Chinese whispers --- 2007-Apr-12

By Jake Pollard AS BUSINESS PRACTICES GO, the agent system of bookmaking that predominates in the Asian market is one that has generated more than its fair share of – perhaps apocryphal – tales. Whether true or merely exaggerated, the stories of bookmakers – usually western – being stung act as salutary reminders of the risky environment that bookmakers, punters and agents operate in out east. But they also help emphasise how different the betting culture is in that part of the world, compared with that of Europe and the US. The Asian betting industry is a completely different animal to its European counterpart. The agent system itself, and the ubiquitous Asian handicap betting product, is very much the result of how the industry has developed along cultural and historical lines. Western operators that have attempted to enter the market in the past have found it tricky, whether by dint of not offering the right markets or by not having easy access to payments or credit for their punters. Arguably this failure was due to a lack of local knowledge and a false assumption that what they offered in the West would find a ready audience in Asia. Asian bookmakers have been using agents long before the advent of the internet, as it enables their services to be offered to clients in regions outside their immediate reach and in neighbouring countries. Once an agent has reached a certain level of liability, they will pass it on to other agents, who will do the same until it reaches the ‘master agent’, who will place the bet with the bookmaker, in effect completing a pyramid structure. Paul Cantwell, who heads up the consultancy Key2Asia, explains: “Once an operator has opened a book, it will have a master agent for a specific country, who will be given a certain amount of credit and deposit and will sometimes share in the risk. The master agent will then have his own agents, who will also place some deposit and get a certain amount of credit and might do a deal on turnover rather than on losses. These agents will find their own agents and will set up similar payment and credit structures, all of them earning off the losses of their clients. Each part of the chain becomes responsible for its own line.” For Wai Hong Choi, senior trader at Asian bookmaker Samvo, among the factors that have made the agent system so popular in Asia are trust and profit. “Trust can be broken down into two categories: trust in the bookmaker and trust of the punter. As a punter how do I know I will get paid if I win with bookmaker X? This issue can be resolved by betting through an agent I have a personal relationship with, as opposed to a faceless operator. Often, the agent will be someone I have known for a number of years and I have some knowledge he will be good for the money.”Interestingly, this is the exact opposite of what many US-focused operators argued in the past when they tried to persuade US lawmakers into studying the possibility of regulating online gaming. Working on credit Payments also represent a major issue in Asia. “We work almost completely on credit as bookmakers”, Choi says. “It’s the society that dictates that. The financial instruments are not in place to operate efficiently any other way. With this in mind, my reason for giving credit as a bookmaker comes back to having a relationship with the agent. I know I can trust him and am happy to take his business. Certain parts of Asia are unsuited to personal banking, although this is changing as more people will have bank accounts and debit cards in the future. Ultimately, this will be the market western firms should be looking at targeting.” As for profit, agents will want their customers to bet more, and on a regular basis. “The agent will take them to the operator that offers matches and products that make his punters bet more,” Choi says. “The power is with the agents as it is they who bring the customers to the websites. This model, which is also how a lot of business is done in Asia, is based on trust and relationship-building.” However, for operators – especially the western ones – the agent system is only necessary depending on the market they want to target. Jason Chan, chief executive of Macau-based marketing agency Macom, explains: “It depends if the western operators are focusing on the retail pre-paid market or the wholesale credit market. The retail market relies more on the traditional affiliate programme, while the wholesale or credit market is heavily dependent on the agency system. When I say system, it is the whole operation flow rather than just the technology. The local network is the key to running a good agency system.” One of the other reasons for an historic reluctance on the part of western bookmakers to take agency bets is simply because they don’t want the action, having got their fingers burnt in the past. As Garry Knowles, chief executive of Betinternet, says: “We don’t want the agency bets because we are not getting true punter play. We would be getting business we wouldn’t really want. There is a lot of Asian business where agents or sub-agents have some liability that they are trying to get rid of, and as kick-off approaches they will go to western bookmakers to try and offload it. If you’re lucky you might break even on it but in general you will struggle. The margins are just too tight. If you have a good spread of agents you might have a better chance of coming out of those bets. But in general what happens is that the agents all come in with the same bets they’re trying to get rid of, which provokes massive moves on the market.” With so much liability swirling around, Knowles wonders what the bookmakers that take the agent bets do with the massive exposure. “Those bookmakers are seeing business mainly from their agents at the higher end of the pyramid and they are balancing it with some of