Some people buy scratch-off lottery tickets or pick Mega
Millions numbers in the hopes of getting rich quick. But others
bet on their favorite sports teams because it's, well, fun. And
in China, popular websites are scoring with sports lotteries that
let you bet on not only whether a team wins or loses but also
whether a player fouls or gets a corner kick.
"With (the number-based) lottery, people are putting in $2
hoping to get $3 million, $5 million back," Zhengming Pan, CFO of
), told IBD. "With the sports lottery, people don't expect to be
rich overnight. Money isn't the No. 1 goal for the sports match
player. They love these sports and want to have a stronger sense
of participation. And when they can correctly predict the
outcome, they can tell their friends."
While betting on other sites can be a mere e-commerce
transaction that involves buying tickets and checking numbers,
500.com offers interactivity and a sense of community with other
"We are combining your lust for money with your interest in
sports," said Pan.
Sports-based lotteries are 500.com's bread and butter. Founded
in 2001, the company aggregates and processes lottery orders on
the Web. It leads the online sports lottery market in China with
around 30 million registered users, according to Pan, most of
whom are casual gamblers.
While many bettors still pony up at brick-and-mortar ticket
kiosks in China, a growing number of players are moving their
money online to desktop and mobile lottery apps.
In 2013, active users on 500.com spent an average of $334
across 41 purchase orders. The company says that it had around
1,144,000 active users during Q1, a 28% year-over-year increase.
Analysts say that 60% to 70% of 500.com's traffic comes from the
site and its apps, while 20% comes from search engines, and
another 20% comes from payment platforms and other third-party
And though it shares the online lottery market -- competitors
include Tencent Holdings and Alibaba's Taobao.com -- 500.com is
only one of two firms that has received official approval from
China's Ministry of Finance since the government moved to
regulate lotteries in recent years.
As of 2013's first half, 500.com had 29% of China's market
share vs. 27% for Alibaba's Taobao, according to market research
firm iResearch. Alibaba, which is 22.5%-owned byYahoo (
), is preparing to go public in the U.S. soon in what could be
biggest U.S. initial public offering ever
500.com's revenues come mostly from service fees paid by
lottery administration centers. The company held its U.S. IPO in
November 2013 at $13 per American depositary receipt.
First-quarter revenue of $14.4 million topped views for $12
million, and earnings almost doubled analyst estimates for 8
cents a share, coming in at 15 cents vs. 1 cent a year
The company is expected to report Q2 earnings in mid-August.
Analysts see earnings of 17 cents a share and revenue of $18.6
million. The World Cup likely helped 500.com score in the
Big athletic events spur big-time bets among high rollers and
casual gamblers alike. The once-every-four-years soccer
extravaganza kicked China's year-over-year sports lottery sales
up by 83%. Chinese officials said that the country's sports
lottery sales shot up to over $3.1 billion in June.
Honing in on its casual-user base during the soccer
tournament, 500.com debuted in-match games such as "Crazy Guess
Ball" and "RMB100m cash prize." In the former, each 90-minute
match was divvied up into 30 segments, and gamblers could bet on
any number of events during each three-minute play, including
penalties, free kicks and goals. The ultimate daily prize? A
These tactics boosted the company's traffic and revenue, said
Deutsche Bank Research analyst Alan Hellawell III in a June 29
research note. The site's daily lottery volume during the
tournament was likely around three to five times higher than in
the off-season, he added, a figure that's in line with the
"These activities seem to have succeeded in attracting users
and boosting total lottery sales," he said.
But after all the flags have been packed up and fan frenzy has
subsided, the real question is how 500.com can keep casual users
from forgetting the site for another four years.
"There could be a positive residual benefit as new users
become familiar with the service," said Piper Jaffray analyst
Michael Olson in a May 7 note.
"It is not clear, however, that the company has developed a
clear strategy on user retention strategies for post World Cup
periods and as such, we are taking a 'wait-and-see'
Strategic agreements were made earlier this year with both
China Mobile E-commerce, aChina Mobile (
) subsidiary, and e-commerce platform Yihaodian or Yhd.com, of
) owns a majority stake. Yihaodian has around 60 million
500.com's strategy appears to involve embracing the shift from
desktop to mobile, and moving beyond just distributing games to
"In the mobile age, any popular app could be a new entry
point," 500.com's Pan told IBD. Users tracking a game can bet
from anywhere. 500.com's real-time data has only a 5-second lag
time behind live play, which is faster than even China Central
Television, he said.
Mobile purchases on the site increased to 26.4% of total
purchases in Q1 vs. 18% in Q4 2013, the company said in an
Pan says that 500.com plans to explore lottery game design and
may also acquire other lottery distributors and lottery game
"Discussions with company management suggest that 500.com now
aims to embed more deeply lottery into its users' daily lives by
increasing interactivity and fun," said Deutsche Bank's Hellawell
in a note. "This set of initiatives should provide a particularly
effective means of retaining mid-low end users."