VentureBeat recently published an interview with Pascal, in which he revealed the ‘marketing partnership’ with MGM gives Playstudios exclusive social and mobile gaming rights to MGM’s Las Vegas properties, including the Bellagio, the Mirage, MGM Grand, etc. In addition to slots (some in 3D), blackjack and other casino games, players will be able to construct their own fantasy version of the Las Vegas Strip – much like a CityVille or Sim City type game – which they can populate with their social friends. Players also earn points toward loyalty prizes, including amenities at real-world MGM properties. For the moment, Pascal says Playstudios is “focused on virtual currency-based social goods gambling. A lot of people are very excited about for-cash gambling as an opportunity. It is an enormous prize when it gets sorted out. Everyone will position themselves for it. But having been in that business, I fully appreciate its complexity.”

This complexity was a hot topic at the Social Gaming Summit in Berlin this week. While everybody’s touting the vast riches to be had from social gaming’s eventual conversion to real-money play, such a move is not without pitfalls. Chief among them would be the fact that, unlike online gambling companies, social networks like Facebook offer access to kids as young as 13, meaning regulatory scrutiny would be intense, especially in ‘won’t someone think of the children’ America. Julien Codorniou, Facebook’s head of European partnerships, told Gambling Compliance there was “too much money in free-to-play games” for the company to consider going the real-money route. “The margin in online gambling is so low. On virtual chips, it’s 100% – 70% after Facebook takes its portion.” Ah, yes. Just like America benefits from owning the presses that print the world’s reserve currency, Facebook certainly enjoys its role as the sole issuer of Facebook Credits.

While some attendees felt Codorniou’s stated aversion to real-money play may have more to do with the company’s unwillingness to tip its hand as to its real plans, Joost van Dreunen, managing director of New York-based SuperData Analytics, suggested the company wants to steer clear of potentially controversial products that might result in more mainstream companies withholding their advertising dollars. “The last thing they want to do is do something polarizing. There’s never going to be a casino section – a red light district – on Facebook. It’s just not in the nature of the company. They have to be wholesome.”

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The game’s launch has not gone unnoticed by members of the Hindu community. Rajan Zed, Nevada-based Hindu chaplain and president of the Universal Society of Hinduism, issued a statement denouncing the use of religious symbols near and dear to Hindus worldwide simply to pad the bottom line of an online gambling company. Zed urged Playtech to (a) withdraw the slot from use and (b) publicly apologize for pissing off a billion or so members of the world’s third largest religion.

There are two ways of looking at this. You could argue that Hindus should just get over themselves. After all, the Norse religion was a pretty major force across Northern Europe at one time, but you don’t get a lot of Scandinavians protesting Cryptologic’s Thor Slot. Then again, it could be argued that this situation is a lot like white people calling each other ‘niggaz’: rarely a good idea to appropriate the language or iconography of another culture without a thought as to how that culture will interpret such artistic or commercial license.

Would Playtech majority owner Teddy Sagi – who served nine months in an Israeli prison after pleading guilty in 1996 to stock manipulation in the Discount Affair scandal – be as comfortable releasing a ‘Jehovah Jackpot’ slot featuring icons of the tablets Moses brought down from Mt. Sinai, which Israel’s ultra-conservative Haredim would conceivably find offensive? How about a ‘Krazy Krucifiction’ slot in which the aim is to line up all the reels so they complete the image of Christ’s outstretched arms nailed to a cross? No? (Too soon?) We know Muslims frown on visual depictions of the Prophet (peace be upon him), but how about an ‘Mega Mecca Money’ slot in which the aim is to line up 72 virgins? (Actually, that’s a goal not limited to those seeking martyrdom.) Bottom line, we know the well of slot themes has been drained nearly dry, but some ideas deserve staying in the bucket.

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In 2003, back when Stanley Ho still held an effective casino monopoly, Macau’s estimated 800 antiquated slot machines contributed about $29m (less than 1%) to the enclave’s total gaming revenues. Much as the accepted wisdom holds today, the belief then was that the average Chinese gambler didn’t place much faith in betting machines. SuffleMaster Asia VP Ken Jolly believes a lot of that was due to the fact that “some of these people, particularly the Mainland Chinese, hadn’t seen a slot machine. They didn’t really know how they worked.” Now that more and more Chinese are making the trip to Macau and seeing the machines in action, “there seems to be more of a community of people learning about new games.”

There are now more than 16k slot machines in Macau, and their share of the overall revenue pie has grown to 4.5%, good for revenues of $1.43b in 2011 (roughly half of the Las Vegas Strip slots win for the same period). Since 2004, slots revenue has grown 16-fold, compared to a five-fold increase in VIP baccarat and seven-fold growth in mass-market tables revenue. On a percentage basis, slot revenue growth has outpaced that of the overall market by a 3:1 margin. Aristocrat’s Asia-Pacific GM David Punter says there is “a real slot player coming from Mainland China and from Hong Kong, and this is greater than what we all thought originally from a tables perspective. There’s a market there.” The hope is that this growing slot market will help smooth out the rollercoaster revenue swings that come from an over-reliance on high-volume low-margin VIP baccarat.

