Inside Asian Gaming

31 30 en years ago, facing demotion from England’s Premier League and the prospect of bankruptcy, south London’s Crystal Palace football club took a chance on a couple of defensemen, Sun Jihai and Fan Zhiyi, from China’s national team. The signings cost the club a quarter of their broadcast revenues at the time, about US$1.7 million. But it wasn’t long before 100 million Chinese were in front of their TV sets watching Crystal Palace in the first live broad- cast in China of an English match. — That’s more viewers than the NFL’s Super Bowl was drawing. — Little-known Crystal Palace was suddenly the hottest sports commodity in the most populous nation on the planet. Europe’s top clubs have been mining gold in the Far East ever since. In 2002, the Premiership’s Everton Foot- Cyber-Eyes on Asia Web operators look to scale the Great Wall, and sports betting may provide the ladder ball Club closed a US$3.2 million shirt deal with Chinese mobile phone manufacturer Kejian. Everton, with Kejian’s help, signed midfielder Li Tie,known at the time as“China’s David Beckham,” and World Cup teammate Li Weifeng. Later the same year, a match be- tween Everton and Manchester City — Jihai also was now suiting up for the Blues, whose jerseys sported the Kejian logo in Mandarin and English — would draw the largest TV audience ever for a league game — an esti- mated 360 million Chinese. Lucrative tours of China by clubs of the caliber of Manchester United, Arsenal and AC Milan are fairly routine these days. Two trips by Real Madrid a few years back brought in US$10 million from sales of tickets, shirts and souvenirs, according to Forbes magazine. The Spanish powerhouse capped this suc- cess by signing on with state-owned invest- ment conglomerate CITIC Group to promote the club’s brand in China. A licensing agree- ment the Premiership recently concluded with Guandong Provincial Television’s WinTV is good for US$50 million over three years. Taking broadband demand as another indi- cator, the price for streaming European foot- ball over the Internet in Asia has more than doubled in the last year. NOW Broadband TV, a subsidiary of Hong Kong-based telecom PCCW, paid a cool US$200 million earlier this year for exclusive rights to Premier League matches and the 2008 European Champions tournament. And where “the beautiful game” goes is gambling ever far behind? Chinese fans currently comprise 20 per- cent of the world’s football audience, and betting onmatches is estimated by UK-based Global Betting and Gaming Consultants to have tripled over the last couple of years to a whopping US$33 billion, surpassing even the UK. Of course, about 90 percent of this massive market is deemed illegal by Beijing. But European matches dominate the legal sports lotteries as well. And at a mere US$25 in spending per capita, compared with more than US$480 in the UK, the reality of the mar- ket, huge as it is, is dwarfed by its untapped potential. Looking on from the West, the major In- ternet operators have long been aware of the opportunities. Overcoming the many obstacles is another matter and one of some urgency given that the ability to diversify geographically in the wake of the shutdown of the multibillion-dollar US market is key to the continued growth of the leading brands in 2007 and going forward. “The ex-US-facing companies have to pick up the pieces and shift their focus,” said Jodi Littlepage, director of corporate finance for London-based Citicourt & Co. Asia, where the propensity to gamble is generally high across cultures and markets are well-established, is drawing more atten- tion than ever. China, the obvious giant in everyone’s sights, is cracking down on “unlawful” Web gambling — that is, sites hosted and man- aged within the country — but government currently does not forbid sites from passively taking wagers offshore so long as they do not market or collect money within China. The ability to process payments, then, is one of the bigger obstacles. China is still predom- inantly a cash culture where credit cards are rare and not always trusted.This is largely the case throughout East Asia. “It’s been hard to crack it,” said Sue Sch- neider, chief executive of eGaming specialist advisors River City Group. “There are not a lot of good Asian pay- ment solutions. And there are regional dis- tinctions in terms of payment preferences. But there are a lot of people working on this. It is a huge topic for the industry.” There are cultural obstacles as well: a distrust among the Chinese generally of ma- chine gambling – and this extends to com- puterized random number generators – and there is the primacy the Chinese place on person-to-person relationships, which is as powerful when it comes to placing a bet as it is in every other area of commerce. Despite all these factors, though, and de- spite low Internet penetration relative to her 1.3 billion people and per capita income lev- els that are still very low comparedwithWest- ern Europe’s, online gambling has grown in China into a substantial industry populated by several hundred Chinese-language Web sites. Since the first Chinese-language portal was launched about six years ago,the market has expanded to US$12 billion in annual rev- enues, according to the estimate of US-based Christiansen Capital Advisors. Other analyses figure the market to be several times larger. “China and Japan stand out to me,” said Simon Holliday of Global Betting and Gaming Consultants.