by Nigel Huxtable

Yearly more than six billion patacas is gambled on illegal sports betting websites in Macau, estimates the head of the locally licensed sports betting agency.
Granted a concession just prior to the 1998 football World Cup for organised betting on the sport, Sociedade de Lotarias e Apostas Mutuas de Macau, operating under the trademark Macauslot has seen its revenue from the game continue to slide since 2002, at the same time as total gaming revenue earned in Macau has almost quadrupled.
In 2002 punters bet 641 billion patacas on football which dropped to 273 billion last year.
It isn't the expanding casino sector that is eating into the company's winnings, suggests Dominic Kwok, executive director, but an out of control and expanding band of illegal bookies.
“At lease more than 20 times the turnover that we are doing,” is going to illegal bookmakers,” he told the Macau Daily Times.
Last year Macauslot received a total of 5.1 billion patacas in bets. If Mr Kwok's assessment is correct, punters placed bets in the region of 102 billion patacas last year.
The government is also missing out a cut of the much larger potential market as Macau's licensed operator must pay a 25 percent tax on its gross revenue.

Ferry lottery
Macauslot, a subsidiary of Stanley Ho's STDM was set up in 1989 to sell instant lottery tickets on board ferries running between Macau and Hong Kong.
The scratch-and-win business is today almost non-existent with revenue shrinking to 20,000 patacas  last year. The tickets are now given away to promote the company's sport betting products.
Macauslot claims it was the first government-franchised sports betting company in Asia when it first received the football betting concession ten years ago.
In 2002 it received the concession for basketball betting, however football remains the company's cash cow. Interest in the NBA games the company covers has fluctuated since its inception. Last year revenue from basketball betting sunk by almost 30 percent, to 44 million patacas, compared with 2006. However revenue gathered in 2006 jumped 35 percent compared with 2005.
It is Europe's major football leagues that excite Macauslot customers the most. Betting is offered on games from most competitions with the English Premier League, the Italian Serie A and Germany's Bundesliga being the most popular.

100,000 customers
Macauslot has more than 100,000 registered customers, although only 20,000 are considered active and place a bet at least once a month. Figures on the origin of its customers are not available, however it will accept customers from overseas, confirmed Mr Kwok. In an attempt to avoid the wrath of regulators from other jurisdictions that ban residents placing bets on overseas sites, Macauslot places the responsibility for compliance with the punter.
“We put a disclaimer on our internet site saying that as the customer you must decide which website you place bets with,” said Mr Kwok.
Macauslot operates out of the Hung On building adjacent to the Lotus Flower square on the Outer Harbour side of Macau's peninsula.
The 4,000 square metres of office space is filled with the technology needed to run the sophisticated operation.
Originally the computer system the company uses came out of Hong Kong. After a trip to two large United Kingdom sports betting houses seven years ago, including the London Stock Exchange listed William Hill PLC, it invested in the internet.
It hired a UK company to redesign its system and invested 100 billion patacas in hardware and software.
Today approximately 55 percent of bets are placed through the internet, up from 5 percent from 2003. Walk in business to the 14 Cash Betting Centres accounts for 25 percent of business and telephone betting 20 percent. The remaining 5 percent comes in through other channels including WAP mobile phone betting.
Two Sun Microsystems' servers with a combined storage capacity of more than 1 terabyte (1,000 gigabytes) process and store bets that come in through two 20 megabyte internet pipes and 2,000 telephone lines.
More than 300 terminals are set up to handle the incoming telephone bets during peak times prior to matches which are usually on the weekend.

Illegal internet
The technology that is driving its business is also responsible for the declining revenues, Mr Kwok told the Macau Daily Times. Using the internet, illegal bookies are able to take bets from many more customers than through telephone or face-to-face betting.
“Theoretically we are the only ones to operate sports betting in Macau, but we have actually been competing for 10 years with the illegal bookie, especially on the internet, which has had a severe impact on our turnover,” said Mr Kwok.
“We have more than 100 illegal competitors in Macau so it makes it very difficult.”
The un-licensed bookies attract punters by offering betting on a wide variety of sports and credit, said Mr Kwok. All bets placed with Macauslot must be paid for upfront. Punters are introduced to sports betting by Macauslot and move to the illegal operators when their luck runs out, said Mr Kwok.
“During the third and fourth year (of betting) they will go to the illegal bookies if they want to bet more than they can afford,” said Mr Kwok.
“This is very risky for this low income customer.”
The company has recently taken criticism from some sections of the community for setting up betting shops in working class suburbs. However it is the illegal operators that pose a greater risk to the community by providing unlimited credit, argues Mr Kwok.

Opening the market
Unusually Mr Kwok advocates the removal of the company's monopoly as a solution to Macau's illegal betting ring.
“If there are more legal operators there will be more tax going to the government,” he said.
However opening the sport betting market will be a lot more difficult than the casino market, he believes.
“It is a very difficult environment to regulate with so many illegal operators who will still try and avoid the government tax,” he said.
Rumours circulating in the casino industry suggest the government is considering licensing more sports betting operators. The Macau Daily Times understands a number of operators are waiting for the change before implementing sports betting in their casinos.
Last year private equity firm, Permira Funds bought a 20 percent equity stake in Galaxy Entertainment Group Limited which operates the Starworld casino. Permira also has a stake in Gala Coral Group, a major European sports betting company.
Macauslot's sport betting concessions expires midway through next year and the company believes the government will change the market rules to allow more players.
“We know the intention now and we are prepared for the worst,” said Mr Kwok, with a smile.
The executive director expects to be notified of the changes “several months before the end of our franchise.”

50 million plus profit
Although last year's financial reports are not yet finalised, Mr Kwok expects the company to post a profit between 50 and 60 million patacas. Although turnover has been decreasing, “cost cutting” measures has allowed it to maintain similar profit sizes in the last couple of years.

Margin increase
In order to boost profitability Macauslot is working to increase its profit margin from each bet. Between 5 and 6 percent of each pataca bet is currently kept by the house which Mr Kwok hopes to raise to 9 percent to compensate for the falling turnover. A “risk management centre” sets the odds for each match using a technique Mr Kwok adopted from previous work setting up a foreign exchange system.
In order to attract more business Macauslot intends to approach the government “in due course” for a license for betting on additional sports such as tennis and motor sports. Although there are no rules preventing the company opening a betting shop in a casino, Mr Kwok believes that operators currently see tables as providing more revenue. In any case, unlike the local and the Hong Kong jockey clubs, the current license holder for sports betting does not view the growing number of casinos as a threat to its business.
“Our business is not that similar to the casino business,” said Mr Kwok.
“People that bet with us are attracted by the sports, when it comes to the big finals in the USA and Europe the interest it is always very high.”