Casino News

Faster than you could say ‘Shazam!’ (look it up, kids), Christie called a press conference in front of Resorts Casino in Atlantic City for Thursday afternoon, at which he declared New Jersey would forge ahead with its plan to offer sports betting to customers at AC’s dozen casinos and the state’s four racetracks. “It will be another exciting way to add to the experience here in Atlantic City, and I know this is something people have been waiting for for a long time.” Christie said the plan should be up and running by the time the National Football League kicks off its new season in September, adding that “if someone wants to stop us, then they’ll have to take action to try and stop us.”

Christie’s announcement effectively dares the NFL and/or the federal government to seek an injunction to block New Jersey’s move, meaning the opposing sides will likely end up in court sooner rather than later. But Christie said he had “every confidence we’re going to be successful.” Apparently caught off guard, Lesniak told NorthJersey.com’s John Brennan that he didn’t know “why it happened just now, but I’m glad to see the light at the end of the tunnel.” And then we assume Lesniak went off and tested out his new magical powers of persuasion by ordering Donald Trump to take that damn thing off his head already.

Atlantic City casino execs – always desperate for additional revenue streams – also expressed their support for Christie’s stance, although some were adopting a wait-and-see stance before converting their buffets into sportsbooks. Tropicana Entertainment president Tony Rodio told the Associated Press he loved “the idea of playing offense and having the federal government to play defense against us. But I don’t know who’s going to want to be the first to open knowing they can shut you down.”

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There are a number of factors contributing to this growth, chief among them the Chinese government’s rapid expansion of high-speed internet infrastructure and the explosive growth in internet-savvy mobile phones, which together are expected to boost the number of Chinese online from the current 513m to 701m by 2015 (twice that of the US and Japan combined). Even that will represent only 51% of China’s population – compared to the 83% penetration rate in the US – leaving plenty of room for further growth.

WORD OF MOUTH SPEAKS VOLUMES
Chinese online shoppers make more use of online reviews than their western counterparts. BCG estimates that over 40% of Chinese online shoppers both read and write online product reviews – twice the US rate. Calvin Soh, the award-winning former chief creative officer of ad agency Publicis Asia, believes the Chinese aversion to heavy-handed marketing pitches stems from being too long on the receiving end of government propaganda. (The recent image of the ‘floating’ civil servants inspecting a landscaping project on the Zhejiang Hangzhou Yuhang government website shows the authorities’ willingness to Photoshop/stretch the truth extends even to everyday mundane matters.)

The quest for unbiased opinions means Chinese shoppers are also more dedicated users of social media. A McKinsey study released last month showed 91% of respondents in China’s Tier 1, 2 and 3 cities visited a social media site in the past six months, compared to 67% in the US and 30% in Japan. Chinese netizens also spent more time on average (46 minutes per day) visiting social media sites than their counterparts in the US (37) and Japan (7).

According to WeAreSocial, the most popular Chinese social media sites in terms of sheer numbers of users are (in descending order): MySpace-clone Qzone, microblogging sites Tencent Weibo and Sina Weibo, plus Facebook-styled sites Renren (favored by students) and Kaixin (favored by white collar workers). Sina Weibo was tipped as appealing to a higher-income demographic.

BRAND VALUES
The BCG number crunchers also addressed the Chinese interest in luxury brands. Using fashion as an example, BCG described the Chinese shopper as “hungry for highly recognizable brands.” Yet despite their best efforts, many mid-range brands that are ubiquitous in the west (Gap, Abercrombie & Fitch) have yet to make an impression on China, according to Angelia Teo, Asia-Pacific content director at trend forecasting agency WGSN. “China understands luxury and heritage, it understands best-in-class product … you have to offer craft or technique or a unique point-of-view.”

To sum up, online gambling companies looking to establish a lasting presence in China need to do three things: treat your customers right (because they will be talking about you online), effectively engage Chinese netizens via social media and bring a strong brand identity to the table. The first two are things you can work on. The third? It’s sorta like rhythm, style or cool. You either got it or you ain’t.

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IN-PLAY GOING ONLINE?
In more groundbreaking news, the Daily Telegraph reports it has seen documents claiming Australia’s government has informed the domestic gambling industry that it will introduce measures enabling online in-play sports betting within six to 12 months. In-play betting is currently only allowed via telephone or in person at betting shops, but a regulatory review in Victoria recently described the online ban as serving “no useful purpose.” Preparations are reportedly underway to give domestic online poker a five-year trial, as well. (Australian players have reported receiving notices from sites on the iPoker network, including William Hill, saying they would no longer be able to play on the site effective May 24.)

