takes rise for online gambling
Puget Sound Business Journal by Emily Parkhurst , Staff Writer
Date: Friday, December 21, 2012, 5:00am PSTView photo gallery (3 photos)
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IGT Photo
DoubleDown Interactive's "Spirit of Christmas" is part of the $1.7 billion social gaming industry, which might expand if full online gambling becomes legal. Tribes are hoping to participate.
Legalization of online gambling is coming, industry experts agree, and some say it will happen in the next few years.
Federal legalization of what’s often called “iGaming” would have huge implications for Washington state’s 30 Indian-run casinos, which employ 27,000 people and bring in more than $2 billion per year in revenue.
Legalization also would affect the Puget Sound region’s fast-growing online gaming companies, many of which already offer popular casino-style games without the cash jackpots that would make them illegal under current law.
While the tribes lobby politicians to be included in the potential bonanza from legalization of full-blown online gambling, many of the local gaming companies are already raking in huge profits on social online casinos — even without full gambling.
In fact, a November study by Morgan Stanley researchers predicted the social gaming industry would grow to $2.5 billion in 2015, from $1.7 billion this year. Social casinos are built on top of platforms like Facebook and allow users to play online with friends. Players can buy virtual chips with real money, and then bet those chips playing poker or slots — but cannot cash out their chips for real money at the end.
Several federal bills have been drafted to legalize online gambling with real cash stakes, and, while Washington Indian Gaming Association President W. Ron Allen said he doesn’t expect anything to be pushed through during the current lame-duck session of Congress, it’s likely bills will be proposed next year.
“Online gaming proposals are of great concern of the tribes,” Allen said. “We have to keep a watchful eye on it, make sure it’s respectful of the tribes.”
The big questions are whether games hosted on servers located on tribal lands would be subject to different regulations than those hosted in other regions where gambling is legal, like Las Vegas, and whether new laws would continue to allow tribes tax-free revenue with the regulatory system that is currently in place.
The tribes want the National Indian Gaming Commission to continue to regulate the industry, including any legalized online gambling, as the commission has overseen the industry since the Indian Gaming Regulatory Act passed in 1988. But drafts of some laws would hand over regulation to other agencies.
And many tribal leaders worry that a gambler’s physical location — rather than the online casino’s headquarters — will determine how revenue will be taxed. That would open the door to states collecting taxes on tribal gambling revenue.
At a tribal gaming law conference in Seattle earlier this month, Kevin Washburn, the recently appointed assistant secretary of Indian affairs for the Department of the Interior, said that he believes the “artificial monopoly” the tribes have on gambling won’t last forever.
“Most of us have casinos sitting in our pants pockets,” he said. “If you can game on a smartphone, it’s not necessarily a monopoly anymore.”
However, for many of Washington state’s tribes, concern about the future of gambling is not the same as fearing it. In fact, legalization of iGaming could be an opportunity for the tribes.
“Some tribes will have capacity to get into (online gaming). Others might partner (with gaming companies),” Allen said. “There’s lots of firms out there that would just love to partner with tribes.”
Many tribes have years of experience with real money gambling and negotiating complicated regulations, and are an influential lobby at both the state and federal level, which makes them attractive partners for tech gaming companies.
Seattle-based DoubleDown Interactive might just be one of those partners. And in some ways, it already is.
DoubleDown was acquired in early 2012 for up to $500 million by Las Vegas-basedInternational Game Technology (IGT), which makes many of the slot-machine games used in the nation’s 350 casinos, including tribal casinos.
“Consumers really recognize and know those brands,” said DoubleDown co-founder and CEO Greg Enell.
DoubleDown has been building social casino games for three years, starting with a blackjack game that integrates with Facebook. While the games are free to play, players can purchase in-game currency for betting within the games.
Most of DoubleDown’s games became popular thanks to the viral nature of Facebook, Enell said, and the firm claims 5 million active users on the site. That’s likely what attracted IGT.
DoubleDown has more than doubled its work force since the acquisition in January, from 70 up to 150 employees and hiring.
Because IGT has been in the real money gambling business for 30 years and is licensed in every gambling jurisdiction in the world, DoubleDown is poised to move into iGaming quickly.
DoubleDown President Glenn Walcott said the company follows the online gambling debate passively and defers to IGT for anything involving real money gaming. If a law does pass, he said, it will be at least a year before the rules and regulations are put in place.
“A year in the internet is an eternity,” he said.
But, he added, if it happens, DoubleDown will be ready.
DoubleDown isn’t the only company ready to take advantage of online gaming. Redmond-based Wild Tangent is an online game distributor and in-game payment processor that has 23 casino games on its mobile site.
Wild Tangent Executive Vice President of Products Matt Shea said that if iGaming is legalized, developers will have to build a completely different system for handling the “chips” used to bet in games.
“Those games aren’t treating the currency as real money,” Shea said. “That currency cannot be switched over and turned into a payout.”
Some games give away chips to heavy users, or let people buy $100 worth of chips for $50 to make them feel like they have more money to gamble with than they would in real life.
In a real money game, however, online casinos would be unlikely to do that.
Wild Tangent is already a distributor for other companies’ games, including DoubleDown’s, and would make a likely partner for tribes creating their own games.
“Any game looking for distribution would be a candidate for us to distribute,” Shea said.
Not everyone is as excited about legalized online gambling, though. Matt Hulett, who runs the game division GameHouse at Seattle-based RealNetworks, said the social gaming market is pretty strong without legal iGaming.
“There’s a big audience for people who want to play ‘no-money’ games,” Hulett said.
In fact, approximately 250,000 people play social casino games on Facebook, even though they never get to cash out their winnings, he said.
That’s not to say GameHouse wouldn’t consider offering a real money online game should it be legalized. But, for now, he said, the company is staying focused on building games for mobile devices and social networks.
“It’s harder to come up with a business plan when you’re hoping public policy changes,” Hulett said.
eparkhurst@bizjournals.com |
Emily Parkhurst covers the technology industry for the Puget Sound Business Journal/TechFlash.
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