Inside Asian Gaming

January 2008 | INSIDE ASIAN GAMING to move into a new territory,it’s been a lot harder for national governments to control In- ternet-based gaming (with the notable exception of the US market). Reputable online opera- tors say they welcome licens- ing and regulation as a means of raising standards in the indus- try and potentially raising tax for national governments. The unfortunate M r Carruthers made exactly this point to US pol- iticians in the months before he had his collar felt in the transit lounge at Dallas Fort Worth International Airport. How this civic-minded po- sition can be reconciled though with online gaming’s fondness for domiciling business in offshore tax havens isn’t clear. The UK invited online operators to set up shop onshore, but slapped a 15% tax rate on them. It was an offer most companies have so far found easy to resist. “Playtech is a US$1.6bn company by market cap, and like most of the major online gaming groups, I think our notional rate of tax is around 1%,” says Mr Hall. He thinks gamblers are less concerned than they oncewere about where online gaming companies are registered, but says brands are important in establishing trust. “With online casinos, people nearly always stick with one brand. Branding is very important because you need to know you’re going to get paid by your casino, and online there’s been a lot of horror stories over the years about people not getting paid. So, basically, the big brands in online casinos get bigger and bigger. Poker on the other hand is more about‘Can I find players? Can I find liquidity?’And many regular poker players will have an account with PokerStars,one at Full Tilt and one with an ipoker brand.Most good poker players will generally have three or four different accounts.” Sincere move The industry’s desire for a compact with national governments doesn’t seem to be mere lip service.The reality though is that big on- line operators are in a much stronger bargaining position than purely land-based ones when it comes to determining the basic rules of their business. There is always the possibility that some—especially those not publicly listed on a stock market—will simply carry on re- gardless if they don’t like what governments are telling them regard- ing preferred rules and regulations. For example, Japan, like the US, dislikes its citizens betting online. It has ordered card-issuing Japanese banks to block payments to on- line gaming sites, but gaming operators can get round this by hav- ing the payment routed via another jurisdiction and another product code. Japan, unlike the US, doesn’t appear to have the stomach for an international fight against those companies and citizens that fail to adhere to its national legislation.Within Japan, the official ban on all but national lottery and organised sport betting is comprehensively and blatantly flouted by the highly organised and highly lucrative pachinko industry. Given that reputable offshore online operators insist they are happy to be regulated and licensed, a protocol has developed that some licensing jurisdictions are of premier league quality and worthy of international recognition (notwithstand- ing the fact they are commonly offshore and often tax free), while the licences of other ju- risdictions, such as Costa Rica, are hardly worth the paper on which they are printed. An industry executive stated: “The more cow- boy operators will go to Costa Rica, where you just need a business licence.You don’t even need a gaming licence. In Asia people generally like to see you have a licence.” Island home Some countries, such as the UK, have made it known that compa- nies wishing to operate offshore online gaming businesses aimed at UK consumers should choose from a very short list of approved loca- tions or face regulatory heat.The UK’s so-called‘White List’consists of the tiny island of Alderney, a Ruritanian community set in the choppy grey waters of the English Channel,and the Isle of Man,first colonised by Celtic tribes around 1,300 years ago and famous like Macau for a motor race (though this time the two wheeled TT). As if living in the middle of the Irish Sea wasn’t bad enough, the island used to pun- ish law breakers with flogging—until the European Court of Human Rights declared in 1975 that it constituted “cruel and unusual pun- ishment”. Neither jurisdiction is considered anywhere near as soft a touch as Costa Rica. “Alderney puts its licensees through a full due diligence and suit- ability process—it’s tough for licensees, but informed players and international regulators and investors recognise this, so it’s a worth- while exercise for serious operators in the space,” says Mr Hall. “Playtech has obtained approval from numerous jurisdictions, including Alderney and CEZA/Philippines to offer their software to licensed operators. Operators are very different and we have to cater to those that may wish to market into the UK and also those that want to base themselves in the Philippines, which is an ideal base for serving Asia. Not many Asian facing operators want to set up support operations in the Isle of Man. “In the Philippines, not only are workers well educated, computer literate and speak good English,many have also travelled andworked abroad, so operators can also find people who speak fluent Chinese or Japanese, and establish their multiple language customer sup- port centres in a single location. First Cagayan, the master Licensor for CEZA (Cagayan Ecomic Zone Authority), now has some 38 Licens- ees operating from the Territory and it has really become the Asian hub for online gaming. The online gaming industry has generated a significant number of jobs and First Cagayan take their regulatory re- sponsibilities very seriously—a recent example of this was that they decided to ban its licensees from taking bets from the US.” Small steps As to Playtech’s future Asian expansion, Mr Hall is cautious about making extravagant predictions. “We look at it in terms of significant strategic licensee partners and bottom line revenues.‘We made this much this year, how much are we going to try and make next year?’ “You can’t just say ‘Okay, there are 2 billion people in Asia so we’ll target 1%.We don’t focus on that sort of metric because online gam- ing’s not like selling Nokia or Coca-Cola.” 17 Online Gaming