Gambling on social media could pay off big in the future
I remember being shocked over a conversation I had with an executive from Caesars Entertainment. Usually, during chats with these guys, I’m jaw-dropped after hearing about some audacious investment, the gaming habits of high rollers or the diabolically devious techniques of freshly caught cheaters. But this was something else altogether. The executive told me about Caesars’ success with social gaming—that is, people playing casino games online, via freestanding sites, apps, and through Facebook—but without the potential to actually win money. He all but bragged about the online games being just like the ones you encounter on the floors of Caesars Palace or Harrah’s or the Rio. There were slot machines and video-poker offerings that perfectly mimicked the authentic articles. I heard what he said and needed to have it repeated. People are playing slot machines without the possibility to win money? My only response to this was a three-letter word: Why?
Then the conversation became even more puzzling. It turned out that not only were people playing casino games for fun. But some actually paid for the privilege. Now I was totally confused. People paid money to buy chips that had no value so that they could gamble higher, play cooler games and boast to their friends about how many chips they had accumulated (even if they paid, say, $19.95 for 250,000 in chips). I always thought that the whole point of gambling was to put real money at risk with the hope of turning a real profit. Otherwise, where was the thrill? What was the point? You might as well play Monopoly or Scrabble.
Admittedly, maybe I can see online poker, played for funny money, finding an American audience now that the opportunity to play for real money—with payments being processed illegally via operations like PokerStars and Full Tilt—no longer exists. But the above conversation took place while online poker was still thriving. It turns out, then and now, that some people enjoy playing poker for fun. They like shoving in their chips with 5, 8 offsuit and waiting to see what will happen. Certainly, in the wake of so-called Black Friday, on April 15, 2011, when the real-money poker sites were shut down by the Department of Justice, playing poker for fake money, or social gaming as it’s better known, provides a safe fix for jonesing gamblers.
Sites like Zynga and Double Down Casino—free, fun, completely legal, accessible via Facebook and loaded with millions of players—became a sort of drug for those who enjoyed the rush of bonafide online gambling. “They’re popular with American consumers because American consumers do not have the real-money option,” says Charles Cohen, CEO of Probability, a UK-based company that comes up with mobile solutions for online gaming and gambling. “Those companies [the Zyngas and Double Downs of the world] have delivered amazing products.”
And now, with for-money online poker, along with other versions of gambling, making steps toward legitimacy (various forms of legalization for intrastate play have come to pass in Nevada, New Jersey and Delaware) the social-gaming sites may soon have the opportunity to take real-money wagers from American players.
Considering that these companies have the technology and the finances, and they clearly hold captive audiences of people who enjoy playing poker, it seems like it would take little more than the flick of a switch for them to convert to real-money hold’em. Instantly, I imagine, they’d become steroidal, legal versions of Tilt and Stars. “But the interesting thing,” says Cohen, “is that it’s not the same thing when real money is involved. The businesses are different. Running a social casino is very different from running a regulated gambling business.” For starters, with real-money games you can’t deal off the bottom of the deck and make sure that everybody gets decent pairs in order to keep the games interesting. More critically, if a player’s account gets hacked he loses more than just a stack of funny money.
Exactly how different the two businesses are and whether or not the social companies can convert their just-for-fun clients into serious cash players has yet to be seen. Mention the likelihood of this to anyone in the online gaming business, ask them how likely it is for the social gaming sites to successfully transform into real-money gambling sites (which can be more profitable), and the response tends to be some version of “that’s the $64,000 question.” In other words, nobody knows. Two operators in England are trying to make the leap and their spokespeople are not particularly game to discuss current progress. In the U.S., Zynga, the king of social gaming, recruited Mayta Ginzburg, a former senior vice president of European online gambling behemoth 888, to lead it into the world of real-money action. But even there, spokespeople are keeping a tight lid on things. Maybe for good reason.
“I’m not sure that they will be adept at getting gamblers,” says Cohen, referring to the social gaming sites in general. “What they are very good at is getting people to play games. But if you look at a company like Zynga, for every 100 people they bring in to play its games, only one or two actually spend money on playing [that is, pay to buy the extra chips]. So there is a very small number of people from whom they generate revenue. That is very different from running a real-money gambling business where you have a smaller number of customers but a financial relationship with almost all of them.”
