Inside Asian Gaming

October 2010 | INSIDE ASIAN GAMING 7 Cover Story The English preamble to Hainan’s 21st century ten-year-plan stated it would “explore ways to promote local lottery and gaming industries”. The use of that phrase ‘gaming industries’ was what got some analysts and commentators jumping up and down. Seasoned China-watchers will not be surprised to learn that this apparently amber signal changed abruptly back to red in March. “Hainan will not follow Macau’s road. Our target is to turn into an all- season garden for people across the world,”Tan Li, the Vice Governor of Hainan province, told Chinese news agency Xinhua . Hainan apparently went from embryonic gambling hub to international garden centre either in one swift Beijing slap down or one hasty retranslation. This position seems to be consistent with what’s been happening in the state lottery sector in China. Gaming that looks like casino slot machine gaming has been on the wane in officially sanctioned outlets, while sales of conventional lottery products are on the up. In February 2008, China Lottery Online’s video lottery terminal (VLT) halls were put on shorter opening hours, lower returns to player, and a daily limit per player on the amount of money bet. It quickly showed in the figures. VLT sales were down 96% in the first four months of 2009, according to data from the China Welfare Lottery Issuance Centre (CWLC), the main lottery operator alongside the smaller China Sports Lottery Administration. The fact that VLT machines outwardly look a lot like casino slot machines (the crucial difference being that the ‘brain’ for VLTs is centralised, rather than being in each unit, and prize issuance is centrally programmed) might have something to do with the negative attitude of officials toward the product category. By contrast, the sales of more conventional lottery products— draw tickets and scratch cards—have been soaring. In the first four months of 2009, sales of sports scratch cards rose 387% due to national expansion of the point of sale network that had covered only nine provinces in 2008. Cherries on the Cake Alternatives to casinos for gaming investors in China T he possibility of the tide moving back in favour of pseudo- casino gaming within China, and that in turn having an impact on Macau, can’t be ruled out entirely. There is, though, a lot of non- casino gaming fruit hanging much lower down the tree in China that could potentially be picked by domestic and foreign companies interested in making money. As we reported in the December 2009 edition of IAG , at one end of the spectrum is online computer role-playing games where participants compete for access to virtual treasure and virtual currency. While superficially this doesn’t look like what the casino industrywould traditionally think of as gambling, players do arguably exhibit gambling-like behaviour, such as a desire to beat the ‘house’ or other players by spending large amounts of time and money to achieve dominance in the game. Then there is the manifestly legal state lottery system. The Welfare Lottery was founded in 1987 and donates money it raises to more than 80,000 community projects across China. Welfare lottery sales (turnover) alone exceeded RMB70 billion (US$10.44 billion) in 2009, according to CLWC. In the same period Macau’s gross casino revenues were MOP119.4 billion (US$14.95 billion) according to figures from Macau’s Gaming Inspection and Coordination Bureau. In May this year, the Chinese media reported the combined sales of the two lotteries had reached RMB34.62 billion (US$5.07 billion) in the first quarter of 2010—an increase of 24.5% compared to the equivalent period a year earlier. In the same period, the gross revenue of Macau casinos was MOP40.95 billion (US$5.13 billion), a 57.3% increase year-on-year. Gaming investors and equipment suppliers might reasonably assume they are on safe ground if they were to put their money and their efforts into chasing the officially sanctioned state lottery market. China has an official population of 1.3 billion people. In 2007, 49.5% of them were in the most economically active 15 to 44 age group, according to estimates by the United Nations. That’s a huge number of potential lottery customers. In practice, as with so many things in China, the situation—including risk management—is more complex. First, the good news. Unlike the command and control economy experienced in the first three decades of China’s communist revolution, private enterprise has permeated all aspects of the economy, including the lottery. Companies—including ones based in Hong Kong and even overseas suppliers—tender on a city-wide or province-wide basis to provide lottery services such as point of sale kiosks or mobile phone applications for delivery of lottery tickets and services. Now the not-so-good news. By the government’s own admission, China has a lot of corruption. Any business generating the sort of volumes of cash created by lottery sales will be a target for the bad guys. One big problem used to be lottery consolidators purchasing blocks of official tickets anonymously, reselling them to the public and then failing to honour winning tickets. The government stamped down on this practice when it introduced the first national Tan Li, Vice Governor of Hainan The right kind of balls up— China Football Lottery draw On sale here—China Welfare Lottery