An April 9 email sent by Merrill Lynch analyst Mark Bryan to clients indicated that the government had discussed the measures at an online gaming symposium attended by Tattersalls, Tabcorp, Jumbo Interactive and other bookmakers. Industry members confirmed the email’s contents, adding that the government’s intention was to “clean up inconsistencies” between domestic and international rules. Communications Minister Stephen Conroy declined comment on the report, saying only that the government was finalizing its review of the 2001 Interactive Gambling Act.

SPORTS ALIVE INQUIRY SHAMES REGULATORS
In his email, Bryan warned that the country’s political climate could end up scuppering the online in-play plans. It probably doesn’t help that the inquiry into the 2011 collapse of online betting firm Sports Alive is raising questions about the competency of the ACT Gambling and Racing Commission. The Canberra Times reports that despite monthly audits by ACT regulators, financial records show Sports Alive had been insolvent at least three years before its ultimate collapse, losing more than $7m over its last five years of operation. Some of the estimated 18k punters who are still owed almost $3.9m from the debacle have complained to the ACT Ombudsman that the regulators failed to enforce rules regarding the segregation of player and company funds. The Ombudsman declined comment on whether these complaints would result in legal action being taken against the Commission.

STAR CASINO HIGH-ROLLER THREATENED RAPE, MURDER
In other Aussie legal action, the Star Casino may have been at least partially exonerated by the Independent Liquor and Gaming Authority’s recent inquiry into shenanigans at the Sydney gaming joint, but the Star is now taking ABC television to court for allegedly “inducing” Star staff to provide the broadcaster with confidential info that once again paints the Star in an unflattering light. At issue is an April 16 report in which ABC claimed a high-roller threatened to rape a Star casino female dealer and murder her family if she didn’t let him win – info that Star claims came from confidential internal company reports. The ABC hasn’t taken issue with the nature of the documents, only that it has never “induced” sources to pony up confidential information. Rape, murder… It’s just a click away…

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Turning that last story on its head, an attempt by spread-betting firm Spreadex to compel a punter to make good on what he owes has been quashed by a UK judge. It began last May, when Spreadex customer Colin Cochrane claimed he’d gone away to visit a friend for a couple days. During his absence, Cochrane’s girlfriend’s five-year-old son got on Cochrane’s computer and did some spread-betting, or “playing games,” as the tyke allegedly told the allegedly shocked Cochrane when he saw the £50k bill on his Spreadex account. Cochrane claimed the boy’s trades in oil, gold and silver were all made without his knowledge or blessing, therefore Cochrane wasn’t liable. Spreadex wasn’t buying this ‘dog ate my portfolio’ story and filed suit.

On Monday, Metro reported deputy judge David Donaldson had decided that the contract Spreadex provided Cochrane was “unfair.” Donaldson appeared to take issue with the 49-page length of the terms and conditions, saying it would have been “close to a miracle” had Cochrane found the “entirely inadequate” clause that made him responsible for controlling access to his account. Frankly, we suspect Spreadex has grounds for appeal. If Donaldson thinks 49-pages is a long contract, he’s clearly never scrolled through one of those Old Testament-length iTunes contracts Apple sends with each update.

JEG LAGGARD
Australian property developer Harry Kakavas probably wished he could have used Cochrane’s gambit for not making good on his markers, but unfortunately for Kakavas (pictured above right), the security cameras at Melbourne’s Crown Casino caught him in the act. Over a 14-month span beginning in June 2005, Kakavas made 30 separate visits to the casino, turning over $1.479b in the process. The casino kept about $20.5m (a 1.4% win rate, FYI), prompting Kakavas to sue Crown for having had the gall to offer him the use of their corporate jet and other high-roller perks.

On Monday, Justice Bernard Bongiorno rejected Kakavas’ appeal of a lower court ruling that told Kakavas to take it like a man. In dismissing Kakavas’ argument that his pathological gambling malady made him not responsible for making rational decisions about money, Bongiorno noted that Kakavas had at times negotiated even better perks than the casino had originally offered and “had withheld his custom from Crown when he did not get what he wanted. These are not the characteristics of someone unable to conserve his own interests.” Kakavas was also ordered to pay Crown’s court costs.

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Also following New Jersey’s footsteps, New York state senator Tony Avella has introduced a bill that would allow state residents the privilege of betting on professional sporting events. The New York Post reported that the betting would be handled by the state’s casinos, the Aqueduct and Yonkers racinos as well as at OTB parlors. The proposal has received the backing of Brooklyn District Attorney Charles Hynes, who said legal sports betting “has always made sense to me.” Avella says the state’s cut of the proceeds would help fund schools. (Won’t someone think of the children?) Avella’s bill would require amending the state’s constitution plus the small matter of a court appeal of the federal PASPA anti-sports betting measure, unless those two NJ pols can convince their Washington counterparts to simply junk PASPA.

