At the Intersection of Social Games and Casino Games

International Game Technology recently announced that it is selling its social gaming division, Double Down Interactive, for $825 million. The sale could offer a glimpse into how casinos will be working with social games in the future.

First, these kinds of transactions have a long history in the casino business. Both manufacturers and operators constantly buy, operate and sell subsidiaries, sometimes in only tangentially related fields. In the ’70s and early ’80s, Caesars World, the parent company of Caesars Palace from 1969 to 1994, acquired and operated the Ontel Corporation, a producer of microprocessors and data terminals, and Online Distributed Processing Corporation, a software maker. Ramada Inns Inc., which bought the Tropicana in 1979, owned a string of hospitals. Resorts International, which opened Atlantic City’s first legal casino in 1978, owned both an amphibious airline (which transported Floridians to its Bahamas casino) and Intertel, a corporate and government security agency that included Howard Hughes and the Shah of Iran among its clients. So a casino gaming provider buying a social gaming provider isn’t exactly a stretch.

IGT is no stranger to dabbling. In the late ’80s, the company operated casinos in Nevada, Iowa and Missouri; it sold those interests and a Nevada slot route in 1992. (Slot machines in multiple locations such as bars, supermarkets and convenience stores are run by companies that own route operations.)

Some of the companies IGT has acquired since include Anchor Gaming, Acres Gaming, WagerWorks, Venture Catalyst Incorporated and Cyberview Technology. These five very different companies had one thing in common: They specialized in software- or hardware-related to IGT’s core interest—slot machines and gaming management systems.

Double Down Interactive was a similarly aligned company. In 2012, when IGT paid about $500 million to acquire it, Double Down offered slot and poker games on Facebook. Players couldn’t win money in DoubleDown Casino, but they could pass time and have fun—and those two things were apparently enough to make it a leading Facebook game.

“Most of the attempts by casinos to diversify outside of their core hospitality and gaming functions were short-lived.”

IGT’s acquisition signaled a desire to move into the popular social games arena, as did Caesars Entertainment’s 2011 purchase of Playtika, a social gaming company known for its Bingo Blitz and Slotomania games. The convergence of social games and casino games seemed to be a match made in heaven.

But that match seems less happy now. Caesars sold Playtika last year for a reported $4.4 billion, and IGT’s sale of Double Down seems to indicate that casino game providers and social games don’t mix as well as was once thought.

But these transactions may be less about fit than fiscal exigencies. Caesars was undergoing bankruptcy restructuring at the time, and the massive sale price was undoubtedly a consideration; if the company could have shed a few of its casinos at a similar premium, it may well have done so. Similarly, IGT is expected to use the proceeds from the Double Down sale to pay down debt.

What’s more, IGT is planning to continue to partner with Double Down. Under new owners DoubleU Games, Double Down will license titles from IGT’s casino game portfolio, creating a regular revenue stream for the slot manufacturer. So in the short term, IGT gets both a respectable infusion of cash and a long-term source of income.

There are two ways to spin these sales; either the casino companies didn’t see the long-term upside in continuing to own these subsidiaries and wanted to unload them now, or other companies saw enough upside to pay a premium for them. Judging by the healthy profit both companies made on their sales, the truth is likely in the middle, leaning toward the latter.

Do the Caesars and IGT de-acquisitions mean that social gaming and casino gaming are not converging as rapidly as was once thought? Probably. Although there are commonalities between the two, there are also significant differences, the most of which is that no one plays social games to win money, while people gamble with the aim of doing just that. So while they may look the same, what works for one may not suit the other.

Looking back on history, most of the attempts by casinos to diversify outside of their core hospitality and gaming functions were short-lived. Likewise, gaming manufacturers have had their greatest successes in focusing on gaming equipment as well as the systems that help manage that equipment and those who play it. As products close to, but not exactly gambling continue to appear, expect to see casino operators and manufacturers jump into—and out of—some new spaces.

David G. Schwartz is the director of UNLV’s Center  for Gaming Research.