(By Rich Bieglmeier) Zynga, Inc. (ZNGA) is rolling sevens this morning on news that the online game company unleashed two" real-money" casino games in the U.K. , where online gambling is legal, unlike the USA.
The one-time high-flyer released "ZyngaPlusPoker" and "ZyngaPlusCasino" for gamblers to try their luck in the U.K. Analysts' aren't so hot on the deal. Jefferies & Co. analyst Brian Pitz thinks "The near-term financial impact will be low." However, he sees a much larger opportunity when/if online gambling is legalized in the U.S. considering the company's relationship with Facebook (FB).
Although the move into online U.K. gambling might not be the elixir that cures ZNGA's falling Farmville blues, iStock thinks the USA is ZNGA's intended target. It's our opinion that the current versions of "ZyngaPlusPoker" and "ZyngaPlusCasino" will be used to work out the "bugs" so the games will be ready for prime-time when online gambling in the US is re-legalized.
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It might not be as far away as you think.
In February 2013, Nevada Governor, Brian Sandoval signed Assembly Bill 114 into law. The new law allows Nevada to enter into compacts with states to offer internet poker, and other online gambling to patrons in Nevada and participating states.
iStock is surprised that it took so long for a "Gaming" state to bring such a bill into law. The Justice Department changed its mind regarding online gambling way back in December 2011.
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"The Department's Office of Legal Counsel ("OLC") has analyzed the scope of the Wire Act, 18 U.S.c § 1084, and concluded that it is limited only to sports betting," is the department's new position. In other words, online poker and casino games will get no static from the nation's chief law enforcement agency.
This new, old ruling makes online gambling compacts between states highly likely. Besides Nevada, other states currently considering online gambling for their residents include Delaware, California, Hawaii, Illinois, Iowa, Massachusetts and Mississippi.
Despite being "illegal" since 2006, an estimated 10 million Americans still wager online, spending an estimated $4 to $6 billion annually. Do you actually think the government at any level is going to continue letting that money, via taxes, continue to walk out the door? Neither do we.
We believe at least one of the aforementioned states will offer poker and casino games before the calendar flips to 2014. Once the door is opened, the stampede of other states will head for the door, and iStock can see as many as 12 states (maybe more) legalizing online gaming within the next 18-24 months.
Overall: Looking at Zynga, Inc's. (ZNGA) entrance into the competitive U.K. online gaming industry as a standalone event is shortsighted in our view. We have very little doubt that legal online gaming in the US will be coming to a state near you, and probably sooner that you think. If so, Zynga could stand to benefit more than most.