Inside Asian Gaming

INSIDE ASIAN GAMING | September 2008 10 Cover Story described China’s hundreds of millions of dedicated gamblers and consumers as the “mother lode” as far as his company’s future was concerned. This may well be true, but it’s a mother lode surrounded not just by the infamous Internet filters of the Great Firewall of China, but a whole pile of cultural barriers high enough to make a US Marine assault course look like a Scouts’ day out. Chief among these is the agent system. On one level it is very simple (a way of facilitating credit) but on other levels it is mind- bogglingly complex. In this respect it’s a wonderful example of the Asian genius for giving respectful face to authority while at the same time almost completely subverting the purpose of an original rule or regulation—all in a way that gives everyone a taste of the action, thus guaranteeing that no one (or hardly anyone) has an interest in rocking the boat. Efficient but Expensive The agents’ take makes Macau’s gaming tax look like a bargain The explanation given in the preceding section is the simplified version of the agent structure. A foreign company has virtually no chance of making that agent systemwork successfully without a local partner to advise it.The alternative,which would be direct marketing, isn’t possible in China or much of the rest of Asia. “The problem is that if you want to do direct marketing in each country in Asia, you have the risk that your website will be blocked,” explains Mr Hsu of iFaFa. Not cheap “The agent system is good, but it is very expensive. Agents take up almost 90% of the revenue in commission. A Western company coming here says, ‘Wait a minute, we can’t do business like this’. In other markets a software provider would expect a 45% share of the win,” he adds. It makes the Macau government’s 40% tax take on gross gaming revenues look like a bargain. Mr Hsu says given the challenges for foreign investors of coping with the Asian agent system, a more realistic approach might be to leverage Asia’s cheap labour and send live video streaming from Asia back to Europe. “You could be a software provider for a blackjack game, for example, and video stream to Europe from Asia. It’s happening now.” Online products Mr Hall from Asianlogic says sports books dominate the Asian online market, with deposit betting (i.e., money paid up front) accounting for only 10% of all the money wagered. Over time, the definition of gaming is expanding both globally and in Asia. The popularity of services such as Tencent QQ, China’s most popular free instant messaging computer program, is helping to create markets for products such as subscription-based role-play games.Providers of such services could also turn to the agent system to facilitate collection of revenues. In the Asian online casino sector, Mr Hall estimates that live video stream baccarat accounts for more than 55% of the market. Products under this heading include standard baccarat, tie bets, pair bets, over/under bets, baccarat insurance, and VIP squeeze baccarat Video streaming provides a virtual casino experience without the high costs of land-based gaming. Croupiers in low wage jurisdictions such as the Philippines deal the cards live via a remote video link. The challenge in building up this market in Asia is that in a low trust culture such as China, many players worry that service providers ‘fix’ video stream games to ensure the player loses. China central When talking about the agent system we should really call a spade a spade. Reference to the ‘agent system in Asia’ is generally a euphemism for ‘the agent system in Greater China’. That area, including Macau and Mainland China, has by far the biggest and most complex system of betting agents anywhere in Asia and almost certainly the world. “An important issue for foreign investors wishing to get into Asian online gaming is that they need to use the agent system, but that system might not meet the due diligence test set by regulators or investors in their home country,” explains Mr Hsu. “If you ask me ‘Do you have to be Chinese to make the agent system work for you in China?’, my answer would be: ‘If you’re Chinese you understand it culturally and have a better chance of recovering payments’,” he adds.