Inside Asian Gaming

INSIDE ASIAN GAMING | August 2011 24 China Lotsynergy C hina’s lottery journey began with Premier Deng Xiaoping’s realisation that ideology had to give way to economic pragmatism if the Communist Party was to survive, leading to the introduction of his “socialism with Chinese characteristics” from the late seventies. This, along with the recognition that illegal gambling was rampant in China, prompted the introduction of welfare lotteries in 1987 in order to provide a regulated outlet for mainlanders to fulfil their gambling desires, with lottery profits going to fund social welfare—the need for which increased as a result of Premier Deng’s economic reforms that resulted in massive layoffs from state- owned enterprises. Two agencies oversee lotteries in China. The China Welfare Lottery Issuance Centre (CWLC) was established in 1987 to raise funds for social welfare. The China Sports Lottery Administration Centre (CSLC) was set up in 1994 to fund sports development, and in addition to lottery-type games, also offers limited football betting on matches in the major European leagues. Chinese lottery sales have grown at a compound annual rate of 30% since 1987 to reach RMB166.3 billion (US$25.7 billion) in 2010. Internationally, China’s lottery sales now lag only those of the US. In the first quarter of 2011, 61.9% of China’s lottery sales derived from traditional lotto games run by both the CWLC and CSLC. Another 19.1% came from instant scratch cards, and 11.0% from single match games run by the CSLC. Although revenue from video lottery terminals (VLTs) run by the CWLC accounted for only 8.0% of China’s total lottery sales in Q1 2011, they had grown 159% year on year in the quarter, and look set to be one of the fastest growing components of the market. Another strong performer is likely to be betting on single match games, which grew 136% year on year in Q1 2011. One company that could gain from the predicted huge expansion of KENO (a high- frequency lotto game) and VLTs in mainland China is Hong Kong-listed China Lotsynergy Bigger Draw China Lotsynergy Executive Vice President and CFO Daniel Liao explains the background to the Chinese central government’s decision to expand the distribution channels for the country’s lottery products Lottery Sales in Mainland China Q1 2011 Q1 2010 Change(%) Billion RMB Billion RMB Welfare Lottery 27.15 20.20 +34 Lotto 19.03 16.21 +17 Instant Scratch Card 4.42 2.56 +73 Video Lottery Terminal 3.70 1.43 +159 Sport Lottery 19.16 14.42 +33 Lotto 9.65 9.06 +7 Instant Scratch Card 4.43 3.21 +38 Single Match Game 5.08 2.15 +136 Total 46.31 34.62 +34