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Chartwell, Pursuing Play-for-Free Strategy, Lands Harrah's

The first fruit of that sales effort was revealed late last month, when Harrah's Entertainment added a "Play for Fun" section to its site, www.harrahs.com. The casino games run on Chartwell software.

Chartwell lost on another pitch, when MGM Mirage announced in August that it would partner with WagerWorks.com, a subsidiary of Silicon Gaming, to develop virtual, play-for-free casinos on six Web sites representing the chain's most prominent land-based casinos. That announcement was considered a milestone in the changing attitude of the Nevada gaming establishment toward online gaming.

Harrah's followed with news of a marketing partnership with iwin.com, a popular games-for-prizes site. While Harrah's has been promoting that tie-in, it's been pretty quiet about its own site's play-for-free casino games. But those games are up and running, while the launch of the MGM Mirage play-for-free sites is apparently several weeks away.

For Chartwell, the three-year licensing agreement with Harrah's is a major coup. And there's more to come. Darold Parken, Chartwell's chief executive, told RGT Online that announcement of another play-for-free casino games deal could come any day, this one with a portal site that is "within the gaming industry," he said.

Chartwell is also continuing discussions with at least one more of the top five Las Vegas operators, which could lead to the signing of another high-profile contract soon.

Numerous companies develop software for online, real-money casino games, software that is also often used in play-for-free versions. But Chartwell believes that its approach to the real-money Internet casino industry has helped it gain acceptance from the big Las Vegas operators who are cautiously taking their first baby steps into the online world.

Keeping Its Distance

Unlike older competitors such as Starnet and CryptoLogic, Chartwell stays well away from the actual operation of online casinos. It doesn't run marketing programs for its licensees, and it doesn't provide e-cash services, although it does provide a banking interface for its software.

"We don't involve ourselves in the business of operating an online casino in any way, shape or form," Parken said. "There are many elements of the business that are provided as a turnkey package by most of our competitors.

"That was the original model. But we're a bit late coming into this industry, and we wanted to differentiate ourselves. We wanted to stay in our business and not in their business. So we just adopted this philosophy that we would simply provide the software solution and nothing else.

"Your licensing and your hosting, your bandwidth, your management of the casino, your management of the finances, all of that stuff is left up to the individual operator. It just keeps us out of the business, so there's no element of competition with licensees."

That doesn't mean that there's no ongoing support. Chartwell's licensees get whatever upgrades and enhancements that the company develops for its gaming software. But that's all they get.

Asked if that's one of the reasons that Harrah's chose Chartwell, Parken said, "I do think it was, because they certainly asked this question. And others (other Las Vegas operators) have asked similar questions - exactly what is the nature of your involvement in this particular area?

"Because we've been able to unequivocally describe our position as being not part of the business, we haven't really had to go much further into that discussion. . . . They have to be careful. They've got a gaming license in a pretty strict regulatory regime imposed on them."

All They Need is the Software

The software is all the Las Vegas companies really need, Parken added.

"They're experts in the gaming business," he said. "They certainly know how the games should run. What they want is a product that looks good and functions well."

Parken said the free-play games on the Harrah's site are the same as the games on the real-money sites licensed by GamingTech Corp., Chartwell's subsidiary, although security requirements dictate changes in the software for real-money games.

The games are also very similar to the games found in Harrah's real-world casinos, he said. In the case of slot machines, he said, Harrah's didn't want games on its Web site that were significantly looser than the games in its casinos.

For table games, rules are rules, whether online or off. Part of Chartwell's sales approach to the traditional gaming firms is that a free-play site would help customers learn these rules, which in the case of craps, anyway, are quite complicated.

"With our software, we've got extensive help files to teach people how to play," Parken said. "This was a major selling feature to the Las Vegas group."

Valuable Data

Another selling feature is statistics. Depending on what questions are asked during registration, the online operator can glean valuable demographic information from its players, in addition to learning what games are popular, how long people play, what days of the week they play and what times of the day, etc.

"They'll get a better feel for the type of player that comes on through the Internet," Parken said, referring to companies like Harrah's. "I'm sure they've got very good statistics right now as to what their average customer looks like on land. This will give them the opportunity to build the same kind of model for their online customer."

The demographic data may be even more useful to a land-based operator than to a purely online operator, Parken said, because the former is cross-selling a product: its land-based casino. For Harrah's, which has 21 casinos spread across the U.S., it will be important to know where its play-for-fun online customers live.

Chartwell had hoped that the Harrah's games would be open to the public. But Harrah's decided to make them available only to members of its Total Rewards slot club program. Even though the games are free, players must enter a valid Total Rewards number.

A Harrah's spokesman said this is the only way the company can be sure that minors aren't playing the games. The company has promised that it won't market to minors, he said, even on free-play basis.

Another Source of Revenue

Chartwell's GamingTech subsidiary, which is based in Belize, gets a royalty of 15 percent to 30 percent of the gambling revenue of its licensed real-money casinos. Its newest licensee, the Victor Chandler Group, is expected to launch its online casino by the middle of this month.

Clearly, the revenue potential from real-money sites is far greater than the potential from play-for-free sites. But with the legal status of real-money online gaming in limbo in the U.S. and Canadian markets, the play-for-free business gives Chartwell another source of revenue.

And if the major Las Vegas operators are eventually permitted to open real-money Internet casinos, Chartwell will already have a business relationship with Harrah's and perhaps others.

Harrah's paid Chartwell an upfront development fee and pays a fixed monthly fee. In another play-for-free deal that should be announced soon, Parken said, Chartwell will share in the ad revenue that the site generates.

The company is also working on ways to use its gaming software on sites that would offer tournament play.

Chartwell is a publicly held company, traded on the Canadian Venture Exchange (CWH) and based in Calgary, Alberta. It expects revenue of CND$1.2 million for the 2000 fiscal year that just ended Oct. 31. Losses will probably range from $1.5 million to $2 million.

In a July report, CTI Capital, a securities firm in Montreal, estimated that Chartwell's revenue would jump to $10.9 million for the 2001 fiscal year, with earnings of $2.3 million. That revenue estimate may be a bit aggressive, Parken said, but the company definitely expects to at least break even in 2001.

CTI predicted another surge in revenue, to $53 million, for the 2002 fiscal year, with earnings of $24.7 million.

Chartwell was founded in 1988 as an oil and gas company. It acquired some oil wells in Alberta, but in 1995 its expert in oil and gas left the firm. Parken and his partner then decided to exit that business and spent the next three years looking for a technology deal.

They found one in November 1998, when they purchased a California company called Gateway Technology. Gateway had already signed a few licensing agreements with online casinos, using gaming software that Gateway in turn had licensed from Corel Corp. Chartwell has since developed its own versions of the gaming software.

Since that acquisition, Chartwell has grown from three employees to 35.

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