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June 19, 2007 4:10 pm

AGTech’s China gamble

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AGTech Holdings, a Hong Kong-listed gaming technology and services company, expects to establish at least 3,000 branded lottery outlets and 15,000 mobile lottery terminals in China by the end of next year.

The plans by AGTech, which will operate the outlets through contracts held by a Chinese lottery venture it acquired last month for HK$777m ($99m), highlight strong interest among internationally invested companies in China’s fast-growing gaming market.

While gambling is still officially illegal in China, the government has in recent years allowed the national sports and welfare lotteries to introduce new gaming products such as bingo, soccer betting and even slot machine-style video games.

Regulation of the sector remains unpredictable, but AGTech says that through its acquisition of lottery unit Shining China it will be able to establish at least 1,000 fixed-lottery outlets in each of the provinces of Jiangxi and Hunan and the provincial-level city of Chongqing.

Some of the lottery shops would be taken over from existing outlets operated by individuals and others set up in new locations, said Rob Ryan, AGTech’s executive director.

Mr Ryan said AGTech, which has a 51 per cent-owned lottery technology joint venture with UK betting group Ladbrokes, also planned to roll out later this year its first mobile lottery service terminals, based on tablet computers, small printers and China’s mobile phone network.

The mobile terminals, which would have an initial capital investment of about $400 each, would allow AGTech to extend lottery sales deeper into rural areas and also to reach potential players in locations such as railway stations and at sporting events.

“We’ll go where the players are,” Mr Ryan said.

Sales of lottery tickets through the mobile terminals would generate 7 per cent commission on sales, plus a further 1 per cent because AGTech was supplying the technology, and were expected to pay back their initial investment in less than a month.

AGTech is also hoping Beijing this year will grant approval for a virtual motor racing “high-frequency” lottery game to be operated under the sports lottery.

By offering the illusion of sporting drama and a five-minute cycle of play, the new game would be ideal to attract players at leisure venues such as pubs and tea houses, Mr Ryan said.

The welfare lottery network already offers high-frequency betting on keno, a bingo-like game. An official of the national sports lottery said outlets in Beijing also offer a similar game.

AGTech expects its racing game to be permitted to return 65 per cent of winnings to players, well above the 50-55 per cent returned by welfare keno operators.

China’s two approved lotteries recorded sales of Rmb82bn ($10.8bn) in 2006, but in spite of rapid growth in recent years they are still dwarfed by estimated underground gambling revenues of more than Rmb700bn.

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