“Increasingly China, especially in soccer betting. The middle classes there are growing and they’re getting wealthier. China is the stand-out opportunity. But it is going to take some time.” The ‘Grandfather of Mahjong’ In a development that could speed things up, the government of theMacau Special Admin- istrative Region, home to Asia’s largest casino industry and the only legal one in China, an- nounced earlier this year that is was crafting regulations for licensing Internet operators based in the peninsula. The structure is not expected to be in place before 2008. Neither is it certain whether licensees will be taking wagers from the mainland, although it is dif- ficult to see how the S.A.R. could proceed down this road without the nod from Beijing. Tax is another unknown. But even a 25 per- cent rate,which is what officials are bandying about, might not be insurmountable given the enormous potential of the market. “These are not features that have yet been passed,” said the SAR’s Commissioner for Gaming Jorge Oliveira,“but we intend to regulate everyone.Anyone who accepts bets, including betting exchanges, will be regulat- ed, and the regime will be open to all.” What this sets up is the possibility of some interesting combinations for the well- known casino brands that are already clean- ing up in Macau’s US$7 billion land-based market — Wynn Resorts, Las Vegas Sands, Galaxy, Stanley Ho’s SJM and big names that soon will be bringing big resorts of their own to the peninsula, like MGM Mirage and James Packer’s Australia-based Publishing and Broadcasting Ltd. “I think we’re going to see some Asian and Western joint ventures,” said Littlepage, “just as we’ve been seeing a lot of the Asian companies coming to London for financing.” That said, official recognition in Macau will not guarantee access to the mainland without Beijing’s approbation, and what this appears to require at this point are business models consonant with the central govern- ment’s so-called “green Internet policy” de- signed, in the words of the ministries respon- sible for implementing it, to “purify the cyber environment.” In line with this policy, China imposed a law last year to beef up prosecu- tion of Internet pornography,spam and gam- bling. At the same time, government is said to be interested in the public revenue poten- tial of legalized, controlled Web games if the right regulatory framework can be presented to them. This cautious approach can be said to be characteristic of governments’ official approach to the Web throughout Asia, and other jurisdictions in the region are taking a similar look. “Regulation is a big hurdle,” said Littlep- age.“You have to get to a point where these rather unsociable political environments can be enticed with the benefits of legalization.” Macau, meanwhile, is testing multi-site mahjonggaming,which couldbe operational this spring. A Toronto-listed company called Dynasty Gaming, which has developed soft- ware for a cash wager version of the popular Chinese pastime, has signed a letter of intent with Sino Strategic International — a well- placed investment holding company with offices in Hong Kong and Australia and a sig- nificant stake in China’s US$8 billion plus wel- fare and sports lotteries market – for distribu- tion of Dynasty’s “play-for-points” version of mahjong and other Asian“soft”games.These will run on a virtual private network operat- ing out of Shanghai. The VPNs are a platform through which legal games and lotteries can be played on the mainland. Dynasty also is one of the organizers of the “World Cup of Mahjong” scheduled to be played in Macau this month. Combinations like these illustrate the importance both Asian players and Asian of- ficialdom place on brand comfort. It cannot be overstated. Tim Holland of TheKey2Asia, a Singaporebased firm specializing in market- ing and business development in gambling, sports and media, highlighted this in a re- cent issue of the trade magazine eGaming Review: “A quick look into the history of Asian gaming and the history of new entrants to the market explains why branding is impor- tant. The industry has traditionally worked on trust through a peer-to-peer network of individuals working on behalf of an opera- tor. Wagers are placed verbally and money is collected after the event. The operator has to trust the client that he has the money to T