The upcoming ban on play money poker apps in China may have a huge impact on the whole poker and gambling industry across Asia, concerned poker operators have warned. In April, Chinese media reported that the government has decided to ban all social poker applications and the advertising of poker on social media channels. Starting June 1, the ban may hurt not only online tournaments in the country but also live poker events across the continent and beyond as Chinese players would simply not be informed of tournaments they could take part in.
The decision to ban poker apps in China was seen by some industry insiders as a catastrophe for the poker industry and as an expected consequence of the local law by others. Interestingly, even poker service providers could not agree on what the decision would mean for them – the end of poker as we know it in the country, or an opportunity for land-based casinos in Macau. In order to understand the real consequences from the reported ban, we should first look at the current legal status of the game in China and then, take a closer look what the government is really prohibiting. Moreover, it is important to take into account the local market and all its peculiarities.
Gambling, including playing poker for real money, is illegal in China except in the administrative regions of Macau and Hong Kong, with the latter allowing only some types of gambling. In fact, the only form of gambling that is allowed and can be played legally everywhere in the country is lotteries. Gambling fans who want to play poker, on the other hand, should either go to Macau or face severe penalties for betting illegally. In reality, many of them simply get around the ban by accessing blocked offshore poker sites with the help of VPNs or by playing at underground poker clubs while risking being fined or even arrested if caught. Alternatively, they use social online poker apps.
China’s Black Friday for Poker
The reported crackdown on online poker games in China was called by some “China’s Black Friday for poker”, comparing the move with the events of April 15, 2011. This is the date when the United States Department of Justice issued an indictment against the three largest online poker companies, PokerStars, Full Tilt Poker, and Cereus. The Internet addresses of the websites were seized as were the bank accounts of the three companies, of their founders and even their customers’ deposits. Moreover, several executives were arrested and three of them were convicted to up to three years in prison. Among those indicted was Isai Scheinberg, the founder of PokerStars.
The situation in China is very different, however, as poker and other forms of gambling are strictly prohibited on the mainland. Taking effect June 1, the latest government ban extends that conservative stance to social poker apps and poker advertising. All forms of Texas Hold’em will be banned, so by the beginning of June, they need to be removed from app stores. The news was reported by Macau-based publication Inside Asian Gaming and is still not yet officially announced by Beijing. Social poker games are not played for real money and are available in only free or practice mode. When it comes to the second part of the restriction, in this case, the ban on poker advertising includes banning and removing from social media channels any content that promotes or even mentions Texas Hold’em and associated products.
Such social media platforms include Weibo and WeChat, China’s most popular messaging app developed by tech giant Tencent. The company has already taken down its World Series of Poker app, according to Inside Asia Gaming, while customers who use WeChat for nearly everything will not be able to discuss poker or receive news and information related to live tournaments. A significant change is probably on the way for Chinese company Ourgame which bought the World Poker Tour for $35 million in 2015. Its stock dropped to 1.43 from 1.61 and the company said in a statement that in the light of recent regulatory change, it would be reviewing its poker products.
Another company to be directly affected by the crackdown is Hong Kong-based game developer and gambling operator Boyaa Interactive, which saw its shares fall drastically from 3.14 to 3.02 following the news of the ban. This has clearly something to do with the fact that Texas Hold’em games account for approximately 70 per cent of the firm’s online revenue. Another thing we should point out is that the company owns and operates the extremely popular Boyaa Poker Tour which takes place in Macau, Hainan, and Vietnam.
Why Would China Want to Ban Social Poker Apps?
The reported ban on social poker apps can be seen as an extension of the 2016 regulations, according to which mobile and online video games can no longer feature in-game purchases. The law targeted all foreign companies and those domestic firms without a specific license in order to eradicate gaming addiction. Now, with the upcoming restriction, the Chinese government might be trying to deal with gambling addiction.
This is just one of the story, however, and there is another, much more likely scenario. Poker, unlike other forms of gambling, has been more or less tolerated in China in recent years, especially live tournaments where the game has been promoted as “game of skill”. A number of tournaments have taken place over the years but for play money, while cash games, on the other hand, have been strictly prohibited. Social poker games, meanwhile, became popular as many poker series launch satellites through them where players can qualify for real money tournaments in Macau casinos. But somewhere along the way, they have acquired a new role, much more interesting to Chinese poker enthusiasts who started using them for participating in illegal cash games.
Central to them is the so-called agent system, which uses social poker apps to circumvent the ban. The applications do not use real money but “coins” or “gems” that serve as play money. However, players are given the option to purchase these play money, which immediately makes the stakes real. In an even more sophisticated scheme, customers play against each other in these free money apps while “agents” manage the real money between them. It turns out that in-game credits have real value. The agents are people who take bets and pay out winnings, often use unregulated cryptocurrencies, third party service providers and underground banks.
Taking this strange illegal system for playing poker into consideration, the recent ban on social poker apps seems more and more reasonable. The agent system is not limited to China, but here, it is so common and so complicated, at the same time, that it is almost impossible to track down and eradicate. It is estimated that the underground gambling market in the country is worth between $600 billion and $900 billion a year.
Potential Consequences of the Ban
The shutdown of play-money apps and sites would certainly affect the agent system but only with regards to poker games. It is widely used for all sorts of games and betting such as mahjong, underground casinos, illegal betting on horses and sports, and unofficial lotteries. In fact, there are large agent companies which offer their customers privacy, fast and reliable money transfer networks, intermediaries for using a preferred payment method, and even credit options. They often work with underground banks which transfer money to offshore poker operators and are linked with criminal groups and various illegal activities.
Clearly, the Chinese government is rightfully trying to clamp down on this widely spread illegal system. However, some experts point out that regulation does not necessarily mean prohibition, which is the case here as this ban will refuse Chinese players all access to poker, whether it is illegal private games or harmless qualifiers for legal live tournaments in Macau or abroad. In fact, the move will probably have deeper consequences for the industry and according to Hong Kong Poker Players Association managing director Stephen Lai, it will affect the sector across Asia.
Speaking to the South China Morning Post, Lai explained that poker operators would find it extremely difficult to organize events in Asia because generally, players from China account for at least half of the entry field. They would not be notified of tournaments and receive other poker-related news on social media, which is the primary channel for promoting major events in the country. Moreover, they would not be able to qualify for live tournaments in satellites where currently, the only prize they get is a seat to a tournament and “the honour of winning”. In addition, players would not be able even to practice a game that is universally known as a game of mostly skill and not just chance.
Interestingly, not everyone agrees that the ban will have negative effects on the industry. The Stars Group, the Canadian company that owns PokerStars, told Macau News Agency that the new regulation would not affect their poker business or live events in China. It added that it supports “the regulation of online gambling” across the world because it guarantees safety for players and provides “a robust taxation regime”.