CHINA

Sales boom raises regulatory concern

China’s lottery sector continues to boom, but uncertainty over how Beijing may react to the rapid growth continues to linger, with big questions over the future direction of online sales and sports betting.

In recently announced figures, China’s Ministry of Finance said total lottery sales in 2018 enjoyed a 19.9 percent year-on-year increase to CNY 511.47 billion ($75.85 billion).

The growth was powered by the China Sports Lottery, which during a World Cup year saw sales grow 36.8 percent to CNY 286.9 billion ($42.55 billion). For the first time, Sports Lottery sales outstripped those of the China Welfare Lottery, which saw a modest 3.5 percent year-on-year increase to CNY 224.56 billion ($33.3 billion).

“Generally speaking, the administrations of the [Sports and Welfare Lotteries] are happy to see the rapid increase of lottery revenues, which means funding for good causes increases accordingly,” Dr. Haiping Chen, a researcher at the Lottery Research Centre of China at Beijing Normal University told AGB.

“However, some officials at the Ministry of Finance, which serves as the monitoring organization, are concerned about whether the growth is a good thing. Based on the past few years of data, the amount spent in some western provinces on the lottery is a little bit too high versus the per capita disposable income of urban residents,” Chen added.

Indeed, while Guangdong remains China’s largest single province for lottery sales, the western province of Guizhou was one of two provinces in the country – alongside Jiangxi – to report a yearly increase in sales of more than 30 percent.

Still, lottery’s strong performance is very much a national phenomenon; of the 31 provinces and cities licensed to sell lottery products, all but Tibet recorded revenue increases in 2018.

The Sports Lottery very much took centre stage. Sales throughout the month-long World Cup totalled a staggering CNY 46.34 billion ($6.87 billion) alone, at a margin of roughly 18 percent, meaning gross revenue topped CNY 8 billion for the tournament.

Single day sales for the final between France and Croatia smashed previous records, clocking in at CNY 2.74 billion ($406 million).

These impressive figures – almost four times those recorded during the 2014 World Cup – were powered by an extended product portfolio which offers customers greater freedom to select the types of bets they want to place.

According to Chen, while there is no timeline nor discussions, to legalize sports betting formally, it is likely that the scope of the Sports Lottery will continue to be expanded towards something approaching sportsbook.

“The central government has developed an aggressive plan to promote the sports industry, and it has mentioned that it will explore new types of sports betting,” he said.

Professor Su Guojing, lottery expert and founder of the China Lottery Industry Salon, concurs: “In order to develop and push the Chinese sports industry, the Sports Lottery will gradually expand and open, for example to incorporate Chinese football,” he told AGB.

Despite the strong performance in 2018, the biggest question on the future of China’s lottery sector is whether online sales will once again be permitted.

Online lottery sales were suspended in March 2015 on what was, at the time, described as a temporary measure designed to curb corruption. Until then, two operators – 500. com and China SMG – had been permitted to sell tickets online as part of what the Chinese government described as a pilot program.

Almost four years later and central government seems keen to reaffirm this ban, with the Ministry of Finance in September issuing updated

lottery rules that include Welfare and Sports Lottery tickets sold via the internet within its definition of an illegal lottery.

Despite the ongoing ban, unauthorized online lottery sales remain commonplace, although central government does appear to be cracking down. In August, Apple removed as many as 25,000 lottery and gambling apps from its China-facing App Store following criticism in state media.

Nonetheless, the lotteries themselves appear more optimistic for a return of legal online sales. An official statement on the Chinese lottery website in September talked of the need to “vigorously explore” options surrounding the internet and lottery sales.

In order to develop and push the Chinese sports industry, the Sports Lottery will gradually expand and open.

Su said that a return to online lottery sales will be a “gradual process” that will be accompanied by improvements to the wider regulatory framework of the lotteries.

Chen said the suspension of online sales was closely linked to the growth of a large number of unauthorized vendors, and that he expects to see a return once the government hasfound a way to build, or regulate a handful of monopolistic channels.

While it may take some time for the question of online sales to be settled, China’s lottery sector faces some more immediate concerns if it is to build on an impressive 2018 performance.

For Su, the focus for 2019 will be on social responsibility. For Chen, there are two key challenges: maintaining growth during an economic downturn, and restoring public confidence in an industry that has been plagued by a number of corruption scandals.

Regardless, if China’s central government decides it wants to bet big on its lottery industry, 2019 should be another record-breaking year.

AGTECH appoints new CFO

China lottery supplier AGTECH Holdings has announced the resignation of its executive director and chief financial officer Mr. Zhou Haijing, effective Jan. 30.

AGTech said the resignation of Mr. Zhou was due to “position re-arrangement” and for him to devote more of his time to his new position in Alibaba Group.

In his place, Ms. Hu Taoye has been appointed as executive director and CFO, she will also be taking up his position as a member of the risk management and internal control committee of the company.

Government targets WeChat abuses

Beijing is cracking down on the use of the popular WeChat social media site for gambling purposes.

Those found guilty will now be subject to the same punishments as those who operate illegal casinos under Article 303 of the Criminal Law. Individuals convicted under this section of the law face stiff financial penalties and up to 10 years behind bars.

In particular, authorities are targeting the use of WeChat’s popular red envelope money transfer service, which they say has been used to facilitate gambling.