by Bob Tedeschi
TNW
"We refer to this as competitive entertainment," said Stephen Killeen, chief executive of WorldWinner, which runs a game site that charges tournament players and challengers about $1.50 for every game they play, while awarding winners roughly $3.20. "The idea behind this is 'loser buys drinks.'"
For U.S. companies locked out of the lucrative global industry in Internet gambling, there is still money to be made as long as they don't call it gambling.
So-called games of skill like Spades, 8-ball and Solitaire are attracting more players online than ever, thanks partly to the growing pool of prize money available to winners and the tightening noose of federal regulation around online games of chance. Although revenue is small compared with that reaped by pure gambling sites, some in the industry say that could change.
"This will continue to be a larger part of the online gambling market, although since there's skill involved, you can't really call it gambling," said Sebastian Sinclair, president of Christiansen Capital Advisors, a gambling industry consultancy. "These games are better suited to the medium than casino games, because they're more entertaining, and money is secondary."
Secondary to some, perhaps, but for others, the money is everything.
"We refer to this as competitive entertainment," said Stephen Killeen, chief executive of WorldWinner, which runs a game site that charges tournament players and challengers about $1.50 for every game they play, while awarding winners roughly $3.20. "The idea behind this is 'loser buys drinks.'"
"And because these are games of skill, as opposed to games of chance, there's an added dimension of, 'O.K., I have to concentrate on this,'" Killeen added. "It's not, 'What's this random roll going to show me?'"
Generally Accepted Standard
The generally accepted standard for legal gaming is that it must involve a contest where skill is the predominant factor in winning or losing; if a game is too easy or too hard for the participants, skill is less a factor in the outcome than luck.
Killeen's site offers about 30 games, and it provides game services to Yahoo, Lycos and Electronic Arts' Pogo.com. He compares his company's role to that of the U.S. Tennis Association, which organizes the U.S. Open tournament. "We provide the setting, award the prizes and create the draws," he said. "We take a management fee and award the prize to the winners. The difference is, we do it for millions of people."
WorldWinner has more than 10 million registered users, which places the site near the top of its category. Sixty-five percent of the registrants are women over age 40.
"It turns out they really like to play games online," Killeen said. "Mostly, they like the traditional games they're used to playing offline."
The privately held company does not disclose revenue, but Killeen says it is "at break-even level" after nearly four years in operation. It raised $23 million from investors during that time.
Making Any Money?
No one in the industry is making a lot of money from this yet. Sinclair, the industry consultant, estimates that these kinds of skill-based games account for less than 5 percent of the $7.5 billion online gambling industry. But the crackdown on illegal gambling, Killeen said, has turned the market in a more favorable direction.
Under pressure from the Justice Department, Yahoo, Google and MSN last month stopped accepting advertisements from online casino operators because such ads could be deemed by courts as aiding and abetting illegal gambling.
As a result, WorldWinner and its competitors no longer must bid against some of the Web's more aggressive marketers to get top placement for advertisements. Nor are their sites lumped in with casino gambling.
"There's a greater understanding of what we do now," Killeen said.
Still, purveyors of skill-based Internet games have not emerged unscathed from online gambling's legal difficulties. Companies like WorldWinner and others continue to lobby the U.S. Congress, lest they be included in legislation barring all types of games that award cash or prizes. A bill that would forbid the use of credit cards and fund transfers to pay for unlawful gambling passed in the House of Representatives last year and is now in the Senate.
Some U.S. states do have laws that bar such contests or discourage them, as their statutes blur the distinction between games of skill and games of chance. As a result, WorldWinner turns away prospective customers in Arizona, Arkansas, Delaware, Florida, Iowa, Louisiana, Maryland and Tennessee.
If games of skill finally win market share in the states where they are deemed legal, it will be a vindication of sorts for a business that is intrinsically more difficult to run than casino games, analysts said.
To evenly match players, companies must establish rankings based on past contests. And they must maintain elaborate security systems to prevent hackers from manipulating the games.
Cash-Based Games
The difficulty of running cash-based games of skill is one reason companies like Electronic Arts simply buy the service from businesses like WorldWinner. According to Erick Hachenburg, general manager of EA Online, the company regards its skill-based games as a complementary service rather than a primary one.
Of the roughly 60 games available on Pogo.com, about 25 percent are skill-based, and winners are rewarded with points that can be redeemed for tickets in prize drawings. "There's a core audience that really enjoys skill-based games," Hachenburg said, "but in the end, the games that aren't skill-based tend to be more popular."
On a per-player basis, however, skill-based games could be more lucrative, according to some industry executives.
While sites like Yahoo or Pogo generate revenue from subscription fees or advertising, those that charge entry fees and distribute cash or prizes to winners tend to attract more serious players, who spend more time and money on a site. According to Adeo Ressi, chief executive of Game Trust, which conducts online game tournaments for eight Web sites, the average player of his company's games spends $21.25 a month on games.
Commission Revenue
Ressi said his business, which is privately held, collected about half of that revenue as commission. Game Trust's revenue is "in the millions," he said, with monthly sales growing more than 300 percent this spring
One of Game Trust's biggest clients, Miniclip.com, which is based in Britain, has in recent months added more skill-based cash games to its Web site for games, Miniclip-tournaments.com.
The Miniclip chief executive, Robert Small, said the site had in its first few months attracted two million registered users who would help Miniclip more than double its overall profit this year.
"There's been much talk over the last year about how online gaming is the next big thing," Small said. "The reality is that online games are big now."
