Casinos & Hotels

Social Media a Path to Online Gambling (FB, ZNGA, MGM, WYNN, CZR, IGT, BYI, BYD)

It’s been six years since the US Congress outlawed “illegal online gambling” without ever defining what the term meant. Congress did say what it wasn’t however: it is not illegal for a state to license online gambling provided that the games are conducted solely inside a state’s boundaries.

There are as many as 20 states considering legalization of online gambling in some form, and there is at least some interest in legalizing some gambling at the federal level. Casino and resort operators are waiting around for any of these laws. Many are preparing for what they believe will be the inevitable approval of online gambling by using social media to build their brands and spark interest among potential gamblers.

Facebook Inc. (NASDAQ: FB) and Zynga Inc. (NASDAQ: ZNGA) are the social media players that get the most attention. Znyga’s Facebook Casino, a play-for-fun online casino, attracts 7 million players every day. Casino and resort operators like MGM Resorts International (NYSE: MGM), Wynn Resorts Ltd. (NASDAQ: WYNN), and Ceasars Entertainment Corp. (NASDAQ: CZR) have acquired game companies, and the casinos are not interested in variations on ‘Angry Birds’ or ‘Farmville.’

International Gaming Technology Inc. (NYSE: IGT) paid $250 million for Double Down Interactive last January, and yesterday the company and fellow slot machine maker Bally Technologies Inc. (NYSE: BYI), received the first two online licenses from the state of Nevada, which already has an online gambling law in place. The two companies plan to license their technology to other licensed operators rather than run their own online casinos.

Both Ceasars, which owns the ‘World Series of Poker’ brand and MGM have also applied for licenses in Nevada. Boyd Gaming Corp. (NYSE: BYD) and MGM have invested in a game company, Bwin.Party Digital Entertainment, and have launched a start-up venture to build online gambling applications.

The social media approach to online gambling hopes to convert online players into casino and resort visitors, while the IGT and Bally approach is just to give gamblers what they want — action. Facebook and its 900 million users offer an attractive target to pitch online gambling to. But is that more attractive than, say, a ‘World Series of Poker’ branded game operated by Ceasars using technology from IGT or Bally? That’s the critical point.

It’s still early days, but there’s plenty of money on the table. Last year global revenue from online gambling totaled $32.8 billion. US gambling revenue could add another $13.4 billion to that total in just five years.

Shares of IGT are inactive in the pre-market this morning, while Bally’s shares are up just 0.3% at $46.44 in a 52-week range of $24.74-$49.32.

Paul Ausick