Scientific Game

The Last Gold Rush

The prospect of gaming legalization in India has international operators excited, but much work remains to be done, according to India-based gaming consultant Albert Climent

Tuesday, 13 May 2014 16:13
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When gaming in India makes news, it is often for the wrong reasons— from cricket match fixing to breakups of local poker clubs. It is beset by contradictions— the country’s major religion disapproves, but it thrives nonetheless. It is also the subject of a patchwork of legislation that is reportedly difficult for even locals to navigate; however, a groundswell of legal and government support is building, backed by ardent card players who fight their cases and by a pro-gaming pressure group that wants to bring the industry out of the shade for the good of all. One member of that select group, entrepreneur and gaming consultant Albert Climent, sat down recently to speak with Inside Asian Gaming about the campaign to legalize gaming in this complex country.

 

IAG: What’s your background in the gaming industry? 

Mr Climent: I’ve been working for the past eight years helping gaming companies in pre- and post-regulated markets to develop their businesses. I’m originally from Barcelona, so I worked there in Southern Europe representing and developing the businesses of some reputable e-gaming companies. In the last six years I’ve been following very closely the Indian case, and I decided to move my base to India about two years ago—I was travelling back and forth for six years before that—because I think it’s probably one of the last gold-rush markets left in our sector, and because I have some personal ties with the country.

You say you’re working with the government and with companies. What specifically are you doing?

I’m consulting for e-gaming companies trying to enter the Indian market, and advising the main policy advocacy groups in India that are trying to regulate sports betting and online gambling. 

In India there’s a lot of effort needed to educate the relevant sources of influence about the benefits of regulating the market and, you know, bringing some light into the issue. And right now the momentum is building very strongly for regulating sports betting in India due to the constant match-fixing scandals happening in the IPL, the Indian Premier League.

 

Unfortunately, the majority of the current betting and gambling market in India is unregulated and controlled in most parts by underground operations, who also play a crucial role in most of the problems we are facing in sports in India, like match-fixing, spot-fixing, money laundering activities and other forms of criminality. Policing it is ineffective in terms of controlling the illegal activities. So the idea is, let’s just regulate and, you know, try to use some of those proceeds to protect the community, to protect the sport, to protect the fans. 

I’m also bringing some international exposure to the Indian case. I promoted and chaired the first-ever India Gaming Summit in London in February. I organized it jointly with ICE through Clarion events and FICCI, the Federation of Indian Chambers of Commerce and Industry. It was a great success. We had a full house of senior government officials, Supreme Court advocates, industry leaders, foreign operators and market participants from India outlining the latest challenges that lie ahead for online gambling. We invited the chairman of the IPL Spot Fixing Scandal Probe Committee here in India to speak about sports fixing and how dangerous it is for society to have sports fixing on a regular basis. We are trying to replicate it soon, this time in India.

So you’re familiar with Indian government positions on gaming legalization and regulation. What do they see as the key issues?

The thing is that the status quo right now is very difficult to change, because, as I said, the underground market is extremely powerful. However, there is a general belief among top policy advocacy groups and the general public that the only way forward is regulation. But, officially, elections are in progress in India [from 7th April to 12th May], and gambling in India still carries a big moral debate even though it’s socially accepted, and no political party wants to be pro-regulation because they’re afraid of losing votes. So for now they are keeping themselves neutral, but they know regulation is going to happen—the big question is when. I’m expecting 2014 to 2015 to have relevant movements in that sense—there’s going to be significant market openings, I would say, especially for games of skill.

The government straddles a fine line there, doesn’t it? The BJP, the ruling party in Goa, just threatened that the floating casinos there wouldn’t have their licenses renewed, but they said that the casinos on land would be OK. 

The Goa Chief Minister Manohar Parrikar’s anti-casino stand is publicly known—he also opposed casinos when he was in opposition—but he said recently that he would not close casinos in Goa as he cannot afford to lose revenues worth 150 crore rupees [about US$25 million]. It is true that political parties sometimes play the moral debate when needed, and I believe that is a mistake. I also think this is a clear example of why comprehensive regulation is needed. Fortunately, Goa has recently announced the setup of a gaming commission to regulate operations of both onshore and offshore casinos 

You might also wonder why the remarks were only about the floating casinos. The basic difference is that floating casinos can hold live dealers—it’s much more entertaining in terms of user experience. Land-based casinos cannot have dealers—they have to have everything electronic. They don’t have poker, for instance; players cannot play against each other, it’s much more like an arcade. The blackjack tables are electronic, the poker is all video poker; they have slot machines. In floating casinos it’s much more entertaining—it’s a proper standard casino operation that you might be familiar with going to Vegas, going to Macau, with live dealers. And my understanding is that in terms of taxation it’s much stricter for the land-based casinos than the floating casinos

 

What is the pro-gaming movement’s strategy?