Sticking with the Empire State, the troubled New York Racing Association has agreed to dissolve its 25-member board of directors and replace it with a state-controlled 17-member unit featuring entirely different people. The change was made at the behest of Gov. Andrew Cuomo, who is trying to restore public confidence in the NYRA following a scandal in which top officials allegedly intentionally overcharged punters on certain exotic wagers. New York will control appointments to the new board for the next three years, after which control will revert back to the NYRA, assuming no man-on-horse sex tapes featuring the appropriately named I’ll Have Another surface during this period.

Further north in Massachusetts, Las Vegas Sands has become the latest casino giant to back out of the running for a Bay State gaming joint. The Boston Globe quoted Sands’ spokesman saying Massachusetts’ plan to allow three casinos plus a slot parlor “didn’t synch with our business model.” Wynn Resorts made a similar decision earlier this month to back out of a Boston area casino. Sands reportedly spent $500k lobbying lawmakers to pass the casino bill in November, but that’s pocket change to Sands’ über-wealthy chief exec (and Massachusetts native) Sheldon Adelson.

Adelson probably knows what he’s doing. Economist Elliott Morss told Boston radio station WBUR that the northeast US casino market is not only facing saturation in the future, but is “very, very sick” at present. Morss pointed to New Jersey, where three casinos were coming out of bankruptcy; a Rhode Island casino is doing the same; the two casinos in Connecticut are struggling under massive debt loads; new facilities are opening in Maryland, etc. etc. “So when Adelson sees something like this going on, my sense is he’s saying, ‘Why would I go to that part of the US when I see all this bankruptcy? Why should I do it there when I can put another one in Macau or Thailand or some other Asian nation where the sky’s the limit?’” Why indeed?

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Facebook’s slide also continued to drag down tech stocks with an even passing relationship with Zuckerberg’s baby. Social gamers Zynga lost another 4% on Tuesday, closing at $6.80, down from $8.56 last Tuesday (15). So is this social media selloff a short-term ‘panicked herd’ affair or a sign of a deeper malaise regarding these companies’ ability to generate revenue? The switch from social gaming to real-money online gambling has been touted as a revenue panacea, but as Japan’s ‘kompu gacha’ affair proved, that particular path to profits is akin to walking a razor’s edge, at least in the eyes of regulators.

ROCKETFROG MAKES APPEAL TO NON-VIRTUAL GAMERS
The next American firm to push the boundaries is Los Angeles-based RocketFrog, founded in 2010 by Matthew Osborn, Uri Kozai and Brett Calapp (former CEO of subscription-based network Centaurus Games, which PartyGaming purchased in 2010). RocketFrog operates daily free-money poker, blackjack and slots tournaments on Facebook. A rotating slate of advertisers – including Amazon and Avril Lavigne’s clothing line Abbey Dawn – acts as sponsors for these tournaments, offering up online gift codes and cards as prizes.

Calapp said RocketFrog would appeal to players “who could not fathom the idea of playing for nothing, but are ecstatic about the opportunity to play for gift cards from top brands, new albums from their favorite artists or a ticket to the movies.” Given that gift cards are essentially digital money, we suspect RocketFrog’s innovation will eventually create a secondary redemption market similar to the one that allows Japan’s pachinko parlors to plausibly deny their shiny metal balls are redeemable for real cash, but – nudge nudge, wink wink – the guy in the shop next door might be able to help you out.

ZYNGA AND AMEX PLANT A MONEY TREE
A slightly less daring initiative has Zynga pairing up with American Express on a FarmVille prepaid debit card. In a nod to the game, card applicants have to visit the Amex prepaid Serve platform and plant a Serve Money Tree on their farms. (You can’t see us, but we’re rolling our virtual eyes.) Once their actual card arrives in the mail, users earn FarmVille rewards (instead of, say, airmiles) on their real-world purchases.

The program is expected to expand to other Zynga ‘Ville’ games in short order and Amex president of enterprise growth Dan Schulman told AllThingsD that the Zynga Serve Rewards program will extend to other real-world businesses, citing an example in which FarmVille players who plant coffee crops might get discounts redeemable at their local Starbucks. Schulman called this a “closed loop for Zynga players. It’s so very different than what anyone else has done.” Zynga CMO Jeff Karp said the goal was “to build and scale the blurring of the lines between the virtual world and the physical world.”

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EUROPE
Bwin.party revenues were up a mere 1% in Q1 while Paddy Power’s rose 28%; more quarterly numbers from Opap, Snai, Codere and Bingo.com; Media Corp ditched its bid for Gaming Media Group and snapped up Intabet instead (still no word on the fate of Purple Lounge, though); Bulgaria cut its online gambling tax rate; Boylesports got cozy with Net Ent; gaming regulators in Malta and Denmark agreed to exchange phone numbers; Gala Poker switched from Ongame to iPoker and 15Marketing’s Ben Starr talked online bingo innovation with Becky Liggero.

