Free to play model doesn’t rely on converting players to gamblers for profits, writes Muhammad Cohen.
Social casinos are big business globally and a big opportunity, especially in Asia, where legal online real money play remains very limited. The social or free to play casino model can work as a channel for gaming companies to engage their customers casually. Equally, it performs well as a profitable standalone business that does not rely on converting free players to real money gamblers.
Social casinos make slot machines and table games available online with very low friction. Just visit a website or download the usually mobile app and start wagering with free tokens supplied by the operator. The term social gaming arose because social network site Facebook served as a principal means to popularise free to play online gaming from the late 2000s through the mid-teens.
“Six years ago, I was researching social casino games and was surprised by the reported numbers,” longtime land based gaming executive Shaun McCamley says. What really caught McCamley’s attention was Caesars Entertainment purchasing social casino platform Playtika for US$92m in 2011. Without significant changes, it sold the business in 2016 to a Chinese consortium for US$4.4bn.
That deal inspired McCamley to create social gaming platform GameWorkz. “The key to success in today’s markets is for social platforms to offer a variety of games, including not only slots but also puzzle games, ludo, role-playing games and similar options.”
McCamley also suggests facilitating player interactions, from leadership boards to enabling players to meet over virtual coffee or pizza. “The social aspect coupled with good loyalty programs are very important to the Asia markets, in particular Japan and South Korea.”
“Asia plays a crucial role in this landscape, contributing significantly to both revenue and the customer base,” Jade Entertainment & Technologies CEO Joe Pisano says. He notes Asia’s social gaming market was estimated at US$6.5bn in 2022 and “is expected to continue growing, driven by mobile technology and social media integration”.
Localisation can help fuel growth, demonstrating the operator takes the market seriously, executives note. Players in Asia generally have experience with English language online interfaces, making local currency acceptance the most important element in localisation.
Global gaming technology giants have gone social, leveraging their content libraries and expanding their portfolios through acquisitions. Australia-listed Aristocrat’s Pixel United free-to-play division booked US$1.76bn in revenue last year, 42% of the company total. For the first half of this year revenue hit US$877m, 41% of the group total, from an average of 4.3 million daily users.
Aristocrat’s social casinos, including Cashman Casino, Jackpot Magic Slots and Big Fish Casinos, contributed 57% of Pixel United’s total. Role play, strategy and action games accounted for 32% with the casual segment featuring puzzle and merge games bringing in the rest.
Last October, Light and Wonder acquired the outstanding 17% of shares in SciPlay for US$496m, valuing the social gaming specialist at US$2.9bn. With its social casino and suites of other games, SciPlay, taken private as a wholly owned subsidiary, reported revenue of US$777m last year, more than a quarter of LNW’s total.
For the first half of this year, SciPlay revenue reached US$411m, 27% of LNW’s US$1.57bn total, while extending its streak of outpacing social casino market growth to 10 quarters, according to Truist Securities analyst Barry Jonas.
Coherent Market Insights senior management consultant Monica Shevgan forecasts global social gaming revenue reaching US$29bn by 2026, with a 16% CAGR from 2020. This includes a broader spectrum of social games, including non-casino games such as Candy Crush, Bejeweled and Farmville.
However social casino growth lags other social sectors. Eilers and Krejcik’s Social Gaming Tracker pegs global social casino revenue at US$7.3bn for the 12 months through the first quarter of this year, down 1.7% year on year.
“Social casino is now a very mature vertical,” a longtime C-level executive at a publicly listed social gaming firm requesting anonymity says. “There are tens of thousands of social casino apps in the app stores now. The viral channels on Facebook are now significantly restricted, and the app stores are also less enabling.”
Top three social casino operators (or publishers, as Eilers and Krejcik terms them) early mover Playtika, Pixel United and SciPlay comprise nearly half the global market, according to the consultancy.
New entrants cannot replicate the rapid growth that enabled first movers to establish continuing leadership in the sector, the executive says. Even market leaders face difficulties. Playtika’s NASDAQ listed shares are down 78% from their March 2021 high. Its US$2.8bn market capitalisation values the company 36% below its 2016 sale price.
“Nevertheless,” the executive says, “the fundamental dynamics of mobile free to play or social casino are still really advantageous.”
Most advantageously, social casino don’t require government licensing because, in most jurisdictions, they are not considered gambling. “This legitimately opens up many first world jurisdictions and significantly reduces time to market,” GameWorkz CEO McCamley says.
Philippine regulator Pagcor confirms to iGaming Business that it does not require licenses for free to play operators and that its recent ban on Philippine Overseas Gaming Operators (POGOs) does not apply to social casino operators.
Without licensing requirements, the same platform can be used in multiple jurisdictions, enabling even small operators to have an international presence.
Absence of licensing and compliance obligations drastically cuts expenses, though content creation costs are roughly the same for free to play and real money games. Player acquisition costs for social casinos are significantly reduced, operators say.
“Importantly, a bankroll, which can be a drag on capital, is not needed due to no payouts to players,” McCamley, also managing partner at EuroPacificAsia Consulting, says. “Payment processing fees are lower because social is considered low risk.”
Without income from player losses, social casinos overwhelmingly rely on in app purchases for revenue. Users receive a fixed number of free tokens for play at certain intervals, usually hourly or daily.
