IMAGE: HONG KONG JOCKEY CLUB'S TELEBET CENTER
Hong Kong Jockey Club
Operators at the Hong Kong Jockey Club's Telebet Center take horse racing bets from residents of the special administrative region of China. The phones are ringing less frequently these days, and Internet gambling is considered one of the chief culprits for the wagering decline.
By Mike Brunker Projects Team editor
msnbc.com
updated 2/26/2004 4:12:41 PM ET 2004-02-26T21:12:41

“If you must play, decide upon three things at the start: The rules of the game, the stakes and the quitting time.”  ~ Chinese Proverb

Internet gambling is quickly rendering this piece of ancient wisdom moot as it spreads across the Far East, bringing with it games that never end, rules that are very much in flux and, for those who would provide it to the masses, stakes best suited to players with near-bottomless pockets.

Operators of gambling Web sites have long viewed Asia as the promised land, believing that widespread prohibitions there have created a vast reservoir of pent-up demand for their borderless product.

But difficulties in moving money in and out of many countries and a lack of reliable telecommunications infrastructure and ready access to the Internet by potential customers prevented the market from taking off in the late 1990s, when the more-developed and affluent U.S. and European arenas were growing rapidly.

A daunting businessplace for the uninitiated
Those problems still exist to some extent, and Asia remains a daunting place to do business for the uninitiated, but those who have been targeting the continent from the beginning say the dynamic has changed dramatically over the past several years.

IMAGE: ANGELA HO
DrHo888.com
Angela Ho, president of DrHo888.com and daughter of legendary Macau casino tycoon Stanley Ho

“The market is huge, and I think everybody knows that Asian players are the most sought after … because they spend the most money and are the most fervent gamblers,” said Angela Ho, president of the DrHo888.com Web site and daughter of Macau’s legendary casino king, the 83-year-old Dr. Stanley Ho.

Angela Ho said the Costa Rica-based site, which couples her father’s name with the tripled digit that represents “wealth” in Chinese, has recently seen monthly wagering increases of up to 40 percent by the almost exclusively Asian or Asian-speaking clientele -- a rise she attributes both to her father’s fame and reputation throughout Asia and to the rapid growth of the market.  She said the site serves gamblers throughout the Far East, but is particularly popular with players in China, Macau, Malaysia and Singapore.

In another unmistakable sign that the market has come of age, other operators who focused on more-developed markets are now joining the eastward Gold Rush by creating new Web sites tailored to the Asian player.

Simon Noble, CEO of Antigua-based BetWWTS.com, said the company rolled out new Chinese- language pages in January, but noted that business from the Asian market was booming even without them, particularly betting on European soccer and the NBA – attributable to the popularity of Houston Rockets star Yao Ming.

“Our numbers from Asia are up almost 130 percent from last year and it now makes up 30 percent of our overall business,” he said.

Sebastian Sinclair, a gaming analyst with Christiansen Capital Advisors and a leading tracker of the Internet gambling sector, said his projections indicate that the Asian markets accounted for 16 percent of a total Net betting market of $5.6 billion in 2003 and will jump to 40 percent of a total market of $11.6 billion in 2006.

‘Growing faster than the U.S.’
“There is no question that it’s now growing faster than the U.S. and other established markets,” he said.

Many experts say they eventually expect Asian nations to constitute a majority of the market for online gambling as betting using new technologies such as wireless phones and PDAs increases.

And while most countries currently have no laws on the books pertaining to Internet gambling, the Web site operators are betting that their offshore competition eventually will force many jurisdictions to legalize and regulate it, once they realize that they can't effectively ban it.

Such potential has enticed a number of interesting and powerful players to pull up chairs at the Internet gambling table – including Stanley Ho,who held Macau’s casino gambling monopoly for 40 years and now is the highest-profile player in land-based casino gambling to make a major Internet play; respected British bookmakers like Ladbrokes, Victor Chandler and Coral; and, inscrutably, the North Korean government, which is a partner in a joint venture that offers lottery tickets and other gambling games over the Internet, mainly to South Koreans.

