One of the more interesting developments in the social gaming space is the buzz around gambling. There are rumors and “hints” that the US government at some point will weaken or remove the restrictions on online gambling. I give credence to these rumors for three reasons
- Zynga’s stock initially broke through its IPO price because of rumors it might move into gambling (the stock subsequently rose because of the projected Facebook valuation). I still believe in the efficient market so do not think the stock would of moved so much if there was no basis to the rumors
- Caesar’s acquired Playtika for over $150 million. There are few companies that understand the US legal environment for gambling better than Caesar’s and they would not have spent $150 million just to sell virtual goods
- IGT spent over $500 million for DoubleDown. IGT is the leading manufacturer of gaming (gambling) machines, so like Caesar’s has a great feel for the regulatory environment. And, as above, I doubt they have much interest in the social space without real gambling
The impact of legalized online gambling on the social gaming industry is a little gray. Some of my closest friends, who I strongly respect and are often right, feel it could destroy the non-gambling part of our industry. They believe a Zynga move to gambling and other big players pouring billions into gambling social games would overwhelm the social game ecosystem. Consumers would then equate social games to gambling games and those who are not interested in a gambling experience would feel there is nothing for them in the social space.
I have more positive expectations on the impact of legalized gambling on the social game space. First, I do believe it will draw Zynga’s attention as well as that of some other existing social game companies. I do not see EA or Disney going down that route but many of the others, especially some of the struggling second tier players, are likely to pursue it as a possible panacea. This move will decrease the glut of quality games available to players seeking a traditional social gaming experience (I do not think these players will be scared away by Casinoville), allowing the remaining social game companies to launch and run games in a less competitive environment. Also, with less competition for these players (and I am assuming they are primarily different users than those who will play gambling titles), the cost of performance marketing to these players should stabilize or even fall.
Second, as I mentioned in several other posts, the valuation of social game companies will be largely contingent on the metrics of the industry leaders. As we saw, even the hint of gambling had a strong positive impact on Zynga’s valuation. I also remember the huge valuations of the UK based online gambling companies prior to the US crackdown. If Zynga and other social gaming companies enter the gambling space and start experiencing great revenue growth and strong valuations, it will positively impact the valuations across our industry (and access to capital).
My guess is that it is still awhile away before online gambling is legalized again in the US, especially in an election year, but for the three reasons outlined above I do think it will happen. I also feel it will end up being a great boon for our industry, even those companies not involved in the gambling side.