While policy makers and industry reps reviewed the fruitless outlook for I-gaming in the United States at meetings this week in Las Vegas, experts gathered nearly 9,000 miles away to explore the future of the industry in the untapped Asian market. Singapore was the site of the seventh annual Gaming & Casinos World Asia Pacific conference, and IGN was on hand to get the scoop on the latest developments in the Far East.
The Outlook in Asia
Overwhelmingly, the consensus view among leading experts is that Asia is a hard nut to crack, but those who are able to do so are in for quite a reward. Surprisingly, the murkiness of Asian governments' policies doesn't improve much up close, but the objectives are crystal clear:
- Tap Asia's vast illegal betting markets by giving players access to regulated Internet gambling.
- Convince Asian governments to move forward by conveying the fiscal benefits of Internet gambling.
- Develop online gambling programs that cater to Asia's high-roller market.
A few additional challenges await suitors of Asian markets. No. 1 on that list is reaching the players; anyone who has focused on Eastern markets can attest to this. Michael Toohey, managing director of Australiasian Gaming Specialists, said there's no miracle solution. Persistence, he said, is the way to go. He also said anyone who plans to grab a share of the market better be prepared to spend a lot of money and that the payoff isn't immediate.
The Asian Markets
Following is a rundown of the presence of gambling in some of Asia's larger markets:
- In Japan, casinos are illegal, while gaming machines are legal … and hugely popular. There is also regulated horse racing and limited lottery and sports betting. Japan's policy makers have been among Asia's hardest to read when it comes to interactive gambling. The government's position, if it has one, is a mystery.
- Gambling in Hong Kong is controlled by the Jockey Club, which reported turnover of $11.1 billion in 2001. The recently passed Gambling (Amendment) Ordinance makes it illegal for offshore operators to accept wagers from bettors in Hong Kong; it is also illegal to place wagers with offshore operators. All forms of casino gambling are illegal in Hong Kong.
- Those in Hong Kong who want to gamble legally at casinos can take a one-hour ferry ride to nearby Macau. Gambling in the former Portuguese enclave has been controlled for 40 years by Stanley Ho, who runs the Macau Jockey Club and is the territory's sole casino licensee. That will change, however, in the near future, as two additional licenses have been granted to Las Vegas-based operators. For now, online gambling is restricted to the Jockey Club's Internet operations.
- The only legal gambling in China comes in the form of government lotteries. The government saw $1.73 billion in turnover in 2001.
- North and South Korea, as well as a few states in India, have implemented networked "on-line" lotteries, although it doesn't appear that any of them are on the Internet.
- Cambodia is exploring the possibility of leasing a few of its islands to casino/resort companies for the purpose of setting up casino resorts.
Toohey, who spoke on a panel covering casino gaming in Asia, said the cost per acquisition (CPA) in Asia can be anywhere from two to five times higher than it is in western markets. In the short term, then, operators coveting Asian players should be prepared for losses. Instead of concentrating on profits, Toohey explained, they should aim in the early months to establish their brands and develop trust and loyalty. In the medium term, businesses should expect good returns, while in the long term, he said, the gains could be astronomical.
"Pioneers into Asia are going to be gold miners," he said.
Once the market is tapped, he added, you'll be hearing analysts talk about the industry in terms of trillions of dollars rather than billions.
Another issue to grapple with will be intellectual property rights. Rob Deans, a lawyer with Hong Kong-based Bird & Bird, pointed out that IP rights are largely ignored in Asian markets, something that will have to change for money to be made in the I-gaming space. Bird predicts this will be a huge issue in Asia within four or five years.
As for gaming policy in the Far East, herein lies the murkiness. Most Asian governments have been silent and remain silent, so it's quite hard to gauge where things are going. Considering the money to be made, the consensus has been that regulated I-gaming throughout Asia is inevitable.
Overall, the ingredients in Asia are in place. The market is there, the infrastructure is there and the desire is there, so the state of confusion will be overcome, and that was the overriding theme of the conference's I-gaming tracks.