The arrival of widespread 24/7 betting on the Internet, which coincides with plans to expand land-based gambling in numerous Asian countries, already is jolting economies in the few jurisdictions that have become reliant on betting revenue, as well as raising concerns about the social consequences.

Hardest hit in the first phase of the Net betting incursion has been Hong Kong, which has attempted to fight back to protect its legal gambling operations from the depredations of offshore “robbers,” as Hong Kong Jockey Club CEO Lawrence Wong describes them.

Hong Kong fights back
A special administrative region of China since 2000, Hong Kong in May 2002 passed a law making it illegal for its citizens to place bets with anyone other than the officially sanctioned Hong Kong Jockey Club, which generates 11 percent of the government’s tax revenue each year though its horse racing, lottery and soccer betting operations. The strict law carries a $10,000 (about $1,285 U.S.) fine and three-month prison sentence for any citizen who violates it.

“Online gambling … might be considered to be the straw that broke the camel’s back, certainly as far as Hong Kong was concerned,” said Ted Loh, a gambling consultant specializing in Asian markets. “If it wasn’t already easily available, the advent of the Internet put to rest any doubt that access to gambling would or could be made difficult.”

The Jockey Club was given permission to take bets on soccer for the first time in 2003, largely to counter offshore operations and a thriving underground gambling industry that officials of the organization blamed for four straight years of declining wagering after years of steady growth.

IMAGE: HONG KONG JOCKEY CLUB CEO LAWRENCE WONG
Mike Brunker  /  MSNBC.com
Lawrence Wong, chief executive of the Hong Kong Jockey Club
Wong, a U.S.-educated former Ford Motor Co. executive, estimates that the amount wagered on illegal gambling -- both offshore operations and illegal games and sports-betting rings run by syndicates in Hong Kong -- exceeds that generated by the club, which reported processing about $10 billion (U.S.) in wagers in 2003.

Wong said betting exchanges -- Web sites that allow individuals to wager against one another and pay only a small “handling fee” -- have had an especially negative impact on the legal operations of the Jockey Club, which contributes sizable portions of its income to charities and philanthropic causes in the former British colony.

“The betting exchanges and all of those (others) are using the argument, ‘Hey it’s just a technology’ … but you’re stealing someone else’s product,” he said. “And in Hong Kong it’s worse. You tear away the social welfare safety net called charity. Is that fair?”

The answer to that question apparently depends on perspective and bottom-line considerations, as numerous online betting operations continue to do business with Hong Kong’s heavy rollers.

The Gibraltar-licensed Virtual Holdings Ltd., which operates the Casino-on-Net, 888.com and PacificPoker Web sites, takes wagers from Hong Kong residents but advises them to “check the legality of online gambling in the jurisdiction where they are located” before betting, said Michael Palmon, vice president of marketing for the firm’s Israel–based marketing, research and development arm.

British bookmakers apparently ignore ban
Most of Britain’s bookmakers also apparently still take wagers from Hong Kong residents, but place conditions on their participation.

Michael Carlton, managing director for Victor Chandler, the largest independent British bookmaker, said the company does business with Hong Kong citizens but asks that they place their bets from “out of the jurisdiction.”

Asked how the company, also licensed in Gibraltar, verifies the location of the bettor, he acknowledged that the ability to do so “depends on how they contact us.”

London-based bookmaker Ladbrokes, another major player in Asia, declined to discuss the politically sensitive issue.

“We don’t really want to talk about our other business right now. We choose not to,” said Antonia Sharpe, a spokeswoman for the company, the wagering and gambling division of the hotel giant Hilton Group.

Three sources familiar with the Asian market, all of whom spoke with MSNBC.com on condition of anonymity, said the firm still allows Hong Kong residents to place wagers, though they did not provide evidence to substantiate the claim.

