AUG. 19, 2013 • Majesco Ent. has embarked on a major new diversification of its product line-up: online real money gambling. The publisher is best known for its Zumba Fitness and Cooking Mama franchises, but revenue from console game sales is in steep decline. For the second fiscal quarter ending April 30, the publisher saw its net sales decline from $30.4 million for the same period in 2012 to $9.7 million this year. To facilitate the jump into online gambling beyond its established video game business, Majesco is forming a new venture in the Isle of Man called GMS Entertainment. The publisher is spending $3.5 million for its 50% share of GMS, with the other 50% owned by Gili Lisani. The latter is chief executive of Pariplay Ltd, is a licensed online gambling operator also headquartered in the Isle of Man. Pariplay was formed in 2011, received its license in 2012, and is best known for fixed odds slots and spin online games of chance. An example of fixed odds is scratcher cards where a specific number of cards are produced in a series, and a finite number of those cards have winning sequences. Players have to be lucky enough to purchase one of the cards with the winning sequence. In a fixed odds online slot game, each play is like purchasing a separate scratcher card with the player hoping one of the winning cards comes up during a paid play.
In a somewhat convoluted transaction, GMS is using Majesco’s stake in the venture to purchase all of the assets of Isle of Man-based Orid Media Ltd., of which Pariplay is a wholly owned subsidiary. Orid designs and develops both fixed odds and random odds online and mobile games for real money online game sites, social casinos and lottery systems. Pariplay will continue operating under GMS ownership. Based on how well GMS and Pariplay perform, Majesco could be obligated to pay an additional $1 million into the venture. In a further twist, ICQ co-founder Yair Goldfinger, an investor in Orid and Pariplay, is purchasing 3.3 million shares of Majesco common stock at a price of $0.60 per share ($1.98 million) as part of a direct offering. Majesco CEO Jesse Sutton will serve as chairman of GMS. The venture is contingent on gambling license approval by the Isle of Man authorities.
Impact: Where Zynga fears to tread, Majesco charges in. Of course, Majesco is a much smaller company and in even more dire financial trouble than Zynga so there is not as much to lose. However, Majesco has been written off far too many times during the last 20 years for us to count them out. Majesco has a knack for finding profitable, low-risk products that fuel balance sheet resuscitations. In the 1990s, Majesco worked with Sega and Nintendo to find new life in their older game systems. When that business dried out they went onto developing big budget titles, competing directly against the likes of Activision and Electronic Arts. Somehow they survived that failed effort and went on to enjoy some success at developing low-end casual games, many for Nintendo platforms. In 2011, Majesco entered the free-to-play market by acquiring the company behind Quick Hit Football, an online game that had an official license from the NFL. Unfortunately, as Majesco fell on hard times they were forced to shut down Quick Hit Football early this year.
Real money gambling definitely has its allure as a revenue generator. Perhaps the biggest challenge is that to operate in the U.S. requires a daunting set of regulatory hoops to jump through. But Majesco’s goals for GMS don’t appear to be as a gambling destination. According to statements made by Majesco CFO Michael Vesey to the Star Ledger in New Jersey, the intent is to operate as a provider of online and mobile gambling content and the network infrastructure to support both: “We’re going to register for a license and if someone was licensed in New Jersey and operated a casino, we could provide content services to them,” Vesey said.
In New Jersey where Majesco is based, any vendor doing business with casinos in the state must be registered with the New Jersey Division of Gaming Enforcement. Vesey believes those casinos now facing the transition into Internet gaming are going to require partners with expertise – expertise that GMS can provide. Working behind the scenes as a provider of online gambling services can have advantages for a company that makes its primary business in family and casual video games. Then again, there is always the possibility that Majesco could work its way into the skill game-based content segment that launched King into its current Facebook dominance. Even a slice of that pie could be enormously attractive to a small player like Majesco. So we see the strategic sense behind the publisher’s GMS venture. The challenge is that there are many companies already established in real money online gambling, and more flooding in every year. Where Majesco might help GMS stand above the rest is the company’s long history of content licensing and distribution. That kind of experience could give Sutton an edge in negotiating with casinos as a digital gambling services provider.