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Profits from ticket sales lucrative but carry risk
2004-05-24
China Daily
In a country where most gambling is illegal, the lottery business in China gives ordinary folk like Yang Yongming a chance of fulfilling their dreams of becoming rich.
Since its inception in 1984, China's lottery has generated 57.2 billion yuan (US$6.9 billion) for welfare and sports programmes. This accounts for 35 per cent of the total 163.6 billion yuan (US$19.7 billion) in lottery ticket sales.
A survey by the China Welfare Lottery Centre shows that 85.7 per cent of the population can "afford to purchase" lottery tickets, and that 63.8 per cent actually do. The country has 287 million lottery ticket buyers in the 20 billion yuan (US$2.4 billion) market.
However, scratch-and-win lotteries carry a lot of risk for distributors. According to State Council rules, the value of prizes must never be less than 50 per cent of total sales.
Lottery funds should receive another 35 per cent, which means distribution costs must not exceed 15 per cent. After 3 per cent for printing costs is deducted, that leaves only 12 per cent for distribution and sales expenses and potential profit for distributors.
By farming out distribution and sales to people like Yang Yongming in the private sector, the Shaanxi Lottery Centre can guaranteed itself a 1 per cent risk-free margin. Yang, on the other hand, although he may do well, carries the brunt of the risk on his own back. To earn his 11 per cent, he has only two options: either cutting down on his costs or manipulating the prizes.
For example, he contracted to sell 15 million yuan (US$1.8 million) worth of scratch-and-win tickets in 2003, out of which he could pocket 1.65 million (US$199,500).
However, after he gets such a contract, he has to invest a considerable sum in advertising promotion, sales space rental fees and wages for his sales staff. If sales are brisk, he may make as much as 300,000 yuan (US$36,275) on a contract like this. But if sales falter, as a result of unpredicable factors such as the weather, he could easily end up in the red. But the potential profits are high enough to keep people like Yang in the game.
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