Angela Ho, of DrHo888, and her husband, CEO Peter Kjaer, said the company doesn’t knowingly take wagers from Hong Kong residents, though Kjaer conceded that some residents who disguise their whereabouts could be using the service.

“Having Angela’s father’s name on it, it’s a big responsibility to carry,” said Kjaer. “The last thing she wants to answer from her children is ‘Why is grandfather in jail?’”

The sources also said the DrHo888 site takes bets from Hong Kong, but declined to reveal the basis for the allegation.

Making life difficult for gambling site operators
Steven Fisher, deputy secretary of Hong Kong’s Home Affairs Bureau, said that while authorities have sought to promote international respect for individual jurisdiction's gambling laws, they have no ability to go after offshore entities that don’t willingly comply.

“We cannot entirely stamp out Internet gambling, but we can make it very difficult for them,” he said. “We ban the use of credit cards for making bets and opening accounts, so anyone must make deposits and withdrawals through very complicated methods, making it very inconvenient and adding to their risk (because banks are required to report betting-related transactions to authorities).”

Less than 40 miles to the west, in the neighboring Chinese special administrative region of Macau, authorities and gambling operators are charting a very different course in response to the new market conditions.

The former Portuguese colony, which was hard hit by Hong Kong’s clampdown on betting, is moving to cement its reputation as the Las Vegas of the Orient by licensing additional land-based casinos. Among the licensees are partnerships that include companies led by top U.S. gambling execs Steve Wynn, who launched Wynn Resorts after selling Mirage Resorts to MGM Grand for $6.4 billion in 2000, and Sheldon Adelson, owner of the Venetian Hotel Resort in Las Vegas.

Manuel Joaquim das Neves, director of the Gaming Inspection and Coordination Bureau, said Macau will further hedge its bets by developing regulations for Internet gambling, possibly by the end of the year. 

Macau billionaire makes online play
Stanley Ho, the billionaire who controlled Macau’s casino industry – the largest in Asia – for 40 years until the additional licenses were granted in 2001 – decided not to wait for the regulations.

His casino company, Sociedade de Jogos de Macau, is behind Macau-slot.com, a soccer and basketball betting site that caters to players around the world, apparently including those in jurisdictions where such bets are prohibited.

His firm also is the majority investor in the Costa Rica-based DrHo888.com, according to Angela Ho.

Because Internet gambling is not addressed by Macau’s gaming laws, authorities have made no effort to rein in the activities of either of the Ho-linked Web sites.

“The bettors are responsible for their own acts,” das Neves, the Macau regulator, told this reporter. “If you bet, you’re violating U.S. laws. It’s not the company problem, it’s your problem.”

The differing views between China’s economic zones pale in comparison to the feud between communist North Korea and South Korea over Pyongyang’s improbable experiment in Net betting.

North Korean betting site sparks feud
The brainchild of South Korean businessman Kim Beom-hoon, the joint venture with North Korea to sell lottery tickets over the Internet originally won the blessing of South Korea’s Unification Ministry, which saw it as a positive step to improve relations and communication with its isolated northern neighbor.

IMAGE: KIM BEOM-HOON
Lee Jin-man  /  AP file
Kim Beom-hoon, head of Hoonnet Co. in Seoul, views photos of North Korea offered as diversions on the Jupae.com site, a joint venture gambling site in which he is partnered with the North Korean government.
Under terms of a deal hatched in 2002, North Korea would lay its first fiber-optic cable linking it to China. In exchange, Kim, a Seoul software developer, would work with the north to establish an Internet gambling site that would offer lottery tickets and casino-style games to citizens of any country except North Korea -– a rather superfluous stipulation since no more than a handful of North Koreans have access to the Internet or spare cash to wager.

