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Not too long ago, Zynga looked like a video game company that was dabbling in the gambling world. But more and more, it's looking like the reverse might be true.

Chris Morris, Blogger

February 27, 2013

4 Min Read

Not too long ago, Zynga looked like a video game company that was dabbling in the gambling world. But more and more, it's looking like the reverse might be true, with the type of gaming most closely associated with Las Vegas and Atlantic City moving to the forefront. It's no secret that Zynga's stock has fallen far below its initial offering price. Lately, though, shares have seen two significant bumps--an 8 percent climb Monday and 10 percent climb on Feb 8. In both circumstances, it was the possible legalization of online gambling that drove the climbs. Monday's surge came after Nevada decided to legalize casino games online. Earlier in the month, it was New Jersey that circled the issue, with Governor Chris Christie vetoing a bill, but pledging to pass an amended version, if the state legislation made specific changes. Late Tuesday, New Jersey legislators delivered that version to him and Christie signed the bill into law. Wednesday morning, Zynga stock jumped again -- this time by 4 percent. To clear up any remaining doubt, CEO Mark Pincus took to the stage at a Morgan Stanley conference Monday, detailing the company's strategy to stand out in the crowded gambling market. "We're not the company to win the hardcore real-money gamers," he said. "But we think we are for the mass market audience." Zynga is in the process of shedding offices and some of its high profile development talent. Brian Reynolds' departure was a key sign of the shift in the company's focus. And Monday's closing of the Baltimore office ended Soren Johnson's tenure with the company. (His game, sources tell us, had been cancelled a while back.)

Social gambling

Zynga's still working on developing mass market friendly games - as well as a few (and pardon my use of this god-awful expression) midcore titles. That's essential, since even with Zynga's plans to launch its gambling arm in the U.K. before the end of June, the company has to stay focused on traditional games for a while longer to maintain revenues. It's also critical at this point for Pincus to hang on to as many of the key social game developers as possible, since they're a key to the company's gambling ambitions. Pincus' comments at the analyst's conference confirmed what a lot of people had suspected. By adding a social layer onto online gambling, Zynga hopes to bring some of its existing user base along with it as it explores this new territory. Win big? You'll be able to crow about it via social media, which (if it follows the path Zynga helped blaze) could lead others to give the game a shot. This time, though, they'll be playing with real dollars instead of Facebook credits. Presentation is a big part of what differentiates gambling sites -- and Zynga's expertise in creating addictive experiences could come in very handy in this new field. Pincus might be the public face of the changes, but these are just as much the brainchild of Maytal Ginzburg, who came on board last year as chief operating officer after John Schappert's unceremonious departure from the company. As senior VP of regulated markets at 888 Holdings, an online gambling firm, Ginzberg knows gaming. And as states warm to the idea of online gambling, so, too, is the federal government. (In late 2011, the Department of Justice conceded that the law prohibiting online gambling only encompassed sports wagering.) That, potentially, means a big burst in income for the company. Before a recent crackdown by officials, online gambling was a market with $18 billion in wagers in 2010. Investors are viewing the low, low stock price as a chance to get in on the ground floor for what could be the next big thing in the gambling market. But in order to take that ride, they're going to have to first survive the company's ongoing transitional pains in the video game market. And if the company can't get that side of the house in order, that may prove to be a gamble that's too rich for the blood of a lot of those speculators, making the stock even more turbulent than it has been for the past year.

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