How Zynga may have ruined possible Playfish buyout

An interesting report on Silicon Alley explains how some refreshing honesty from social gaming company Zynga may have inadvertently killed a rumored buyout deal between EA and Zynga competitor Playfish. That deal was described as in being worth somewhere around $400 million USD.

But the honesty only came after technology site TechCrunch dug into both Zynga’s and Playfish’s use of “free offers” as a way to earn in-game currency. These offers were sometimes shady, often not very useful to the user, and mixed in with legitimate offers from advertisers like NetFlix. They included lead-gen offers from less scrupulous advertisers like Video Professor and Tatto. After being called out about it, Zynga CEO to speak up about the whole mess on his blog:

“We have worked hard to police and remove bad offers. In fact, the worst offender, Tatto Media, referenced in the TechCrunch article, had already been taken down and permanently banned prior to the post. Nevertheless, we need to be more aggressive and have revised our service level agreements with these providers requiring them to filter and police offers prior to posting on their networks. We have also removed all mobile ads until we see any that offer clear user value.”

But here’s the real kicker for Playfish; Some portion of the revenue it has reported may be based on such offers, which won’t exactly help seal a real or imagined deal with EA. In other words, Zynga may have inadvertently (or purposely) just screwed one of its biggest competitors out of a $400 million deal.