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Zynga dives into Internet gambling, in the UK

The corporate logo of Zynga Inc, the social network game development company, is shown at its headquarters in San Francisco, California Apri
The corporate logo of Zynga Inc, the social network game development company, is shown at its headquarters in San Francisco, California Apri

By Gerry Shih

SAN FRANCISCO (Reuters) - Zynga Inc will take the plunge into real-money gambling on Wednesday when it will begin offering poker and casino-style games in Britain in partnership with Bwin.party Digital Entertainment.

The launch, announced Tuesday, marks Zynga's first foray into online gambling, which it hopes can help reverse a steady decline in revenue as users dwindle for its older Facebook games like "Farmville".

Shares in Zynga climbed 5.5 percent to $3.24 in after-hours trade.

"ZyngaPlusPoker" and "ZyngaPlusCasino" - available on the Web and as desktop applications to British-based gamblers - will allow Zynga to gauge interest among its core users for online betting on everything from poker to blackjack and roulette.

Zynga has also been developing Facebook-based versions of those games, which could tap into the social network's vast pool of potential players, executives said during Zynga's fourth quarter earnings call. The Facebook- and mobile-based games are expected to be announced in the coming months, a person familiar with the matter said.

Although real-money gaming remains illegal in most states in the United States, the largest online gaming market, Zynga has signaled to investors it could begin to make money in smaller, regulated markets while it waits for Washington lawmakers to pass federal online gambling regulations. The company is expected to expand beyond the U.K. into other European markets this year.

"Our long term vision is to offer our players the next generation of real money games on multiple platforms in regulated markets worldwide," Chief Revenue Officer Barry Cottle wrote in a blogpost Tuesday.

Investors hope Zynga can use its near-300-million strong gamer base to its advantage as it enters a vastly lucrative global online gambling market that, according to H2 Gambling Capital, could be worth $30 billion in 2013.

In September, Zynga hired Maytal Olsha, a former senior executive at 888 Holdings PLC, the online gambling powerhouse, to helm its expansion into the real-money market.

Zynga has not yet offered guidance about the new games' potential impact on its top line.

"This is just the beginning for us and we're looking forward to seeing what our UK players think," Cottle wrote.

The company has also not disclosed the terms of its agreement with bwin.Party, although analysts expect the London-listed gambling company to rake in a majority share of revenue, given that it is the party holding the U.K. gambling license.

Still, the U.K. games' launch represents a welcome development for a company hoping to recover its footing after a torrid year.

Once hailed as one of Silicon Valley's fastest growing companies, Zynga suffered a dramatic reversal in 2012, when users began to abandon its red-hot games like "CityVille." The company was also caught off-guard by a sweeping, permanent change in consumer behavior, as people spent more time on their mobile phones instead of desktop computers - the platform for Zynga's most lucrative, Facebook-based games.

The company went public in late 2011 at $10 a share. By November, its stock had dipped as low as $2.10, a price that valued the company only narrowly above the value of its securities, cash and assets.

(Reporting By Gerry Shih; editing by Andrew Hay)

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