceived as the big dog in the yard when it comes to large and ostentatious  land based casinos. However, the recent Euro ICE conference begins to questions that notion. Granted, Vegas is still something of a phenomena. However, it is clear from ICE that Europe has taken  a very serious approach to build and design casinos that appeal to a larger audience. This was demonstrated by the number of slot machine companies as well a  casino businesses addressing the outfitting of these land based venues.  

Big Data, Artificial  Intelligence, Machine Learning And Player Profiling - Game engagement and especially online gambling generates a lot of data.  However, making sense of this data for the purpose of retaining players, increasing revenue per player and acquiring new players has  been challenging using traditional reporting tools  and  linear data  analysis.  Data scientists are now using Artificial Intelligence /Machine Learning  techniques to improve the mining of rich game data generated from player activity.

These presentation brought back memories for me having spend   two  years at the AI Lab at  the Massachusetts Institute Of Technology MIT working with Patrick Winston and  Randal Davis and being exposed to Marvin Minsky's work   at the beginning of the AI craze.  This investigation resulted in a spin off company called AI Squared started by myself and the other team members working on the project. Out task was to decipher machine data created by electronic control modules in cars, large lorries/trucks, aircraft and medical equipment for the purpose of determining how to detect and address failure in these domains.   Essentially,  not a dissimilar problem from determining what players are doing and why based on their game play data.

The  takeaway for AI/machine learning being used in the gaming industry is to profile customer behavior to determine what makes them stay in the "game, drop out of the game and increase transaction amounts. Ultimately, AI analysis of player behavior and profiling  should lead to increased revenue per player, player retention and the customization of the player experience based a players behavior.

Social Games/Social Casino  Meet Real Money Gambling - Many traditional land based and online gambling business  have either launched or are launching "social casino games" in addition to their current "real" money gambling content. This trend has been going on for some time with completely  separate businesses and business models being created to address the  free to play(virtual currency) casino  game model. Social game business leaders were clearly on the exhibit floor and in the seminars. This is an area that should be investigated more closely by ICE organizers.

There are also two US based companies CashBet and  Betable    that are helping social casino business enter the "real" money gambling market by converting their games to real money play on their platforms. This is a very big opportunity given the amount of social casino developers and publishers that want to explore online gambling with their existing content without having to reinvent their game or launch online gaming platforms of their own. It also will result in new and perhaps more experimental online gambling content. This direction can only help to grow the overall industry.

Fantasy Sports -  What is the status of fantasy sports in Europe? Information disseminated at the conference did not clarify the state of fantasy sports in Europe. It was not obvious to me  why fantasy sports has not taken off in Europe(or has it?). In North America it is very popular and frightening to legislatures with a number of US states banning the activity. However, in a regulated gaming market like Europe why is this not a big business?   A resent article explains  that the complexity of regulation and the fear amongst traditional European sports books may be the reason that fantasy sports has not being successful in Europe. A more obvious reason my be that regulated sports wagering itself is attracting this audience making it difficult for fantasy sports to get off the ground in Europe?  It would have been a good idea to address this issue in one of the seminars. Fantasy Sports is not going away and if the sportsbooks are not careful they could be surprised by an aggressive  startup in this sector. Also, this entire debate begs the question about "skill" games versus games of chance. This is a very real debate in North America and Europe will have to address it as well.

Gambling Startups - ICE has been very good at giving new gambling startups an opportunity to "pitch" their business models at the conference.   This year was no different.  The one striking standout this year was gamevy that won the best startup award. It is an interesting combination of skill, change and simple lottery style gaming. Their graphics alone where impressive indication the value of good game presentation and acceptance. It looks like this company is going to establish some good deals based on their exposure at the show.

