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Why Nevada’s first online gambling license is more symbol than substance

Jeff John Roberts — Tue, 26 Mar 2013 17:28:38 +0000

The state of Nevada granted a first-of-its-kind license to a U.K. company last week to operate online poker games in the state. The move will help return internet gambling to American shores but, according to a gaming insider, the value of the license is, for now, closer to a pair of deuces than a royal flush.

The news, in case you missed it, came last Friday when a company called 888 confirmed it will begin operating online poker games as soon as May alongside established casinos like Treasure Island and Caesars. The move comes in response to the federal government’s decision in 2011 that online gambling is no longer illegal if states explicitly permit it; Nevada, New Jersey and Delaware have so far passed laws to allow it.

So why is the 888 news not a big deal? According to a source who works in the gambling industry, 888′s opportunity comes with two major strings attached: it is limited to players physically in the state of Nevada and it only covers poker. The second condition is important because poker depends on player liquidity, which means it is less lucrative for the house than games like roulette or slots.

The source, who did not want to be identified, added that the online gambling industry is focusing instead on developments in New Jersey which has a much larger population (8.8M versus 2.7M in Nevada) and where the state law permits all casino floor games, not just poker.

In the bigger picture, even New Jersey is unlikely to be a game changer given that online gaming companies still have to cater to players on a state by state basis.

“It’s like taking the stock exchange and dividing it by 50. You have to ring fence players, and then account for whether the legal age is 18 or 21,” said the source, adding that the industry is crossing their fingers for a big state to come on board. “If Texas or California falls, that would be a more interesting thing.”

The online gaming industry, which was chased out of the United States in 2006, is also hoping for a bigger breakthrough in the form of new federal legislation that would establish unified rules and protocols across the country.

The outcome is important because potentially hundreds of millions of dollars are at stake for online gaming giants like Bwin that currently operate in Britain and elsewhere, and for fading social gaming sites like Zynga that are desperate for a new revenue stream. Finally, casino centers like Atlantic City are desperate to get a piece of the online action to make up for business they’ve lost to other states and venues.

(Image by Doug Stevensvia Shutterstock)

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Social sports betting: market is huge but big payout is unlikely

Jeff John Roberts — Thu, 14 Mar 2013 16:50:05 +0000

As March Madness, one of the biggest under-the-table gambling event in American sports, approaches, sports site Fanhood is trying to tempt users and their friends into placing tournament pics and other casual wagers online. The site is one of a growing number of “social casinos” like Zynga Poker that offer casual play — but that are also crossing their fingers for a big windfall as states loosen online gambling restrictions.

According to CEO Brandon Ramsey, a former engineer at Yahoo and Zynga, Fanhood is aimed at the millions of Americans who make casual sports bets with friends for fun and bragging rights. He claims the site, which relies on Facebook’s platform, has 50,000 active users who can use virtual currency tokens to bet on everything from the Superbowl to NHL hockey games.

“It’s the same kind of psychology as taking $5 from a friend,” said Ramsey, claiming that Fanhood’s message boards and ongoing tallies of bet outcomes will keep users coming back. He adds virtual currency sales can sustain Fanhood because, unlike social games like Farmville, it doesn’t need fresh content — the sports matches supply that.

While Fanhood may succeed with virtual betting and sports chatter (much like the thriving fantasy sports industry), a big payoff would come through real money betting — a New York Times report pegged online betting as worth between $6 and $100 billion. But, for sports, this is a longshot at best.

Like Zynga Poker, Fanhood is only legal because players can’t cash out. If they could, these sites would be violating federal laws that forbid online betting unless states permit it.

In recent months, the prospects for social gaming companies have brightened as Nevada, New Jersey and Delaware have legalized online gambling. The process, however, is far from smooth sailing. Companies still must navigate established casino interests and, in the case of poker, assemble a critical mass of players (you can only gamble across state lines if all states involved permit it).

The legal challenge is even bigger when it comes to sports betting. According to Jim Gatto, a lawyer who specializes in gambling issues, the federal government deliberately excluded sports when they loosened online gambling rules in 2011. The reason, he said, is that sports depend on human action for the result — meaning there is an incentive to fix the results when there’s money on the outcome (history, including the NBA, shows he’s right).