Dr. Ho Enters the P2P Arena
A few years ago, Macau's unofficial governor, Stanley Ho, didn't know what the Internet was. Now Asia's No. 1 casino tycoon is on the cutting edge, and the latest addition to what's becoming a diverse menu of interactive gaming offerings is person-to-person betting. Peter Kjaer, CEO of DrHo.com, this week announced the launch of DrHoBets.com, a P2P sports betting site powered by Betfair.com and linked into Betfair's expansive P2P network, coinciding with the commencement of the World Cup. The company didn't initially market the product; it hasn't done any significant marketing since October 2001. It elected to instead operate quietly until all its planned sites were launched. An aggressive marketing campaign, he said, will be kicked off in the immediate future.
Betfair, with its 60,000 users, is said to have at least 90 percent of the world P2P market. Considering the liquidity needed to succeed in this sector, the group appears to be in an ideal position, especially if Kjaer's suggestion that companies entering any I-gaming market are better off finding partners than having a go on their own rings true. "If you're entering now," he explained, "starting from scratch is impossible. Instead affiliate yourself or partner with an established company."
Words of wisdom or an attempt to discourage potential competitors?
Expanding on his recommendation, Kjaer said partnering with a land-based casino was the way to go. A recipe for success, he suggested, was a partnership in which terrestrial casinos could sell stored-value cards with credits redeemable at sites operated by online affiliates. With such relationships in mind, he also emphasized that online casinos should not be viewed by land-based casinos as competition. "Will we compete with land-based casinos?" he asked. "Never. We're an extension of them. Our competition is Blockbuster, cable TV, theaters, dinner out."
By the way, before writing off DrHo.com's attempt to deliver casino games with live dealers as a disaster, give the project a few years and see what happens. The approximately 10,000-meg download proved to be too cumbersome for most consumers, but Kjaer said the concept is extremely popular among those who have enough bandwidth to run the software and added that serious Asian players overwhelmingly prefer live dealers over random number generators. Bets placed at the live site, he said, are on average 10-times higher than those placed at the recently introduced quick-download site. The live-dealer site has a slightly lower player-retention rate than the RNG site, but Kjaer said this is only because of slow game play due to the bandwidth issue. A refined version of the live-dealer software, along with increased consumer access to high bandwidth, could make the endeavor a winner after all. Kjaer said the live-dealer site, DrHo888.com, would debut new games in July.
Kjaer said DrHo.com has a stable of 160,000 unique customers, 10,000-15,000 of which gamble in any single month.
Con Kafataris, CEO of Sport Odds, expanded on the overall potential for the P2P model, which was the topic of much discussion all week. Kafataris, whose company is the largest fully private bookmaker in Australia, predicts that betting exchanges will increase their market share in coming months. He also suggested that the deployment of P2P in the mobile environment might not be very far away.
Hong Kong's Prohibition
Hong Kong's Gambling Ordinance amendment didn't spur as much debate as one might have thought, likely because it's been discussed at length for several weeks. The focus of conversation, especially away from the podium, was what to expect next from the government. So far, there have been no arrests related to the policy.
In general, speakers and attendees were critical of the Hong Kong government's approach. "Hong Kong," Kafataris summarized, "has taken the bull by the horns with the worst possible solution."
Several delegates speculated about the nature of the government's intentions. One suggested that the drafting of the law was clearly orchestrated by the Hong Kong Jockey Club in an effort to preserve its monopoly and strengthen its grip on the local market. Others interpret the law as a specific means of dealing with illegal betting rings.
Deans pointed out that law isn't quite clear on what types of gambling are illegal in Hong Kong. The law's definition of the term "bookmaking," he said, includes all forms of betting. The ordinance, then , appears to cover betting on casino games, but Deans added that there's a lot of room for debate.
"There is, nevertheless, an argument that relevant bookmaking/betting with a bookmaker offenses do not extend to casino games," Deans said.
It also appears that P2P betting may be the one exception. "It looks, so far, like the peer-to-peer could be a way around [the Hong Kong law]," Deans explained.
Kjaer said DrHo.com hasn't run into any problems testing the waters with its newly launched P2P betting service. Going into the project, he said, developers figured they "might actually have a little bitty loophole we could jump right through, and say, 'Well, we're not a bookmaker; we're just facilitating private individuals betting with each other.'" So far, so good, said Kjaer. "We haven't been hassled yet," he added, "so hopefully that goes on."
