Zynga Gamers Could Soon Be Cashing In

Proposed Real-Money Option Has Annual-Revenue Potential of $5 Billion, but Creates Extensive Legal Issues to Maneuver

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Farmville cash is small potatoes.

Social-media gaming leader Zynga, makers of such hit Facebook games as Farmville, Words With Friends and Zynga Poker, has publicly expressed a desire to offer a real-money option to its more than 30 million monthly players. A Zynga spokesperson told All Things Digital in January, "We know from listening to our players that there's an interest in the real-money gambling market. We're in active conversations with potential partners to better understand and explore this new opportunity."

"It's coming," said attorney and gaming-law expert Cory Aronovitz. "They're taking baby steps, and they're working within state laws, but it's coming. And it's going to be big."

How big? There's a potential $5 billion in annual revenue for Zynga alone from online gaming, according to a January investor's note from J.P. Morgan. And there's another potential windfall for Facebook, which currently takes a 30% share of revenue on virtual products purchased through Zynga.

But before anybody starts to cash in their nonvirtual chips, there are some fairly extensive legal hurdles to get over. For one, very few states in the U.S. have legalized online gambling.

"They would have to be licensed by whatever jurisdiction they want to operate in, and they would have to have the controls in place to clarify that the player is in a specific spot [that offers legalized online gambling]," said Sue Schneider, a gaming-industry consultant in St. Louis. "The other option is , they provide the technology to partner up with an operator who would get the license."

Zynga has reportedly been in discussions with Steve Wynn and Wynn Resorts about an online-gaming partnership. Zynga declined to comment, but if true, that brings up a second problem. Wynn Resorts has a license to conduct gaming in Nevada (and outside the U.S., in Macau), but the company said it does not have one in any other state.

Another potential pitfall is that Indian tribes with gaming rights in states such as Connecticut will most assuredly put up a fight against legalized online gambling.

"Those are the issues that are being worked out now. It's not a federal licensing system, it's a state-by -state system, and it's quite challenging," said Keith Furlong, VP of Catania Gaming Consultants. "Everyone will want their piece of the tax revenue as well. It's a complex issue and, frankly, I don't know if the country has come to grips with the ability to game from the house yet."

Mr. Furlong said Zynga will also be required to change its corporate culture should it start accepting real money. "They're going to be regulated," he said.

Mr. Aronovitz, founder of the Casino Law Group and an adjunct professor of gaming law at the John Marshall Law School in Chicago, said that the online-gaming industry received a huge boost in December when the Obama administration reinterpreted the Interstate Wire Act of 1961, noting that "interstate transmissions of wire communications that do not relate to a "sporting event or contest' fall outside the reach of the Wire Act."

Added Mr. Aronovitz, "It has opened a floodgate of people of looking to get involved in internet gambling and it has spawned a huge debate of whether online gaming would be allowed. For instance, Illinois had been sitting on an online retail lottery-ticket bill. It has now launched; you can now go on their website and buy lottery tickets. Now the question is , "When will states offer poker, either through intrastate, or offer their own gaming bill?' And then the question is , "What is the platform?'

I don't know the answer to the first question," Mr. Aronovitz said, "but the logical answer to the platform question is social media."

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