2013/07/03

Mark Pincus' Zynga Online Gambling Bluff

Mark PincusDon Mattrick is a big name in the gaming world. He sold his first gaming business to Electronic Arts, where he stayed on and played a key role in popular franchises like The Sims and FIFA Soccer. AtMicrosoft MSFT -0.15%, he helped reinvigorate Xbox. The stock market seems to think that if anybody is going to rescue social gaming company Zynga, Mattrick is the guy to do it. Investors have pushed up Zynga’s shares by 25% since Mattrick was named Zynga’s new CEO this week.
But one thing Mattrick knows very little about is online gambling. It’s safe to say that Mattrick could walk down the Las Vegas Strip without being recognized by anyone other than Xbox fans. He knows Wayne Gretzky and Steven Spielberg, but Mattrick could show up at a board meeting of the American Gaming Association and probably not know anyone in the room. Zynga founder Mark Pincus’ replacement choice as CEO at Zynga sends an unmistakable message: Zynga is a gaming company, not a gambling company, and it’s future will be determined in the areas that Mattrick knows well.
This was not the message that Pincus was sending when shares of Zynga were in free fall. With its social gaming efforts floundering amid a tough transition to mobile, Pincus encouraged investors to stick with Zynga by implying it would ultimately find riches through online gambling. The idea was to build off of Zynga’s hugely popular free-to-play online poker franchise, Zynga Poker, which was Zynga’s first social game. The company struck partnerships with the likes of Bwin.Party to launch online gambling overseas while crafting a strategy for the U.S., where a few states are moving toward regulating online gambling.
But building a big online gambling business remains a long shot for Zynga. With no federal regulation of online gambling, the U.S. market is not very viable, yet the competition is intense as the Las Vegas casinos work to protect their turf. Big companies like Caesars Entertainment CZR -3.03%have made huge investments in this area. Zynga also has to confront PokerStars, the world’s biggest online poker company, which completely dominates the international market and is working to find a way back into the U.S. after its settlement with the Department of Justice. As I have previously argued, Zynga’s real-money online poker prospects are also not as great as one might think because the company has no experience in this very unique business and a high percentage of its online poker players are under the age of 18 and come from countries like Indonesia.
Zynga will continue to try to move the online gambling ball forward, but Pincus probably realized that the online gambling road would likely not get him anywhere, which is why he has been making a hard run at Mattrick, a hardcore gamer, since April, around the time Zynga reported that sales fell 18% in the first quarter.
Increasingly, Pincus’ online gambling moves look like a bluff. Pincus has sold investors a lot of things since he took Zynga public at $10 a share in 2011. He first sold investors on Farmville and Facebook FB +0.16%, then he sold investors a boatload of his own Zynga stock, and finally he tried to sell investors again on online gambling. With Zynga’s shares now changing hands at $3.40, Pincus is now selling a Microsoft exec. It’s probably his best bet.
www.forbes.com

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