"Any horse that has the name 'Awesome' in it? I bet on it!" Walter Hessert told us earlier this week from inside one of those noise cancel-ish sofa pods in the south wing of General Assembly. Also present in said pod: his brother Thomas Hessert. Along with a third brother (Bill) and their CTO Eric Gay (no relation), the Hesserts are the cofounders behind Derby Jackpot, an addictive online game that almost made Betabeat late for our meeting.

Showing up for an appointment seemed more professional than waiting to see if we'd parlayed the $2 offered to beta users into something more, so we sucked it up and hopped on the N. But it was a heady example of why companies like Zynga are counting on real money gaming to offer real revenue in the otherwise hits-dependent social gaming industry that relies on ad revenue or virtual sheep. 

Tom Hessert, left, and Walter Hessert

Users who visit Derby Jackpot's HTML 5 site--the company is opting for the mobile web over an app--are greeted with a big countdown clock at the top of the page that tells you when the horse race is happening. Horses are displayed according to their actual names and the odds of winning (at the time.) You can place different kinds of bets--"monkey bets" offer higher payoffs than "grandma bets"--and chat with other players. Once the race starts in real-time, you can see feed from the track. The suggested betting amounts are small, and it's easy to keep an eye on the race while toggling between tabs.

Unlike other horse betting sites, Derby Jackpot's overall effect has the come hither look of a slot machine with the friendly, simplified interface of your average social game.

"It’s built for social gamers and casual players," said Tom. "We didn’t want it to look hardcore at all. Or too intense. Or huge numbers. Just for players who want to come and test their luck and have fun."

Derby Jackpot expects to come out of private beta early next year. And thanks to a new partnership with the payments company Dwolla--hyped during a recent gambling party with Derby Jackpot winnings flashing on high-defs TV screens--users can take out their earnings immediately rather than wait for a check in the mail.

The idea came to the Hesserts during a trip to the Preakness, said Tom. The machines were complicated and the racing lingo intimidating, but it had all the components of the core gaming experience. Especially after he won $25 on 5:1 odds. "So we looked at it like why haven't we done this before and why isn't it easy to do online? Why do you only hear about this maybe once a year during the Derby or the Preakness?"

Bill Hessert, a data scientist, had been studying horse racing while getting a masters degree in quantitative finance in Princeton and knew that the 50,000 live races that happen 364 days a year (ponies get the day off on Christmas) offered ample opportunities. As a research project, he had been working with the Jockey Club to study data like efficiencies and handicapping. In fact, as Betabeat mentioned back in April, Freakonomics author and economist Steven Levitt, one of Bill's former professors, is an advisor to the startup, which also boasts an advisor from Zynga.

The brothers are still tight-lipped about the "billionaire" investor, who helped contribute to the $1 million they raised in seed funding. However, they did say Derby Jackpot's team of seven is well capitalized and not looking to raise.

They also maintain that they're not looking to get acquired, should Mark Pincus come sniffing around, which seems inevitable. Almost every question during Zynga's last earnings call was about their partnership to offer real money poker games in the U.K. Derby Jackpot, on the other hand, is able to get into the U.S. market because unlike the crackdown on online poker, online horse racing is legal in 29 states.

In order to let off-track-betting (OTB) locations call in their bets to tracks, said Walter, the Wire Act, which prohibits placing wagers across state lines, made an exemption for pair-mutuel horse wagering. "Gradually that’s evolved into including Internet ADWs or advanced deposit wagers and that’s been updated in all the online gambling laws," added Tom. Derby Jackpot is required by law to ask for the last four digits of your social security number and address.

The company's relationship with regulators and individual track owners might be enough to keep competitors (ehem) from simply copying their concept. Track owners may not be a tech-savvy bunch, but they've had rudimentary APIs in place to serve OTBs and casino for decades. "If you're betting on horses that are running around a track in Philadelphia, your bets are going to that track and betting against all the other bets," Walter explained.

"They could just copy our interface," he admitted, but navigating the industry is tough. Derby Jackpot has contracts with 100 tracks in the U.S., although not exclusive ones. It has deals with video providers and went through the year-long regulatory process. The company has rev share deals with the track owners as well. "It’s like a gas station," said Walter. "A gas station sells lottery tickets, you get a small percentage of each dollar bet. We don’t take any of the players winnings," adding, "At the end of the day, you have to get permission from the tracks to put your users’ wagers in their pools."

