Inside Asian Gaming

January 2008 | INSIDE ASIAN GAMING 15 Online Gaming At the affiliates event at The Venetian Macao in November, delegates exchanged knowing smiles when discussion turned to the Chinese government’s attitude to online wagering. At the moment, China appears to be tolerating online gaming by its citizens, so there are plenty of voices urging that if the system isn’t broken it shouldn’t be fixed. At least two companies specialising in payment processing services within China handle work for online gaming companies as well as for retail merchants, though they don’t tend to advertise the fact outside the gaming industry for fear of an- tagonising the authorities. China deals Playtech itself has recently signed software deals with a Hong Kong-listed Company, CY Foundation, which counts the Mainland’s ideological guardian of youngminds—the Communist Youth League as a key strategic partner. CY Foundation holds various licenses that allow it to offer tournament based P2P gaming from internet cafes. It has also entered into sponsorship agreements with the Gov- ernment-accredited China Mahjong Association to develop the profile of the country’s traditional tile game online, both region- ally and internationally. “We’d rather work aggressively with a legal operator than aggres- sively in a grey area market,” says Mr Hall. “You need to have your software approved, which is not an easy thing to do in China, and so it has been a bit slow rolling out op- erationally. CYF is allowed to offer online poker from Internet cafes in China, and that’s a major achievement in itself. At all stages, CYF ensure that what they are doing obtains the relevant approvals” What goes up in China can also come down rather suddenly. Hong Kong businessman Cheng Yun Pung found the going went from good to decidedly soft af- ter the Chinese government decided in November 2005 that his ambitious horse breeding programme at the Beijing Jockey Club looked suspiciously like a new onshore gambling industry to rival the state’s own lottery and video lottery terminals. Mr Cheng and his investors lost their shirts not to mention 600 thoroughbred horses when officials let it be known the scheme had overstepped the mark. Protective Mr Hall says: “Anyone who tries to compete in an unauthorized manner with China’s land-based lottery risks having the authorities come down very hard. “In Hong Kong, the Jockey Club is also fiercely protective about it being the only licensed sports betting. You can be fined up to HK$3 million just for betting online. We don’t go anywhere near Hong Kong.We completely block all access to Hong Kong players and play- ers from a number of other jurisdictions, where there’s is clear anti- online gaming legislation. “The second level of perceived risk as far as national interests are concerned are online casinos and the third level of perceived risk would be player-to-player or peer-to-peer games—known in the in- dustry as P2P games. “Poker as a P2P game is generally deemed to be less ‘offensive’ as it’s referred in the industry than an online casino or sports betting, and there are ongoing discussions around the world whether poker and other P2P games are games of skill or chance. Plain speaking It seems likely though that the investors who lost money on publicly listed BetOn- Sports.com and other listed online betting companies when the US market tanked would have appreciated the industry giv- ing a frank and public analysis of regulatory risk beforehand rather than complaining after it had hap- pened. Some might argue that anyone investing in online gaming firms should understand they operate in a volatile in- dustry offering potentially high rewards but equally high risk. Deutsche Bank said of Playtech in an analysts’ report in November 2007: “If the hypothetical sce- nario were to arise where a government is becoming obviously and explicitly against online gaming, then Playtech could require its licensees to block that particular market, as happened in the US.” The report added: “Although Playtech is exposed to regulatory risk to some extent, we view it primarily as an indirect revenue risk, rather than the direct legal risk that investors perceive on the online gaming operator stocks in some cases.” DB cautioned, however: “There can be no ultimate guaran- tee that some form of ‘aiding and abetting’ charge could not be brought against a software provider like Playtech.” Caution needed Many people believe though that the nod-and-a-wink ap-