Analysts Cautious on Crypto Subsidiary's Chinese Deal

3 September 2008

Mahjong Time, a minority-owned subsidiary of CryptoLogic Ltd., has done a deal in China to offer online, tournament-style mah-jongg across mainland Internet cafes.

"Mahjong Time has signed a new licensee that gives us unprecedented access to China," William Sutjiadi, the chief executive of Mahjong Time in San Diego, told IGamingNews by e-mail Tuesday.

Under the agreement -- financial details of which were not disclosed -- Mahjong Time will offer online mah-jongg tournaments, supported by a proprietary payment solution, across 50 percent of China's Internet cafes.

"Mahjong Time will be able to tap into the licensee’s broad marketing presence and internet cafes nationwide," Mr. Sutjiadi said. "Customer support and hosting will be supported by the licensee. We will release more details via our press release in the next few days."

By press time Wednesday, Mr. Sutjiadi had not responded to an e-mail seeking both the licensee's identity and an explanation of how revenue was to be derived.

When asked about how such a deal might look, one financial expert with knowledge of compliant China-facing gaming models told IGN by e-mail:

"I would guess that it would need to be subscription-based as real-money gambling is illegal -- not real sure how they can get around that. Then I think that Mahjong Time would share revenue with their operating partner, probably in the 10-15% range."

CryptoLogic, meanwhile, was quick to highlight the deal is helping it "take major strides in Asia," and that its investments in the region are meeting or exceeding their targets.

However, Todd Eilers and Adam Krejcik, analysts with Roth Capital Partners in California, were less rosy in their assessment of the deal.

"We highlight that the online gaming market in China is highly competitive including multiple players with much larger marketing resources," the two analysts wrote in a research note. "Therefore, we remain cautious on the revenue opportunity in the near term as we are unsure of how the company will be able to differentiate itself in this highly competitive market."

Mr. Sutjiadi said the deal is expected to contribute to revenue from the fourth quarter of this year.

Brian H. Hadfield, the chief executive of CryptoLogic, could not be reached for comment.

Chris Krafcik is the editor of IGamingNews. He lives in St. Louis, Mo.