New slot machine lookalikes in the mainland are now generating as much gambling revenue as Macau’s one- armed bandits, according to listed China LotSynergy, which is investing HKD 980 million in the developer of the Chinese machines.
According to the circular on the deal sent to shareholders Wednesday, developer Dongguan Tianyi Electronics recorded 13.7 million yuan (HK$ 13.2 million) in revenue last year from the 2 percent cut it gets of gross winnings from the machines, called video lottery terminals.
The VLTs are installed in halls run by Beijing Lottery Online Technology, a company controlled by the national welfare lottery authority. Tianyi developed the VLTs in cooperation with Beijing Lottery and contracted late last June to become the exclusive supplier of the machines for the next 10 years.
According to the circular, Tianyi has so far delivered more than 5,000 VLTs, including 1,000 shipped this year, to some 230 Beijing Lottery halls nationwide. Based on Tianyi’s profit share, the machines generated 683.7 million yuan in the second half of last year, just topping the 675 million patacas (HKD 655.3 million) Macau’s electronic gambling machines captured in that period.
According to the circular, Tianyi had yet to receive any of its cut due from Beijing Lottery by year end, even though much of the money was already more than four months overdue. The circular said China LotSynergy’s board concluded there was no need to make any provision for the unpaid bills because of Beijing Lottery’s official backing.
The circular said Tianyi, which currently outsources VLT assembly, is considering setting up its own production line in Dongguan. China LotSynergy plans to upgrade Tianyi’s technology with expertise from Octavian International, a Britain-based gaming systems company it is also buying, then to market Tianyi’s VLTs to Octavian customers in Europe, South America and India.
China LotSynergy’s investment will give it a one-third stake in Tianyi with the option to raise that to half-ownership after three months at no additional cost to the company.
Vancouver businessman Lim Loong Keng now indirectly holds 93 percent of Tianyi’s shares. Lim is the controlling shareholder, chief executive and president of Toronto-listed NSI Strategic Investments, which develops condominiums on tribal lands in British Columbia. Lim also holds an 8.7 percent interest in Hong Kong-listed Shell Electric Manufacturing after selling Shell his stake in a mainland property developer last year in a HKD 505.2 million deal.
The rest of Tianyi’s shares are controlled by general manager Meng Xin.
Tianyi’s VLTs are operated through network computer servers, unlike slot machines which run independently. The network allows lottery officials to keep close tabs on money wagered and prize money paid and to add new games without changing equipment. Deutsche Bank forecasts Beijing Lottery’s national VLT network to top 150,000 machines in 5,000 halls by 2008.