Will China Give Online Poker a Go Despite Recent Online Cafe Crackdown?

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Playtech Ltd, who signed a licensing agreement to bring online poker to China, is closely watching the Internet clampdown now happening to China's online lottery, to see if they played their cards right picking their China business partners.

Playtech, whose iPoker network includes PaddyPowerPoker, Expekt, and CDPoker online poker sites, signed a contract with Hong Kong-based Foundation Group Ltd. in March to supply Peer to Peer (P2P) gaming software to the Chinese Communist Youth League (CYL).

The CYL has been given responsibility for implementing a "Green Internet Policy" in China, to enable internet cafes around the mainland provide officially licensed P2P tournament games with cash prizes.

But just this week, China's Beijing officials appointed the China Association of Social Workers, who is responsible for overseeing welfare lottery issuance, to be in charge of a clampdown on unauthorised lottery sales over the internet, said Mr Zhang, who was recently appointed deputy head of the association.

The appointment comes amid strong interest from Beijing officials in promoting and expanding the country's welfare and sports lottery systems, the only legal forms of gambling in China, both to raise funds and to provide an alternative to underground betting.

The move also highlights the comingling of government and private investment and expertise in politically or socially sensitive sectors such as gaming and the Internet.

"With the recent crackdown on internet cafes in China, Playtech appears to have jumped into bed with the right group", according to Burke Hansen, San Francisco attorney at large.

"Coming on the heels of its 2006 earnings report," he added, "in which Playtech trumpeted 89 per cent year-on-year growth in revenues and 90 per cent growth in adjusted net profit compared to 2005, the party just seems to keep going for the gambling-oriented software company."

Playtech already has a licensing agreement signed with China's largest corporate retail gaming network, Sino Strategic International. So the CYL deal appears to strengthen Playtech's hand against its competition in the Chinese market where political connections make or break you.