Media reports state that online gambling in China soared during the recent World Cup. Interest was so intense that gambling income in Macao significantly declined, causing a major blow to the bottom line of major casinos that normally rely on a steady flow of high and low rollers from mainland China. The punters seem to have put their money into online gambling on the World Cup, with revenue at the People’s Republic of China (‘PRC’) government run lottery site increasing by over 80% during this period. Steve Dickinson and Arlo Kipfer of Harris Bricken PLLC, China, explore the upsurge of online gambling in China during the World Cup given that gambling is illegal in China.
This then raises the big question: the Macao casinos exist because gambling is illegal in China. No substantial casino business exists in China, forcing punters to head to Macao. If gambling is illegal in China, how does online sports gambling work? If gambling is illegal in the PRC, how is it possible for the World Cup to have made such an impact? As always in China, the story is complex. It runs as follows.
The general ban on gambling in China is subject to one exception. The PRC government operates two legal lotteries: the China Welfare Lottery and the China Sports Lottery. The China Sports Lottery experienced its 20-year anniversary in April of this year. The sports lottery allows legal betting on all sporting events. By far the most popular is betting on football: both Chinese national football and the European leagues. As a result of this opportunity for legal gambling, China has become a nation of football fans. But these fans are bettors, not players.
At its inception, sports lottery tickets were sold at exclusive outlets found in all of China’s cities. The number of outlets has always served as a limitation in the number of potential customers. In order to expand access, the China Sports Lottery entered the online world in 2010. The new online rules allow licensed sports lottery vendors to partner with website providers to offer online lottery purchases. Such legal websites must be approved by government regulators and are subject to strict regulation. Due to the tight regulation, licensed sports lottery websites are still uncommon in China. As might be expected, the national lottery administration has monopolized access to its great profit.
During the World Cup craze in China, operators of the major retail sales websites in China saw an opportunity to cash in. These websites partnered with licensed local lottery vendors to offer their lottery products online through retail sales websites. The lottery sales were offered just like any other retail offering on the site. This form of lottery betting was technically in violation of the regulations. The website is licensed as a commercial website. The local lottery agent is licensed to sell lottery tickets. But, the regulations require specific approval to sell those lottery tickets online. No such approval was obtained, making sales on the major retail websites technically illegal.
However, there was money to be made and no one in China worried about the technical details. There is good reason for this. The major retail websites are well run, reducing to a minimum the chance of deceptive practices against the consumer. The government ultimately received a share of the proceeds through income earned by the local licensed vendor. The total income earned by the government was greatly increased due to the massive advertising power of the websites. In this setting, the government regulators had no motivation other than to say: send us the cheques.
It is not clear whether this very successful foray into the sale of sports lottery tickets on the part of the e-commerce giants will continue. The current feeling is that this was just a temporary event created by the unique interest of the Chinese people in the World Cup. However, the substantial income earned must be attractive to all involved and it is certainly possible that this semi legal sale of sports lottery tickets will continue.
But the story does not end here. From the gambler’s point of view, there is a major problem with betting in the China Sports Lottery: the payouts are low. The dedicated gambler is therefore provided with an incentive to seek a higher return. This higher return is offered by unauthorized online gambling websites. Take an example: a 100 RBM bet on Croatia to win its first game in the World Cup through the official sports lottery would have paid out about 8 RMB; the same bet made through an overseas online gambling site would have paid out about 60 RMB.
The Chinese bettor is therefore obviously attracted to betting on the foreign site. The only problem is that the site is illegal in China. It is illegal to access the site from China, it is illegal to send funds to the site from China and it is illegal to receive funds from the site in China. The PRC government has the technical ability to enforce these rules. Using the great firewall, access to foreign gambling sites can be blocked. Domestic websites that provide access to the foreign sites can be located and shut down. The major search engines like Baidu and Sina can be instructed to filter search terms that allow Chinese residents to find gambling sites. Banks and online payment services can be instructed to deny all payments to gambling sites and to refuse to accept payments from gambling sites.
Even though all these techniques of control are possible, during the World Cup Chinese citizens found that they had almost completely open access to wagering on the World Cup. Access to foreign online gambling sites entirely focused on Chinese citizens was entirely open. While specific numbers are not known, it is generally understood that the amount of betting on the World Cup by Chinese citizens on foreign sites actually dwarfed the amount legally wagered on the World Cup through the China Sports Lottery.
So how does a Chinese citizen make a bet through a foreign online gambling site? First, the Chinese gambler has to find a betting site written in Chinese and focused on Mainland Chinese bettors. Serious gamblers will learn the names of the most popular sites through the Chinese online forums dedicated to gambling. For newbies, a search on a Chinese search engine will result in hundreds of hits for online gambling sites. Normally, the potential better will be led to what is known as a portal site listing hundreds of online gambling sites. One click on the portal listing and the gambler will access the site of choice. Several sites have become overwhelmingly popular in China.
After the bettor finds a site, the next issue is determining how to place the bet. The RMB is not a convertible currency and gambling online is not legal. Not a problem. The site will provide clear instructions to the bettor on how to proceed. The system is simple and direct. The site will provide a list of online payment service providers (PSP) that have been approved to work with the site. The customer contacts his preferred service provider and sets up an account. The betting accounts normally require payment of a minimum deposit the customer will normally fund the account using a standard Chinese bank issued debit card. The deposit is made in RMB and the PSP handles the conversion into foreign currency, payment to the online gambling website and collection and payout of winnings.
The website is accessed in China with all communication in Chinese. For the major sites, there is a Chinese speaking voice operator available 24 hours a day. Payments are made and payouts are received in RMB, collection and bank processing are all handled online by an experienced operator, relieving the bettor of any need to discuss the process with bank personnel. A certain amount of fraud protection is provided by the PSP. Where the website is located in a country in which gambling is legal and supervised, there is even more protection from fraud.
The only issue is that the entire program is illegal under Chinese law. So far, the illegality does not seem to have had an impact on the business. Websites are adept at dealing with being blocked by operating with a large list of revolving URLs. PSPs come and go using the same revolving URL technique. Chinese banks are desperate for deposits and processing fees and therefore cooperate with the PSPs in ways that are difficult or impossible for the government regulators to monitor. Individual gamblers are prosecuted only when they have committed some other crime such as embezzlement of the funds used to fund their gambling addiction.
The World Cup has not introduced online gambling to China. Both legal domestic and illegal foreign online gambling were already well established. The effect of the tremendous publicity surrounding the World Cup instead introduced huge sectors of the Chinese public to online gambling. The support of online gambling on football provided by the China Sports Lottery convinced the Chinese public that online gambling is a safe form of amusement. The danger of this is that in the pursuit of higher returns the Chinese public will gravitate towards online gambling sites that are illegal in the country. This type of site is not regulated or supervised in any way and is often in the control of criminal organizations.
Reports are now coming out of China about deceptive practices arising from such sites that are typically based in SE Asia. Legal and social issues arising from gambling on such sites may cause the Chinese government to take more aggressive actions against illegal online gambling. The current anti-corruption drive in china focuses on control of overseas gambling, which also may lead to an additional push for regulation. For this reason, though the business is now thriving, there is no certainty about its future in China