Right now, it’s to explain to the general public and the relevant sources of influence and policy advocacy groups about the benefits of regulating sports betting and online gambling in India. The current situation is that underground and clandestine operations are running the show. 

As I said, unfortunately almost all the proceeds of illegal gambling are used to finance other forms of criminality. So it’s about educating the market, educating and convincing the politicians and policy-makers and letting them know that by regulating the sector society will win, state revenues will be generated, the user, the fan and the player will be more protected, and the integrity of sports will be higher. 

Gambling in India is taking place now and it will in the future, so the sooner everyone accepts is inevitable, the better.

 

Reading media reports, there’s a sense of inevitability that legalization will happen, but not soon. What’s your take? You mentioned 2014 and 2015 would be big years. 

I’m optimistic. I’m a bit more optimistic than other people looking at the market maybe because I’m on the ground and I can see changes in the line of thinking of groups that historically were very much against it. Regulation in India is going to happen inevitably. Now, the big question is when. 

There’s one thing that’s important to mention, and that’s the Public Gambling Act in India, which is the gaming law that was written in the 19th century by the British and is still the law that is being used and excludes games of skill as gambling, therefore they are legal to be conducted for real money. So, what constitutes a game of skill? That is the big question.

 

Now, rummy has already been considered by the Supreme Court of India a game of skill. So we can assume that rummy is legal in India. The clear example is that rummy sites are already operating in India generating serious revenues.

There are another couple of court decisions pending—for poker, there’s one in the Delhi High Court, and there’s another one in the Supreme Court of India regarding rummy. The SC decision is whether rummy can be played for real money or not. If any of these decisions go favorably we will see a big opening in the market because all the poker operators and even the sports betting operators, those international brands will want to start leveraging this games of skill thing. However, games of chance will require political will to be regulated, and that is always more complex and slow.

So how much is up to states and how much the national government? It seems both have a hand in regulation.

It’s 100% states. States are the ones who decide to regulate anything relating to gaming or gambling. What the central government can do is offer guidelines, and what they have is the Public Gambling Act, which is a central government law, and any state that wants it can adopt it as their own. However, the real power of regulating or legislating on gambling activities is 100% with the states.

Recently, police raided poker and rummy clubs prior to state High Court rulings that they were games of skill and playing for stakes was therefore allowed. Could these rulings build momentum in the national sphere?

Absolutely. The whole objective of these gaming companies is to generate enough legal evidence to support their respective business models. As I said, games of skill can be legalized through judiciary decisions, but games of chance will need political will and a regulatory body, and that will take longer. All these companies and gaming associations, which I cooperate closely with, are trying to seek several favorable opinions of High Courts to operate legally, but there needs to be a focused and joined plan to use all this effort to push the central government to look at the issue seriously and come up with a regulatory entity, to say “OK, you know that Karnataka state agreed already, you know that Delhi may agree soon, you know that Goa, Sikkim and West Bengal have agreed already, isn’t it time to actually look at it on a central government level?”

What’s your best estimate of the size of the Indian gaming market? There was a widely quoted figure of US$60 billion a few years back, with about half illegal.

I think that calculating the size of the market for Indian gambling is very tricky and very complex, because of the huge part of the market controlled by clandestine operations. My estimate is that a lot more than 50% is illegal. We can probably stick with the figure of in excess of US$60 billion that KPMG came up with. 

I’ll give you another figure: It is estimated by Interpol that about 40% of India’s GDP is being transferred outside India in terms of money-laundering and underground activities every year, through hawala activities—like a kind of Western Union system which is based on honor that sports bookies use to try to pretty much launder money and conduct their businesses. So if all this activity was monitored by the government, in one day the GDP of India would increase 40%. Can you imagine that? I should also say that’s not all gambling—it includes the entire black economy, but gambling is a significant percentage of that. 

So, yes, it’s difficult to calculate, but what I can tell you is that India is a gaming-loving nation. You see gaming on the street level very often. Of course, these are all cashbased transactions, and based on trust and based on personal relationships. You just need to go to a small local cricket game—it doesn’t have to be a big cricket game, just a second-division sort of game—to witness and experience the massive betting culture in India. Just one game is potentially worth tens of thousands of dollars.