ASIA
Wynn Macau has the enclave’s most ‘efficient’ tables but Steve Wynn suffered a setback in his fight with Kazuo Okada; Macau opted to boost the number of poker tables; a Philippine politician proposed the abolition of Pagcor; Japan formally announced a ban on ‘kompu gacha’ social games but not before a software engineer aired their dirty laundry; Crown Ltd.’s James Packer slammed Echo Entertainment over its role in the Star Casino inquiry; AGTech saw revenues rise 117% in Q1 and Australian racebooks are crying over a betting whale’s departure.

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Currently available only in Hunan province, Lucky Racing generated RMB260m (US$41.1m) in Q1 sales, down a third from Q4 2011’s RMB400m. Nevertheless, AGTech expects to expand Lucky Racing’s reach to other provinces in 2012. On March 1, China released the Rules for Implementing the Regulation and Administration of Lotteries with the intention of (a) cracking down on illegal lotteries and (b) preparing the way for legal online and mobile lottery distribution. Since that time, the Sichuan Province Welfare Lottery Center has issued a call for bids on telephone (landline and mobile) and texting lottery licenses. But hold the phone; while Sichuan stopped short of offering internet lottery licenses, it hasn’t yet received official clearance from the Ministry of Finance to issue its new phone/text licenses. Worse, the call for submissions was issued on April 6, and bidders were given just one week in which to submit their paperwork. A source told Gambling Compliance that the license application’s strict requirements seemed designed to keep bids to a minimum, suggesting Sichuan authorities already “know who they want to give it to.”

Elsewhere, it’s been suggested that racetrack betting could make its return to the Chinese mainland next year when the HK$15b Tianjin Equine City Culture complex opens in China’s fourth largest city. In April, China’s horseracing industry inked a €40m deal with Irish bloodstock firm Coolmore Stud to supply the new racecourse with 800 horses over the next three years. The Hong Kong Standard reported that members of the Coolmore delegation were told Western-style horse betting would be “introduced gradually” following Tianjin’s opening in 2013. A source claimed Tianjin would serve as a model for other Chinese tracks to follow. However, such claims were greeted with skepticism by sources at the Hong Kong Jockey Club (HKJC), which pointed to the recently opened track at Wuhan, where betting is limited to points and prizes. These same sources said that if wagering is allowed on the mainland, it would follow the proven HKJC model, where independent bookmakers aren’t permitted.

Despite having a proven model, the HKJC isn’t content to sit on its laurels. Concerned that the average age of its patrons was skewing older, the HKJC asked New York/Singapore-based digital agency Possible Worldwide to propose a solution. Earlier this month, following a couple years of planning, testing and tweaking, Possible introduced two 10-foot by 4-foot interactive, touch-screen gaming tables into the HKJC’s Adrenaline lounge. Up to eight punters can simultaneously use the tables to read up on individual horses and place bets using Jtap, a money-holding RFID card modeled on Hong Kong’s Octopus train pass. Eight punters, using ‘Octopus’ technology… Guess companies never stop honoring the Chinese belief in eight as a lucky number.

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The Administration understands that many Americans engage in paid online poker games for entertainment purposes. Online gambling on sporting events or contests violates federal law. The legality of other forms of online gambling is dependent upon the law of the states where the bettor or gambling business is located. It is left to each state to determine whether it wishes to permit such activity between its residents and an online poker business authorized by that state to accept such wagers, but online gambling that is not authorized by state law may also violate federal statutes.

The response then cited a laundry list of the usual clichés about the supposed predatory dangers and threats to national security made possible by online gambling, before concluding with a statement that the Obama White House was “open to solutions that would help guard against the use of online gambling sites as tools for conducting illegal activities or preying on unsuspecting individuals to the extent that online gambling is permitted.”

The response largely echoes sentiments expressed in the Department of Justice’s late-2011 opinion that the 1961 Wire Act addressed only sports betting and that the legality and availability of other forms of online gambling were decisions best left to individual states. All of which would suggest the huge sums various companies have spent lobbying the feds on this issue have ultimately been in vain. However, the (deliberate?) vagueness of the feds being “open to solutions” on illegal activities and consumer protection will give backers of federal online poker regulations cause for optimism (misguided though it may be). In other words, the White House response failed to definitively un-muddy the waters, and both federal proponents and their state-by-state counterparts will read into it what they want to read. But in the end, only one of these positions can be right, and the smart money is on the states.

Legal News

Stateside, shares in social game company Zynga took a beating on the day Facebook shares made their Nasdaq debut. After all the IPO hype, Facebook shares closed up a meager 1% from their $38 opening price – and even that reportedly required substantial share purchases by underwriters late in the day – but Zynga fell 13% to $7.16. The shares were down 20% at one point, and trading was halted twice, although part of that involved the Nasdaq system itself buckling under the strain of all that underwriter face-saving activity.

