Last week's £4m deal between the UK's leading football gaming business Sportech and India's most successful online gaming company Playwin was the opening shot in what will be a momentous year for the gambling business on the subcontinent.
Playwin CEO Amit Goenka tells Gaming Intelligence that his home market could be worth as much as Rs 1.5 trillion in five years time. That's nearly US$33 billion. In that context, Sportech's £2m investment in its joint venture with Playwin seems a pittance. And that is just what Goenka thinks the organised, regulated and taxed sector is capable of reaping.
"You will never eliminate the unorganised sector from India," he says. "It's too big and too vast."
That's bad news for those involved in the fight against match-fixing but European companies such as Sportech are jostling for position in a new and unexploited market.
Betfair, Bwin, Ladbrokes and William Hill have already expressed their interest in licences, which are set to be granted by the Himalayan state of Sikkim this quarter. Foreign entrants should be aware that this is a difficult market with its own peculiarities.
"There are too many variables. You've got the politicians then you've got the next level of bureaucracy at the state level and on the ground you've got the police to deal with€¦ It's tough. For whatever reasons India is number 86 in surveys I've read in terms of transparency and corruption," Goenka notes.
Transparency International's 2009 Corruption Perceptions Index ranked India at 84 together with El Salvador, Guatemala, Panama and Thailand. It finished slightly behind Colombia.
"These people [in the unorganised betting sector] have survived for hundreds of years doing the same business, passing it on from generation to generation. The only way we can reduce it is by partnering with them, and saying €˜you get to earn what you earn anyway and you get to run a legal business'. That's the route I would like to take rather than saying €˜let's finish these guys off'. It's just not possible."
Despite the strength of the illegal sector, Playwin has grown at some rate. The company is owned by Pan India Network, a subsidiary of media magnate Subhash Chandra's Essel Group, which is India's largest media organisation, famous for launching satellite television in the country with the Zee TV network. Thirty-four year old Goenka is Chandra's youngest son. He launched the Playwin lottery in Sikkim in 2002. Operations were opened in 14 of India's 28 states and by the end of year one turnover was Rs 7 billion ($153.5m).
Three large states (Haryana, Karnataka and Tamil Nadu) have since banned online gambling and the recession looks likely to cost the company around Rs 5 billion ($109m) this year. But Goenka expects revenues to be about Rs 30 billion ($657m) at the end of the 2010 financial year in March. By way of comparison, Partygaming's 2008 revenues were $472.9m.
Little wonder that European operators want a slice of the action but they will encounter a volatile political system. Haryana, Karnataka and Tamil Nadu were lost after elections brought in more conservative governments that had used the promise of a gambling ban in their election manifestos.
"India is a democracy where we deal with coalition governments. You have multiple parties, all of which have their own agenda," says Goenka. And every five years there is an election where the new guys might ban your business.
Goenka compares the regulatory system to the US. While there is no federal ban on online gambling, the Union government does not recognise the Rs 500 billion ($11 billion) lotteries industry and it is left to the states to decide on the legality of gambling.
"Until the Union government gets involved and forms some sort of regulatory body, which makes the states comfortable that there will not be any illegal activities or cheating of the public, it's difficult for states to have the political will to view lotteries positively," says Goenka.
He says that there has been some progress with this but it could still be years away. Sikkim looks like being the first to allow all online gaming and Goenka claims that three other states are set to follow. Goa and Sikkim are the only states that allow land-based casinos. Pan India Network launched the Maharajah Casino in Goa in 2009 and fully intends to operate online sports betting and casino games when allowed.
The Sportech deal is not the first time Goenka has signed up with a foreign partner. The company operated in the Philippines and Cambodia with providers such as Finsoft and Boss Media. "I think most of the guys we have worked with were brought out by Gtech," notes Goenka. The licence expired recently and the company did not apply for a new one.
"We were not able to manage the sports book ourselves. So we took the decision to focus on getting a jurisdiction open in India, which we understand well, rather than looking at markets where we are trying to learn at the same time," explains Goenka.
And that is where Pan India Network will hold an advantage over any of the new entrants. Sportech and Playwin are each investing £2m in the joint venture, a sports gaming business, which is expected to launch this spring with a suite of prediction and fantasy games based around cricket, football and formula one motor racing.
By partnering with Playwin, Sportech will gain vital inside knowledge of a very distinct betting culture.
Sports betting is by far the largest form of betting in India. Most punters have a personal relationship with their bookmaker and place bets on credit without putting any cash on the table. Punters will settle up with their bookmaker on a monthly or weekly basis.
"To move away from that and operate on a pre-paid model will be very difficult," explains Goenka. "I don't see a major portion of the existing punter base shifting on to an organised operation. You really need to look at growing the market gradually and bringing in the retail customers who want to place smaller bets."
And India is a big country. The Reserve Bank of India does not allow the use of credit or debit cards for gambling so online operators have to rely on the distribution of pre-paid cards.
"Getting to the rural markets is tough," says Goenka. He estimates that in large states such as Maharashtra, Playwin is only reaching 60 per cent of its potential audience.
"These are basic realities that a lot of the international players will not understand or will not be able to get over immediately," states Goenka. "It's going to be a devil of an exercise and it will take time."