The State of Online Play
By Chris Williams
With the advent of the internet, traditional brick and mortar casinos have begun to face competition from online gaming companies (Wohl 2009, 2). Offering the opportunity for players to gamble from the comfort of their homes, online casinos have boomed in popularity, giving companies an opportunity to cash in. Online gaming comes in several forms with web based poker games, like the one offered by ZyngaPlus, among the most popular. This paper looks at the overall development of online casinos, ZyngaPlus’s foray into the online gambling marketplace, and the barrier posed to online gambling operations by legislation like Australia’s Interactive Gambling Act.
There are several varieties of online casinos, each with their benefits and drawbacks. One of the most common types of online gaming is web-based (King & Barak 1999, 446). In this type of game, a player simply logs in to an online gambling site and is able to instantly play real money games from any device supported by the online casino (King & Barak 1999, 446). This has made web based gaming the most accessible form of online gambling as users can log in from any computer with internet connectivity (King & Barak 1999, 449). In contrast, some online gaming platforms require users to download a company specific gaming interface (European Commission 2014). Download casinos are still based off internet connections, but they also tie a player down to the device on which the client was originally downloaded (King & Barak 1999, 449). If the player travels, they are not able to simply log in from any internet connected device. Instead, they would be required to re-download the necessary software.
Real money online casinos are not always in direct competition with brick and mortar casinos. This is especially true when it comes to virtual casino games. Virtual casinos are typically paired with a traditional casino to offer online opportunities for gamblers unable to be physically present at the casino (Aristocrat 2012). Virtual casinos allow gamers to use the same reward accounts as they normally would which could be a plus for regular bettors (Aristocrat 2012). An effective virtual casino can be used to build brand loyalty and supplement revenue from the brick and mortar casino (Aristocrat 2012). Successful virtual casino offerings include Aristocrat’s virtual casino created for the Maryland Live! Casino (Aristocrat 2012). Aristocrat’s nLive virtual casino for example offers card games and slots for an experience similar to that of a traditional casino (Aristocrat 2012). In just a few months Aristocrat’s Maryland Live! Casino had registered 75,000 players with roughly 5,000 active players each day (Aristocrat 2012).
The last variation is known as live dealer games. Live dealer games attempt to address some players skepticism about the fairness of electronic gaming software (IQR Consulting 2013, 2). As the name suggests, life dealer dames utilize a live video feed stream of actual dealers rather than virtual dealers and cards (IQR Consulting 2013, 2). While live dealer games may be most common for poker, they are also used to offer Blackjack and Roulette (Comtrade 2014). Just like virtual casinos, live dealer operations are typically used by brick and mortar casinos to build brand loyalty and expand their customer base (Comtrade 2014). Contrary to expectations, live dealer games can be operated relatively simply (Comtrade 2014). However, live dealer games do have some logistical requirements – such as the presence of an actual person dealing for each table – that make them somewhat less appealing than web based casinos.
According to market researchers, online gambling has gained significant popularity in the last decade. A 2013 study found that online social gambling will likely grow from a $1.7 billion market to a $2.6 billion market by 2015 (Derevensky April 2013). As of 2013, there were already 130 million social gambling customers worldwide (Derevensky April 2013). Based on current trends, the number of customers is growing approximately 100% annually leading to the rapid expansion of the industry (Derevensky April 2013). Poker alone accounts for roughly 47% of the total online gambling revenue with slots and other games making up the rest (Derevensky April 2013). With this level of popularity, companies are reaping substantial profits from online casino operations. To begin with, most online casinos have lower costs than brick and mortar casinos as they are not required to maintain a physical location or large staff (Wohl 2009, 3). Combining low overhead costs with surging popularity has led online casinos to realize average profit margins of 24% (Wohl 2009, 3). Some casinos have attained profit margins as high as 60% (Cotte & Latour 2008, 4). Online gambling’s popularity has not come without some concerns about added risks. Chief among these are an increased risk of addictive gambling behavior and gambling by minors facilitated by the anonymity of most online casinos (Cotte & Latour 2008, 3).
One of the emerging online casinos looking to take advantage of the increased popularity of the medium is ZyngaPlus. Zynga began as a social gaming application company which gained popularity on Facebook (Woodford 2013, 1). Initially, the games relied on virtual currency rather than actual money (Law360 2011). The notoriety of Zynga games grew quickly with Zynga Poker bringing in 34.8 million players every month by itself (Derevensky April 2013). That figure includes 6.8 million players who are active on a daily basis (Derevensky April 2013). Zynga’s emphasis remained solely on social gaming until 2012 when Zynga decided to capitalize on its market share to enter the gambling marketplace. Although ZyngaPlus is a pioneer in online social gambling, it was not the first real money gambling application launched on Facebook. That distinction belongs to the Bingo Friendzy app – offering 90-ball bingo and slots – which was launched for Facebook users in the United Kingdom in August 2012 (Gambling Insider 2014)
In October 2012, Zynga partnered with BwinParty – an online casino operator and parent company of Party Poker to launch a real money gambling operation (Gambling Insider 2014). The offering includes ZyngaPlusPoker and ZyngaPlusCasino which are virtually identical to their virtual currency predecessors. Gamblers are even able to use a limited supply virtual currency in the new casinos provided that they first enter their financial information and make an actual purchase (Lunden 2013). ZyngaPlusCasino in particular is home to over 160 games including roulette, blackjack, baccarat, and themed slots based on the company’s ubiquitous Farmville application (Derevensky April 2013). Currently, ZyngaPlus is only available in the United Kingdom, but customers can deposit money in the form of pounds, dollars, euros, yen and Canadian dollars (Lunden 2013). In July 2013, ZyngaPlus scrapped plans to enter the US real-money market after the arrival of new CEO Don Mattrick (Gambling Insider 2014). According to Mattrick, the biggest opportunity in the U.S. is still free-to-play social gaming (Gambling Insider 2014).
