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What does Zynga's move toward real money gambling mean? Not much...yet

What does Zynga's move toward real money gambling mean? Not much...yet Exclusive

October 25, 2012 | By Frank Cifaldi

October 25, 2012 | By Frank Cifaldi
More: Console/PC, Business/Marketing, Exclusive

Zynga perked up its investors just a little bit yesterday when it announced that it would open up a virtual casino in the UK next year that allows its players to gamble with real money.

While real money slots won't be replacing FarmVille 2 in the company's roster just yet, this is a serious venture for the company, with CFO David Wehner telling investors and journalists that it is just the first baby step toward a much bigger opportunity.

But what does it all mean? With its players abandoning its traditional social games faster than ever (and with the rare customer that actually pays to play Zynga games now paying even less), is gambling Zynga's next frontier?

Not so fast, say leading video game industry analysts. As of right now, there are just too many unknowns with Zynga's plans. And even though the company has managed to build a substantial audience of fake-money gamblers with Texas HoldEm Poker (which, at just under 36 million monthly active users, is the second most-popular game on Facebook), there's no guarantee that those players will make the switch.

And besides, online gambling with real money is still illegal in the United States...for now, Zynga's casino empire is limited to the UK.

"We figure most of these players are not interested in playing with real money and those who are may already be playing on a real money gambling site," Sterne Agee analysts Arvind Bhatia and Brett Strauser wrote in a report. "Moreover, we are curious how many of the [Zynga] Poker's 'payers' are located in the UK market."

In fact, this initial deal with existing UK online gaming service, which representatives said was a revenue share agreement, may not even involve new game development from Zynga itself. We know so little about the deal that it could just end up with using Zynga's IPs on its existing games.

"I doubt it will be highly lucrative, as it sounds like it is more a licensing of Zynga’s brands rather than more in-depth game development," Baird analyst Colin Sebastian tells us by email.

But even with Zynga branding (the company has already confirmed FarmVille-themed games), is there much of a sell here?

"Their casino games work fine, but there are a lot of generic casino games out there, so their only real advantage is that they have some brand recognition and a customer list," Wedbush Securites analyst Michael Pachter tells us.

In fact, with the competitive real money gambling market already in the UK, and assuming that Zynga is only getting a small slice of the revenues generated from its Bwin partnership, Pachter estimates the company may pull in as little as $20 million a year from the deal.

But, again, this is all based on educated guessing. For now, only Zynga and Bwin know what this deal actually means, and for the time being, they're not talking. Regardless, analysts remain skeptical that this particular partnership will result in much more than a blip on Zynga's bottom line, with all of them agreeing that focusing bringing its bread-and-butter social games into the modern mobile age is probably the most important task on Zynga's plate right now.

"Real-money gaming is certainly an interesting potential opportunity," Macquarie's Ben Schachter tells us, "but there remains a lot of uncertainty of how successful Zynga will be in converting its players."

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