This sorry situation means that Zynga has been looking to gambling as a lifeline. Reports this week say Zynga spent around $75,000 on lobbyists last quarter in efforts to bring online gambling to California and its CEO, Mark Pincus, recently told investors that the company hoped to enter international gambling markets by the first half of next year.

For Zynga, gambling could be a way to replace revenue lost from the virtual sheep people are no longer buying. The problem, though, is that the company is late to the online poker table.

According to Chris Griffin, CEO of gambling hub Betable, the winners and losers in the internet gambling market are being determined very quickly and Zynga will be hard-pressed to catch up. Griffin points to the mobile launch this week of Big Fish Casino — a game that lets people gamble on their iPhone in places like the U.K. The presence of these rivals mean there could be little left for Zynga.

“Big Fish has a six to nine month head start on Zynga … It’s a false notion that gambling will save them because the valuable players are already locked up and there is loyalty there,” says Griffin, who adds that the current population of Zynga users are unlikely to become overnight gambling fiends.

Griffin has skin in the gambling game so his words should be taken with a grain of salt. Betable, which received a large seed-round of investment this summer (see disclosure below), provides back-end services like payment clearing and legal permits that allow developers like Big Fish to offer gambling in the first place. But that doesn’t mean Griffin is wrong about Zynga.

Even if the game-maker can get gambling up and running, possibly with the help of casino giant Wynn Resorts, it will still need customers. And for now those customers are in the hands of established gambling brands like Poker Stars or the upstarts like Big Fish. To compete in Europe and the U.K., Zynga will have to outspend the incumbents on marketing (impossible) or else offer cheaper rates — leading to the prospect of more revenue but minuscule profit. Meanwhile, Facebook is going its own way with gambling in Europe.

But what about America? Online gambling was illegal until last December when the feds said it could take place in states that pass a law to allow it. This could give Zynga a fresh playing field on home turf.

The problem is that the state by state approval process is a muddle. While bills are inching forward in places like New Jersey, the process is still tied in politics and red tape, meaning it could be years before online gambling is up and running. And even if some states do allow it, only a handful of them have large enough populations to ensure a reliable supply of players at an online poker table. Finally, will American gamblers gravitate to Zynga or, more likely, will they seek out familiar gambling brands like Pokers Stars?

The bottom line is that gambling may be a huge potential revenue stream but that doesn’t mean any of it will go to Zynga.

Disclosure: True Ventures is an investor in Betable and also in the parent company of this blog, Giga Omni Media. Om Malik, founder of Giga Omni Media, is also a venture partner at True. Story and opinions are my own.

(Image by Beto Chagas via Shutterstock)

Some numbers from the report and the earnings call struck me as particularly interesting:

$392.2 million: Zynga’s most important revenue metric is one a lot of people might not grok. The bulk of Zynga’s revenue is for virtual goods to use in its games like FarmVille and the new CastleVille. The accounting isn’t as simple as selling something outright. Instead, the company reports it as “bookings” — and those hit $392.2 million in Q1, up 15 percent year over year and 7 percent over the previous quarter.

Actual revenue for the quarter was $321 million. That was up 32 percent over last year but only 3 percent over Q4. Online game revenue hit $292.8 million, up 27 percent year over year but the same 3 percent over last quarter.

$28.2 million: Advertising rose 117 percent year over year, which sounds impressive until you realize that it’s less than $30 million of Zynga’s quarterly revenue and that it, too, was up only 3 percent over the fourth quarter. (Zynga sees a positive in that it is up at all over what is typically the strongest quarter.) Zynga should continue to improve in advertising as it figures out how to best use its games to deliver. As a WWF user, the ads often make me want to pay for the ad-free version, so either way Zynga has a shot at improving ad-related income.

Zynga added reward-based ads to some games in Q1 and plans to expand the concept to more games this quarter. Players can acquire virtual goods by watching ads.

22 million: Zynga’s mobile daily active users nearly doubled in Q1, to more than 22 million compared to 12 million for the previous quarter, thanks largely to Words With Friends, Words With Friends brand extension Scramble with Friends, and Zynga Poker. (Draw Something was only part of the company for 10 days before the quarter ended, so contributed little to Q1.)