But when the joint venture’s Jupae.com site began raking in as much as $400,000 a month by one estimate -– most of it from South Korean gamblers –- amid heightened tensions over North Korea’s nuclear program, the Unification Ministry reversed course and revoked Kim’s business license in January, saying he had violated its terms. It also began blocking access to Jupae.com and two affiliated sites and initiated criminal proceedings against 15 South Koreans it said had bet more than 3 million won (about $2,560) apiece on the site.

Pyongyang’s new gambling bureaucracy responded to the broadside by releasing software that it said would allow South Korean users to evade the e-blockade.

The South Korean government’s reversal left Kim at wit’s end.

“I have spent money and sweat on this project, and I am now a victim of the Unification Ministry’s reluctance to open Internet contacts between the two Koreas,” an angry Kim told The Associated Press in January. “I am frustrated and sick and tired of this absurd government behavior. If they punish businessmen like me, who is going to do business with North Korea?”

Gambling business is problematic
The possibility of a sudden governmental change of heart is just one of the many difficulties in doing business in Asia.

Palmon, the Virtual Holdings executive, said the firm’s Asian-aimed Web sites are localized in terms of client software and feature 11 languages, including Chinese, Korean and Japanese, a necessity when trying to reach a wide swath of the Asian audience.

But customer-friendly sites are useless without an audience, and it’s difficult to reach players since advertising gambling services is illegal in many major Asian markets.

“Word of mouth has been a major force behind reaching those markets,” Palmon said.

Cultural differences also are an obstacle, particularly for Westerners trying to penetrate Asian markets.

“Asians, especially the Chinese are very insular and they stick to themselves,” said Angela Ho. “… They prefer to be playing with their own ethnic background rather than an outsider if there is a choice.”

Kjaer, her husband, also said that Asian gamblers generally don’t trust machine games, such as slots and video poker, which is why DrHo888.com features live video of employees dealing cards, rolling dice and the like.

‘Lady Luck ... lives in a deck of cards’
“The Asians really don’t believe that Lady Luck lives in a machine. She lives in a deck of cards,” he said.

Probably the most severe hardship for those trying to penetrate the Asian market is getting money in and out of countries like China, where few citizens carry credit cards and many of those who do aren’t able to use them for purchases outside the country.

Gambling site operators tend to be evasive when asked about the transactional mechanics involving wagers made in China.

“We have resources that other people might not have, being local, and it wouldn’t be prudent for competitive reasons to talk about them,” said Kjaer.

Noble said he relies on a “network of local marketing partners” who pool wagers at the local level and then pass the action on to Internet betting sites.

“You have aggregators who are just sort of moving the money around trying to guarantee a small profit,” he said. “That makes for a very, very competitive market where bets are moved from bookmaker to bookmaker (to eliminate the middleman’s risk).”

Financial go-betweens
Loh, the Asian gambling consultant, said the go-betweens likely make payments to the offshore operators through a time-honored Chinese tradition in which a third party accepts cash from the intermediary, then telephones a contact outside the country and instructs that person to pay the gambling site operator. The debt between the two money men is settled at a later date.

The underground “bankers” are likely members of “triads,” he said, though not necessarily in the criminal sense.

“A triad is actually a village association which is involved in many legal operations,” he said. “It's only because some triads formed an ‘enforcer’ section, particularly in Hong Kong, that the term triad became associated with gangsters.”

Despite such difficulties and the legal uncertainties, the time is right for newcomers to join the fray in Asia, said David Carruthers, CEO of the Costa Rica-based BetonSports.com.

“My assessment is that everything’s up for grabs, everything is in an evolutionary state,” he said, adding that his company has spent the past 18 months researching the Asian  markets and developing an “entry strategy.” Providing you run your business properly, it’s a huge opportunity.”

Those operators already deep into the Far East say they’re not particularly worried about the increased competition given the huge size of the market.

“The frightening thing is all of us are just scratching the surface,” said Noble.

© 2013 msnbc.com Reprints

Discuss:

Discussion comments

,

Most active discussions

  1. votes comments
  2. votes comments
  3. votes comments
  4. votes comments