Meet Double Down’s Lone Investor: Ron Erickson Talks Online Gambling

8/23/12Follow @curtwoodward

Early this year, a small Seattle social video game studio called Double Down Interactive came out of virtually nowhere to be acquired by slot-machine company International Game Technology for up to $500 million.

It was a signal that online gambling with real money would start to engulf the fast-moving games industry, especially as the longstanding legal blockade in the U.S. begins to thaw. We’ve certainly seen that storyline pick up speed in recent weeks, with notable names like Zynga and Big Fish Games starting to stake out territory overseas in preparation for the U.S. market opening up.

The Double Down saga was also one of those fascinating hit-it-big entrepreneur tales. The startup was built with an initial seed investment of just $1 million, taken from the profits of the co-founders’ previous company.

But there was one nagging bit of mystery in the Double Down Interactive story: Who was the company’s lone outside investor, an angel who had made the return of a lifetime?

This week, I finally got an answer. It was Ron Erickson, a longtime Seattle-area technology entrepreneur and investor who has seen plenty of ups and downs in his career.

Erickson

Alas, Erickson wouldn’t say just how much his initial investment amounted to. But look at it this way: He put in less than $1 million, which was the amount Double Down spent to develop its first game. With an acquisition that could reach the half-billion-dollar mark once incentives are met, you could say he did pretty OK.

“I’ve made lots of investments that have done very well … I’ve also had a lot of deals go in the ditch, where I’ve written a check and the company was in the toilet within 90 days,” Erickson says. “I think it’s fair to say that, of all the investments I’ve made over the years, that the Double Down investment had the most significant return.”

The story of how Erickson wound up working with the founders is a pretty twisted tale. It sprang from the ashes of Blue Frog Mobile, a Seattle company that sold ringtones, wallpaper images, and games to cell-phone users. It later shifted to providing a text-message-based interactive TV service, but eventually flamed out in a messy court fight that included conflicting boards of directors, an attempted bankruptcy filing, and plenty of lost jobs.

“The carriers were allowing us access to use their billing infrastructure, so you could download ringtones, wallpapers, and games. But, the carriers being the carriers, they can easily shut you down, and actually that’s what happened,” says Erickson, who was one of the company’s founders and once served as its CEO.

Two veterans of Blue Frog Mobile—Cooper DuBois and Scott Wilburn—would later join the founding team at a startup called PickJam, which ran online trivia games. And although PickJam co-founder DuBois says on his LinkedIn profile that Blue Frog was “by far the worst company I ever worked for,” he called on Erickson when it was time to seek seed funding.

“I’m a big fan of Cooper’s,” Erickson says. “So I sat down and had coffee with them, and they told me what they were thinking about. And I’m an intuitive investor—I don’t need to look at business plans or analytics. It doesn’t interest me really.

“They told me what they were thinking about doing, and I said, `That sounds cool.’ And so I wrote them a check,” Erickson says with a laugh.

PickJam turned a profit, but the founders hit upon another idea and poured those earnings into what would become Double Down. Its first blackjack game for Facebook entered the world in the spring of 2010. Double Down started earning money on it immediately, and poured the proceeds back into further development to improve the product, as co-founder Greg Enell told me in this recap of the Double Down story.

By January of this year, the big casino industry had seen enough. IGT’s $500 million buyout landed like a meteor in the gaming scene, coming just a month after casino operator Caesar’s bought out Israeli social game developer Playtika, reportedly for around $90 million.

Both of those transactions closely followed the U.S. Justice Department’s surprise decision to drop its longstanding legal objections to online gambling, opening the door for state officials to potentially legalize and regulate online gambling in the U.S. for the first time.

Just last month, U.S. social games leader Zynga followed up a disappointing earnings report by saying that it would begin offering online gambling in legal jurisdictions overseas early next year. Seattle casual game veteran Big Fish followed suit soon after with a more concrete plan, announcing the impending release of a mobile gambling game that would process real bets in the U.K. through a partnership with licensed gambling provider Betable.

All of this has led to some trepidation in the gaming business, along with interest in the possibility of making big bucks. Those mixed emotions were thick in the air during Betable’s presentation at the Casual Connect conference in Seattle last month, as CEO Christopher Griffin fielded questions from developers about the big money that could be made and the potentially shady element of jumping into the gambling world.

From his perch, Erickson is pretty sanguine about the spread of gambling online. It’s an inevitable development, he says, noting the established precedent in the U.K., among other places, and the thirst for tax revenue by local governments.

“There’s always been something tarnished about it,” Erickson says. “It’s an activity that appeals to people’s base emotions. In this Puritan nation in which we live—and that’s really what it is—we struggle with that. And people in other parts of the world do not struggle with that, because they’re not burdened with the Puritan ethic that goes to the core of our culture.”

But, as proponents of online gambling have argued before, Erickson notes that it can be much easier to track an individual player’s spending and gambling with a connected, digital casino—if you see someone getting in too deep, it’s much easier to see that happening and perhaps cut them off than in a physical casino.

From a business perspective, the casino operators need to be worried about something more basic, Erickson says: The possibility that people will shift enough gambling online to eat into the margins of physical casinos.

“I think there are people in the real-world gaming industry that are really feeling the inevitable. If you can have a robust experience in your own home, and gamble, and win and lose money, that’s certainly a threat,” Erickson says. “The IGT purchase of Double Down was brilliant, absolutely brilliant. Clearly, the ability to extend their branded products … into the virtual space just makes so much sense.”

Curt Woodward is a senior editor for Xconomy based in Boston. Email: cwoodward@xconomy.com Follow @curtwoodward

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