Mobile is a trick box for Zynga. It needs mobile for growth but so far mobile users spend less. You need energy to run Cityville but you don’t need to buy letters to play WWF. The rapid growth of mobile draws another important Zynga metric down: average bookings per user or ABPU.

Zynga CEO Mark Pincus talked about the differences between mobile and web with Om recently:

One of the lessons we learned from the FarmVille for iPhone was that web and iOS are entirely different and have different mechanics. That is why we did FarmVille Express. The difference is that on mobile it is a 2-minute session versus a 45-minute session on the computer.

Words for Friends doesn’t do as well on Facebook as it does on the iPhone, because they are a mobile first experience. Our poker game does well on the mobile as well. Even Facebook is trying to figure it (mobile) out, we are all trying to figure it out.

4 million : Zynga introduced its first arcade game, Zynga Slingo. It turned on promotion in late March (sort of like using a portal firehose) and it’s now up to 4 million active daily users.

$180 Million: Post-acquisition comments from Zynga execs, including Pincus, about looking for more deals, gave investors the yips, which in turn helped send shares down from decent double digits to below $9 recently. Pincus used the call to reset expectations, stressing plans to follow the example of Words with Friends by using the new asset to then create more organic growth.

Zynga bought WWF parent Newtoy in late 2010 for $53.3 million, mostly in cash. It’s extended the brand twice, meshing that with in-house games to spur mobile growth. Pincus said WWF has grown more than five times to 14 million daily active users. They hope to do the same with already-more-popular Draw Something and OMGPOP.

As for shopping for more deals, Pincus said when asked directly on the call:

The strategy hasn’t changed since the road show … Our primary focus, the way we’ve built this business, has been organic development and growth of games that have led to a network that we have further leveraged to bring more successful games to market and that’s what you should expect us to continue to do for the bulk of our growth. This product line was the second major product line that we went out and acquired so it was a rare instance for us. … We felt we could organically build more from it but it does not represent a change in strategy.

Macquarie Securities’ Ben Schachter sees potential — and uncertainty:

We continue to like the free-to-play model and the advertising potential inherent in ZNGA’s structural model; however, this is a crowded, competitive space that has few barriers to entry.

The company behind popular Facebook games Farmville and Mafia Wars said in a regulatory filing on Friday that it intends to sell 115 million shares – 14 percent of its common stock – at up to $10 each.

The $7bn price tag will make Zynga the third-largest US gaming firm by market cap, behind World of Warcraft maker Activision (NSDQ: ATVI) Blizzard and Electronic Arts (NSDQ: ERTS). Activision Blizzard was valued at $14.19 billion and Electronic Arts was valued at $7.69 billion when the stock markets closed on Thursday.

Zynga said it has 54 million active users in 175 countries across the world, many of whom play its range of Facebook games including CastleVille, Empires and Allies and Zynga Poker.

Mark Pincus, the Zynga founder and chief executive, will control 36.2 percent of voting stock after the flotation.

This article originally appeared in MediaGuardian.

Pincus sold 7,840,836 shares of Zynga Class B Common stock back the company, earning himself a cool $109,458,070, according to the company’s S-1 filing with the SEC. In addition, since Zynga’s founding in October 2007, Pincus has sold 43,629,310 shares of company stock at prices ranging from $0.42 to $13.96, according to the filing.

Zynga earned a base salary of $300,000 last year, but owns 16 percent of the company. At a valuation of $20 billion, that would make his stake worth $3.2 billion.

Zynga has also purchased back shares from some of the company’s early investors, including:

Entities affiliated with Kleiner Perkins Caufield & Byers
427,682 Class B Common — $5,970,440 — March 2011

Institutional Venture Partners XII, L.P.
210,700 Series B-1 Preferred — $2,941,372 — March 2011
1,395,784 Class B Common — $19,485,145 — March 2011

Entities Affiliated with Union Square Ventures
4,000,000 Series A Preferred — $25,745,860 — January 2011
1,438,602 Series A Preferred — 20,082,883 — March 2011

Foundry Venture Capital 2007, L.P.
1,617,434 Series A Preferred — $22,579,378 — March 2011

Avalon Ventures VIII, LP
1,496,886 Series A-1 Preferred — $20,896,528 — March 2011