Inside Asian Gaming

INSIDE ASIAN GAMING | June 2008 18 China Lottery Market The CLSA report states:“While traditional lottery and scratch card products will gain greater focus as video lottery terminal (sic) undergoes anupgradeprocess,sports lottery is also expected to introduce the scratch card component to its offering, followed by single match betting potentially before the Olympics, and fixed odds afterwards.” Doubts Industry insiders are rather sceptical, however, about the possibility of single match betting being introduced to the regulated gambling market in China before the Beijing 2008 Olympics. “All the indications are that this is still some way off,” one source told IAG . AGTech said in a statement it was “committed” to becoming a leading technology and service provider for the licensed sports lottery in China. “China is on the track of becoming one of the fastest growing and ultimately one of the largest sports lottery markets in the world,” says AGTech. New products AGTech is reported to be working with UK company Ladbrokes PLC on the development of new sports and high frequency games. Ladbrokes already operates a consultancy in China with the Beijing Sports Lottery. Hong Kong-listed China LotSynergy Holdings Ltd, a lottery system and equipment provider, and Las Vegas-based International Game Technology (IGT), the world’s largest manufacturer of slot machines, have been active in the video lottery terminal sector in China. US-based Scientific Games Corporation, an integrated supplier of instant tickets, systems and services to lotteries worldwide, announced in February it was providing a “national instant ticket sales system and related services” to the China Sports Lottery. Investment Hong Kong-listed investment holding company Rexcapital has reportedly entered into a joint venture with a mainland Chinese partner to distribute sports lottery products. The challenge is that even with strong domestic and international gaming partners, China is a very big country requiring significant investment to build the official lottery system. At present, penetration of official lottery products is largelyconfinedtotheurban areas. CLSA says there are currently only 160,000 sales terminals for China’s sports and welfare lotteries serving a potential market of around a billion adults. New outlets CLSA’s report states: “In sports lottery where it is allowed, retailers are building up their own chain stores with modern designs and customer services, creating their own brands in sports lottery;Melco has Luckypool and AGTech has StarLott.” As for welfare lotteries, the report continues:“Other than expanding the number of traditional lottery sales outlets, alternative distribution will see further growth. For example, this would include selling scratch cards and deploying bingo-type high frequency games in restaurants and karaoke rooms, mobile sales terminals to penetrate less densely populated areas and cooperative distribution arrangements with major retail chains. Already piloted in a few provinces, customer loyalty programmes will stimulate higher lottery sales via rebates,prizes and tailor made marketing schemes.” Town versus country Until more sports and welfare lottery distribution systems and products are developed, options for entertainment in many rural communities in China and other parts of Asia are likely to depend on (officially) non profit making community activities such as mahjong, or on commercial but unregulated activities such as backstreet betting or online gaming via local agents. The government seems especially keen to introduce or improve lottery services in rural areas, but from a commercial standpoint this could prove to be the most cost intensive and least attractive part of the market. When cable television services were developed in North America in the 1980s and in Europe in the 1990s, for example, most of the companies tendered to provide infrastructure in the urban areas rather than the rural ones, because it offered a better yield on their investment. Motive As we mention in our article on sports betting, one of the major incentives for the Chinese government in expanding domestically regulated gambling games is to compete with the unregulated and also the offshore markets. The 800 billion renminbi (US$114 billion) that Peking University thinks Chinese people spent on unregulated gambling in 2006 is equivalent to around ten times the entire gaming revenue of Macau for 2007, which stood at 83.85 billion patacas (US$10.48 billion). CLSA estimates that 40-50% of all ‘illegal’ gambling revenue in China is related to single-match betting. Beijing now appears to be moving towards the view that if you can’t beat them with alternative products, you might as well join them with directly competing ones. This is essentially the position adopted by the Hong Kong government, one of the few jurisdictions in Asia where it’s very clear that online betting and other forms of non government-sanctioned gambling are illegal. Potential Gavin Ho, a senior investment analyst at CLSA, concedes that even if such products are introduced to China’s regulated market it’s unlikely to kill off the demand for unregulated or offshore betting. This was certainly Hong Kong’s experience. “Illegal gambling may not be completely eradicated [by this strategy] but it suffices to see the potential as the government introduces more interesting types of games and fixed-odds betting to lure money to the legal market,”he says.