Among beta users, the average player typically deposits $25, and usually plays for two hours or so. "Some people like to go bigger, some people like to play the Granny bet all day long. Literally you can play that all day long. If you pick the favorite in the Granny bet, chances are you’re going to win," said Tom.

During a chat session with Derby Jackpot's fellow friendly beta users, we were buoyed by one user fondly remembering the day Walter "hit $947.00." Sadly, despite an influx of $10 offered to party-goers and a one-time high of $18.40, our account is now at 40 cents. Betabeat came close to Dwolla-ing $25, and the cha-king sound to let us know the first race just started makes us want to pull the trigger. The surprisingly fun social features also help suck you in. As do the the stream of tweets announcing tips and winnings, although our Twitter feed might be biased.

@andrewjbryk also don't bet until under 2 minutes before. odds are not locked in and change rapidly at end.

— Alexander Taub (@ajt) November 29, 2012

The public version will enable even more interaction with players. "There’s a lot of very complex things that happen in horse racing that take some creativity to turn them into a super product," Walter said. "So we’ve really worked out a lot of that. Now we’re just making it more robust in a social sense."

According to the countdown clock luring us in, Betabeat has 53 minutes and 49 seconds to decide if we're gonna pony up for the next race.

Mr. Pincus (Photo: Wikipedia)

In response to questions about layoffs, Zynga emailed Betabeat an internal memo that CEO Marc Pincus sent out to staffers this afternoon. In the note, Mr. Pincus confirmed that the company cut approximately five percent of its full-time workforce today, including the shuttering of its Boston studio and mass layoffs at its Austin location.

Mr. Pincus also said that Zynga is proposing closures of its Japan and U.K. offices. In addition, the company will be sunsetting 13 of its games and reducing investment in TheVille, a Facebook game that's facing a lawsuit from EA for looking a whole lot like a Sims game.

In the memo, Mr. Pincus wrote that he believes the cost-cutting measures will "improve our profitability and allow us to reinvest in great games and our Zynga network on web and mobile."

The memo comes after a day of intense rumors about the flailing social gaming company filled the tech universe. Despite the fact that the news emerged during the attention-sapping Apple keynote, TechCrunch reported that the timing of the news had more to do with Zynga's impending earnings call, scheduled for tomorrow, than with the Apple presentation.

Earlier reports indicated that the Boston and Austin offices would be closing altogether; Austin, however, will remain open, though its staff was dramatically reduced.

Zynga has been on a downward spiral for the last few months, reporting an estimated net loss of $95 million to $105 million for its third quarter, which will be discussed on tomorrow's earnings call. Following that announcement earlier this month, its stock price immediately plummeted 19 percent. Currently, it's hovering around $2.20, after experiencing a 5.17 percent drop today.

SuperData Research analyzed some of Zynga's recent game statistics and concluded that player engagement reached an all-time low of 14 percent in September and that it has fewer monthly active users in simulation games now than it did two years ago. The hope for Zynga's salvation, SuperData's Sam Barberie (and others) have argued, is a pivot to social gambling, but current U.S. laws have tight control over the function of gambling games.

You can read the full text of Mr. Pincus' internal memo below.

Team,

Earlier today we initiated a number of changes to streamline our operations, focus our resources on our most strategic opportunities, and invest in our future. We waited to share this news with all of you until we had first spoken with the groups impacted.

As part of these changes, we’ve had to make some tough decisions around products, teams and people.  I want to fill you in on what's happened and address any concerns you may have.

Here are the most important details.

We are sunsetting 13 older games and we’re also significantly reducing our investment in The Ville.

We are closing the Zynga Boston studio and proposing closures of the Zynga Japan and UK studios.  Additionally, we are reducing staffing levels in our Austin studio.  All of these represent terrific entrepreneurial teams, which make this decision so difficult.

In addition to these studios, we are also making a small number of partner team reductions.

In all, we will unfortunately be parting ways with approximately 5% of our full time workforce.  We don’t take these decisions lightly as we recognize the impact to our colleagues and friends who have been on this journey with us.  We appreciate their amazing contributions and will miss them.

This is the most painful part of an overall cost reduction plan that also includes significant cuts in spending on data hosting, advertising and outside services, primarily contractors.

