Facebook dips its toe in online gambling waters

Facebook is placing a big bet on Internet gambling, but it’s one critics warn it might not be able to cover.

The world’s most popular social network recently turned bingo into a real-money game for its British users, and many see the move as an effort to find a new source of revenue for a struggling company that can’t seem to get the money it needs via advertising.

Some in the gambling industry believe this is a step toward more online gambling with casino games such as poker, blackjack and slot machines.

But critics say Facebook risks alienating some of its 955 million users and won’t be able to compete with such longtime players in the brick-and-mortar casino industry as Caesar’s and MGM, which already have successful gambling websites.

Facebook has started with quite a soft form of gambling to test the water,” said Joel Keeble, director of mobile, poker and special projects at H2 Gambling Capital, a market intelligence agency for the gambling industry in London. “If this goes well, they may progress to other forms of gambling, giving them the opportunities to significantly increase growth.”

Facebook could serve as a blueprint for other social networks interested in exploring online gambling as a source of revenue. Zynga reportedly is considering adding real-money stakes to some of its existing games.

But Facebook risks “polarizing” its users and investors if it moves into online gambling, said Jeff Kagan, a technology analyst based in Atlanta. He predicts a move such as this will cost the company many users, which would devalue it.

“Gambling crosses the line for many,” he said.

Paul McWilliams, editor of Next Inning Technology Research, agreed, saying that Facebook would be “selling its soul” by getting into the vice business.

“If selling heroin was legal, that would help them too,” he joked. “Going into prostitution might work as well.”

Historically, gambling has been illegal in the U.S. with the exception of a few isolated spots, such as Nevada and Atlantic City, N.J.

The Justice Department had interpreted the Wire Act of the 1960s, which regulated interstate and foreign gambling, as making all Internet gambling illegal. While black-market online gambling was popular for years, in April 2011 the Justice Department cracked down on illegal operators. Since then, it has been more difficult for U.S. consumers to gamble online.

But in December, Justice reversed and said it would leave most online gambling decisions to the states. Sports betting, however, still would be outlawed. Illinois was the first to approve online gambling earlier this year, followed by Nevada and Delaware. Other states, such as California and Iowa, also are looking at it.

The industry is pushing for federal legislation on Internet gambling in order to avoid a patchwork of state regulations that would be too confusing if applied to the Internet.

While Britain has historically been more supportive of legal gambling then the U.S. — most every form of betting has been a legal, regulated industry for at least a half-century — the majority of Facebook’s users are in the U.S. This dynamic offers rich rewards and huge risks if Facebook were to enter the American gambling market.

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