TNW
"We refer to this as competitive entertainment," said Stephen Killeen, chief executive of WorldWinner, which runs a game site that charges tournament players and challengers about $1.50 for every game they play, while awarding winners roughly $3.20. "The idea behind this is 'loser buys drinks.'"
For U.S. companies locked out of the lucrative global industry in Internet gambling, there is still money to be made as long as they don't call it gambling.
So-called games of skill like Spades, 8-ball and Solitaire are attracting more players online than ever, thanks partly to the growing pool of prize money available to winners and the tightening noose of federal regulation around online games of chance. Although revenue is small compared with that reaped by pure gambling sites, some in the industry say that could change.
"This will continue to be a larger part of the online gambling market, although since there's skill involved, you can't really call it gambling," said Sebastian Sinclair, president of Christiansen Capital Advisors, a gambling industry consultancy. "These games are better suited to the medium than casino games, because they're more entertaining, and money is secondary."
Secondary to some, perhaps, but for others, the money is everything.
"We refer to this as competitive entertainment," said Stephen Killeen, chief executive of WorldWinner, which runs a game site that charges tournament players and challengers about $1.50 for every game they play, while awarding winners roughly $3.20. "The idea behind this is 'loser buys drinks.'"
"And because these are games of skill, as opposed to games of chance, there's an added dimension of, 'O.K., I have to concentrate on this,'" Killeen added. "It's not, 'What's this random roll going to show me?'"
Generally Accepted Standard
The generally accepted standard for legal gaming is that it must involve a contest where skill is the predominant factor in winning or losing; if a game is too easy or too hard for the participants, skill is less a factor in the outcome than luck.
Killeen's site offers about 30 games, and it provides game services to Yahoo, Lycos and Electronic Arts' Pogo.com. He compares his company's role to that of the U.S. Tennis Association, which organizes the U.S. Open tournament. "We provide the setting, award the prizes and create the draws," he said. "We take a management fee and award the prize to the winners. The difference is, we do it for millions of people."
WorldWinner has more than 10 million registered users, which places the site near the top of its category. Sixty-five percent of the registrants are women over age 40.
"It turns out they really like to play games online," Killeen said. "Mostly, they like the traditional games they're used to playing offline."
The privately held company does not disclose revenue, but Killeen says it is "at break-even level" after nearly four years in operation. It raised $23 million from investors during that time.
Making Any Money?
No one in the industry is making a lot of money from this yet. Sinclair, the industry consultant, estimates that these kinds of skill-based games account for less than 5 percent of the $7.5 billion online gambling industry. But the crackdown on illegal gambling, Killeen said, has turned the market in a more favorable direction.
Under pressure from the Justice Department, Yahoo, Google and MSN last month stopped accepting advertisements from online casino operators because such ads could be deemed by courts as aiding and abetting illegal gambling.
As a result, WorldWinner and its competitors no longer must bid against some of the Web's more aggressive marketers to get top placement for advertisements. Nor are their sites lumped in with casino gambling.
"There's a greater understanding of what we do now," Killeen said.
Still, purveyors of skill-based Internet games have not emerged unscathed from online gambling's legal difficulties. Companies like WorldWinner and others continue to lobby the U.S. Congress, lest they be included in legislation barring all types of games that award cash or prizes. A bill that would forbid the use of credit cards and fund transfers to pay for unlawful gambling passed in the House of Representatives last year and is now in the Senate.
Some U.S. states do have laws that bar such contests or discourage them, as their statutes blur the distinction between games of skill and games of chance. As a result, WorldWinner turns away prospective customers in Arizona, Arkansas, Delaware, Florida, Iowa, Louisiana, Maryland and Tennessee.
If games of skill finally win market share in the states where they are deemed legal, it will be a vindication of sorts for a business that is intrinsically more difficult to run than casino games, analysts said.
To evenly match players, companies must establish rankings based on past contests. And they must maintain elaborate security systems to prevent hackers from manipulating the games.
Cash-Based Games
The difficulty of running cash-based games of skill is one reason companies like Electronic Arts simply buy the service from businesses like WorldWinner. According to Erick Hachenburg, general manager of EA Online, the company regards its skill-based games as a complementary service rather than a primary one.
Of the roughly 60 games available on Pogo.com, about 25 percent are skill-based, and winners are rewarded with points that can be redeemed for tickets in prize drawings. "There's a core audience that really enjoys skill-based games," Hachenburg said, "but in the end, the games that aren't skill-based tend to be more popular."
On a per-player basis, however, skill-based games could be more lucrative, according to some industry executives.
While sites like Yahoo or Pogo generate revenue from subscription fees or advertising, those that charge entry fees and distribute cash or prizes to winners tend to attract more serious players, who spend more time and money on a site. According to Adeo Ressi, chief executive of Game Trust, which conducts online game tournaments for eight Web sites, the average player of his company's games spends $21.25 a month on games.
Commission Revenue
Ressi said his business, which is privately held, collected about half of that revenue as commission. Game Trust's revenue is "in the millions," he said, with monthly sales growing more than 300 percent this spring
One of Game Trust's biggest clients, Miniclip.com, which is based in Britain, has in recent months added more skill-based cash games to its Web site for games, Miniclip-tournaments.com.
The Miniclip chief executive, Robert Small, said the site had in its first few months attracted two million registered users who would help Miniclip more than double its overall profit this year.
"There's been much talk over the last year about how online gaming is the next big thing," Small said. "The reality is that online games are big now."