Moving forward though, there is a definite intent on the part of ZyngaPlus to expand its market share. A blog post by ZyngaPlus Executive Vice-President Barry Cottle laid out the company’s vision “to offer our players the next generation of real money games on multiple platforms in regulated markets worldwide.” (April 2, 2013). Based on that statement, it is quite likely that ZyngaPlus will look to expand to other countries – possibly including the U.S. – sooner rather than later. Shareholder documents filed by ZyngaPlus in 2013 say as much when they label Zynga’s real money games the first step towards offering such games in other regulated markets (Globe Newswire April 24, 2013). With the emergence of ZyngaPlus, some observers are asking whether such online gambling will threaten brick and mortar casinos. According to U.S. Digital Gaming Chairman Richard Bronson, the consumers who utilize online casinos are totally different that those frequenting physical gambling establishments (Rosenberg 2013). Stock analyst Chad Benyon agrees that the demographic differences leave room for both online and traditional casinos to flourish (Rosenberg 2013).
One of the biggest barriers for ZyngaPlus or any other online casino is national legislation prohibiting online gambling such as Australia’s Interactive Gambling Act (IGA). The IGA prohibits any company or individual from offering real money interactive gambling services online to Australian residents (Australia 2011, 2). In this case, interactive gambling in this case means gambling in which the bettors can actively participate – Electronic Gaming Machines (EGMs), online poker, and other games of skill or chance (Miller & Tetstall 2013, 18). The IGA also makes it illegal to advertise or accept advertising for any real money online gambling service which are prohibited by law (Australia 2013, 21). It is important to note that the Act does not criminalize online gambling itself (Australia 2011, 2). The focus is entirely on prosecuting the companies providing these types of services (Australia Productivity Commission 2010, 6). Another relevant detail is the fact that while the language of the legislation applies to both Australian and foreign owned and operated companies, the law only targets gambling services marketed to residents of Australia (Australia Productivity Commission 2010, 18). Theoretically, this means that companies based in Australia could still provide interactive gambling services to residents of other countries (Australia Productivity Commission 2010, 6). The exception to that rule is if a foreign government requests to be put on a list of designated countries to whom online gambling providers cannot offer service or passes corresponding legislation prohibiting interactive online gambling (Australia 2011, 2).
The Interactive Gambling Act does exempt certain kinds of online gambling from its prohibition – sports betting and lotteries specifically. Online sports betting is allowed as long as it is transacted prior to the start of the event while ‘in the run’ wagers which are accepted during the event itself are forbidden (Australia 2011, 2). Lotteries are also legal with the exception of instant win or scratch off tickets (Australia 2013, 2). The penalties for violations of the IGA include a fine of $220,000 per day for an individual within a company and $1.1 million per day for the company itself (Australia 2011, 2). There is a safeguard that allows an individual or company to avoid the fine provided they can show that the required due diligence was performed to avoid a violation of the law (Interactive Gambling Act 2001). Generally, that implication is that online betting companies must inform users of the applicable law, include a clause in user contracts prohibiting the use of the service in Australia, and verify a customer’s identity and physical location as being outside of Australia (Interactive Gambling Act 2001).
It is important to note that Australia’s government does not have jurisdiction to prosecute foreign entities violating the law without the cooperation of their host country – a country that has often legalized interactive gambling (Australia 2011, 12). As a result, few claims have been brought against foreign companies, and the market remains full of offshore gambling providers. Even when jurisdiction exists for a potential prosecution, investigations under the IGA are rarely given a high priority by the Australian Federal Police (AFP) (Australia 2013, 96). During 2011, only 48 claims of violations were processed and of those only 38 were recommended for investigation (Australia 2011, 13). During the same year, Australians wagered an estimated $1 billion online annually (Australia 2011, 14). The IGA has also been criticized for its ambiguity when defining what is considered advertising for prohibited services. Some TV broadcasting companies for example have chosen not to show football matches in which players’ jerseys display advertisements for prohibited gambling services in order to avoid possible penalties (Australia 2011, 14).
After a government report was published evaluating the IGA, Senator Nick Xenophon introduced the Interactive Gambling Amendment (Virtual Credits) Bill which would add online games in which virtual currency can be purchased though not exchanged for actual money to the list of activities prohibited by the IGA (Miller & Tetstall 2013, 19). These activities are accused of acting as a gateway to more hardcore interactive gambling, but critics counter that the proposed restrictions could restrict popular online applications like Zynga’s Online Poker and Farmville (Parliament of Australia 2013). A Broadcasting Services Amendment (Advertising for Sports Betting) Bill has also been introduced which would codify restrictions on the broadcast of live betting odds during sports coverage and the broadcast of gambling advertisements during times of day when young children are likely to be watching (Parliament of Australia 2013).
Despite obstacles like the Interactive Gambling Act, online real money gambling appears to be poised for dramatic growth. With companies like ZyngaPlus investing in full blown casinos rather than specializing in online poker, players are likely to have even more options going forward. Whether you prefer web based gaming, downloadable clients, virtual casinos, or live dealer games, the internet gambling boom has something for almost everyone. Even brick and mortar casinos are becoming involved as it becomes clearer that online gambling does not pose a direct threat to their business model. For gamers and casino operators alike, it is an exciting time full of almost endless possibilities.
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