Beyond the challenge of attracting players, putting up a successful real-money poker site requires skills that seem more related to banking than to gaming. When cash is involved, security needs to be airtight, customer service must be spot-on, the games have to be impossible to hack and vigorous marketing becomes a necessity. Plus executives have to go through screening processes in order to get licensed. Social gaming providers “need to acquire new skill sets,” says Cohen. “The barriers of entry for social gaming are nonexistent. For real money, they are extremely high. It’s a 100-foot wall. It really is.”
Midway through reporting this story, I speak with the interactive folks at Station Casinos. This puts me in touch with Tom Breitling. He’s most famous for having partnered with Tim Poster to purchase the Golden Nugget for $215 million in 2003, making a reality show about it and selling the place for $340 million in 2005. Now he’s the chairman of Station’s online effort. He cagily tells me that the casino company is poised to be the first American operator to launch a completely legal form of online poker. Antonio Esfandiari, famed for having snagged the first-place prize of $18.3 million at last year’s Big One for One Drop poker tournament, is the site’s face. Software promises to be first-rate and precedents seem poised to be set. I ask Breitling how soon he expects to be open for business. Brietling tells me soon. He doesn’t tell me that it will be a day after we speak.
On the morning of April 30, Station Casinos made headlines for being the first out with an online poker site in Nevada and, in fact, all of America. It’s doing so sans the benefit of an alignment with a social gaming operator and Breitling remains confident that one is not needed. “We have a social poker product that is live,” he says. “But our efforts are focused on real money—and there is a dramatic difference between the two. Our strategy is not to convert social gamblers.”
But Station finds itself in a fairly unique position. Because it also happens to own Ultimate Fighting Championship, the mixed martial arts league that is better known as UFC, it has a built-in social network. The online site is called Ultimate Poker, and while there are some who wonder if the name will have negative resonance (Ultimate Bet was an online site that operated illegally, got mired in cheating scandals and eventually found itself shut down) Breitling seems unconcerned. “One thing UFC has done a tremendous job of is building their social community,” he says. “And we will cross-market to them. The core market of the UFC fan is almost identical to that of the online poker fan: A male user of technology who likes games, enjoys competition and spends money online.” So, essentially, Ultimate Poker benefits from a built-in social component that runs parallel to gaming.
One stumbling block for casinos looking to enter the online poker world will be the building of a good, player-attracting site. To me this seemed like a small deal: get off-the-shelf poker software, slap your logo onto it and you’re in business. That, as it turns out, is not the case. The casinos need to build or buy customized systems on which to play poker, and, according to Melissa Blau, a veteran consultant for real-money and social-gaming sites, “None of the really good game creators are letting the casinos in.” She says that the attitude is, “ ‘I will create the next Double Down [a successful social-gaming site] and sell it for $500 million.’ They don’t need to hire themselves out and be told what to do.”
Station worked around that situation by purchasing the game-making company CyberArts in 2011. Though Ultimate Poker CEO Tobin Prior says that Station has been preparing to enter the online space since 2000—when the laws for online poker in the U.S. were extremely undefined. CyberArts built the software that now drives Ultimate Poker. Similarly, Caesars Entertainment, which owns the lucrative World Series of Poker franchise—and online poker entities in the U.S. and Europe, the latter of which offers real-money games in some countries—purchased a game-building company of its own, Playtika. (Caesars real-money WSOP.com is expected to launch by the time this issue goes to print.)
In contrast to Station, the executives steering things at Caesars actually seem to have faith in social gaming and the company keeps one foot planted firmly in that world. Its Caesars Casino Online is a profitable business in its own right, benefiting from the one-percent of gamblers who will buy play chips for status or access. But even with the site’s success and potential tie-in, executives remain uncertain of crossover growth. “It would be dumb for us not to send marketing materials to our play-money poker players,” says Caesars Interactive Entertainment spokesperson Seth Palansky. “But we don’t think this business will be contingent on the play-for-fun people transferring over. And just because somebody transfers over doesn’t mean that he will stay. They will find the experience of real-money gambling very different from playing for fun. Go all-in with virtual chips, lose your chips and you come back the next day to have more chips.” Palansky, who personally enjoys playing funny-money poker, doesn’t need to point out that where real money is concerned, an all-in play can deplete your finances and leave you sidelined.