This means Fanhood and other social sports betting sites will have to be content with virtual currency for the foreseeable future. There is also a chance too, of course, that a casino or other large gambling company will acquire them in the hopes of luring casual sports betters to a gambling site.

(Image by Jerry Sharp via Shutterstock)

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What stays in Vegas: how Nevada’s online gambling law will — and won’t — change social gaming

Jeff John Roberts — Fri, 22 Feb 2013 16:26:30 +0000

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)

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Giddyup! Horse betting site DerbyJackpot lets casual gamers play the ponies at work, the bar and everywhere

Jeff John Roberts — Wed, 30 Jan 2013 18:08:25 +0000

Bosses are going to love this one. A website goes live today that lets people go to racetracks across the country and make real bets using a goofy, cartoon-like interface. The arrival of DerbyJackpot, which may throw office productivity for a loop, represents the latest effort by the tech industry to turn social gaming into full-blown gambling.

We saw a preview of DerbyJackpot in November and now the pony game is live in 25 states. It works by letting players put small bets on horse races around the country and then letting them watch the race through a live video feed. Unlike the complicated race forms of real-world horse-betting, DerbyJackpot has a cartoon-like feel that invites casual players to make a simple “Granny Bet” starting at $1 or even a ten-cent “Dime Bet” on multiple horses. It looks like this:

As you can see above, the site also has social media features that lets friends or co-workers banter online as they wait for Old Dobbin to cross the finish line. Players can pay into their account with credit card or through online payment system Dwolla, which lets them cash out instantly; for now, the maximum bet is $20.

DerbyJackpot has a frivolous feel but it’s backed by serious economists and computer scientists as well as a mysterious “billionaire investor.” It is also playing for high stakes because the U.S. online gaming and gambling industry now stands at a strange crossroads.

Recall that, a few years back, the U.S. government cracked down on offshore poker operations like Full Tilt Poker, leaving American players with few outlets for online gambling. At the same time, flailing online social gaming companies like Zynga are hoping that gambling will save their skin as users tire of inane activities like Farmville.

Into this void have stepped companies like Doubledown, Betable and DerbyJackpot, which are partnering with casino companies in the hopes of turning gamers into gamblers. For now, most of the action is taking place in the U.K. and other countries while the companies badger state governments to change the gambling laws.

The companies got a glimpse of hope last year when the Department of Justice changed its position and said it would permit online gambling in states — so long as states in question passed laws for the gambling to take place within their borders. For now, that’s not happening and, we’re guessing, not much is going to change so long as powerful politicians like Nevada’s Harry Reid and New Jersey’s Chris Christie can protect their home states’ casino interests.

In the case of DerbyJackpot, the company has found a legal loophole because the laws are different when it comes to betting on horses. This because, unlike casinos, there is no “house” and players only bet against each other; in DerbyJackpot, the odds for each race are set by the track in question. While some professional off-track-betting parlors are offering online bets, DerbyJackpot says it’s the only one to target small-scale casual gamers. The company offers a mobile site too and hopes to partner with Facebook in the future.

The site is live in 25 states and, the founders say, it will soon be in about 12 others. Alaska, Arizona, California, Hawaii, New Jersey, Nevada, North Carolina, South Carolina, Utah, and Virginia are among the states that restrict online horse betting.

(Image by Alexia Khruscheva via Shutterstock)

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Derby Jackpot is off to the races with real-money social gaming

Ki Mae Heussner — Thu, 29 Nov 2012 18:02:30 +0000

Social games can be addictive enough when only virtual goods and currency are on the line, but Derby Jackpot is upping the ante with an online game that lets players bet real money on live horse races.

Founded by a team of brothers, Tom, Walter and Bill Hessert, as well as CTO Eric Gay, after a trip to Preakness Stakes last year, the game launched in private beta in September. This week, the New York-based startup announced a partnership with payments company Dwolla and gave the New York tech world a chance to check it out at a special event.