their own high-stakes clients,” he says. “What I keep asking myself when I see this is where does the liability go? Everyone is laying bets with everyone else and these big punters are getting on, so someone is losing along the line. A few years ago a part of that action would find its way back to some of the big UK bookies who dabbled in it, but most of them have got out now.” Says Choi: “All I can say is that technology allows this and the liabilities are a proportion of the customers’ betting activity.” Prohibitive margins Whether this means the bets are laid on Betdaq or Betfair is hard to ascertain, but what is clear is that the margins on Asian handicap (see box below) are so tight many western operators don’t offer the product. “The margins are as low as 1.2% so it takes a whole different model to make the business succeed,” Choi says. And although he would not tell eGaming Review about the amounts being staked and the number of punters, the implication is that they are substantial. Knowles adds: “Asian handicap is more of a niche offering [in Europe] but if you want to offer betting products to the Asian market, you have to have Asian handicap, simple as that. We’ve probably doubled the number of leagues we offer Asian handicap on in the past couple of years, just because the demand has been there.” The massive popularity of Asian handicap in-running also means western bookmakers must offer those markets to be able to compete with the bookmakers that do take agent bets. Knowles goes on to say that the unclear legal status of many of the Asia-facing bookmakers means that their costs are often lower than those of the western operators, and they can employ large numbers of traders to price up in-play markets. Points of difference As western sports-betting operators look to expand and ensure they don’t miss out on the Asian markets, they must consider numerous issues. “Along with the regulatory issues, there are many cultural differences and betting tendencies to think about,” Choi says. “The agency system will not be accessible for the majority of western operators. These networks take years to formulate and many are the result of personal relationships between the bookmaker, agent and customer, which is paramount in achieving the high turnover needed to run a profitable book. “As an example, the Samvo group has a large network of trusted agents that it has taken two generations to formulate. However, without going into the legal debate, we can see that there will always be a need for cash-based settlement and an agency programme.” With the legal situation of many Asian countries still unclear and the risk of a crackdown by authorities always a possibility, Jason Chan says: “There is no general rule. My feelings are many countries in Asia are like the US before [the ban], where the legal issues were not clear. Some operators targeted the US market and others decided not to. The same attitude applies to the betting business in Asia right now. It is a decision for individual companies.” Western bookmakers have to adapt to the Asian mindset, but one of the implications of all this is that while some major European operators hedge-out some of their liability through Asian agents, books run by ‘native’ Asians, who have been working on the ground for many years, will continue using the agent system while the western operators will likely not. This means that reliable payment solutions are even more vital for western operators. Many potential Asian customers will not have heard of ewallets and will not understand that there can be delays or charges in transferring money to their online accounts due to banks blocking credit card transactions. “In addition, if an Asian customer has a declined transaction the first time they try and open an online account, it is going to be very difficult to get them to try again,” Knowles says. Whichever European operator finds a way to get online funds in and out of Asia quickly and efficiently will hold one of the keys to unlocking the market. How Asian handicap works By Wai Hong Choi, senior trader at Samvo In Asian handicap (AH) betting, we get rid of the draw and make the market a two-horse race, which is inherently fairer for the customer. In the example below we have Chelsea versus Tottenham on the traditional market and the AH market: Chelsea | Draw | Tottenham; Asian Handicap: Chelsea -1 | Tottenham 1 1.5 3.5 6.0 1.96 1.96 On AH we assign Chelsea with a theoretical one-goal handicap. We acknowledge Chelsea are a superior team and thus need to overcome this handicap for a bet to be successful. If Chelsea win by one goal then all bets are a push, if Chelsea win by more than one goal all bets on Chelsea are winners at odds of 1.96, so for every pound bet my profit will be 96p. Conversely, if I believe Tottenham will give Chelsea a close match and won’t lose by many goals I could back Tottenham with a one goal start. If Tottenham win or draw the match I would win the bet and if they lose by a one-goal margin I would get my money back. Punters are more likely to bet more as the betting is much fairer and akin to a 50/50 chance of success. AH in-running is huge in Asia. It works almost the same way as normal AH, however we discount any goals scored and betting is on the remainder of the match. In traditional in-running, if Chelsea scored two goals in the first 10 minutes, the betting would look something like this: Chelsea | Draw | Tottenham 1.08 8.0 21 Now as a betting event the game is virtually dead on this market. If I feel Chelsea were going to win this game and score more goals I would have to risk £100 to win £8. Hardly tempting. On the other hand, we can bet on AH at odds closer to even money for the remaining 80 minutes in the game by discounting those two goals – all in all a more attractive proposition. Posted: 2007-04-12 http://www.egrmagazine.com/item/1720