Another question regarding Hong Kong's Gambling Ordinance is whether it qualifies Hong Kong as a "designated" jurisdiction under Australia's Interactive Gambling Act 2001. The Australian law, which makes it illegal to offer casino games over the Internet to customers located in Australia, includes a clause through which Australia would cooperate with other jurisdictions with prohibition policies in place. The "good neighbor" clause enables such jurisdictions to request that their citizens be blocked from playing at Australia-based online casinos.
In his summary of Australia's gaming laws, attorney Jamie Nettleton of Coudert Brothers pointed out that no countries currently qualify. Northern Territory regulator David Rice added during a regulators panel that to his knowledge, the inclusion of Hong Kong as a "designated" jurisdiction hasn't been considered by Australia. He added that it isn't clear how the government would go about expediting a request, but it appears that Hong Kong hasn't made such an inquiry.
Nettleton said Hong Kong couldn't receive such a designation because the Australian law only applies to casinos, while the Hong Kong law focuses on bookmaking. But, as Deans explained, the Hong Kong law could be interpreted as applicable to casinos.
This brings us back to the issue of the Hong Kong government's intentions. Assuming that the law applies to casinos, one could argue that the government is not interested in blocking access to online casinos based outside of Hong Kong, a speculation that supports the idea that the ordinance was set up primarily to protect the Jockey Club, which has no casino interests.
Several delegates were of the mind that Hong Kong will revisit the terms of the policy. Deans wasn't confident this would happen anytime soon, but acknowledged that the Jockey Club will undergo "significant change in personnel within the next year." The changes, he said, could result in the Jockey Club altering its views on interactive betting.
The Jockey Club offers Internet and mobile-phone wagers on races.
One of the conference's most highly anticipated presentations was delivered by Efraim Genuino, CEO and chairman of Philippines Amusement & Gaming Corporation (PAGCOR), the group commissioned by the government to oversee gambling. Genuino acknowledged that PAGCOR will entertain the possibility of issuing new online gambling licenses in the near future, but elected not to comment when asked how they would negotiate their way out of an exclusivity agreement with SAGE casino, the country's lone I-gaming operator. He was more interested in talking about PAGCOR's proposal for Theme Park Manila, a massive entertainment complex that he said "will put the Philippines on the world map" as Asia's premier gaming destination. "The future has never been brighter for the Philippine gaming industry," he proclaimed.
While Stanley Ho and company pursue the I-gaming market through sites based and licensed in Antigua, gaming interests in his home territory of Macau are somewhat optimistic that the former Portuguese enclave will soon accommodate the industry. There's also hope that the jurisdiction will be able to negotiate with the Hong Kong government for an exemption status under Hong Kong's Gambling Ordinance, a law that has come under harsh criticism in Macau because of its effects on the Macau Jockey Club.
Changes in Vanuatu
Simon Fletcher of Interactive Gaming Consultants said to expect changes in coming months in Vanuatu. For starters, the South Pacific jurisdiction will begin issuing licenses specifically for sports betting operations. Such licenses will be less expansive than the current license, which covers all types of gambling. A 10-year "Limited Interactive Gaming Business" license will run operators $30,000 per year. Fletcher also said he expects that acquiring banks will set up shop on the island within the next nine months. Currently all acquiring is done offshore. Finally, he said the government will seek approval of a turnover tax. Proposed changes could go through in August when Vanuatu's legislature reconvenes.
- Marcel Dayan, general manager of Structured Data Systems, said his company's simulated racing product, Trackside, will undergo a trial run in Nevada this coming October.
- Not everyone believes the wireless betting revolution is upon us. Alexandra Sunnerstam of Datmonitor Technology said the technology isn't quite there for the sector to reach its full potential. Mobile technology, she said, is still three years from being where it needs to be.
- Sport Odds' Con Kafataris said that at least one of Asia's illegal betting rings is known to have generated as much as $4 billion in annual turnover. He also predicted that regulated Internet gambling will result in the betting rings converting to legitimate operations.