Cowen and Company analyst Doug Creutz suggested to Reuters that Zynga’s fall might have been down to investors who’d only bought Zynga as a proxy for the previously unavailable Facebook, and were now transferring their affections to the real thing en masse. GreenCrest Capital analyst Max Wolff suggested some trader “obviously tried to blow [Zynga] out of the water using it as an inorganic hedge against Facebook,” while ITG’s director of derivatives strategy Ralph Edwards suggested the plunge reflected Facebook’s lackluster debut. “If Facebook catches a cold, then Zynga gets pneumonia.” Should be interesting when trading in both Zynga and Facebook resumes Monday morning.

Perhaps more interesting, social games growth is slowing, according to researchers at Frank N. Magid Associates. The Magid Media Futures 2012 study found the number of social network users currently playing social games slipped to 36% from 38% in 2011. A small dip, perhaps, but participation among social games’ single largest demographic – females aged 12-44 years old – fell from 54% to 47%. Worse, the average annual amount spent by social gamers has fallen from $78 to $51, and while 22% of players say they plan to spend more, 34% plan to spend less.

Rome may be burning, but for the moment, gambling games are kicking ass. AppData’s most recent chart of Facebook games’ daily active users has Zynga Poker in the runner-up spot, with Zynga Slingo at #10. Playtika’s Slotomania came in at a tie for #16, while IGT’s Double Down Casino tied for #21. Gambling fared even better on the mobile app data. Zynga Poker was also runner-up on GamaSutra’s top-grossing Android titles, followed by two Dragonplay titles – Live Holdem Poker Pro and Slot City Slot Machines – with Slotomania in fifth spot. (Four out of the top-five; not bad.) The iOS chart also had Zynga Poker in second place (always a bridesmaid) with Slotomania in third, Kamagames’ Texas Poker sixth and Self Aware Games’ Card Ace Casino at #10.

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Ranogajec headed a shadowy group known as the Punters Club, consisting largely of math-inclined gambling geeks, reportedly including high-stakes poker player David Steicke. The Club is believed to have contributed over $1b annually to Aussie TAB outfits’ turnover but generated significant controversy last year when it was reported that Tote Tasmania was offering lucrative rebates to such whales while slashing odds on rank-and-file punters to balance the books.

WINNING BY LOSING
In February, the Weekend Financial Review printed a lengthy exposé on Ranogajec’s betting exploits in America. Ranogajec allegedly convinced US pari-mutuel operators to provide his syndicate with substantial rebates in return for adding his billions into their pools. While Ranogajec’s operations in Australia appear to have been based on winning his wagers, the US side actually earned more from losing bets. According to Ranogajec’s own testimony in a court case involving a former bookmaking associate, the plan was: “You bet to lose, so that you actually turn over more money and the win comes from the rebates … If you bet $100 and lost $5, but you get a 10 per cent rebate, you still make 5 per cent.” Ranogajec estimated he’d earned about $52m over a three-and-a-half-year period betting on US races, but just 15% of that sum came from picking winning horses.

Ranogajec’s US cash cow was turned into ground beef after its operations attracted the attention of then New York State Attorney General Eliot Spitzer. Capital Play, a bookmaker that counted Ranogajec’s syndicate as its sole client and financial backer, was subsequently barred from most major US racetracks. Ranogajec ultimately filed a civil suit in Australia against Capital Play’s Karl O’Farrell after the bookie/employee refused to hand over $2.5m in rebates Ranogajec claimed to be owed. In a rather audacious display of naiveté, Ranogajec told the court his syndicate – which is believed to employ 300 people to place thousands of bets in the final minutes before the race gates open – was a “punters club” or a “collection of individuals” rather than a business concern.

TASMANIAN DEVIL
With America no longer the land of opportunity, Ranogajec turned to his home state of Tasmania. In just four years, TOTE Tasmania (TT) saw pari-mutuel turnover triple, but the lucrative rebates – averaging 10.5% – meant profits were scarce; just $1.5m in 2011. Dick McIlwain, CEO of Tatts Group, which purchased TT for $103m in December, was no fan of TT’s business model. “They gave all the profits away. They rebated the backside out of the business until there was nothing left. The ordinary punter is subsidizing these guys.”

Other pari-mutuel operators also offer rebates, but most of these are thought to be more in the range of 5-6%. McIlwain said TT had been the victim of a “fight to the bottom” between operators seeking to lure whales by offering the most lucrative kickbacks. (Rakeback wars, anyone?) McIlwain attributes part of the blame for this sorry situation with “dimwit governments” aka Australian legislators who authorized rebates. As for the Punters Club, it has reportedly wound down its Aussie operations, but it’s hard to believe this “collection of individuals” won’t reassemble somewhere else.

