Zynga, Seeing Red, Partners with bwin.party for First Real Money Gambling Venture

Company Calls Partnership a "Strategic and Prudent Way For Us To Enter a Key RMG Market."

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Following a tough week off massive layoffs, studio closings, and a weak (but still somewhat better than expected) third quarter earnings report, Zynga (Nasdaq: ZNGA) announced its first step into real-money gambling on Wednesday. The company has announced a new partnership with the UK-based online gambling company bwin.party (LON: BPTY) “to offer real money online Poker and Casino games in the UK market.”

With Zynga’s UK-based RMG service and bwin.party working in tandem, the two companies plan to release 180 “casino games” throughout the “first half of 2013.” Titles will include classic card and casino games like poker, slots, roulette, and blackjack.

"Bringing together Zynga’s expertise in social gaming with the top international real money gaming operator is the best way to create the highest quality gaming experiences for our players in the UK," said Barry Cottle, Zynga’s executive VP of corporate and business development, in a company statement Wednesday.  “Partnering with an established leader like bwin.party is a strategic and prudent way for us to enter a key RMG market while giving local players the real money games they've been asking us for.”

Ever since the San Francisco-based social game developer tumbled over 70 percent at the stock market following a weak second quarter earnings report, Zynga's CEO Mark Pincus and Chief Mobile Officer David Ko have both admitted shortcomings in the revenue streams they’ve been able to establish on the popular social network Facebook (Nasdaq: FB). Renewing a focus on mobile gaming and real-money gambling, they insist, will help the struggling company successfully monetize a greater proportion of their users than Facebook has traditionally allowed them.

As a result of this strategy shift, the company managed to recruit veteran online gambling executive Maytal Ginzburg despite losing several C-level executives in just two months at the same time, including the general manager of its oldest and most successful casino game, Zynga Poker.

Real-money gambling not only allows Zynga to convert many of its users into paying customers, it also helps the company avoid another problem that many freemium businesses face: Even when users are willing to pay, they aren’t willing to pay more than $0.99 to $5.00, the usual price range for “premium” apps on iOS or Android smartphones.

As Robert Jarvis, a law professor at Nova Southeastern University that studies gambling legislation, said in an interview when Zynga first recruited Ginzburg to expand its real-money gambling operations, gamblers are willing to spend hundreds of dollars in a single session at a casino.

"Those numbers just don't exist in FarmVille," Jarvis said.

“Today’s announcement is another example of our success in leveraging our assets through strategic blue-chip partners,” bwin.party Co-CEOs Jim Ryan and Norbert Teufelberger said in a statement. “Zynga is the world’s leader in social games with hundreds of millions of active players worldwide and a significant player base in the UK.  We are delighted to have been selected as their chosen partner for this important step in their evolution, and hope to expand our relationship into other products and markets.”

Zynga shares opened at $2.50 Thursday morning, having recovered slightly from Tuesday’s fallout in after-hours trading Wednesday. Share prices dropped slightly in morning trading, dropping to $2.36 in late-morning trading. 

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