Is Zynga Becoming a Made Wise Guy?

It looks like online gaming developer Zynga (NASDAQ:ZNGA) is making a big bet on gambling. Zynga has moved on from Facebook and has turned its attention from social gaming to real-life games of chance. Currently, Zynga is in talks with casino company Wynn Resorts (NASDAQ:WYNN) about a potential online gambling partnership.

CEO Mark Pincus is enthusiastic about the company’s prospects turning its popular virtual poker game into a game with real stakes. The timing couldn’t be better for Zynga, given that the Justice Department reinterpreted a federal law in December that has prompted 20 states to consider legalizing online gambling. Gambling could provide Zynga with the huge revenue potential for which the company has been searching.

However Zynga will need to form partnerships with casino operators in a number of states if it is to cash in on Internet gambling. Zynga could face a problem with most proposed state legislation that restrict online licenses to those who are already licensed to run a state gaming operation. Partnering with just Wynn — which operates solely in Nevada — will not cut it. Neither Zynga nor Wynn Resorts have commented on the matter.

Zynga has a lot of hurdles to jump and hoops to jump through before it can set up its online gambling platform. For example, New Jersey has a bill that passed the state Senate and is in the Assembly that would grant Internet licenses to those with computer servers based in Atlantic City casinos. In Connecticut, Native American tribes have voiced concerns that the state would be violating its agreement that gives them exclusive casino gaming rights by issuing online licenses. And in Iowa, a bill is pending that offers online licenses only to those already authorized to operate state gambling boats and racetracks.

For the time being, Zynga is rumored to be looking to the U.K. to launch any online gambling operations. Online betting is legal in the U.K., but the competition is stiff. Zynga will have its work cut out for it.

Even more importantly, hosting online gambling would certainly be a bad look for Facebook, which has many underage users. It raises the question of whether the social media giant would still host Zynga if its gambling platform were legalized. For the time being, the chances of that sort of agreement are slim to none.

One thing for certain is that Zynga could use a gambling platform to help keep the company afloat. Shares are expected to fall as much as 10 percent because investors have backed into the share price expectations of new gaming revenue.

To contact the reporter on this story: Diallah Haidar at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com