Business News

The push by individual US states towards legal online gambling was the topic du jour at the East Coast Gaming Congress (ECGC) on Thursday. The general impression of panelists at the ‘Understanding The i-Gaming Frenzy’ seminar seemed to be that the current makeup of Congress is too dysfunctional to achieve consensus on an issue as potentially divisive as online poker. NorthJersey.com’s John Brennan quoted US Digital Gaming founder Skip Bronson suggesting federal backers were “naïve” to think Congress could pass legislation when it “can’t even agree on what day it is.” New Jersey state senator Ray Lesniak echoed this theme, noting: “Everyone knows that [House Speaker] John Boehner doesn’t run the House of Representatives – the Tea Party does.” And the Tea Party isn’t overly interested in expanding the federal government’s scope.

Earlier this month, Lesniak suggested NJ Gov. Chris Christie’s support for the state legislature’s online gambling push was wavering, and some saw Christie’s reneging on a scheduled keynote address at the conference as further evidence of this change of heart. On Thursday, Lesniak told the ECGC audience that he felt Christie was “back on board” the online gambling train. However, when cornered privately by Brennan after the seminar, Lesniak copped to the fact that his claim was based on ‘scuttlebutt, word on the street, whatever you want to call it.” In other words, he may have read it on the TwoPlusTwo poker forums.

While the states may have the initiative, success is far from assured. Prior to the December opinion by the US Department of Justice that widened the scope of products state lotteries might offer online, the Oregon Lottery hatched an ill-fated plan to launch an online gaming site dubbed The ORcade. The site would have featured a number of free-play arcade-style social games as well as the ability to enter losing scratch-off tickets into second-chance drawings, but the plan was met with consternation from anti-gambling groups concerned that the game animation would appeal to children (as in ‘won’t someone think of the…’). The brouhaha prompted the state governor to express his concern, and the Oregonian has since obtained an April 18 memo in which lottery officials considered recommendations from an advisory committee for salvaging the site – chief among them being a complete disassociation from the “tainted” ORcade name. We’re not so sure such a move is warranted – after all, British Columbia Lottery Corporation’s online offering PlayNow.com suffered far greater public indignities and survived.

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The furor that caused Japan’s leading social game companies to voluntarily shut down their ‘kompu gacha’ games last week may not be over. After the Daily Yomiuri revealed that Japanese regulators were growing concerned over the virtual card-collecting games’ similarity to gambling, the country’s six largest social game companies took the initiative of phasing out the games by the end of this month. Even though analysts described these companies as being “incredibly dependent” on kompu gacha for driving profits, the companies appeared to rationalize that it was better to kill their golden goose themselves rather than have regulators step in and impose even harsher measures.

But it may be too late. On Monday, the Yomiuri published a followup interview with an anonymous social game software engineer, in which the mechanics behind kompu gacha games were exposed to the light. In games in which players attempt to complete sets of cards by purchasing individual cards sight unseen – and the odds of receiving a specific card are unspecified – the engineer claimed it was standard practice to adjust the odds of acquiring certain valuable cards based on the transition of real-time item sales, the number of playing users, etc., with the aim of striking a balance between keeping players playing (and buying) without bleeding them to the point they got frustrated and quit.

More damning, the engineer said the key was “making ‘haijin kakinsha’ players use the game.” For those who don’t speak Japanese, haijin translates as ‘wreck’ while kakinsha is a free spender. (Draw your own conclusions from there.) “It’s our goal to make more than 10% of all gamers spend money. It’s important to keep their spending within certain bounds, since they may not come back to the game if we squeeze too much out of them.” The engineer said computers constantly monitored players’ spending status and fed hourly email updates to developers, who would then tinker with the odds to hit that aforementioned sweet spot. The engineers even kept track of online chatter in player forums to determine if too many users were complaining about the difficulty of obtaining certain cards.

While Zynga struggles to get more than 2% of its users to actually open their virtual wallets, a Neo Marketing Inc. study this month of 500 Japanese social game players determined that 43% had splashed out for virtual goods, with 2.4% spending over ¥10k ($125) over the past month. Prior to this current brouhaha, Mitsubishi UFJ Morgan Stanley Securities analysts expected total revenues from the country’s social gaming industry would hit ¥464b ($5.78b) in 2012. But social game companies are now worried that other gacha games – in which rare virtual items are awarded based on collecting a line of themed items or a bingo-style line of numbers – will be next to attract regulators’ scrutiny. Those analysts may want to revise those projections.

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The Philippine Amusement and Gaming Corporation (Pagcor) may have recently been singled out for praise by the country’s president, that doesn’t mean all the nation’s politicians are Pagcor fans. Senator Ralph Recto filed a bill (SB3178) this week that would abolish Pagcor, replacing it with a new outfit, the Philippine Amusement and Gaming Commission (Pagcom). Recto’s bill aims to end Pagcor’s dual role as regulator and operator by privatizing its casino operations. (The House of Representatives has a bill in the works that would strip Pagcor’s ability to issue gaming licenses.)

