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A Gambling Parlor on Your Smartphone

Zynga co-founder Mark Pincus

Photo illustration by 731; Pincus photograph by Dimitrios Kambouris/WireImage/Getty Images

Zynga co-founder Mark Pincus

Speaking at his first casino conference in Copenhagen two years ago, Christopher Griffin wondered why every demonstration of online gambling looked like casino games that have been played for decades in Las Vegas. Casino executives, he realized, were unprepared for the threat posed by Zynga (ZNGA) and other social game developers intent on bringing elements of online games to gambling and putting their products on smartphones and tablets. “No one was talking about the social aspects of gambling, or the devices in everyone’s pockets,” says Griffin. “It struck me that this is an industry ripe to get its lunch eaten.”

Griffin decided to provide social game developers with tools to create betting games that can be played on mobile devices or a PC. His company, Betable, now lets game companies offer online gambling wherever it’s legal. He’s teamed up with game makers to produce online versions of poker, blackjack, and roulette, and is in the process of adding wagering to social media games.

Depending on the game, players compete with each other or against the game maker. Betable provides a platform for developers to create games in which players bet with real money, and handles the infrastructure, payment, licenses, antifraud procedures, and verification needed to prove a customer is located where online gambling is legal. When first-time players click to indicate they want to wager money, the game prompts them to create a Betable account, and the company’s U.K.-based servers handle all monetary transactions. Because the transactions take place on those servers, Betable’s license isn’t restricted to a physical location, allowing the company to provide a legal gambling platform in countries where gaming isn’t outlawed. Companies split proceeds 50/50 with Betable, say executives at the companies who declined to be identified because the contracts are private.

A Department of Justice opinion last year opened the door for states to legalize most forms of online gambling except sports betting. Many are scrambling to do so. Nevada has begun granting licenses for online poker, and Delaware and New Jersey are on track to follow next year, according to the American Gaming Association. Cowen analyst Doug Creutz says it could take five years before online wagering becomes legal nationwide.

The mobile-gambling business will grow to $100 billion worldwide by 2017, according to Juniper Research. With interest in social games showing signs of waning—the number of video game players in the U.S. declined by 5 percent in the last year, according to researcher NPD Group—Zynga and other developers don’t want to wait. Betable, funded by Greylock Partners, Founders Fund, and other venture capitalists, has signed with nearly a dozen companies to offer gambling on mobile devices in the U.K. and other markets. “The European market is fairly well-established, and it’s a market where there’s not been a lot of money invested,” Creutz says.

Typically it takes a minimum of 18 months to get licensed in each country a company wants to operate in and costs millions of dollars to navigate Byzantine rules. Paul Thelen, chief executive officer of Seattle-based game developer Big Fish Games, figures signing with Betable helped shave months off the company’s plan to deliver Big Fish’s slots app in the U.K. The game debuted on mobile devices in October.

Casino operators say they will roll out their own mobile games when they’re legal in the U.S., and some already accept real-money wagers on their websites elsewhere. The social game makers say they have a built-in customer base for real-money wagering. Sixty percent of people who play social games such as Bingo Blingo and Big Fish Casino live outside the U.S., says Josh Yguado, president of Social Gaming Network, a gaming company owned by the founders of Myspace, which announced a partnership with Betable on Nov. 29. “There’s a real art to making a great game that has all the social features around it,” Yguado says. “That’s what we’re good at.”

Big Fish’s Thelen also likes his chances against the incumbents. With Betable’s technology, he can devote resources to delivering features that many land-based casinos offer when they have a captive audience surrounded by bright lights and throngs of customers. A poker game could come with such options as letting players buy a round of virtual drinks for the table, he says. “We can build an experience around the games, with great casual twists that casino makers don’t understand,” he says.

Griffin says casino games are only the beginning for social game developers. At a recent hackathon, designers showed titles that included raising a horse in a fashion similar to FarmVille-type games, and then paying to enter a race against other players’ horses. “Real money resets everything and creates a level playing field,” Griffin says. “This is not an incremental change. This is really a tectonic shift.”

The bottom line: Developers of social games are trying to counter declining interest by bringing casino-style gambling to mobile devices

Edwards is a reporter for Bloomberg News and Bloomberg Businessweek in San Francisco.

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