“It’s the first social horse-betting game that makes it easy to bet, watch and win online,” said Walter Hessert, Derby Jackpot’s chief product officer.

Real money social gaming heats up

In the U.S., online horse betting is legal even though other kinds of online gambling are not. But many anticipate that more legalized online betting is on the horizon. Last month, social gaming giant Zynga said it had closed a deal to offer real-money poker and other casino-type games in the U.K but, stateside, it has reportedly invested in state and federal lobbying efforts related to gambling.

Derby Jackpot’s founders said they believe that online horse-betting alone offers a big opportunity, but by being early to real-money social gaming the company could be well-positioned to grow with the market.

“Without a doubt there will be more regulated ways of gambling online,” Walter Hessert said. “There’s a lot of opportunity in real-money gaming online and we’re sure to take advantage of some of those opportunities.”

Signing up is straightforward but includes sharing the last four digits of your social security number to confirm players are over 18. Once players connect their account to a credit card (which requires a $10 minimum) or Dwolla account (no minimum required), they can start betting on live races across the country. Races take place 364 days a year but only between noon and midnight, with increasing frequency later during the workweek and weekend.

From the site, users can see when the next live race starts, select their horses (and see their odds of winning) and then actually watch a live video feed of the race. As they place bets and watch the race, they can see friends’ actions and chat with others online. If they win, they’re informed right away and when winners want to cash out, they can easily indicate the amount they want to withdraw to receive a check in the mail.

More Zynga Poker than Angry Birds

The bets on Derby Jackpot are pretty small – from $2 to $5 per bet – but seem to be enough to keep people engaged. The company said that among their beta testers, when players deposit $10, they play for two hours and win $30 on average. Some big winners have won up to about $1,000 on a single race (players can place multiple bets on one race). Derby Jackpot takes a cut of every dollar spent by its players.

The founders said they’re targeting people who are more into Zynga Poker than Angry Birds, hoping to bridge the gap between hardcore horse-betting and casual social gaming. But even as someone who isn’t into any kind of casino game, I have to admit that I quickly got hooked. Derby Jackpot and Dwolla credited the account of each event attendee with $10 and, as soon as I saw my winnings mount (small though they were), I found myself clicking back to place the next bet.

The company declined to share how much money it’s raised from investors, saying only that its seven-person team is “well-funded.” But, interestingly, one of its advisors is economist and Freakonomics co-auther Steven Levitt, who was Bill Hessert’s professor at the University of Chicago. Prior to launching the startup, the pair had researched the art and science of picking horses. Derby Jackpot said it expects to open the site publicly in early 2013.

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It’s too late for gambling to save Zynga

Jeff John Roberts — Fri, 17 Aug 2012 16:11:34 +0000

Zynga is screwed and its share price shows it. The game maker’s shtick of selling virtual hay for virtual horses is looking more like an internet fad rather than a viable business model. Meanwhile, Zynga’s recent games have been a flop and its longtime ally, Facebook, is looking for new partners.

This sorry situation means that Zynga has been looking to gambling as a lifeline. Reports this week say Zynga spent around $75,000 on lobbyists last quarter in efforts to bring online gambling to California and its CEO, Mark Pincus, recently told investors that the company hoped to enter international gambling markets by the first half of next year.

For Zynga, gambling could be a way to replace revenue lost from the virtual sheep people are no longer buying. The problem, though, is that the company is late to the online poker table.

According to Chris Griffin, CEO of gambling hub Betable, the winners and losers in the internet gambling market are being determined very quickly and Zynga will be hard-pressed to catch up. Griffin points to the mobile launch this week of Big Fish Casino — a game that lets people gamble on their iPhone in places like the U.K. The presence of these rivals mean there could be little left for Zynga.

“Big Fish has a six to nine month head start on Zynga … It’s a false notion that gambling will save them because the valuable players are already locked up and there is loyalty there,” says Griffin, who adds that the current population of Zynga users are unlikely to become overnight gambling fiends.

Griffin has skin in the gambling game so his words should be taken with a grain of salt. Betable, which received a large seed-round of investment this summer (see disclosure below), provides back-end services like payment clearing and legal permits that allow developers like Big Fish to offer gambling in the first place. But that doesn’t mean Griffin is wrong about Zynga.