Recto told the Inquirer that the government “has no business running gambling facilities” and should limit itself to “steering and not rowing … government should deal with coordination and control of gaming entities but should not get involved in direct gaming operation.” Recto’s bill would also impose a 5% gross revenue tax on private operators, restrict new gaming licenses to municipalities/cities with substantial tourist arrivals and institute casino entrance fees of P1k (US$23) on local residents. A Severance Mitigation Package would be instituted to ease the pain of those not kept on to run Pagcom, but anyone availing themselves of this option would be prohibited from working for Pagcom for a five-year period.

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Also a myth? Gambling as an addiction, at least, according to researchers at the University of Sydney’s Gambling Treatment Clinic. Dr. Fadi Anjoul, who has treated problem gamblers for 15 years, says what most regard as addiction could better be described as “a misguided obsession” that results from “habitual and poorly informed choices rather than biological processes that are beyond individual control.” While others lump problem gambling into the same category as drug and alcohol addiction, Anjoul points to the obvious withdrawal symptoms associated with each and the comparative lack thereof in problem gamblers. Anjoul’s team has developed cognitive therapies to help people understand their own gambling origin story and to change how they think about their relationship with gambling. According to Anjoul, such therapies are proving more effective at ‘curing’ problem gamblers than the traditional addiction/disease model therapies.

Sadly, that won’t stop “gambling disorder” from appearing in the fifth edition of the Diagnostic and Statistical Manual of Mental Disorders (DSM) when it finally hits shelves in 2013. The DSM-V will dramatically widen the net for classifying what is and isn’t considered an addiction and this has critics up in arms. Duke professor Allen J. Frances told the New York Times the DSM-V’s overly broad definitions – the DSM-V adds ‘craving’ something as a symptom of addiction – would lead to “medicalization of everyday behavior,” which in turn would create “false epidemics.” For example, Australian researchers determined that the DSM-V’s expanded criteria would boost the number of ‘alcoholics’ by 60%.

The DSM-V’s defenders in the medical industry claim the new criteria will help them identify addicts at earlier stages of their addictions, which will save costs in the long run. In the short term, however, doctors and mental health practitioners – and the pharmaceutical companies with whom these doctors are closely aligned – will have a lot more patients/customers. And anti-gambling groups will have vastly inflated statistics of ‘addicts’ with which to harangue politicians into restricting or eliminating gambling options for the overwhelming majority of people who gamble responsibly. Now if you’ll excuse us, we’re ‘craving’ some music…

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Over in New Jersey, Gov. Chris Christie has decided to cancel his keynote address at this week’s East Coast Gaming Congress at the Revel Casino in Atlantic City. Christie’s press secretary claimed the cancellation was “nothing more than a scheduling conflict” and that Lt. Gov. Kim Guadagno would assume Christie’s place at the podium on Thursday. But some observers are interpreting Christie’s cancellation as a way of lowering his profile on the online gambling issue while he’s still on the shortlist to become Republican presidential candidate Mitt Romney’s running mate in the November elections. A wishing-to-be-anonymous Atlantic City casino executive told Philly.com that “the governor cannot be in front of the gaming industry right now.”

Christie’s declared scheduling conflict comes hot on the heels of two opinion polls on the issue of online gambling – one suggesting Garden State residents were agin’ the idea, another (initiated by Christie’s office) suggesting the opposite. But as NorthJersey.com’s John Brennan pointed out, despite being the country’s second biggest casino market, New Jersey residents aren’t exactly the most informed audience on gambling issues. In the Gov. Christie poll, a mere 10% of respondents correctly identified that legal online horse betting is currently available to NJ’s adult residents. More than a third (35%) said there was no such option, while 55% weren’t sure. You know, Mr. Governor, the added tax revenues from online gambling might work wonders on improving the state’s literacy levels.

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EUROPE
A flurry of Q1 results this week, including Rank Group, Unibet, Bet-At-Home, CryptoLogic, Tipp24; Lottomatica, Cherryföretagen and Fortuna Entertainment; Rank Group paid £205m for Gala Coral’s casinos; Spain announced it will hand out online gaming licenses on June 1; sports betting and horseracing improved in the French market; Belgium added 10 names to its online gaming blacklist; William Hill CEO Ralph Topping survived an attempt by shareholders to deny him his pay packet and PokerStars gave some more data miners a case of black lung.

ASIA
SJM Holdings saw profit rise 21.7% in Q1, Galaxy Entertainment Group saw earnings hit an all-time high, Melco Crown saw profit rise 17-fold and junket operator Asian Entertainment & Resources saw net income grow 19%; Japan’s social gaming companies announced the end of their lucrative ‘complete gacha’ games; there could be a three-way fight to acquire Australian casino operator Echo Entertainment; Universal Entertainment’s Kazuo Okada restated his commitment to the Pagcor Entertainment City project and to kicking Steve Wynn in the nuts; the Asian Poker Tour’s coming back to Goa, India and G2E Asia kicks off May 22.

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