Apple iWatch/Wearables As  Gambling Content Delivery Platforms - I actually did see a few business launching simple slot style games on iWatch. However, I can not say they where all that impressive in terms of the game play or reliability. The Wearables certainly would appear to be an interesting way to address casual gamers and to use as  notification devices for sports book activity and transactions. However, it still remains to be seen how iWatch or Google/Android fit into to gambling ecosystem. I suspect we will see more experimentation providing the population adopts this format as a general use platform and as a possible entertainment platform

Overall, the ICE conference was impressive and worth the trek to the docklands to take in the show. Clearly gambling is big business in Europe and especially online gambling where it may have superseded land based gambling in Europe in terms of revenue and participation. The show also demonstrated the professionalism associated with the gambling industry and the dedication of government and regulators to properly manage these venues and at the same time preserve the player experience.  All of this points to a growing online and land based business environment  in the Euro Zone.

Kevin Flood is the CEO of Gameinlane, Inc. Gameinlane  has developed, launched and operated Internet gambling sites in Europe,  social casino,   freemium and subscription gaming in the US.   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 in an online context.   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 in addition to launching online gambling operations in Europe. Gameinlane is also startup "friendly" understanding the unique value new gaming companies bring to the marketplace.  Kevin frequently speaks at gaming conferences around the world providing him with a unique perspective on this very interesting business sector. Kevin can be reached at kflood@gameinlane.com  and or twitter  at @kflow1776.

Sorting Out Investing In The Online Gambling/ Gaming Industry In 2016

The continuing consolidation in the online gambling  and social casino   sectors begs the questions as to the future of the overall online gambling sector as a growth or consolidation play.  Essentially, is the sector still offering new and engaging games to players that  result in  the growth of players and revenue?   Growth rate predictions for the online gambling sector are only in the single digit category,  Social casino  is also slowing and entering the single digit growth category. However, acquisitions such as the Candy Crush acquisition by Activison in the social casino category  make for interesting opportunities for truly knowledgeable investors.

The surprising 2015  launch of Fantasy Sports as a semi-regulated "skill game" presents new and  interesting opportunity for gaming operators going forward. The "skill" category as a gaming category that can garner a large following of players has been a pleasant surprise to gaming operators. 2016 may see some interesting "regulatory" challenges to this business model requiring existing or potential fantasy sports operators to   factor in regulatory compliance fees into their business models.

The online gambling market is estimated at 40 billion USD .  The size of the online gambling market is significant. However, The  online gambling space is far from homogeneous making it difficult to fully comprehend it as a single sector. It is also highly fractured from  a regulatory perspective making a proper assessment of its potential growth rate challenging. Some jurisdictions are regulated and some are not.   In addition, there are many different forms of online gambling; casino, sports book, etc.  From an activity/regulatory perspective gambling has traditionally included three elements; chance, consideration and prize.  However, that is beginning to change with "skill" gaming/fantasy sports entering the mix of legalized gambling.  In the US the skill  sector is  regulated and limited to certain states . Nevada's recent move to regulate  fantasy sports  as a gambling activity adds more complication to the notion of what is and is not gambling. 

In the social casino  sector  the virtual currency payout format has been used to avoid standard gambling regulation. However, from a pure experience perspective the virtual currency payout does not change the fact that players are still wagering.  Many of the traditional  online gambling and in some cases land based casino  operators realize this and  are engaged in both the  'real money" and  social/virtual currency casino  space. 

Other factors making it hard to fully understand the sector is the existence  of regulation in some markets and no regulation in others.  Regulated markets usually keep track of player activity and unregulated ones do not or have questionable numbers. Even  in regulated markets such as the United States  many Americans regularly play games hosted in territories that are not regulated such as Costa Rica and Panama.  

Given all of the moving parts in the gaming/gambling sector  it will take a very savvy investor and or organization to make the proper  decisions on how to enter  the online gaming space, stay in the sector or  make acquisitions in 2016. With this said the complicated nature of the sector favors knowledgeable investors and existing businesses in the online gaming space. There are certainly  new opportunities in the "skill" game arena and in the consolidation of gaming models such as skill, chance and social gaming. Fantasy sports and its "skill" category will also draw the attention of traditional  sports book operators as they have access to sports activity content and feeds that can be leveraged in fantasy sports.

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.

  

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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