These reductions, along with our ongoing efforts to implement more stringent budget and resource allocation around new games and partner projects, will improve our profitability and allow us to reinvest in great games and our Zynga network on web and mobile.

Zynga made social gaming and play a worldwide phenomenon, and we remain the industry leader.  Our success has come from our dedication to a simple and powerful proposition – that play is not just something people do to pass time, it’s a core need for every person and culture.

We will all be discussing these difficult changes more with our teams and as a company.  Tomorrow, Dave and I will be hosting a post-earnings webcast (details to follow) and next week we will be discussing our broader vision and strategy during our quarterly all-hands meeting.  I’m confident this puts us on the right path to deliver on the promise of social gaming and make Zynga into an internet treasure.

If you have any immediate questions, I hope you will talk directly with your manager, Colleen, or me.

I look forward to talking with you tomorrow.

Mark

With reporting contributed by Nitasha Tiku.

(Photo: Gamesys)

With all this spare cash we have lying around, we were getting concerned that there weren't enough outlets on the Internet for us to waste it. Luckily, Facebook has our back, and it's an even better way to spend money than on shitty Zynga goods.

According to the Financial Times, Facebook has launched its first game where users can bet real money (with the hopes of winning real money, of course). Because gambling laws in the U.K. are closely regulated and allow for that sort of thing, the game will only be available to U.K. users, which is a damn shame for those who love Atlantic City but don't feel like venturing out of their dark basements.

Facebook's first foray into gambling will be pretty staid: It's a Bingo app, built by U.K. gambling game company Gamesys, appropriately called Bingo Frienzy.

But if fellow New Yorkers were hoping Facebook will bring gambling to its U.S. platform any time soon, you might have to channel your dreams elsewhere:

In the US, where the majority of Facebook revenues are generated, the market for real-money social gaming is in effect closed. Regulators only recently began opening the door to certain kinds of online gambling, and only at a state level, presenting significant technical challenges for keeping operations within the law.

Guess you'll have to stick to wasting money on buying Farmville crops, then.

Mr. Glassenberg (LinkedIn)

If you're a mega-fan of The Hunger Games or Mission Impossible, there's a fair chance you're also a a fan of Funtactix, a New York-headquartered gaming company that builds social games based on some of Hollywood's biggest movie franchises. The company works directly with studios--and yes, Suzanne Collins--to develop graphics and gameplay techniques that allow it to stay as true to the films as possible.

Funtactix builds social games both within and without the Facebook environment, and according, to CEO Sam Glassenberg, it's the only studio with a track record in the space.

"We're resurrecting the movie-based games business on social," Mr. Glassenberg told Betabeat by phone this morning. "It’s a new model for releasing games based on movies, where the game not only engages players and generates revenue as a consumer product, but because it’s free to play and because it’s accessible to half a billions social gamers, it also serves to promote the film."

We've been known to groan at the term "social gaming," but what differentiates Funtactix is its devout adherence to the quality of games. These aren't your uninspired Farmville-esque graphics.

"When you’re working with a film director and you’re trying to convince them to take their film--a crown jewel--and bring it to this medium, you need to demonstrate that you’re going to be doing it in an authentic way," Mr. Glassenberg said. "So we shoot for a visual quality that’s maybe a half a generation or a generation ahead of everything else out there."

Funtactix does this by funneling much of its talent pool into building games that support customizable, motion-captured animated 3D characters. Since the majority of Funtactix's clients are movie studios, harnessing the ability to construct characters like these is crucial to preserving the integrity of the film when translating it into a game.

"What drives [us] is our passion for creating an authentic experience for the fans," Mr. Glassenberg offered. "We're focused on realizing the fan fantasy for the fans of these franchises, so we use Facebook as a real storytelling medium, and that’s something that I don’t really think Facebook games have explored."

Before Mr. Glassenberg's joined Funtactix, he also worked for Lucas Arts on the team that was "one of the first to take assets form a movie and put them into what at the time was a console game," he said. He also served as manager for Microsoft's direct X graphics team, so it's a safe bet to say he has a fair amount of experience in the gaming climate.

Funtactix has offices in Los Angeles and Tel Aviv, where the majority of its developers operate, but is headquartered in New York.

