Legalised online sports betting for China?

The possibility of online sports betting in mainland China was raised this week in an interesting article published in the Macau Business Daily on efforts by a company titled 500.com Limited to launch an IPO in the United States in a bid to raise $150 million.

The word is that 500.com has the tacit approval of China’s Ministry of Finance to develop a purpose built platform for Internet sports betting.

The move could a revolutionary development in a Chinese market where government-sanctioned lottery providers – licensed on a provincial basis – have merely signed agreements with online retailers to generate tickets for sale in traditional shops, rather than building tailor-made systems for online gambling in the manner of Western bookmakers.

The Macau Business Daily says that Macau would be excluded from the scheme due to the Macauslot (Sociedade de Lotarias e Apostas Mútuas de Macau Lda) monopoly – the only company legally authorised to operate an online portal for betting on football and basketball in the gambling enclave.

The report notes that 500.com will work with the national Sports Lottery, set up in 1994 as a sister body to the Welfare Lottery. Both distribute to worthy causes, and in addition to lottery tickets also offer other random outcome games.

Macau Business Daily claims that anyone trying to access the new online system via a mobile device is likely to have their location automatically tracked so they cannot make cross provincial border bets.

Anonymous industry insiders in China told the newspaper that one of the main barriers to building the legal sports betting business in the populous nation is that the return to player is poor compared to international bookmakers.

The mandatory maximum return to player of 69 percent lags far behind that available on global internet bookie sites which are as high as 95 to 98 percent, they said. The potential sports betting market in China is vast, however.

Insiders additionally pointed out that to date the Chinese government has not met one of the major demands from Chinese consumers – ‘in-running’ betting on football and basketball while matches are in progress.

Chinese media recently reported that a single unlicensed online bookmaker taking ‘in-running’ bets on the mainland and allegedly involved in running illegal websites in Macau was said to have made a profit of 11 million yuan (US$1.8 million) on one percent of players’ losses plus commission in fewer than 12 months up to the time of his arrest last year.

“Most people don’t use the government channels,” a lottery insider told Business Daily. “Making it available on the Internet is going to make it easier for some customers and no doubt that will stimulate some demand. But until you fix that fundamental pricing problem you’re still going to struggle to capture the huge market that is obviously there.”

Chinese industry sources said that Shenzen-based 500.com is likely to get a better valuation in a US IPO than one in Hong Kong, and has applied to list on the New York Stock Exchange under the symbol WBAI. Deutsche Bank AG is managing the offering.

“The Hong Kong stock market is not a particularly good place to do an IPO if you’re a gaming company that doesn’t have casinos in Macau or the Philippines or Singapore,” a lottery industry insider told Business Daily.

“Investors and analysts in China only know about traditional casinos. Most of them don’t understand lotteries, sports betting etc. To go to the United States and say ‘We have access to the China gambling market, we are legitimate, and are using the Internet’ – the investors’ eyes will probably light up and the firm will probably get a higher valuation.”

500.com offers betting services through the Web and via mobile applications. It more than doubled its users to 18.4 million by the end of September, from 8.8 million at the end of 2010, according to a regulatory filing. The firm says it will use the proceeds from an initial public offering for technology upgrades and marketing.

Net income at 500.com almost doubled to 20.6 million yuan from a year earlier in the nine months to September 30, as sales increased 25 percent to 163.4 million yuan, the company said.

Two other China-based Internet businesses, 58.com Inc and Qunar Cayman Islands Ltd, plan to complete their own initial offerings by the end of this month, according to Bloomberg.

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