Zynga Puts Real Money Into Gambling Lobby
By JOHN LETZING
Wall Street Journal
August 15, 2012, 5:04 p.m. ET
Zynga Inc. has begun investing in state and federal lobbying efforts around gambling with real money, even as the social-gaming firm predicts the U.S. won't be an initial market for the potentially lucrative new line of business.
The lobbying investments by Zynga in Washington, D.C., and California come as the company eyes real-money gambling versions of games as a key opportunity amid waning investor confidence and a battered stock price.
Zynga, of San Francisco, currently offers "Zynga Poker," which involves players winning virtual currency from one another that can't be cashed out for real money.
But the company has said it has begun talking to potential partners about games with real money changing hands, in response to user interest and a shifting legal landscape. Last year the U.S. Justice Department signaled that states could start developing regulations for online gambling, and several have seen related legislative efforts. Federal legislation that would regulate Internet gambling is also possible.
During a conference call following Zynga's quarterly earnings report last month, Chief Executive Mark Pincus told analysts the firm expects to "launch our first real-money gaming products in international markets in the first half of 2013." The CEO added that while the U.S. is an attractive potential market for an early foray into real-money gambling, "it's not an open, regulated environment today."
On the federal level, Zynga reported in public documents spending some $75,000 during the quarter ended in June on lobbying efforts around issues including Internet gambling.
Zynga disclosed employing Washington-based Bay Bridge Strategies Inc. and Peck, Madigan, Jones & Stewart Inc. during the period, to monitor "legislation pertaining to regulation and taxation of Internet gambling" in the House and Senate.
In California, Zynga hired Platinum Advisors to lobby during the quarter ended in June around a bill introduced in the state senate earlier this year that would establish licensing for online poker providers.
The bill, called the Internet Gambling Consumer Protection and Public-Private Partnership Act of 2012, would allow for $30 million licenses for gambling outfits with whom Zynga could potentially partner to offer online poker to players within California. The California legislation stalled earlier this year, but may yet be reprised.
Opponents have included some Indian tribes concerned that online wagering will hurt their existing gambling operations.
The amount Zynga committed to second-quarter lobbying in California wasn't immediately clear, but was less than the $75,000 spent on the federal level, according to a person familiar with the matter.
The company's lobbying activity has remained roughly consistent in the current quarter, the person said.
Zynga, founded in 2007, is best known for games such as "FarmVille" and "Words with Friends" that exploited connections among Facebook Inc. users. The company went public in a high-profile IPO in December that priced at $10 a share.
But Zynga has since largely failed to impress investors with its financial performance. Last month, the company posted a second-quarter loss and sharply lowered its outlook. Its shares have tumbled nearly 70% in the year to date, trading recently at $3.05 a share, off nearly 1%, on Wednesday.
A possible move into real-money gambling is therefore among the strategic moves that have now become more pressing for Zynga, according to Robert W. Baird & Co. analyst Colin Sebastian.
"Anything that can help their monetization on their platform has some sense of urgency," Mr. Sebastian said.
"International is clearly where there's a more ready market" for Zynga to offer real-money gambling, the analyst added, "but domestically it would be helpful for them if they did have an opportunity."
Write to John Letzing at john.letzing@dowjones.com
A version of this article appeared August 16, 2012, on page B4 in the U.S. edition of The Wall Street Journal, with the headline: Zynga Puts Real Money in Gambling Lobby.
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