Making Play-for-Pay a Safe Bet for Game Companies

Electronic Gaming Business, July 2, 2003

Years ago when legendary Quake champion Dennis "Thresh" Fong was receiving up to 1,000 emails a week challenging him to online death matches, little did he know he was receiving free market research. "I always wanted to be able to say 'put your money where your mouth is' and make it worthwhile to take on these guys," says Thresh, now chief gaming officer for San Mateo-based Ultimate Arena, a service that lets gamers do just that - put down cash wagers with one another over online America's Army contests.

This "Play-for-Pay" model is among the hottest topics in a game industry hungry for new revenue streams. Fong's company and main competitor Curacao-based YouPlayGames, which carries id Software's Return to Castle Wolfenstein, both launched this spring and are aggressively courting game developers and publishers with promises of high potential returns on little to no investment. UA takes about 15% off the top of wagers made at its site, while YPG has a sliding scale of between 3% and 20% of the take according to player skill levels and wager size. Both companies are offering the game's IP holders up to 50% of that revenue in exchange for licensing their titles and marketing support.

If only 1% or 2% of the thousands of online multiplay contests going on at any moment were to be played for cash on UA, says CEO Mike Cassidy, a popular game could produce about 15,000 rounds of wagered play a day on his service and so generate $100,000 a month or close to $1 million in revenues for his company to be split with the game owner. "If we are even mildly successful, the revenues will be insane...in the hundreds of millions," says Fong.

Their rival Chris Grove, CEO of YPG, isn't being coy, either. "Our goal is for the revenue checks [to IP owners] eventually to be more than they make for actually selling their game," he says.

Will They Play for Pay?

Of course, the big question surrounding this enticing model is whether gamers really do want to play for cash. Even enthusiastic YPG partner Todd Hollenshead, CEO, id, admits "I don't think it's been answered yet. Our approach is it's interesting enough. In theory there's definitely potential there."

One tangential test case for the model comes from hot property WorldWinner.com, which offers wagering on casual board and card games and claims to host 2 million such tournaments with $100,000 cash payouts a month. Stephen Killeen, president and CEO, won't provide revenue specifics but does say that "Since I joined the company last November, WorldWinner has experienced a jump in revenue by over 110%."

Whether more complex PC titles will attract a wide wagering audience remains unclear, and with only one title each on board and little marketing thus far, both UA and YPG are bartering with theoretical potential rather than proven performance. Cassidy says 7,000 unique users have registered at UA, while Grove cites 1,000 active accounts for Wolfenstein at YPG. And so, both CEOs are bending over backwards to make partnerships as appealing as possible for IP holders, promising to shoulder much of the work and risk and share more of the revenue for marketing support.

Found Money?

In the case of licensing id's Wolfenstein into YPG, it was important to Hollenshead that his development team of 25 not be distracted by retooling a title it had finished more than a year ago. "We didn't have to stop work on the next greatest video game," he says.

YPG partnered with Even Balance, a service that already had designed the cheat protection built into the multiplayer module for Wolfenstein and so had the source code. "We are responsible for customizing the game for YPG," says Tony Ray, CEO, Even Balance. "id doesn't have to give source code to a third party and YPG has a way of getting tech support."

It took about nine months of prep time for Wolfenstein to launch on YPG, but Hollenshead is pleased thus far, because it allowed id to leverage existing IP assets and maintain control over marketing and the brand. Because the id endorsement and Wolfenstein brand were so valuable to YPG's launch, Hollenshead was able to negotiate an advance against royalties for the title.

Even in a more typical revenue share arrangement, however, Grove considers this a relatively safe bet for the IP owner. "Once we get our first customer and send them a check, they made a profit out of it," he says. Fong, too, says "the simplicity of this is what a lot of the developers are attracted to. We don't really need their support. If they have a really popular game, it's really found money for them."

Head-to-Head

Both YPG and UA are competing for developer and publisher attention, and so the sniping has begun. Cassidy argues that players prefer UA's straightforward wagering system. "If you win the game, you win the prize," he says, while YPG has a more intricate scoring system involving cash won or lost according to in-game kills. He also points to a recent Wired magazine review in which UA scored higher than YPG.