Inside Asian Gaming

INSIDE ASIAN GAMING | October 2010 8 Cover Story regulation for the state lotteries in May 2009. The new rules also involved a complete re-tendering process for the existing lottery service providers and a provision for new, higher levels of registered capital for the bidders. Raising registered capital requirements is a technique the Chinese government typically uses if it wants to stamp out unruly or illegal commercial activity. It has the twin benefits of screening out the fly-by-night operators and of guaranteeing compliance with the government’s wishes by the bigger companies. Failure to comply could result in the freezing of the guaranteed start up capital, which effectively acts as a bond. In theory, this system should actually work to the advantage of larger Chinese and foreign companies. This level of political risk would probably be acceptable to investors in China’s official lottery system, were it to end there. But it gets more complicated. China is governed in a less centralised way than many foreigners tend to assume. The state lotteries are administered on a provincial and even city level in the bigger urban areas. This means deals with suppliers are also done at that subsidiary level. That’s fine as long as the central government is comfortable in broad-brush terms with the way they are being administered. If problems come to its attention, the central government can unilaterally cancel agreements at local or even national level. The possibility that government defensive action against corruption causes collateral damage for investors playing by the official rules is ever present. This does not amount to a counsel of despair with regard to foreign investor involvement in China’s official lotteries, but it does point to the importance of having a local partner with insight of the potential pitfalls. An example is the regulatory turbulence experienced recently by the Sports Lottery. The Sports Lottery is authorised to take bets on foreign soccer matches and NBA basketball games (though not ‘in play’betting during live match broadcasts—one of the most popular bettingformatsamongAsiangamblers).Theproblemisthatthesports lottery has been dragged into the corruption scandal facing Chinese domestic soccer in China, including allegations of match fixing and even the purchasing by players of places in the national squad. While it cannot automatically be assumed that corruption in the governing hierarchy of domestic soccer extends to the administration of the Sports Lottery, the central government appears to be acting as if it assumes that to be the case. A moratorium was recently placed by the central government on the use of mobile phone applications enabling betting on the Sports Lottery. That was despite the fact that a number of companies had already concluded deals to supply such applications to Sports Lottery managers in several provinces. In mid-September, China Daily —an English-language newspaper normally thought to have good access to official government thinking—reported that an investigation into a former vice- chairman of the Chinese Football Association (CFA) and two other officials “has fuelled widespread suspicion that the former CFA was deeply involved in match-fixing and soccer gambling”. The newspaper added tartly: “The development has also confirmed the general belief that the chaos in Chinese soccer is not a matter of one rotten egg spoiling the whole pudding. The sport here is rotten to the core and only a full operation can remove the problem.” Parlour Games Chinese entrepreneurs are creative in offering alternatives to baccarat and other casino pastimes There’s more to commercial gaming within China than just the state lotteries. There are physical parlours and arcades in many towns and cities offering customers games that can look to an outsider remarkably similar to casino gaming. These ventures are probably too rich a brew for foreign investors to savour and are likely to carry much higher regulatory risk than would involvement in the state lotteries. They may, however, be of interest to Hong Kong or Macau-based investors or those seeking indirect exposure to the sector via some of the gaming equipment suppliers based in the PRC that have sprung up in the last few years to serve this grey market. The games in these venues range from the technically clever but probably legally compliant—such as pseudo baccarat video games played in arcades for token prizes; to the downright illegal— underground slot parlours using video slot machines imported from Russia or produced domestically and offering cash prizes. An executive with extensive knowledge of mainland China’s commercial gaming market told Inside Asian Gaming : “There are a lot of game parlours and amusement with prizes arcades in China, but it’s a grey area of the law. A lot of the games are actually baccarattype games just using different names for ‘player’‘banker’ and ‘tie’. “The government tends to regulate by the name of a game. If it’s called ‘baccarat’ it’s considered gambling. It’s different in Hong Kong. There the definition of gambling is if you are playing for real money rather than tokens. That’s why in Hong Kong in the video arcades you have baccarat and blackjack machines and they are legal. They are very similar to the gaming machines in Macau casinos. The difference is that in Hong Kong you can only play them for tokens, not cash. The arcade owners in Hong Kong actually won a lawsuit against their government a few years back to clarify the definition of gambling. But in China they have it written down somewhere that if it’s called ‘roulette’ it’s illegal, if it’s called ‘sic bo’ it’s illegal and if it’s called ‘baccarat’ it’s illegal. That’s why in China you see a lot of games that are very similar to baccarat, but have different names and use different symbols. So, for example, on a baccarat type game you can’t call the betting options ‘player’ and ‘banker’. You have to call it something else such as ‘Betting on the Flowers’. There’s one version of baccarat known in China as ‘Three Sisters’. There’s a blonde-haired girl and a black-haired girl representing ‘banker’ and ‘player’, and another girl representing a ‘tie’. “Roulette can be ‘Betting on the 12 Animals’. That’s a very strange version of roulette with a wheel based on the 12 Chinese astrological Chinese football–not as round as it should be Catch them young—arcade gaming in China