eGaming Review

By Andrew Gellatly

PERHAPS IT HAS SOMETHING to do with the legions of free-spending mainland Chinese citizens at the baccarat tables in the nearby Sands casino, but while this year’s Pacifi c Congress on Igaming (PCIG) was billed as being a pan-Asian affair, Macau’s massive neighbour received most of the attention.

Of course, those thinking of offering online gambling into China have to negotiate a completely unfamiliar legal infrastructure, difficult local partnerships and a labyrinthine payment network.

But the numbers make up for all of that. As Sam Woelm, a consultant with Playtech, noted: “When you look at China the numbers are way, way, up. The top gaming sites in China are generating registered players in the millions and upwards of 500,000 concurrent players. By contrast Japan’s gaming networks such as Nexon and Hangame show concurrent game users of around 5,000 to 10,000.”

Teasingly, while there are only a tiny number of credit cards, there are more than 1.2 billion debit cards in use in China. But access to the debit card system has to be through one of the principal Chinese banks. “It is a highly centralised financial system,” confirmed Qing Xiou, director of Beijing-based Cosmos International

Investment, which issues a payment card called UDPay in association with Post Bank of China. “No companies other than banks are legally allowed to provide universal payment systems. Right now the regulators intend to maintain the status quo as the banks are relatively easy to control,” she said.

The problem with debit cards is that the banks that issue them tightly control their uses to prevent gambling transactions, and a real name system hinders privacy for players. It may be possible for operators to get around some of the restrictions at a provincial level.

But as Xiou notes: “You’ll need to find someone well-connected at a provincial level to open a bank gateway, and even then the centralised system won’t allow that to go on forever. Maybe you can make it work in one or two provinces, but it is in the nature of China that these things will be shut down.”

Geological timescale

Xiou added that China’s contemporary banking culture is, ultimately, an extension of the nation’s history. “There has been 1,000 years of struggle between central government and the regional governments and that applies just as much in the banking system.”

A banking system that changes on a geological timescale may be more than many operators can handle. The only alternatives are stored-value pre-paid cards, issued by most of the gaming sites, which have the advantage of nationwide availability. But the downside is that up to 25% of their value disappears in the five levels of distribution they pass through on their way to the internet-café level.

And, as Xiou notes, the division between game playing and gambling is not yet permeable. “There is no service yet called a gambling card. You need to conceal that fact,” she admits.

Working within what the Chinese government will permit raises whole other areas of concerns, and the consensus at PCIG was that money gambling, if it starts at all in China, will start at a local and tightly controlled internet-café level.

Teddy Cheng, the larger-than-life chairman of Sino Strategic International, spoke about a new domestic poker network called the ‘Green Poker Project’ to be put in place between government-licensed internet cafés. Cheng noted that in February this year the Communist Youth League began a scheme to provide cash-tournament games including poker, mah jong, dou-di-zhu, and the poker variant cho-da-di over a local area network.

“This is very much a domestic model” said Cheng. “Like many things in China, change is taking place in measured steps. They are not allowing home play until the government has properly understood the market and they also want to tax the revenues effectively,” Cheng added. “There is a very clear restriction on promotion – no TV ads are allowed for example. The government is very sensitive on its approach.”

Cheng added that a further white paper is due next month, which will describe in more detail how international peer-to-peer (P2P) operators can participate, but that the process would take time.

Macau pushes forward with online gaming

But while the Chinese mainland makes its own glacial progress towards online betting, Macau, known as the world’s fastest-growing land-based gambling centre, came up with its own conference surprise by announcing plans for a new online licensing regime.

“We have everything set up, we are building the framework and we take the view that we should take one step forward,” announced Carlos Lobo, legal adviser to the Macau Gaming Commission. A wholesale review of Macau’s gaming laws, including those applying to land-based operators, is due to begin next month and the remote licensing changes could happen as soon as 2008.

“The recommendations are our policy advice. What the government decides is a completely different matter,” cautions Lobo, noting that the chief executive of the Special Administrative Region, Edmund Ho, will likely wait for an optimum time to sign off on the changes before his term ends in 2009.

But Jorge Oliveira, Macau’s commissioner for gaming, said that the gaming board planned to issue licenses lasting from between three to fi ve years. “We intend to regulate everyone. Anyone who accepts bets, including betting exchanges, will be regulated, and the regime will be open to all,” Olivera said.

Prospective Macau licensees will have to demonstrate their suitability, technical aptitude and fi nancial capacity though. Oliveira indicated that the tax levied on gross gaming revenue, likely around 5%, would be an exclusive tax, but with a fat budget surplus already from their land-based licensees, the one thing the Macau government is not worried about is tax revenues.

“We have a lot of people telling us they want to come to Macau,” says Oliveira. “But our job is to regulate and see what happens. If it works, it works. We’re not really concerned about making billions.”

Balance interests of the land-based market

Observers noted that new licenses may prove to be a hard sell for the existing casino operators. “I don’t think Macau will miss the opportunity to have egaming but it’s hard to see how they will balance the interests of the land-based industry,” said Jason Chan, a Hong Kong-based gambling consultant.

But with the land-based market expanding so fast, few operators would be bold enough to raise a substantial objection. Certainly a move by Macau to license online operators would clarify a very grey area in the region. Online gambling is prohibited in the former Portuguese colony by its Law 16 passed in 2001, but a number of operators are already based there.

Abex88.com, a betting exchange partnership between a Hong-Kong based company and Dublin-based Betdaq, has been operating from Macau and Stanley Ho’s Macau-slot has publicised its activities by giving out marketing CDs in the Lisboa casino.

The Macau regulators say they will not be able to guarantee access to the enormous Chinese market, but as Oliveira notes, risk is relative. “We don’t see the mainland threatening to arrest people from the Hong Kong Jockey Club. Why should they do that with us?”

Posted: 2007-04-12