WMS Industries places a bet on online gambling

Waukegan maker of slot machines looks to Nevada license as sign of opportunity

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While Illinois officials remain mired in debate over all forms of gambling, WMS Industries is predicting that casinos will soon become ubiquitous — via your computer and cellphone, at least.

The Waukegan-based slot machine maker last month received one of the first licenses to operate online poker games in Nevada, the only state other than Delaware to legalize some form of Internet gambling. WMS plans to operate online poker for existing, land-based casinos in Nevada.

Online sites in Nevada are expected to go live in early 2013, but only people physically within that state's borders will be able to play. For everyone else, WMS in July launched a free Facebook app, called "Jackpot Party Social Casino," which doesn't pay out winnings. (You play it "for fun" and spend money to stay in the game longer.)

In its first 13 weeks, the company says the app shot to Facebook's fifth most popular casino game, with about 2 million monthly active users, meaning they come back to play at least once a month.

WMS held back from jumping into online gambling in the United States for about a decade due to legal uncertainties, but with the federal government giving the green light late last year, the company hopes interactive products will soon put the company back on the upswing.

WMS' foray into online gambling has been deemed important enough for CEO Brian Gamache to wrap these efforts into a new subsidiary, also launched in July, called Williams Interactive. Gamache put his No. 2, WMS president Orrin Edidin, in charge.

"I'll be honest with you; the pace of growth of the app has exceeded our expectations. Pleasantly," said Jordan Levin, the chief operating officer of Williams Interactive, which is based in Chicago. "This is a replacement for people playing 'Pac-Man' or 'Centipede' or other uncomplicated questing games."

Of course, "Pac-Man" costs a quarter per play. When you run out of the faux $500 on "Jackpot Party," 12,000 more "coins" costs $12, or 48 "Pac-Man" plays. The target audience for online slots and play-for-fun games like "Jackpot Party" is middle-aged women, whereas online poker is skewed toward young men.

According to PokerScout.com, Americans were gambling $16 billion a year through Internet poker sites, all based outside the United States, as of 2010. That business collapsed April 15, 2011, a day the industry calls Black Friday, when the FBI shut down three major online poker sites, alleging they violated fraud and money-laundering laws. (The companies were accused of violating the Unlawful Internet Gambling Enforcement Act of 2006, which basically forbade financial institutions from processing payments for online wagers.)

But late last year, the U.S. Department of Justice issued a legal opinion permitting the online sale of lottery tickets that also lifted many obstacles to online gambling. Each state's laws apply — as opposed to a blanket federal ban — as long as the gambling operator and the customer are within the same state and the wager doesn't involve sports.

The opinion was a response to requests from New York and Illinois — it's why people can buy lottery tickets online here. It's also why WMS is just now ramping up its online operations.

"There was a proliferation of online wagering as early as 1999, but as a licensed, land-based slot machine provider, we were very, very careful about touching the space and compromising those land-based licenses," said Edidin, who also holds the title CEO of Williams Interactive. "The legality was very muddled, particularly in the U.S., so we decided conservatively to stay away from it."

Edidin said he made his first presentation to WMS executives on online gambling in the late '90s. Not until 2008 did the company start building the "Jackpot Party" website, WMS' legal, online casino in the U.K. That site went live in November 2010.

"But more recently, (online gambling) has been evolving so quickly and moving so fast, we're learning together at the same time," Edidin said.

Levin declined to release revenue figures for the Williams subsidiary, and the parent company's most recent annual report for the year ended June 30 says the financials of its interactive business were "not material" to the parent company's balance sheet.

About a half-dozen states weighed legalizing online gambling this year. And Washington, D.C., legalized online casinos as part of a 2010 spending bill only to repeal it in February, months before the games were to start.

Edidin predicts states will continue to put laws in place one-by-one. Only Utah has passed legislation recently specifically prohibiting online gambling. Many online gambling operations also could end up as arms of state lotteries.

Meanwhile, the American Gaming Association, the industry's lobbying group, continues to press Congress to legalize online casinos nationwide and plans to support legislation during the upcoming lame-duck session, said Judy Patterson, the association's senior vice president and executive director.

Unlike in the newspaper industry, where online content has cannibalized its printed predecessors, Patterson said she doesn't expect the spread of online gambling to hurt land-based casinos.

"If that had been the case, that would have already happened," she said. "We've already had the experience of an enormous number of players playing with offshore casinos. That's part of Black Friday."

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