Why Pincus Won’t Provide a Real-Money Gambling Plan for Zynga

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This Oct. 24th, during Zynga’s quarterly earnings call, disgruntled investors will wait expectantly for CEO Mark Pincus to finally unveil Zynga’s plan to expand into real-money online gambling.

They’ll be disappointed when Pincus fails to do anything of the sort.

Don’t get me wrong – there is enormous potential in the online gambling market, and Zynga is inherently well-positioned to profit handsomely from that potential. So if that’s the case, why won’t Zynga detail their plans for capturing that profit when they speak with Wall Street later this month?

The first problem Zynga faces getting “GambleVille” off the ground is the lack of a viable target market for real-money gambling in the status quo. The European market is so competitive that IGT recently up and walked away from Entraction, a poker network that it paid over $100 million for only a year ago. Emerging markets such as South America and Asia present substantial regulatory and legal challenges that are anathema to a publicly traded company like Zynga.

What about the US market? Granted, a handful of states are making noise about regulating online gambling, but so far only Delaware and Nevada have passed laws to actually do so. With a combined population of 4 million and nascent regulatory structures, the two states hardly represent a vibrant market ready for the taking. Federal regulation is rumored to be in the works, but that’s a tale we’ve heard in various forms since 2008 and may continue to be a rumor into the next presidential term and beyond.

A dearth of potential markets aside, Zynga also lacks any discernable plan for tackling real-money online gambling. The company has been talking publicly about online gambling for nearly two years now, but the talk has been vague and has produced little more than a flurry of news stories.

Remember the supposed partnership with Wynn? The speculation that Zynga would purchase Ongame? The talk that Zynga was soliciting bids from real-money software providers like Playtech? Each rumor suggested a separate (and often contradictory) direction for the company. None resulted in any tangible benefit for shareholders.

In fairness, it’s difficult to develop a serious plan for real-money online gambling in the always-murky and highly dynamic legislative climate surrounding online gambling in the United States. It should also be noted that the person now expected to head up Zynga’s transition to real-money online gambling – former 888 VP Maytal Ginzburg – was hired less than two months ago. Regardless, any serious analysis of Zynga performance to date, when it comes to online gambling, would conclude that the company’s strategy is – at best – ‘a work in progress.’

Ultimately, Zynga’s silence regarding online gambling is driven by the company’s logical focus on a much bigger problem: The disintegration of the market for casual online gaming. While millions upon millions still log on to play Zynga hits like TheVille every month, both the total number of active players in Zynga titles and the value Zynga gets out of each average user have dipped dramatically over the last year.

That rather sudden and intensely painful reality has forced Zynga to focus extensive resources on retooling some of its biggest titles – like Farmville 2 – and on development of a “mid-core” stable of games aimed at attracting more serious (and more profitable) gamers. Both are massive projects that must come at the expense of other endeavors. Pincus and company have realized, correctly, that online gambling can’t be a boon for Zynga if the company isn’t still standing when regulation finally does come to pass.

It is this cocktail of political uncertainty, internal confusion and more pressing priorities that will leave Pincus unable to lay out a path that Zynga can follow to real-money gambling prominence and profits in the quarter ahead. Instead, expect Zynga executives to focus on small, tangible steps taken in the last quarter such as partnerships with lottery provider Scientific Games and social sportsbook RocketPlay. That’s Zynga’s play nowadays for realizing revenue from the currently uncrackable puzzle of real-money online gambling in the United States and beyond.

- Chris is the publisher of OnlinePokerReport.com. Grove also serves as a consultant to various stakeholders in the regulated market for online gambling in the United States.
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