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 "I haven't won yet. Hopefully one day. But for now, it doesn't
matter because the money goes to charity," Shen said in the brightly
lit store on a busy road in Shenzhen, a booming metropolis just
north of Hong Kong.
Half a world away in New York, investors in Chinese online lottery
platform 500.com Ltd have found their own winning ticket: the stock
has nearly tripled from its $13 initial public offering price in the
six weeks since its New York Stock Exchange debut.
500.com, the only Chinese lottery firm so far listed in the United
States, is among a handful of listed companies that stand to benefit
as China whittles down thousands of private lottery operators to a
handful of licensed and regulated firms serving more than 400
million punters, say industry experts.
"Over the next five years it is very clear that the Chinese market
will continue to grow very quickly and the government regulatory
regime will become more open and transparent," said Zhengming Pan,
chief financial officer at 500.com.
Spurred by rising disposable income, a strong appetite for gambling
and more sophisticated games, China's lottery market has boomed with
customers splurging some $23 billion in 2012, compared to $37
billion by punters in the world's biggest lottery market in the
United States.
With 20 percent growth rates projected for the next three years,
China is expected to overtake the United States and leap into the
top spot by 2015. The U.S. lottery market is expected to show single
digit growth during the same period.
Sales revenue generated by the lottery industry in the United States
was $71 billion in 2012 compared with $43 billion in China,
according to data from China's Ministry of Finance and the
U.S.-based North American Association of State and Provincial
Lotteries.
With just 7-8 percent of Chinese adults buying lottery tickets
compared to 70-80 percent of adults in the wider Asia Pacific
region, the government is keen to lure more punters with improved
payouts, new products and wider distribution channels, industry
executives say.
"The Chinese government wants to consolidate the current lottery
market, making it easier to control and regulate," said Hoffman Ma,
deputy chairman of Success Universe Group Ltd, a leisure and gaming
company authorized to provide sports lottery sales agency services
in three provinces.
"They are seeking operators with stable platforms and want to ensure
that all bets that come through will pay tax."
Unlike the United States and Europe, where prizes can climb into the
hundreds of millions of dollars, China caps jackpots at 10 million
yuan ($1.65 million). Tickets sell for 2 yuan to 200 yuan, with
proceeds supporting sports and welfare charities.
NEW RULES
Lottery products are typically sold through authorized stations
throughout the country in the form of physical tickets. These range
from dedicated lottery stores to counters in supermarkets, post
offices and gas stations.
Beijing is expected to announce new rules in 2014 that will clarify
and detail legislation in the fast growing industry. New license
approvals are likely to be issued within the next two years, say
industry experts, but specifics remain unclear.
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Companies like Okooo.com, the web platform of lottery terminal
provider REXlot Holdings Ltd, which have a solid reputation,
technological capabilities and government background could win new
licenses, said research house Cinda International.
Okooo.com processed lottery orders worth 6 billion yuan in 2012, and
became the exclusive partner of state-backed media website People.cn
Co. Ltd in August.
Just a few years ago, China's lottery market consisted largely of
traditional paper lotto tickets. Now, single match games, where
players bet on the results of basketball or football, video lottery
terminals and scratch games, are more common. Internet and telephone
became legal lottery channels at the end of 2012, but online tickets
still have to be backed by paper stubs until an actual online market
is created.
The Chinese government has so far contained casino gambling to
Macau, in part because of social concerns. Officials consider the
lottery system more sanitized, with fewer negative effects on local
citizens, said Chen Haiping, a professor at Beijing Normal
University's lottery research centre.
"It is not realistic to completely ban all forms of gambling. If the
government opens gambling, they face ethical issues but if they do
not, neighboring countries will continue to attract Chinese tourists
to gamble and from the government's point of view that is a loss of
state income," said Chen.
Hong Kong-listed AGTech Holdings Ltd won government approval to
launch its virtual sports games in some provinces and is expected to
roll out games like the Grand Prix-based Lucky Racing Gaming and
football game Electronic Ball Lottery nationally in 2014.
These games are aimed at middle-to upper-income Chinese rather than
lower income workers who account for the bulk of lottery purchasers.
AG Tech's share price has surged some 205 percent over the past
year.
John Sun, AGTech's chairman and chief executive, expects the
industry to become more open in the next five years with new
products and channels. He remains concerned, however, that the
industry needs a strong gaming commission or regulator to set
standards and monitor operators.
"In the gaming industry, integrity is the most critical foundation,"
he said. "If you don't have good compliance or a good check and
balance, the degree of credibility is a big issue."
(Editing by Emily Kaiser and Miral Fahmy)
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