China’s online lottery suspension leads 500.com to buy payment processor

500-com-payment-processorChina’s lottery business continued to contract in October, with welfare lottery sales declining faster than the sports lottery.

The Ministry of Finance announced this week that October’s lottery sales fell 4.5% to RMB 31.2b (US $4.9b). Welfare lottery sales were down 8% to RMB 16.3b while sports lottery sales dipped a mere 0.3% to RMB 14.9b. For the year-to-date, total lottery sales are down 2.9% to RMB 303.1b ($47.4b).

Last year saw a spike in sports lottery sales due to the 2014 FIFA World Cup and China’s economy has since gone south, so 2015’s numbers were expected to look bad by comparison. But this year also saw the ‘temporary’ suspension of online lottery sales after an internal audit uncovered widespread corruption at provincial lottery administration centers.

This ‘temporary’ online suspension has now lasted nine months and there’s no end in sight. The lack of online sales has played havoc with the business of Shenzhen-based 500.com, which has reported zero revenue for two straight quarters following the shutdown.

500.com’s cash reserves are running out, so it needs to do something quick to right the ship. Last week, the company announced it had agreed to pay $35.6m for a 63% stake in Zhejiang Shangmeng Technology Limited Company, a Chinese-licensed online payment processing firm that operates under the Sumpay.cn brand.

500.com says it will cooperate with the company’s current management to diversify Sumpay’s online payment services business. 500.com also expects the relationship to reduce third-party payment processor expenses related to its lottery business, assuming Beijing ever gets around to lifting that online suspension.