It’s interesting that you say gambling is so prevalent. Some people say Indians have a propensity to gamble, others say it’s frowned upon.

Well, gambling has been accepted socially for a long time. However, there’s still that moral debate about whether it should be made legal. Religion is a strong factor in India and there’s a lot of judging and moral policing by society, if you can put it that way. But it’s a gaming-loving nation and it’s accepted. Whenever you come to India during festivities of Diwali and enjoy dinner with your Indian friends you’ll understand what I’m talking about—they like to play cards, play rummy, play teen patti [a kind of flush], for quite decent stakes, between families, between friends, at card parties or local clubs with card rooms.

So, given that Indians love gambling so much, and that they own about 250 million smartphones with the number growing rapidly, can state or federal governments realistically control online gaming? 

Not with the current status quo. However, by regulating the market they certainly could. Actually, the payment side of things is what’s inhibiting growth in India. All the international operators are crazy about entering India, they all want to do business here because they see the potential, they know that it’s a gaming-loving nation, but the problem is the payment methods—how to integrate local payment methods legally. Indians like to play with cash in their hand. The banking system is developing and users still are not used to putting their credit card number online, they like to play with cash, and in many cases it is black money. There’s so much black money in India. The general public mentality still is: “I play with cash money, not with the money I have in the bank.” However, that is changing as banking system and broadband technology penetration is developing at amazing rates annually. 

Some international operators are already accepting bets from Indian customers. They’re leveraging current loopholes. The lack of regulation generates so many loopholes in the current system in India— there’s no law that actually prevents an Indian user from placing a bet online if the company is offshore. However, what might be of interest to the government at some point is that they are accepting rupees and transferring them to foreign currency, which there could be a legal issue about.

In any case, international operators are very much interested in the Indian market, and most of them would like to see a regulatory process happening.

 

You say those international groups are crazy about wanting to enter the market? 

There’s absolutely a lot of interest. Everybody wants to have a feasible and non-illegal way to enter the Indian market, and that’s another of the things I’m working on—trying to offer the international operators a way to enter the market while pushing for regulation.  

To clarify that, I believe that international operators are not being offered a business model and legal scenario that gives them enough confidence to enter the market. However, positioning your brand, positioning your intentions, is very important at this stage, and I feel they are missing a big opportunity. Of course, they have other jurisdictions to take care of, and operating in a grey market looks risky, especially if your company has a stock price to protect. 

However, my message to international operators is that there are ways to start positioning, and generate a strong business case, if you are looking at a long-term strategy.

So that’s the logical starting point for those groups?

Yes, and to do it they should start looking at somebody on the ground that can help them understand the market and start developing the right strategy. International operators can offer great insights and help to push for regulation as well.

Human interaction in India is crucial, so someone on the ground is crucial. Also, in India you need a high level of patience to develop business. But if you have the right long-term strategy now regarding India I foresee huge opportunities in the years to come.

I’m working closely with FICCI. They are one of the leading voices trying to bring this debate to the table and trying to regulate sports betting. During the India Gaming Summit in London we arranged a meeting with the UK Gambling Commission and the exchange of feedback was great. Exchange of information with current jurisdictions to get the know-how is crucial. And, of course, most international operators are already working with these jurisdictions. International operators should already be looking at India as a crucial piece of growth for their future and already have a strong long-term strategy for the market.

There are obviously benefits to the country in terms of pulling that money out of the black economy. What other benefits would legalized gambling bring?

A lot of benefits. Illegal operations will always exist, even after regulation, but the tools to fight them will be much more effective when regulation exists. What the government has to think about is to regulate the sector with the objective of taking away business from illegal operations, so those proceeds can be used to protect the community, promote sports in the country, protect sporting integrity, protect the young and vulnerable against unwise betting behavior, generate a fair industry that provides entertainment in a controlled and responsible way, and, of course, to give proper tools to the authorities to fight against criminality. In a regulated environment the licenced bookies themselves will be the first ones who will not want any matches to be fixed, so the information between police departments, authorities and the bookies themselves will be very transparent. Whenever they see a betting pattern which is not normal they will share it with relevant state police, the regulatory investigator, et cetera. So regulating it would bring light to the issue and will clean up the mess a bit. As of now it’s clear that policing has not been effective.

 

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