December 5th, 2012
Courtesy of the Wall Street Journal, an interesting report on Zynga’s initial move towards gambling in Nevada:
Zynga Inc. ZNGA +3.07% has taken its first official step toward offering real-money gambling games in the U.S. by filing preparatory paperwork in Nevada, as the embattled firm maneuvers to take advantage of a shifting legal landscape.
The Nevada Gaming Control Board confirmed that Zynga filed an application Tuesday for a preliminary finding of suitability to hold a gaming license in the state. Nevada has allowed companies to offer online poker, though Zynga’s filing doesn’t seek specific permission to offer particular types of online games.
Nevada will examine Zynga’s financial standing and regulatory track record, and the expected timing for a decision is between a year and 18 months—making Zynga’s application an incremental but important step as it eyes new revenue opportunities.
It’s unclear how long it would take Zynga to ultimately receive a gaming license in the state should it be deemed qualified.
The San Francisco-based publisher of titles such as “Zynga Poker” currently enables players to buy into its social games with real money but only cash out in virtual currency. Many investors and analysts expect real-money games to boost the prospects of a firm that has seen its fortunes wane recently. However, the U.S. regulatory environment for such games is still a major question mark.
Zynga has recently posted a declining rate of revenue that it is able to pull in from each player of its games, and in October it posted a loss for the third quarter. Its shares have declined more than 75% this year through the close of trading Wednesday.
Zynga has long expressed its interest in delving into real-money games, but has also cautioned that the U.S. won’t likely be one of its initial markets.
“As we’ve said previously, the broader U.S. market is an opportunity that’s further out on the horizon based on legislative developments, but we are preparing for a regulated market,” Zynga Chief Revenue Officer Barry Cottle said in a statement.
Nevada this year became the first state to begin licensing companies to offer online poker games limited to people within the state. So far several of the state’s large gambling companies, such as MGM Resorts International, MGM +0.50% which has a partnership to work on a site with the U.K.-based poker company Bwin.Party Digital Entertainment BPTY.LN -0.92% PLC’s PartyPoker, have been given licenses. None have begun operating in the state yet.
Caesars Entertainment Corp. CZR -4.69% on Wednesday received preliminary approval for its online poker license in Nevada. Caesars owns the popular World Series of Poker brand that it hopes to parlay into online success, and it plans to use a European poker company as its software provider.
The opportunities within Nevada are somewhat limited since its population is small, but bigger opportunities might emerge. State officials have discussed the possibility of forming compacts with other states considering legalizing poker to merge markets and create bigger groups of players, much as lotteries have done with large lottery draws such as Powerball. California is among the other states that have considered bills in their legislatures to legalize online poker.
Two senators are also pushing a bill in Congress before the end of the session that could also make Nevada’s gambling agency a regulator for national poker networks, although that bill’s prospects are still unclear. That bill, which hasn’t been introduced, would limit operators for the first two years to existing gambling companies under the current draft in circulation.
By filing for a preliminary finding of suitability in Nevada, Zynga may be able to preemptively clear regulatory hurdles and pave the way for it to swiftly seal partnerships with bigger gambling players in the state. Such partnerships could have Zynga contributing its branding and base of online players to combined efforts.
The move in Nevada follows an announcement by Zynga in October that it plans to partner with Bwin.Party Digital Entertainment to offer real-money poker and casino-style games in the U.K. in the first half of next year.
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