Why Zynga gave up on gambling


Zynga’s share price has been in the toilet forever but, every so often, the stock soared briefly on news that the social gaming company had signed a deal with someone in the gambling industry. Investors fell for it every time, believing against the odds that casino riches could save Zynga from its lame product line. Now, even that false hope is gone.

On Thursday, Zynga’s customary batch of disappointing earnings came with a kicker — the company is giving up its efforts to obtain a real-money gambling license in the U.S.. So what happened? Why did Zynga throw away a potential lifeline?

According to a source in the social gaming industry, the decision amounts to a choice by incoming CEO Don Mattrick to focus on core competencies rather than to try and enter a business for which Zynga is not designed. The source, who did not want to be named, explained that the highly regulated gambling arena means companies have to get approval in many cases to make even minor tweaks to their game codes.

“Part of the reason Zynga has been successful historically is that they’re able to iterate rapidly. But iterating quickly when you’re regulated is not an easy thing,” the person said, adding that the regulatory regime could apply to something as basic as changing the process for signing up for the game.

For Zynga to compete in the still-emerging gambling space, the source noted, it would have to fundamentally change its corporate structure to jump through “a whole lot of hoops.” As for Zynga’s partnerships with gambling players like BWIN: “It was just Zynga shipping them logo files .. they were BWIN games in Zynga clothes.”

This is just the perspective of one industry source but the view jibes with what others have told me in the past. It is also consistent with the fact that the legalization process for online gambling in the U.S. is still moving at a snail’s pace — and that the future industry is set to be dominated by Nevada and Atlantic City casinos rather than the likes of Zynga.

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