July 27, 2009
A few weeks ago a good source gave me a legal document written by a former federal prosecutor and senior Department of Justice official. It was arguing that social gaming company Zynga could be breaking multiple state and federal anti-gambling laws via its popular Texas HoldEm game.
A few things are striking about this. First off, Zynga is one a handful of companies building Facebook and iPhone apps that has found a way to make money. Lots of money. Close to $200 hundred millions dollars in revenues to be precise. The fact that it could be the next target for an overzealous state attorney is a big story in and of itself. Second, the fact that competitors are this threatened by Zynga’s cash machine shows an ugly battle royale brewing in the application space. (More on that in a bit.)
Online gambling is illegal, according to the U.S. State Department and a handful of states, but there are still some gray areas. In June, the Feds started cracking down on gamblers in an attempt to clear things up. Meanwhile, others like Massachusetts representative Barney Frank are seeking to legalize and tax the $1 billion or more in annual revenues U.S. poker players are mostly sending to sites based overseas. Frank clearly faces a huge uphill battle from religious groups who see poker as a moral issue.
But a site like Zynga should be able to side-step all of this, because although you can buy chips for Zynga’s Texas HoldEm game you can’t redeem them for money, right? Maybe not.