"One of the great things about the games industry is that it’s distributed," said Mr. Glassenberg. "Unlike Hollywood, it’s not all in one city. So I’m very optimistic about the future of the New York games industry. I hope that our success can contribute to its expansion."

The view from the party.

Whoever planned the launch party for TheBlu,  a new social-game-cum-consciousness-raising-art-experiment, did not skimp on showmanship. On the second floor of the NASDAQ MarketSite, flat-screen televisions offered glimpses of the undersea habitats awaiting those who download the game (currently available only on Mac and PC). Down below, a t-shirt-clad squad of pamphleteers fanned across Times Square, while fish swam lazily across the screens looming above them.

Boot up TheBlu, and you'll find yourself hovering under the sea, just above a coral reef. The game focuses on exploration, rather than accomplishing predetermined tasks. You purchase your own fish and release them into the open ocean; other users fish float through your patch of reef. Click a fish that swims by, and a little pop-up menu will provide more information about the species, as well as the user that owns that individual fish. And that, in a nutshell, is the entire experience.

As one might expect from such a description, while heavily sprinkled with ultra-professional workwear and even one rather spectacular sequined minidress, the small-but-boisterous gathering was dominated by ocean lovers. But these weren't mere beach enthusiasts. Moving among the crowd were Louie Psihoyos, director of The Cove, and Andy Jones, who took home one of Avatar's visual effects Oscars. At one point, Betabeat turned around to find Neil Young mere inches away.

The remarks that followed only strengthened the impression that we'd been gathered for some environmental good, with nary a mention of money-making imperatives. Cofounder Neville Spiteri kicked off the festivities by explaining that, “TheBlu is really about immersing oneself in the beauty and appreciation of the ocean,” he said, as well as “having this global connectivity and collaboration.”

He also gave a shoutout to their nonprofit collaborators: the Scripps Institution of Oceanography, the Ocean Elders (hence Mr. Young's presence), Wild Aid, the Ocean Preservation Society, and Mission Blue.

Mr. Spiteri quickly ceded the podium to fellow Blu crew member Dr. Sylvia A. Earle, who bounded up and cried, “Well, let’s hear it for TheBlu!” Informing the audience she'd been exploring the ocean since before most of us were born, she proceeded to sound the alarm on behalf of the world’s beleagured marine ecosystems. “The biggest problem of all,” she said, “is that people do not know that the ocean matters to them.” TheBlu promises to be “an ambassador from the fish to us and from us back to the fish and the other creatures who live in the sea.”

Next up was advisory board member Mr. Psihoyos, who imparted the rather gloomy tidbit that his current project is about the Earth’s sixth major extinction--i.e., the one we’re living through--before expressing optimism about TheBlu’s potential.

“I have a lot of faith that, once people see what is going on down there in the ocean, they’ll want to save it,” he said.

With all that talk about ambassadorship, one could be forgiven for assuming TheBlu is merely a massive nonprofit consciousness-raising campaign. Not true, says cofounder Scott Yara (also a cofounder of big data analytics firm Greenplum, now a subsidiary of EMC): “It’s a total for-profit business,” he told Betabeat.

The business model is pretty simple: social gaming, monetized via virtual goods. Players can purchase their own virtual fish and release them into the deep, then when anyone else clicks that fish, they’ll get a ping. In many cases, a cut of the revenue goes to organizations like the Ocean Elders.

Mr. Yara is also firmly convinced of the model's scalability. The cofounders self-financed the initial up-front costs, but now that TheBlu is up and running, they've opened the platform to artists worldwide who might want to contribute in exchange for the possibility of royalties on each virtual item sold.

He also offered a little insight into the project's big-picture goals: “There are several billion people on the Internet today but nothing ever feels like the Olympics, when everyone is focused on one thing at the same time." With that in mind, they set out to create this global, collaborative, connected experience. “The whole point is that your part of the ocean is connected to everybody else’s,” Mr. Yara explained.

The game’s interface is oddly mesmerizing, capturing some of the blissed-out appeal of SCUBA diving. But that very pleasant quality also inspires some doubt about TheBlu’s business model. The problem is that lacks the addictive gaming mechanics of a Farmville. Simply adding fish to an extant ecosystem lacks a certain dopamine-firing oomph.

Perhaps Mr. Psihoyos was onto something when he suggested a purchased fish might immediately be scooped, or a coral reef acidified: Save the ocean, or the virtual fish gets it.