Inside Asian Gaming

INSIDE ASIAN GAMING | August 2011 26 (CLS). CLS has two long-term, exclusive contracts with CWLC: one for providing VLTs and the other for providing a KENO system and terminal equipment. CLS also has an exclusive five-year contract (which commenced July 2009) to provide betting terminals and services to the Guangdong provincial government, as well as several mobile phone lottery contracts. Inside Asian Gaming spoke to CLS Executive Vice President and CFO Daniel Liao about the prospects for China’s lottery industry. IAG : Please tell us about some of the major recent developments in China’s lottery industry. Daniel Liao : The government in China published its first lottery law back in mid- 2009, making lottery the only legitimate form of cash gaming in mainland China. This is very important because before this, lotteries hadbeen running inChina for nearly 23 years without clear central direction from the government to the market. In mid-2009, the first lottery law was signed directly by Premier Wen Jiabao. This law gives a very important corporate or government structuring to the lottery business in China. After the lottery law was passed, the Ministry of Finance became the most important regulatory authority of the entire lottery industry. Now, all the data on the lottery industry is being officially published by the Ministry of Finance. After the Ministry of Finance took over, they reviewed the entire market. The lottery in China is regarded as a means for the government to raise revenue to help the poor and needy, but the Ministry of Finance realised that the majority of participants in China’s lottery were poor, so effectively, the government was collecting from the poor to help the poor. In order to increase the proportion of more rich people participating in the China lottery, the government decided to approve more ‘aggressive’ lottery products including sports betting. A lot of investors are surprised that although China is run by communists, in the lottery domain, they are probably moving much faster than a lot of countries, say the United States. In order to increase the proportion of more rich people who participate in the lottery industry, the Ministry of Finance not only introducedmore aggressive products, but has also started to expand the distribution channels. There were two policies issued by the Ministry of Finance in October last year, allowing lottery products in China to be sold on the Internet and mobile phones. I think this is going to happen very soon, in the next six to twelve months’ time. That offers great potential since China has the world’s biggest population of Internet and mobile phone users, at around 600 million subscribers. This obviously bodes well for China’s lottery market, and for your business. 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. A lot of investors were very surprised, and even sceptical, that the government had decided to become so aggressive in the lottery market. The reasons are twofold. First, the new products and outlets allow the government to collect more money for social welfare spending and disaster relief funds. Secondly, everybody knows that illegal gaming is rampant in China, so it’s better for the government to expand its own range of legal offerings and collect the money for worthwhile causes. Daniel Liao China Lotsynergy