Don't bet on mobile real-money gambling in the U.S. anytime soon

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Mike Dano

Companies from across the mobile app landscape continue to discuss the possibility of mobile "real-money gambling" in the United States as if it could instantly reverse revenue declines and immediately stimulate the hotly contested application industry. However, right now there's little indication that real-money gambling is anywhere near becoming a reality here--but that hasn't stopped some of the market's biggest players from seeking a toe-hold in the space.

"We see a robust, long-term opportunity in the mobile real-money gambling sector," Niccolo de Masi, Glu Mobile's (NASDAQ:GLUU) president and CEO, said during the company's first quarter earnings call, according to a Seeking Alpha transcript.

"We're excited about the entire category of the social casino, from poker to the growth we're seeing in other parts of free, like Slots and Bingo and integrated casinos, especially on mobile where we are seeing a very broad market for a range of products and a fairly broad audience," Mark Pincus, Zynga's (NASDAQ:ZNGA) CEO, said on the company's earnings conference call, according to a Seeking Alpha transcript.

"Real-money gambling is a real part of our strategy in 2013," Jason Loia, COO at Digital Chocolate, told GamesBeat.

Glu, Zynga, Digital Chocolate and others are already teaming with companies in the United Kingdom to offer real-money gambling services there. These U.K. efforts are generally seen as a way to gain knowledge and experience in the real-money gambling market, so they can be prepared for when such services are potentially made legal in the United States. Indeed, when Glu introduced its first real-money gambling game, Samurai vs. Zombies Slots, in the United Kingdom through a partnership with Probability, the action boosted the company's shares more than 20 percent here. Glu's CFO Eric Ludwig subsequently cautioned that "while we have seen steady progress with the game, we do not expect to see any material contribution during 2013, and our guidance continues to exclude any such revenue."

Real-money gambling in the United States is "still a long ways off," explained Sheila Bryson, VP of communications for U.K. online gambling company Betable. Betable powers the gambling services of Digital Chocolate and others in the United Kingdom, and Bryson has deep first-hand experience with the gambling scene, both in the U.K. market and the U.S. market.

"We don't really think that it's going to open up in a meaningful way (in the United States) for at least the next couple of years," Bryson said.

So far, Nevada and New Jersey have legalized online gambling services (both states have laid down various stipulations on what types of companies can offer the services). In Nevada, the legislation only covers poker and is only available to people inside the state of Nevada. (Bryson said this setup isn't very appealing since there aren't very many people who live in Nevada, and poker doesn't carry the kind of profit margins that slot machines do.) New Jersey's legislation, on the other hand, supports all kinds of casino-style gambling games, but it, too, is only available to people in New Jersey. Bryson said that other states could follow Nevada and New Jersey, but she said it will probably take years for that to happen. Moreover, she said that the situation likely will continue to be hampered by intrastate gambling rules, which prevent residents of Nevada from gambling with those in New Jersey, for example.

That's not stopping some companies from investing in the space, however.

"We filed our preliminary application in state of Nevada for licensing, and I think at the time we filed it, we said it would be 12 months to 18 months until we sort of got to the next stage," said Zynga CFO Mark Vranesh on the company's quarterly call. "So I would say we're on track with that, it feels like we're making progress, and if that was seven months or eight months ago, we've got that kind of time left to get to the next step."

Bryson said Betable is licensed through the U.K.'s gambling regulator, which allows the company to offer a gambling SDK to customers ranging from Digital Chocolate to Big Fish to Slingo to Frima Studio. She said Betable is hoping that these kinds of online and mobile innovators will breathe new life into a gambling scene that for years has been dominated by casino slot machines and roulette.

"These guys (existing U.K. casinos) have done very, very little innovation," Bryson said. She explained that one Betable developer is working on a horse racing game that will allow users to digitally tend to their horses by brushing them and feeding them, for example. The better the user treats their horse, the better chance it will have in a virtual race. "It's basically a weighted slot machine mechanic," Bryson said. And: "If there are spectators, they could be betting on the horses as well."

These are the kinds of potentially lucrative gaming mechanics that have Zynga, Glu and others chomping at the bit. But I don't expect real-money gambling to expand to more than a handful of U.S. states anytime soon. It's certainly an interesting area, and one that mobile app developers should be aware of, but I think it's a bit premature to start placing bets on the market potential for real-money gambling. (Of course, I never thought I would live to see the day marijuana became legal in the United States, so stranger things have happened.)

Now, all that said, there is one more factor in this area worth considering. A startup called Skillz is currently offering "real-money gaming" services in 36 U.S. states. Note that the company is offering "gaming" services, not "gambling" services. As Skillz CEO Andrew Paradise explains in this detailed Inside Social Games article, the difference revolves around betting on a game of skill vs. a game of chance. Games of chance like roulette and slot machines fall into the gambling category, while football, golf and hockey fall into the realm of gaming. Thus, Skillz is creating a market for "real-money gaming" by focusing on games of skill (generally defined as a game where a skilled player will beat an unskilled player about 75 percent of the time).

Like Betable, Skillz is offering its SDK to developers who can then create skill-based games where real money is at stake.

"We've literally tripled revenue for our early partners, which is pretty exciting," Paradise told Inside Social Games.

And it seems like some of the bigger vendors are taking notice of this opportunity: "There is a number of mechanisms, which may be employed between today and on eventual liberalization that is legal in various states, things like skill-based gaming and so on," Glu's Ludwig said on the company's earnings call. "And those will be other areas that we may choose to explore."

Perhaps skill-based, real-money gaming will be the interlude before chance-based, real-money gambling? Either way, I would wager that we'll see a lot more action--and relatively little actual profit--in this area during the next few years.--Mike | +Mike Dano | @mikeddano

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