Inside Asian Gaming

August 2011 | INSIDE ASIAN GAMING 27 China Lotsynergy Does China Lotsynergy have any exclusive arrangements with mobile phone operators to provide them with lottery products? Although we don’t have any exclusive agreements yet, China Lotsynergy has probably invested more money in the sector and started to prepare for it earlier than anybody else. We started preparations to offer lottery products through new media [mobile phones and Internet] three years ago. As of today, officially no one can launch this business yet because we are still waiting for the so-called sales agent licence from the government that enables you to sell those tickets on behalf of the government through the new media. We have been preparing for that for a long time. For example, we are—if not the only one, then definitely one of the few—companies that have already developed applications for all types of mobile phones in China. Mobile phones are very different from the Internet because you have so many different platforms to deal with. With mobile phones, you have Android, Symbian, iPhone, etc. We have developed over 500 different kinds of phone applications for the currently existing 600 different kinds of phones in China. We’ve also gone further to sign up agreements with telecoms providers like China Mobile, China Unicom and China Telecom, so that they would be able to bring their customers to buy lottery tickets on our platform, and so we can perhaps do some kind of revenue sharing with them. This is a very smart arrangement. And what about your existing core business of providing VLTs? How’s that going? We have been the exclusive VLT provider in China since 2005. We’ve seen a very strong performance in the video lottery sector. What we’ve seen is that even as the number of installed terminals has increased, the revenue per terminal has actually increased. That is a very different situation from most ordinary markets, where the more units you put in, the revenue per unit usually declines. This is because in China, VLTs are currently significantly undersupplied. As of today, we have more than 19,000 terminals installed across the country. In most mature [slot or VLT] markets, there are roughly about 10,000 people per terminal. That shows you how far we still have to go in China, which now has a population of 1.4 billion [translating to roughly 73,684 people per terminal]. Over the next two quarters, we are going to implement or roll out our next generation terminals, which are dual touch-screen terminals. That will be coupled with some more new games on those new terminals. The VLT market has been recovering since the government’s shutdown of VLT operations across the country in February 2008. What was the background to that shutdown? At that time, there were some social incidents, including some people losing more money than they could afford. This led the government to shut down the market for close to two years. During the two years of shutdown, the government introduced three very rigid but powerful policies regulating the market. First, they shut down all the VLT halls, and the ones that were reopened are now directly run by the government. The government also installed camera surveillance in every VLT outlet in order to ensure no more funny things go on inside them. Lastly, the government imposed a daily limit of RMB200 expenditure per person on VLTs. On the one hand, that may seem a very rigid restriction, but on the other hand it ensures a very safe operation of this product. In China, we want to see this, whether for the lottery or whatever formof gaming; it should be highly regulated in a very small and safe operation. I never worry about the demand in any single setup. Today, lottery products are sold in China through about 200,000 terminals. But in the Internet world, even if you capture 5% of the 600 million subscribers, you are talking about 30 million new sales outlets already, versus 200,000. There will be a huge boom in the lottery space.