Even if the game-maker can get gambling up and running, possibly with the help of casino giant Wynn Resorts, it will still need customers. And for now those customers are in the hands of established gambling brands like Poker Stars or the upstarts like Big Fish. To compete in Europe and the U.K., Zynga will have to outspend the incumbents on marketing (impossible) or else offer cheaper rates — leading to the prospect of more revenue but minuscule profit. Meanwhile, Facebook is going its own way with gambling in Europe.

But what about America? Online gambling was illegal until last December when the feds said it could take place in states that pass a law to allow it. This could give Zynga a fresh playing field on home turf.

The problem is that the state by state approval process is a muddle. While bills are inching forward in places like New Jersey, the process is still tied in politics and red tape, meaning it could be years before online gambling is up and running. And even if some states do allow it, only a handful of them have large enough populations to ensure a reliable supply of players at an online poker table. Finally, will American gamblers gravitate to Zynga or, more likely, will they seek out familiar gambling brands like Pokers Stars?

The bottom line is that gambling may be a huge potential revenue stream but that doesn’t mean any of it will go to Zynga.

Disclosure: True Ventures is an investor in Betable and also in the parent company of this blog, Giga Omni Media. Om Malik, founder of Giga Omni Media, is also a venture partner at True. Story and opinions are my own.

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Betable allows social games to add real money gambling

Ryan Kim — Mon, 09 Jul 2012 16:00:58 +0000

Social games are often addictive like gambling but so far, they don’t generate nearly the same kind of revenue. But that’s about to change.

Betable, a UK-based startup, is introducing a platform that allows developers to easily add real-money gaming into their apps. The company is announcing a private beta developer program and plans to open the platform to all developers before the end of this year. Betable, which also has a San Francisco office, is also revealing a large seed round with participation from Greylock Discovery Fund, FF Angel LLC, True Ventures (see disclosure below), Dave Morin and Yuri Milner.

Boosting monetization

The Betable platform could provide a huge lift to social game developers, who eke out about $1 a month from the average user, good for $2 over the lifetime of that user. But it is also likely to prompt a lot of debate about the dangers of gambling and the increased potential for abuse, possibly by younger users. Betable is projecting that developers who use its platform can expect to make $300 a month from the average user and get $1,800 of customer life time value from them. It’s that kind of huge payoff that is also motivating companies like Zynga to explore real-money gaming. Zynga confirmed earlier this year it is talking with partners, including Wynn Resorts, about introducing gambling into its games. Facebook has also been reportedly exploring the idea of real-money gaming.

Betable won’t work initially in the U.S., Turkey, China and Holland, where it needs to secure a license. But it says it is good to go in all other countries, thanks to the work it has done to obtain the necessary licenses for online gambling. The company originally launched in 2008 with the intention of making it easy for people to bet on anything. But Betable’s founder and CEO Christopher Griffin saw a bigger opportunity in using its licenses to help social gaming developers take on entrenched online gambling companies.

“Gambling license requirements are such a hurdle, it means no competition, no innovation,” said Griffin. “We realized there’s a huge opportunity to disrupt that market if we can get the guys in social gaming into betting.”

Griffin said Betable could technically work in the U.S. but they’re waiting to see if the U.S. will offer its own license. Delaware last month officially approved online casino gaming. That came after the Department of Justice updated the Wire Act of 1961 in January, essentially allowing states to authorize online gambling.

A gambling back-end for developers

Betable offers a gambling back-end that connects to new and existing games using its APIs. Developers can choose to allow players to bet against the house or against each other. And they can also hook up gambling into Farmville-like games, swapping in a slot machine mechanic when users want to buy goods. Griffin said the first games to utilize Betable will likely be casino titles but he said any type of game can be hooked up to Betable. Betable will take a share of the revenue generated from the gaming.

