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The next jackpot

Sikkim is making sports betting legal in India for the first time but the odds of the multi-billion dollar business spreading to other states are slim.

Puja Mehra | Print Edition: August 8, 2010

"You could say it's been two Diwalis already for me this year and the real one is still a couple of months away," says Delhi resident Aditya. "Except that this is bigger dough." The allusion is to the card games in the weeks leading up to Diwali and the betting on the Indian Premier League (IPL) matches in March and the FIFA World Cup just gone by.

Though outlawed in India, betting on sports is easy. For instance, Aditya, who does not want his second name taken for obvious reasons, wagers online using his Londonissued credit card that allows him to make international purchases (the Reserve Bank of India, or RBI disallows payments for all forms of betting through debit, credit or open-ended cash cards, including those enabled for foreign currency spending). Vying for business from betting buffs like Aditya, a 28-year-old stockbroker, are online bookmakers Ladbrokes, William Hill and bet365, among others — some of whom have even begun accepting payments in rupees flouting RBI rules in India.

Gambling-crazy Indians aren't deterred by the ban on gambling. At least $5 billion, or Rs 23,300 crore, flows annually to international betting sites from India, British bookmaker Ladbrokes estimates. At the latest edition of the IPL this March-April, bets touched $100 million. To be sure, some Indian states permit wagering on horse racing and a few card games, and there are casinos in Sikkim and offshore in Goa but betting on all other sports is illegal.

That could change before the end of the year. Sikkim, in May, became the first Indian state to legalise betting on sports. The north-eastern state issued about a dozen letters of intent for the business (there is no confirmation of this number from the state yet) and some of India's lottery kings won the licence: Playwin, Sugal & Damani, Future Gaming and Agilisys Managed Services. Rollouts will begin in two or three months, finally making betting on events and sports such as cricket, soccer, hockey, wrestling, and even golf and chess, legal.

"We have permitted betting on sport games, which involve prediction of the results of the sporting events and placing a bet on the outcome, in part or in whole, of such sporting events," says a state government official, requesting anonymity and parting with little detail. The permission in Sikkim is for "pool betting" through the electronic format. In pool betting, the money collected is netted of tax and commissions and the remaining paid out as prize money; it is different from fixedodds betting where the final payout is determined beforehand. What that means is that wagers can be placed and pooled through mobile phones and the Internet, but the ban on betting shops and kiosks prevalent in most Indian states will remain.

The companies that are in line for five-year licences won't tell all but the most likely model for betting on sports is going to be this: A bettor buys prepaid cash cards from distributors. The cards allow the bettor to place a certain number of bets through a mobile phone or Internet site. Winnings, if any, can be collected from distributors. For now, though, there is plenty of fine print. Gambling being a state subject, sports betting by the new licencees will be possible only where the state governments specifically legalise betting and permit betting cards from Sikkim to be sold.

"Even if the pre-paid cards are smuggled out, it will only be possible to collect the winnings in Sikkim as I can't pay in the states where betting is illegal," says Amit Goenka, CEO, Playwin, India's largest lottery company, which runs the biggest of state lotteries — Playwin Indian Lottery in Sikkim — with prizes going up to Rs 20 crore. Most such restrictions, however, will remain on paper going by the experience of other states where lotteries are banned. In Delhi, for instance, it is commonplace to see paan-beedi (cigarettes and other tobacco productspeddling) kiosks selling lottery tickets.

The winning amount, if any, is delivered through the same channel, often controlled by organised crime. A couple of other states in the North-East and Maharashtra could be open to the idea of allowing distribution of sports betting cards from Sikkim. "We are making a case with Maharashtra and one round of presentations is already through," says Sugal Chand Jain, Chairman of Sugal & Damani, which is already in the lottery business. Maharashtra is among nine states where buying lotteries is legal.

The pitch from Jain's company highlights the potential revenue from taxes on betting. The idea being: Only 30 per cent of the population has access to legal lotteries but much gambling goes on illegally anyway. So, why not legalise it and collect taxes? That was recently seconded by Sheldon Adelson, the billionaire CEO of Las Vegas Sands Corp., a marquee name in the Nevada gambling industry.

The company already makes 70 per cent of its revenues from Asia (from gambling centres in Macau and Singapore). Adelson said in June he has regularly asked the Indian government for permission to open a casino resort in Mumbai, Chennai, Delhi or Bangalore. So far, all his requests have been rejected. "There are thousands of underground gambling holes. People bet on cricket and horses, so why not use it as a legitimate source of income and employment, coupled with world class spas, restaurants and ballrooms," he asked in an interview with the news agency Press Trust of India.

Collections from taxes on gambling are indeed big sources of revenue for governments worldwide. China, for instance, funded 40 per cent of the spending on the Beijing Olympics with lottery proceeds. Britain runs a large portion of its healthcare system with proceeds from the UK National Lottery and some 40 per cent of sports funding in that country comes from lottery. In India, in 2004, a clutch of lottery operators had proposed a draw to raise two-thirds of the Rs 750-crore then-estimated cost for holding the Commonwealth Games, but the Sheila Dikshit government in Delhi did not accept the offer. Says Goenka: "Surely even Delhi has its share of gambling during Diwali every year."

In addition to the illegal sports betting channels that ride on hawala routes for taking money outside India and bring it back in, the growing spread of Internet betting sites, which are increasingly being controlled by international crime syndicates, is influencing match outcomes. The sports ministry and members of bodies like the Board of Control for Cricket in India believe that legalising sports betting will reduce matchfixing in cricket.

And, until that happens nationwide, the sports betting market from Sikkim will be too small to cover the costs of setting up distribution networks, hoisting the mobile and Internet platforms needed, and launching a new business brand. Goenka of Playwin reckons his company at best would rake in revenues of Rs 5 crore from the venture. "We don't expect to make money in Sikkim," he says matter-of-factly. The bulk of any sport-betting venture's turnover in Sikkim would go as prize money, 10 per cent as the state's share in the prize payout and another 10 per cent would go to the Centre as service tax in addition to corporate tax of 30 per cent.

Still, as in most other Indian businesses, the bet in the sports wagering business is on high volumes. Playwin's lottery business, for instance, which operates on margins of barely eight per cent, has seen its revenues grow from Rs 650 crore in 2002-03 to Rs 2,200 crore in 2009-10. This, despite five states banning all lotteries.

But the business could be much, much bigger. Goenka estimates the Indian betting market (including lotteries, illegal draws, underground sports betting and operations such as matka betting) at a gargantuan $80 billion, or Rs 368,000 crore. "Eight per cent of $80 billion is huge money," says he, adding, his estimate is based on the fact that up to Rs 5,000 crore is sometimes bet on a single cricket match. Management consultancy and audit firm KPMG recently estimated the total market size at some $60 billion (Rs 282,000 crore).

Such pots of gold have drawn many in the past, the most recent being in the mid- to late-1990s. Videocon, Apollo, Shapoorji Pallonjee and Essar dabbled in the lottery business without much success. Those successful then are now betting that Sikkim's go-ahead on sports betting will be the next wave they can ride on. The odds that other states will legalise it too are for now high.

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