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Best of Howard Stutz

Gaming Guru

Howard Stutz
 

Gaming companies place bets on social gaming sites

29 May 2012

Strip casino giant MGM Resorts International isn't planning to open more multibillion-dollar integrated casino-resort complexes anytime soon.

Instead, MGM Resorts will in June launch myVegas, a free-to-play social gaming casino where only virtual money is bet to win only virtual prizes.

Think of Farmville meets Bellagio.

MGM Resorts Chairman Jim Murren told an audience at the Southern Gaming Summit earlier this month in Biloxi, Miss., that a convergence of casino gaming and social media will be "the next big thing in our industry."

He's not a voice in the virtual wilderness.

Caesars Entertainment Inc. acquired a majority stake in social media and mobile gaming business Playtika in 2011 for roughly $90 million. Earlier this year, Caesars exercised an option to buy the remainder for an undisclosed price.

In January, slot machine giant International Game Technology spent $500 million to buy Double Down Casino, which has 10 times the number of players of any virtual casino on Facebook.

In coming months, numerous social gaming casinos will come to fruition, easily eclipsing all the traditional land-based casinos scheduled to open in U.S. regional gaming markets this year.

Many of the free play casinos are accessible through Facebook, and virtual moguls are hoping to tap into the website's estimated 800 million users - roughly 20 times Las Vegas' real-world annual visitor volume.

Facebook is starting to resemble a virtual version of the Strip, with free gambling at Zynga Poker, Playtika, Double Down, myVegas and RocketFrog. Like a weekend visitor to Las Vegas, gamblers can bounce from casino to casino, playing slots, betting on blackjack or frequenting hundreds of poker rooms.

The difference? No money changes hands - that would be illegal - and there are no free drinks in cyberspace.

Some of the free play sites do offer promotions, such as giving gaming tokens to players who attract others to the site. And some charge nominal fees - anywhere from $1 to $5 - for additional game tokens or virtual chips, which allow entry to high-stakes gaming arenas. The prizes - such as bragging rights - are strictly virtual, and will likely remain that way until the law changes.

Gaming Control Board Chairman Mark Lipparelli said Nevada-based gaming companies are comfortable doing business in a regulated environment and won't do anything in a virtual casino that could jeopardize a real-world license.

The biggest concerns regulators have with virtual gaming is that customers might be able to convert fake dollars into real ones.

"Companies have to be aware that allowing their online customers to convert points to value runs a great risk," Lipparelli said. "Some of the online companies have developed very creative marketing programs which are effective."

All of this leaves investors pondering a real-world question: How does social gaming online benefit the bottom line of a real-world casino company?

For now, gaming companies aren't revealing their hands.

FRIENDS NOW, MONEY LATER

Caesars, in its first quarter earnings statement, said revenues associated with Playtika - which are factored into the company's Interactive Gaming Division, which includes the popular World Series of Poker - helped offset declines related to Atlantic City casinos. Caesars did not provide a revenue figure for Playtika.

IGT has refused to offer investors any revenue totals for Double Down.

In a recent research note that was mostly positive about IGT, Stifel Nicolaus Capital Markets gaming analyst Steven Wieczynski said investors have lingering skepticism and uncertainty about the Double Down deal. Many investors, he said, have lost enthusiasm for the acquisition because management has been unwilling to deliver on a promise to be transparent about it.

"While we suspect Double Down's performance to date may have failed to achieve the modeled estimates used to justify the $500 million purchase price, we believe management would be better served to break out its interactive business results into a separate reportable segment, rather than including them in the seemingly unrelated gaming operations segment," Wieczynski said.

Robert Melendres, IGT's executive vice president of emerging businesses, said the company would eventually offer Double Down numbers on quarterly earnings statements.

IGT is now rolling out its most popular slot machine titles and themes, such as American Idol, Wolf Run and Cleopatra, on the Double Down site.

"Double Down is performing well and exceeding expectations," Melendres said. "We believe there is tremendous value in this company."

Double Down is one of the free-play casinos that offer players opportunities to buy virtual gaming tokens. Greg Enell, the founder and CEO of Seattle-based Double Down, said most users play for free, but "there are customers who are quite frequently willing to spend money for additional entertainment."

MGM Resorts executives said they see myVegas as a marketing vehicle, not a revenue stream.

The site, being tested by closed audiences, features the company's 10 Strip resorts - a kind of interactive advertisement that could prompt players to seek out and spend money at - the real thing.

CONVERGENCE EFFORTS

MGM Resorts Senior Vice President of Business Development Tom Mikulich said the company envisions myVegas as a way reach the about 30 million members of MLife, the casino operator's player loyalty program, when they're away from the Strip. MLife customers playing online will be able to win nongaming incentives, such as show tickets and dinners at company restaurants.

"Through myVegas, we can tighten our emotional connection between our brands and our customers," Mikulich said. "That's what we mean by convergence."

Enell said Double Down averages 1.4 million players per day in a virtual casino that has 27 different table games and slot machines.

Melendres said mixing in IGT's exclusive slot machine titles allows the company "to go beyond the experience in front of the slot machine and stay connected with players."

In some ways, virtual casinos allow gamblers to learn how to play certain casino games without having to risk real money.

"This also has a video game element," Enell said. "You try to win more chips, get into bigger games with the idea of continually trying to build your status and rule the leader board."

Mikulich said myVegas will have an element that allows players to "build the Bellagio" and other MGM Strip properties as they unlock levels and amass points. The idea is to build familiarity with the company's various brands.

"For us, this could become an extra­ordinary player acquisition tool," Mikulich said.

By that, he means real-world players, with real-world money.
Gaming companies place bets on social gaming sites is republished from Online.CasinoCity.com.