Griffin said developers could try to obtain the online gambling licenses necessary to operate in various countries, but it’s painstaking work that can take years. But with less than an hour of integration work, they can be up and running, making potentially a lot more money than the traditional method of in-app sales of virtual currency. He said the typical conversion rate in social games is 2 percent; for online casino games, it’s often 40 percent or more.

“The social gaming guys recognize that simply having tons of users with the economics in the space being what they are, does not necessarily make for a great business long term and so they’re looking for new ways to monetize their enormous user bases,” Griffin said.

Gambling addiction concerns

But the move to open up social games to gambling will surely raise concerns about increased gambling addiction. There are already concerns about how easy it is to buy virtual goods on social games. But adding in an element of real-money betting could end up costing users a lot of money and could tempt more people into gambling that might have otherwise avoided it.

Griffin said Betable employs a lot of safeguards to protect users from fraud and prevent underage users from playing. The company will also utilize machine learning technology that analyzes user behavior to identify problem behavior. But Griffin said people who have a gambling problem are likely already engaged in the activity somehow.

I’m a little torn by the introduction of real-money gambling into social games. On the one hand, it’s got a chance to provide a big boost to developers, who are looking for ways to make more money from their users. But I’m also worried about the effect it will have on many gamers, who will suddenly find gambling is a costly habit. I hope they tread cautiously.

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Disclosure: True Ventures is an investor in the parent company of this blog, Giga Omni Media. Om Malik, founder of Giga Omni Media, is also a venture partner at True.

Image courtesy of Flickr user ryanknott

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Card-Counting Robots? Lawsuit Against Full Tilt Poker Seeks $900 Million

Jeff John Roberts — Sat, 22 Oct 2011 02:37:17 +0000

What do flower stores and pet shops have to do with mob-style gambling operations? Quite a bit, according to a new class action suit against the executives of Full Tilt Poker and a number of celebrity poker players.

In a lawsuit filed on Monday in federal court, two Los Angeles men are demanding that Full Tilt give back money– $10 for one of the men and $120,000 in the case of the other — they say is owed to them after they were unable to cash out their accounts. They also seek punitive damages and $900 million for other Americans who are out of pocket after Full Tilt allegedly cheated them in games and after owners began helping themselves to customer money.

The class action, which names famous poker stars Howard Lederer and Christopher Ferguson, appears to be based on many of the dramatic allegations set out in an FBI indictment unsealed last April. The owners of Full Tilt are accused of using flower stores and pet shops as front companies to trick U.S. banks into processing customers credit card and check transactions. The owners used the front companies because payment requests from them did not carry a transaction code used to flag online gambling, which is illegal in the United States.

The class action also demands that the site owners and celebrity players repay customers for cheating in the online poker games. Full Tilt’s nastiest tactic allegedly involved the use of robots — computer players hatched by Full Tilt that would appear at sparsely populated games and use their card-counting skills to fleece the real players. According to the complaint, Full Tilt assured players that they had “zero tolerance” for robot players — but went ahead and deployed robots created by two company owners with degrees from MIT and UCLA. Even worse, Full Tilt used customer hatred of robots as a pretext to rob successful players:

Certain players who repeatedly lost to a skilled player would start on-line jihads against the successful player, accusing that player of being a robot. The Defendants discovered over time that cancellation of real player accounts accused of being a “robot” was another profit center, as the player account money of the wrongly-accused player was confiscated.

Online gambling is a vast and lucrative enterprise as evidenced by reports that the US government was able to seize $115 million from Full Tilt simply by intercepting a percentage of the payments made to the front companies. Full Tilt and two other major poker sites began struggling in the last two years, however, as increasing pressure from US authorities made it increasingly difficult for the companies to circumvent rules that forbid businesses from processing online gambling transactions. During this time, the Full Tilt owners allegedly began raiding customer accounts, leading US prosecutors last months to describe the company as a “Ponzi Scheme.”

It is unclear whether there will be anything left to collect if the class action suit is successful. The U.S. Department of Justice is already demanding a $1 billion civil penalty from many of those listed in the California suit. There may be good news for customers based on a report that a French investment firm is promising to make losses whole if it can take over the business. The bad news is that the new prospective owner served prison time for stealing from a soccer club he owned.

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