SAN FRANCISCO May 30 (Reuters) - Glu Mobile Inc will allow U.S. players to win cash in one of its mobile games starting next month, betting that cash-based contests will be a winning formula to expand revenue in the fledgling and potentially high-growth mobile gaming sector.
Glu's stock closed up 3.4 percent at $2.76 on the Nasdaq, after earlier rising as much as 7 percent.
The fast-growing company, which has struggled to report a profit since it went public in 2007, said it entered into a partnership with San Francisco startup Skillz that provides technology that enables real-money earnings from skill-based mobile games through cash tournaments.
With smartphones and tablets going mainstream and delivering gaming to a new, broader set of consumers, the mobile gaming sector is growing rapidly and attracting players away from console games made by publishers such as Electronic Arts Inc .
Glu will use the Skillz platform, currently only available for games running on Google Inc's Android operating system, to introduce cash tournaments in its hunting simulation "Deer Hunter Reloaded," the company told Reuters. It will expand to other Android titles in the second half of 2013.
Gamers will pay a fee to compete for cash prizes, which Glu, which derives about half its revenue from the United States, hopes will pave the way for a new revenue stream in mobile gaming, Chief Executive Niccolo de Masi said in an interview.
Real-money gaming competitions have been popular for several years through websites such as WorldWinner and King.com, but are only now moving to the mobile realm. Those games focus on skill-based contests such as "Scrabble" and "Wheel of Fortune," as opposed to casino-style games of pure chance.
While online chance-based or gambling games such as slots, in which players can wager money, are only allowed in New Jersey, Nevada and Delaware, real-money competitions in skill-based games are legal in 37 U.S. states and the District of Columbia.
"We're probably years away from seeing the same level of geographic legalization of chance gaming, if ever in some cases, to try and reach the same level of market coverage and penetration we've got on the skill side," de Masi said.
In mobile gaming - where it is difficult to get users to spend money, play for long sessions and keep returning to game apps - companies such as Zynga Inc and Glu are scrambling to find sustainable business models and are experimenting with casino-style gambling as a promising revenue source.
The U.S. government banned online gambling in 2006, but the Department of Justice clarified its stance in late 2011, paving the way for states to unilaterally legalize some forms of online wagering. Industry analysts say widespread legalization by states of online gambling could take years.
Online gambling, meanwhile, is growing in popularity in Britain, where it is legal and profitable. Zynga and Glu have launched real-money gambling games such as poker and casino-style titles in Britain this year through partnerships with European mobile betting operators.
Glu has 40 million monthly active users and makes money through advertisements and the sale of virtual goods such as weapons that enhance game play. It has tied up with Activision Blizzard Inc to make mobile games for the blockbuster "Call of Duty" shooter franchise.
Founded in 2012, Skillz opened up its platform to Android game developers in April and has partnered with 15 other developers, including Canadian studio Fluik Entertainment.
Its partner Gnarly Games has so far seen greater user retention and ad revenue through tournaments, Skillz's CEO and founder, Andrew Paradise, told Reuters in an interview.