“A minority of users will find that the amount of the free bonus coins that are given to them regularly is insufficient to support their play,” the former C-level executive says. “So those users elect to buy more coins.” In other forms of social gaming, players may opt to buy additional game time and/or plays.
Aristocrat and Light and Wonder each report just over 10% of social gaming users purchase extra services with average spending per daily active user just over US$1.
Advertising has emerged as a revenue source in social gaming. “Over the last five years, people have gotten more aggressive with ads and integrating ad monetisation to games,” the former social gaming executive says.
Social gaming also allows land based casinos to engage their customers, wherever they are, several times daily. The longtime executive contrasts that situation with “one or two impressions a month if [customers] drive by the right billboard or if they open the email they received”.
With social games, players engage multiple times a day, lasting between somewhere between 45 minutes or an hour, according to the executive. “Users enjoy the core gameplay that they associate with their favourite casino and being able to do so in a way that’s free to play.
“All you have to do is flick an app open on your phone, and that convenience and ubiquity of smartphones is what really makes social containers so powerful.”
MGM and PlayStudios have taken the concept even further. PlayStudios, founded in 2011 with backing from MGM and game developer Activision Blizzard, pioneered social casinos with benefits. Players on PlayStudios’ myVegas platform featuring MGM properties on the Las Vegas Strip can earn loyalty points redeemable for meals and hotel rooms at those very properties.
The partnership grew in short order to feature online gaming environments styled after specific MGM properties. Over the years, the rewards program expanded to MGM properties beyond the Strip. It now stretches to more than 100 hospitality, travel and leisure partners on six continents, representing 236 brands including cruise lines, restaurants, cinemas and even other casino operators.
In June 2021, PlayStudios listed on the NASDAQ via merger with special purpose acquisition corporation (SPAC) Acies. The deal, valuing PlayStudios at US$1.1bn, had a heavy MGM flavour. Former MGM chairman and CEO James Murren chaired Acies and became a PlayStudios board member.
MGM invested in Acies, and Murren’s successor Bill Hornubuckle initially joined the PlayStudios board, his spot now occupied by MGM Resorts Operations president Steve Zanella.
In Asia, gaming operators must navigate China’s rule against gambling promotion. “In mainland China, app stores are very restrictive towards casino style games, even if they’re free to play,” the longtime executive says. “They don’t want to see slot games or baccarat style games in mainland China.”
Even beyond China, there is controversy about social gaming grooming players, especially underage players, to become gamblers.
“I can understand these concerns, but I believe in general terms this to be a misguided allegation,” McCamley says. “The majority of platforms require their players to be a minimum of 18 years of age and post responsible gaming notices.
“A lot of sites, such as those you will find under the GameWorkz brand, offer many other non-casino style games such as role playing, puzzle and crash games, and in fact drop the word ‘casino’ altogether, rather focusing on being a social games provider.”
Jade’s Pisano adds that games featuring loot boxes, casino-style games, or other gambling-like elements can be problematic if they are accessible to minors. “It’s crucial for game developers and operators to remain vigilant about the potential risks.
“Addressing concerns about grooming minors for gambling requires transparency, a commitment to responsible design, and ongoing efforts to educate both players and parents about the nature of social gaming.”
Social gaming has proven to be an effective gateway to real money gambling in the sports betting segment. US online sports betting leaders FanDuel and DraftKings each began as social fantasy sports sites.
“By the time the US Supreme Court overturned PAPSA [Professional and Amateur Sports Protection Act in 2018], they been in the market for years, had huge databases and were natural platforms to convert the social players to real money players,” FootballBet.com CEO David Leppo says.
“In jurisdictions that offer legal sports and casino gambling, we have been offering [social betting] since our days in the Dominican Republic in the 1990s and Asia since the early 2000s,” he says.
“It’s a great way to enhance your customer database, which as we all know is the most valuable asset of an operator’s business, and familiarise the customer with the platform, not to mention the priceless medium of word of mouth.” In any setting, social sites build vital credibility with players and regulators, Leppo adds.
Borrowing from the FanDuel/DraftKings playbook, Jade launched social fantasy cricket in Sri Lanka in May. “We looked at cricket having the largest viewership in South Asia and wanted to build a database by addressing those viewers, by engaging them through our social platform first,” Pisano says.
“Jade received a permit to operate sports betting in Sri Lanka in early January, but we have not gone live yet as we want to continue building our database before going live with our online sports and Casino SapphirePlay.”
Jade also plans to launch social fantasy sports this year in the Philippines, where it holds a real money Philippine Internal Gaming Operator (PIGO) licence. “The idea of behind fantasy esports is to engage a new customer base and later extend our sports betting to that new base,” Pisano says.
Crossover in the sports segment doesn’t extend social casinos and their real money counterparts.
“Social is a totally different business model where the only similarities are the games themselves,” McCamley warns. “All other aspects of what players expect are completely different. Trying to run a social games platform along the same lines as an online casino will result in failure.”
Muhammad Cohen is a former US diplomat and current iGB Asia editor at large. He has covered the casino business in Asia since 2006, most recently for Forbes, and wrote Hong Kong On Air, a novel set during the 1997 handover about TV news, love, betrayal, high finance and cheap lingerie.
