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Game Makers See Jackpot As States Make Online Gambling Legal

Entrepreneurs are investing in play-money casino games that can
be switched over to real money when states loosen betting rules

By Kate Abbott
     July 27 (Bloomberg BusinessWeek) -- 3G Studios, a video game
developer in Reno, Nev., is betting on online gambling. The
private company, with 47 U.S. employees, has hired almost 80 new
contractors in India and China and expects to have 200 dedicated
solely to making gambling games by the end of the year. 3G is one
of a handful of game makers jockeying for gambling business,
expecting states, hungry for new tax revenue, to open the
floodgates for Internet casinos.
     Nevada is accepting applications for online gambling
licenses, and in June, Delaware became the first state to approve
online casino gambling for state residents, starting next year.
States including California and New Jersey are considering
loosening the rules for wagering on the Web after the Department
of Justice reversed a longtime ban on many types of Internet
betting in December.
     3G Chief Executive Officer James Kosta thinks online
gambling will draw bettors beyond the casino crowd, just as
casual games such as Angry Birds attracted new players who would
never log on to World of Warcraft . “Gambling is fundamentally
going to change from something … where you had to sit in a casino
and physically spin the wheel, to something that you could do
casually while you have a three-minute break at work,” he says.
     (Kosta, who once worked for the CIA, has a colorful past. He
settled a lawsuit with the Securities and Exchange Commission in
2004 over his alleged involvement in a pump-and-dump stock scheme
and was ultimately required to pay $50,000. Kosta said in a
statement that he was “never a subject of a criminal
investigation” and “there was no admission or proof of wrongdoing
in the agreement.”)
     The 6-year-old game developer, which helped produce Jillian
Michaels’ Fitness Ultimatum 2009 and released its own
first-person shooter title, Brave Arms , on Facebook, plans to
launch an online slot machine site in August. Americans will play
for free with virtual currency until it is legal to wager cash,
Kosta says, while European customers will be able to play for
real money.
     3G isn’t alone in anticipating looser gambling rules.
Betable, a London startup, recently announced plans to help game
developers add real-money betting, both on the Web and on mobile
phones, in jurisdictions where online wagering is legal. In
February, Zynga CEO Marc Pincus said the company is open to the
possibility of entering the social gambling sphere. International
Game Technology acquired one of Facebook’s more popular virtual
casinos, Double Down Interactive, for $500 million in January.
     But John Acres, founder of casino consultant group Acres
4.0, says game studios are wasting their efforts. Even if online
gambling is legalized, there will be so much red tape that most
tech companies won’t be able to make money, he says. “It’s not a
matter of tech but a matter of licensing,” Acres says. States
must provide licenses for Internet gambling, and the process will
be lengthy and complicated.
     That means the deck is stacked in favor of companies that
already have licenses: existing casino giants such as MGM Resorts
and Bally. Like 3G and other upstarts, established gambling
companies are currently building Web presences with play-money
games to draw in potential players. In addition building to its
own games, 3G has partnered with Bally to help the casino develop
online offerings. Other game makers that don’t partner with the
casinos could be pushed out of the profits.
     The giants could still benefit even if online gambling isn’t
legalized. Chicago-based slot-machine maker WMS Industries in
mid-July announced the creation of a new division, Williams
Interactive, to oversee its products on the Web. The group
recently released its second Facebook offering: Jackpot Party
Casino , which builds on popular brands currently available in
brick-and-mortar casinos.
     Williams Interactive CEO Orrin Edidin says having slots both
online and in the real world could attract new customers for
casinos. “We help build a community of players … that you can
market to convert from free-to-play to pay-for-play,” he says.
     Kosta says 3G will profit as non-gamblers begin to places
small bets on casual games. He anticipates the studio will invest
$5 million in its gambling business over the next few years. Even
if online betting is slow to come to the U.S., he expects the
investment to pay off as game players in Europe and elsewhere
warm to the idea. “When people are going to be willing to bet $5
or $10 a week … when you get 140 million of those devices
together, it’s going to make for a whole lot of money changing
hands every week,” he says. Kosta, at least, appears to be going
all in.

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