According to CEO Brandon Ramsey, a former engineer at Yahoo and Zynga, Fanhood is aimed at the millions of Americans who make casual sports bets with friends for fun and bragging rights. He claims the site, which relies on Facebook’s platform, has 50,000 active users who can use virtual currency tokens to bet on everything from the Superbowl to NHL hockey games.

“It’s the same kind of psychology as taking $5 from a friend,” said Ramsey, claiming that Fanhood’s message boards and ongoing tallies of bet outcomes will keep users coming back. He adds virtual currency sales can sustain Fanhood because, unlike social games like Farmville, it doesn’t need fresh content — the sports matches supply that.

While Fanhood may succeed with virtual betting and sports chatter (much like the thriving fantasy sports industry), a big payoff would come through real money betting — a New York Times report pegged online betting as worth between $6 and $100 billion. But, for sports, this is a longshot at best.

Like Zynga Poker, Fanhood is only legal because players can’t cash out. If they could, these sites would be violating federal laws that forbid online betting unless states permit it.

In recent months, the prospects for social gaming companies have brightened as Nevada, New Jersey and Delaware have legalized online gambling. The process, however, is far from smooth sailing. Companies still must navigate established casino interests and, in the case of poker, assemble a critical mass of players (you can only gamble across state lines if all states involved permit it).

The legal challenge is even bigger when it comes to sports betting. According to Jim Gatto, a lawyer who specializes in gambling issues, the federal government deliberately excluded sports when they loosened online gambling rules in 2011. The reason, he said, is that sports depend on human action for the result — meaning there is an incentive to fix the results when there’s money on the outcome (history, including the NBA, shows he’s right).

This means Fanhood and other social sports betting sites will have to be content with virtual currency for the foreseeable future. There is also a chance too, of course, that a casino or other large gambling company will acquire them in the hopes of luring casual sports betters to a gambling site.

(Image by Jerry Sharp via Shutterstock)

The legal logjam could finally break in coming months as some states prepare to turn on the taps for new forms of gambling based on social media.

Nevada has already passed a law and New Jersey is likely to follow soon, according to Pillsbury lawyer Jim Gatto. He adds that Hawaii and California are also considering bills to legalize online gambling.

Right now, the status of online gambling in the U.S. is a no-man’s land. It was considered illegal for years under federal law but the Justice Department last year issued a green light memo. The memo gives the go-ahead for gambling so long as the state allows it, the betting takes place within state borders and no sports betting is involved.

The new rule hasn’t changed anything on the ground for now, however, as “gamblers” continue to play Facebook games like DoubleDown Casino that let them play but not cash out.

“Who wants to shovel shit in Farmville when you can play poker with other people?” a source at Doubledown told me last year in explaining the game’s appeal.

Casino Industry + Social Game Makers

The recent go-ahead from Justice has set off a flurry of courtships between app developers and firms that supply back-end services to casinos (slot machine operations, pay-out processing and so on). The most prominent has been casino giant IGT’s decision to buy DoubleDown for $500 million in January.

According to Gatto, more and more social game makers like Zynga are baking gambling-like activities into their games in anticipation of a switch towards legalized gambling. He says the partnerships are necessary because established casino players like Aristocrat and Shufflemaster don’t know how to make social games and game makers don’t know how to run a casino or deal with regulatory issues.

Gatto adds that famous casino brands like Bally’s and Caesars are also trying to get a piece of the action.

The money at stake is potentially staggering as a recent New York Times report cited an estimate of $6 billion to $100 billion. Much of this money may be flowing off-shore as Americans look for online casinos hosted in other countries.

While it’s not illegal for Americans to bet, it is illegal for companies to process their gambling transactions. Famous Antigua-based companies like Full-Tilt Poker were brought down after federal agents caught them routing payments through front companies like florists (the agents also busted the owners, which include several poker celebrities, for running a Ponzi scheme).

Gambling advocates say turning the legal switch will allow states to get badly-needed revenue and to recoup money that would otherwise flow overseas.

But a whole nation of Facebook-based gamblers is still a long ways off. Parents may not like the idea of a casino in their teenager’s room, and places like Utah have already passed laws making it illegal to place or receive a bet in the state.

Gatto adds that, in California, the legal process is “incredibly fraught” due to competing interests of casinos and Indian tribes.

Images by Louis Louro and Sanzhar Murzin.