Palansky remains unsure about how and if casinos and social-gaming creators will ever be able to play nice and come to terms. However, he also acknowledges that each side has a lot to offer the other. Casino entities understand the regulatory issues, maintain robust customer service and know how to market to gamblers. The game-creating companies, he points out, bring elements that casinos lack. “It’s hard to differentiate your product when you have a poker platform,” he says. “The tech companies and social-gaming companies have the abilities to do things that [casinos] can’t do.” Speaking in terms of devising innovative approaches to poker, he adds, “The gaming companies are mostly based in Silicon Valley and there is more innovation coming out of Silicon Valley than from the online gambling marketplace.” Considering that both sides have a tendency to underestimate the value of the other, he wonders, “Is the right split in a partnership 50/50? Is it 80/20? Or do you do better by going it alone?”
The question hangs in the air because, just like most in this burgeoning industry, Palansky is not sure of the correct answer.
R eigning expressions of uncertainty about the future of online gambling and the role that social-gaming will play in that world do not seem to dog Dave Stann, senior product manager with a San Francisco-based firm called Idle Games. Stann has a long and storied history as a professional gambler who made his living via card counting and poker before taking his day job with Idle. He was hired specifically for his gambling expertise. The social-gaming company is using him to help prepare for the day when online gambling becomes prevalent around the United States. Idle’s product is called Fresh Deck Poker, which singles itself out by being visually grabby and attempting to come off as edgy.
While the strategy, as expressed by Stann, doesn’t really get into how Idle will make its way into the marketplace (for the foreseeable future, a game-making site will have to partner with a casino in order to enter the real-money online gambling space), Stann leaves little doubt that the company is preparing for what Charles Cohen describes as “America’s explosion” for online poker and “the most amazing ride for the next few years.”
Assuming that Cohen’s prognostication is correct, the guys at Idle—who are best known for creating the social game Idle Worship—may be putting themselves into an enviable position. “The plan has been to build a social-media game with real-money integrity,” says Stann. “We have a certified random number generator [which dictates the cards that get dealt and prevents at least some forms of cheating] and the kinds of hand history capabilities that players on real-money sites like to utilize,” he says. “We can’t see hole cards, and player funds [which are play-money chips for the time being] are kept separate. None of the other social-gaming sites take regulation seriously. But we’ve set it up to be ready for real money when it comes.”
Right now the site looks sharp and fun and a little cartoonish—all things that are appealing to social-game players but might seem a bit goofy to people putting real money at stake. Stann says that the flashy backdrop and the otherworldly icons can be toned down so that Fresh Deck looks more like a typical for-money site. More importantly, Stann believes that the outlawing of real-money online poker in the United States may have created a player that nobody else really talks about very much. He describes a customer who’s online and in the shadows. “There are people who never give us money [for loads of no-value chips] because they only want to put their money on the site if they can also pull it off,” Stann says, meaning that a certain segment of his audience would be willing to play online poker for real money but is unwilling to buy a bunch of chips that have no actual value.
Regardless of how many of those types of players actually exist, only a minuscule percentage of social-gamers need to switch to real money for an impact to be felt. Melissa Blau estimates that there are 800 million people playing social games and only 50 million playing real-money poker. Considering that the real-money games are a lot more profitable, there would be incentive to crossover even one percent. It’s promising enough, says Blau, that “Zynga hired one of the best people in the industry to help them get into real-money gaming.” That said, considering Zynga’s massive success at capturing the imaginations of game players, you have to wonder how much room will be left for competitors such as Idle. Blau says that she asks clients what their strategies are to uproot Zynga once real money kicks in. “People say that there can be two [social-gaming sites offering real-money games] in the market. I tell them that it’s not an answer.”
While the guys at Idle may not have a compelling answer to that question either, Dave Stann makes clear that he takes this more personal than a lot of his social-gaming competitors might. “I spent the last decade traveling the globe as a degenerate gambler,” he says. “So the fact that I can’t put a hundred bucks on our site and try to turn it into something more, well…” His voice trails off for a minute before he adds, “Let’s just say that it’s unsatisfying.”
If things go as a lot of people anticipate they will, Stann may soon have a chance to put his money where his mouth is.
Michael Kaplan is a Cigar Aficionado contributing editor.
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