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Summary:

Nevada became the first state in the country this week to legalize online gambling — but don’t expect this to change the fortunes of companies like Zynga anytime soon.

Poker
photo: Beto Chagas via Shutterstock

Nevada became the first state in the country this week to allow online gambling with a new law that gives the green light to poker and other games. The law is intended to keep Nevada out in front of rival New Jersey but will not do much for social game makers like Zynga that are counting on gambling to change their fortunes.

Nevada’s governor signed the law on Thursday with bipartisan support and described it as a “new frontier” for the gambling industry. The law came about after the federal government in late 2011 decided to change its policy and permit online gambling to take place in states that explicitly permit it.

The new policy is significant in light of research that predicts online gambling will be worth $100 billion worldwide on mobile devices alone by 2017. This potential market has attracted the established casino industry as well as tech companies that are vying to make gambling games or process back-end betting operations.

The new U.S. gambling rules are also a potential lifeline to social game maker Zynga which has seen its titles like Farmville and Mafia Wars stutter. And since being cast adrift by Facebook last year, Zynga has seen its shares fall around 80 percent.

The Nevada law, however, is unlikely to change Zynga’s fortunes anytime soon as it only applies to internet users in the state. The law is also primarily intended not to help social gaming sites but to ensure that Vegas casinos have a first-mover advantage in providing operational support when — and if — other states follow suit. As the Las Vegas Review-Journal reports, the Nevada law is written to keep out companies that already have existing player data. The story in question refers to “illegal operations” and those who “operated online gaming with U.S. patrons” — it’s unclear if this refers to organizations like Full Tilt Poker who broke the law in the past or to any company with gaming data.

The upshot is that the U.S. will, at best, have a patchwork of states in the foreseeable future where online gambling is permitted. If big states sit it out, it will not be easy for companies to guarantee that online poker tables are full. It also means operational headaches and potential criminal penalties for the game makers which must ensure, for example, that a player in Colorado doesn’t slip into a Nevada-based poker game.

The bottom line is that full-scale online gambling is still far on the horizon as the U.S. regulatory process shakes out. In the meantime, the winners and losers among Zynga and other tech companies like Big Fish are likely to be determined in the U.K. and elsewhere.

This story was updated at 12pm PT to clarify how the law may favor Nevada companies.

(Image by Beto Chagas via Shutterstock)

  1. youbetme.com — game changer. coming soon.

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  2. Interesting article Jeff! Question: Since it’s legal to gamble online in Nevada, does this mean anyone in the country can gamble online legally or is it just restricted to Nevada residents?

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    1. Thanks, Kevin. My understanding is that the law applies to activity within the physical borders of Nevada. States can makes rules for speeding, marijuana, guns and so on but these rules only apply within their territory. In this case, companies can let people place bets through an internet browser just as they can put money down on a roulette wheel — so long as the bet is made in Nevada.

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      1. what about sports betting?

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      2. You do not understand the law. It is not an intrastate betting law. It is interstate. If say Florida chooses to partner with Nevada, than Florida players will sit at the same tables with Nevada players.

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  3. Where does the Las Vegas Review Journal report that the Nevada law is written to keep out companies that already have existing player data? Aren’t they referring to companies that have previously operated illegal online gambling?

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  4. Aaron, the Review Journal report is ambiguous. I will attempt to peruse the law itself; in the meantime, I’ve added a clarification above.

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  5. Won’t users from outside Nevada be able to bypass this law by using a proxy server that makes it look as though the internet connection is originating from Nevada?

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  6. What advantage does Nevada gain by passing the law before other states?

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  7. Zynga specializes in social/mobile gaming and has a huge database of users with Zynga Poker. Major casinos like Wynn, Ceazars, Boyd specialize in gambling/hospitality. IMO it appears logical the two would partner up which would benefit Zynga tremendously. I don’t think a company like Wynn wants to get in the business of developing there own online gaming and figure out how to engage and attract users when Zynga already does that. I think either Zynga gets bought out with there no debt balance sheet or they do a partnership with one of the major casinos, seems like a win-win to me.

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  8. Actually Delaware was the first state to legalize online gambling. They will be up and running by the end of September of this year!

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