Illegal gaming means better deal for players
At 700 billion yuan a year, the mainland's market for illegal gambling is by far the world's largest.
While the Ministry of Finance, which oversees the mainland's two state-run lotteries, is keen to crack down on underground gaming, black-market bookmakers, numbers runners, internet casinos, backroom gambling halls and telebetting services targeting the mainland are rife.
Consider Abex88.com, a Macau-based internet betting website that was controlled by state-held, Hong Kong-listed Citic Pacific. An internet betting exchange, Abex allowed mostly mainland users to wager cash on European soccer matches and the results of the Hong Kong Jockey Club's Mark Six lottery - apparently in direct violation of mainland and Hong Kong laws.
Low-profile Abex operated out of the enclave for more than two years until February when it stopped accepting wagers after a crackdown on internet gambling. The site was taken offline in March, days after the South China Morning Post published an investigation detailing its operations.
Still it is a safe bet that for every underground operator closed down, 10 more continue business unchecked. To combat the illegal market, the authorities in Beijing are making the official lotteries more competitive by varying their offerings to include popular products such as more video lottery terminals (VLT) and are said to be considering allowing fixed-odds sports betting.
'The future growth of the China lottery sector will be driven by the introduction of new high-frequency games and fixed-odds betting on sports via nationwide networks,' Credit Suisse analyst Gabriel Chan wrote in an August report. 'Furthermore, we believe a higher payout ratio will also accelerate organic growth.'
VLTs offer only six relatively simple games and payout ratios are set at 50 per cent - meaning for every 100 yuan bet, a player will lose 50 yuan on average (by comparison, slot machines at Macau's newer casinos keep only 5 to 10 per cent of total bets).
For the sports lottery, the potential of fixed-odds betting on soccer matches is huge. In the year to June, the Hong Kong Jockey Club booked HK$30.19 billion in turnover from soccer betting, almost five times traditional Mark Six lottery sales.
But here again, the illegal market remains competitive. The Jockey Club last year began offering punters rebates of 10 per cent on losses of HK$10,000 or more to match discounts offered by underground bookmakers. Betting volumes on horse racing rose for the first time in five years.