Photo: CFP

A media report last week suggesting that online lottery ticket vending is illegal has again shone a spotlight on the sector.

The report by Beijing Times on May 7 cited sources from the country's two official lottery issuance organizations. But the news was later denied by the authorites.

According to the report, sources from the China Welfare Lottery Issuing and Management Center and the China Sports Lottery Administration Center said the two organizations had never authorized any entities to sell lottery tickets online.

The news has caused a major disturbance in the online lottery vending sector, which has grown quickly in recent years. Major Internet firms such as Baidu Inc, Alibaba Group and Tencent Inc are among those offering platforms for online lottery sales.

Following the news, shares in the country's major online lottery vendors, such as Gohigh Data Networks Technology Co and Hongbo Co, dropped by close to the daily limit of 10 percent in mainland capital markets on May 7.

However, on Friday, the Ministry of Finance (MOF) denied the news, Xinhua reported, noting that online vending is a legitimate channel for lottery sales.

Growing business

Sales revenue generated by the lottery industry in China totaled 309.3 billion yuan ($49.5 billion) in 2013, up 18.3 percent year-on-year, data from the MOF showed, making China the second-largest lottery market after the US.

In the first quarter, China sold lottery tickets worth of 80 billion yuan, up 15.9 percent year-on-year, the MOF said.

The convenience of buying via the Internet has greatly enlarged the number of lottery ticket buyers, especially among the younger demographic. According to data from consultancy Analysys International, sales by online lottery vendors amounted to around 40 billion yuan in 2013.

"Buying lottery tickets online via my e-bank is convenient," Mu Qing, a 27-year-old postgraduate student in Beijing, told the Global Times.

Online lottery vending first appeared in China at the beginning of the 2000s. However, as it gained in popularity, some websites started to offer illegal gambling services or committed fraud under the guise of lottery vending.

In 2007, the MOF suspended all online lottery vending activities in the country in a bid to curb irregularities. But a lot of websites kept operating, so in 2008 and 2010, the ministry made further efforts to eliminate illegal activities in the sector.

In a regulation released in 2010, the MOF made clear that authorized lottery distribution organizations were allowed to cooperate with online firms to sell tickets, making the Internet a legitimate channel for lottery ticket distribution.

In 2012, the MOF agreed to allow two Internet companies - 500.com and sporttery.cn - to sell sports lottery tickets online in a pilot program.

Online lottery vending is an irresistible trend, experts noted. And "authorized lottery distribution centers are willing to cooperate with Internet firms in order to boost sales, as online firms cover a much larger user base," Li Zichuan, an analyst at Analysys International, told the Global Times Thursday.

Li Chao, an analyst at Beijing-based iResearch Consulting Group, said the MOF's crackdowns in 2007, 2008 and 2010 had made it harder for illegal lottery websites to operate.

All the websites in the sector are selling lottery tickets in cooperation with authorized distribution organizations. A public relations employee at Alibaba's e-commerce website taobao.com told the Global Times on Thursday that it "does not sell lottery tickets directly and only offers an online platform for provincial centers to sell lottery tickets."

More companies joining 

Leading Internet companies are all trying to strengthen their foothold in the sector as they enjoy the advantage of a large user base and it is easy to make a profit from the lottery business, analysts said.

Media firms are also eyeing the sector. In August last year, people.com.cn, the online news portal of People's Daily, acquired lottery vending website okooo.com. The Beijing News also operates a lottery app.

Li Zichuan said that online lottery vending now accounts for around 10 percent of total sales and the number could grow to some 30 percent in the future, the same level as in many developed economies.

Spurred by the bright prospects for online lottery sales, 500.com floated on the New York Stock Exchange in November 2013 - the first Chinese online lottery vendor to get listed in the US.

In the first quarter this year, 500.com reported net profit of $4.4 million, compared with a net loss of around $0.6 million during the same period in 2013.

Commissions are a major source of income for the lottery websites. Experts noted that the commission fee could be between 8 percent and 15 percent of the lottery ticket price, and as the number of users grows further, value-added services and advertising could also be introduced.

500.com told the Global Times via e-mail Thursday that it is also making a profit from online gaming at present, but it said that commission fees still account for a large chunk of its revenue.

In the first quarter, the lottery channel of taobao.com had a leading market share of 11.3 percent, followed by 500.com with 5.8 percent and aicai.com at 4.9 percent, data from Analysys International showed.

Healthier market

Li Chao noted that at present most lottery tickets sold online are for sports. The MOF is considering expanding the pilot program and approving more online lottery vendors before June, when the 2014 FIFA World Cup kicks off in Brazil, media reports said on Sunday.

The regulation released in 2012 noted that online lottery vendors should have registered capital of no less than 50 million yuan. Li Chao noted that at present there are around 25 websites dedicated to lottery vending that meet this requirement.

"The need to have a license will weed out unfit companies and the sector will be better regulated," said Li Zichuan.

Though the sector is growing rapidly, experts noted that online vending is not likely to pose a threat to traditional distribution channels. For one thing, many people still prefer to go to a brick-and-mortar store. Also, online firms still need to cooperate with traditional distributors in order to conduct the business.

"Internet companies will enlarge the market as whole, instead of encroaching on the current market," Li Jian, founder of sobet.com.cn, a website offering rating services to online lottery vendors, told the Global Times Thursday, adding that more lottery websites are expected to get listed in the future.