Thursday, June 14, 2012

Berjaya Sports Toto Berhad and Sports Toto Malaysia Trust (Toto Business)

As the name of the company suggests, Berjaya Sports Toto's core business is in selling 4D and Toto just like the Singapore Pool. The only difference is that Berjaya does not do sports betting as it does not have the necessary license. Here's all the games available:

The business is pretty straightforward and simple in that they basically collect bets to form a pool of money. For digit games, the prize money is fixed and you will be awarded if you win a 1st, 2nd, 3rd, consolation or special prize. For lotto, the jackpot involves a fixed guaranteed sum + a percentage of the total pool money. After deducting all the prize payout and expenses incurred, the remainder will be their share of profit.

As with all in the gaming industry, the hold percentage is one of the most important ratio to look at. This is basically the statistically calculated odds that the house is expected to win in the long run. If the 4D has a hold percentage of 60%, it means that in the long run, the house is going to win $60 for every $100 of bets collected. We shall now take a look at the hold percentage of the respective games owned by Berjaya Toto.
Figure 1 - Toto 4D

All the payout and hold ratio are calculated using the probability of striking multiplied by the amount paid out. For the sake of simplicity, I will not show the calculation here. For Toto 4D, you can choose to buy big or small at RM1 per bet. The difference is that in Small, you are entitled to a higher 1st, 2nd, 3rd prize in exchange for not being able to win the special and consolation prize. To summarize, the gross margin (revenue - total payout) for the Toto 4D is 36% and 35% for Big and Small respectively.

Figure 2 - 5D

Figure 3 - 6D

Toto 5D is an extended version of 4D where you will be playing with 5 digits instead of 4 digits. Similarly for 6D, it is 6 digits. In this case the gross margin for 5D and 6D are much higher as compared to 4D at 66.2% and 66.6% respectively.

 Figure 4 - 6/52 Jackpot

 Figure 5 - 6/55 Jackpot

Figure 6 - 6/58 Jackpot

Berjaya's lottery games comprise of 6/52, 6/55, 6/58 jackpot game where you choose 6 numbers out of 52,55 and 58 numbers in total. The jackpot is earned when the 6 numbers you have chosen matched the 6 winning numbers. Do take note that the minimum guaranteed amount and prize pool differs for all the 3 games. The gross margin for the 3 games are 55.92, 52.93 and 52.42% which is higher than 4D but slightly lower than 5D and 6D. The odd of striking Toto for the 6/52, 6/55 and 6/58 games are 1 in 20.35 million, 1 in 28.99 million and 1 in 80.95 million.

Out of the total revenue collected from the pool betting business, 75% are from 4D alone while the other 25% are from 5D, 6D and lotteries (6/52, 6/55, 6/58). 4D is the most popular game in both Singapore and Malaysia and it is a unique game that is hardly played elsewhere. While 4D has one of the lowest margin, it is good to have it as a large proportion of revenue as it helps to stabilise the profit margin. All gambling and casino games make their fortune on the basis of the "Law of Large Number" where given a large number of trials, the results will be very close to the expected probability. 4D is more popular than the other games because it boasts a higher chance of winning though the size of the win is much smaller as compared to Toto. The revenue collected is also more stable as gamblers usually buy the same set of numbers for every draw days for fear of losing the chance to win.

Lottery is more popular among the youngster who wants to be a overnight millionaire. However, as a result of the very low probability of striking Toto, profit margin can fluctuate as a result of lack of sufficiently large number. Revenue collected also tends to fluctuate more as a high accumulated amount of jackpot is required to attract more people to buy. If the Toto strikes more often, the accumulated Jackpot will be reduced and hence the buying interest reduced. Therefore, this is the portion of business where luck is very important. Like casino, while the VIP often brings with them huge amount of chips, they are also the one that tends to create a larger fluctuation in profit margin.

Toto and Gaming Industry in Malaysia

Malaysia (50% are Muslim) is a highly regulated and taxed gaming market as compared to the world due to the fact that Gharar is prohibited in the Muslim culture. Other than the operator's license, factors like the number of draw days, prize payout ratio, type of games allowed are all being tightly regulated. The operators need to seek permission to reduce payout ratio or to introduce new games. Taxes are high with the following charges: 8% pool betting duty on net gaming revenue, 8% gaming tax on gross gaming revenue, 25% casino tax, 10% NSC contribution on gaming pretax profit and 10% royalty on gaming pretax profit. In the case of Berjaya Toto, it needs to pay gaming tax, NSC contribution and pool betting duty on top of the corporate tax.

As it is a highly regulated industry, Berjaya Toto only has 2 other similar competitors in 4D - Magnum and Tanjong. Berjaya Toto is the market leader with the largest network of 680 outlets in Malaysia and an estimated market share of 40%. Currently, Berjaya Toto has a monopoly on the Toto segment of 6/52, 6/55 and 6/58 as well as 5D and 6D because the other 2 competitors do not have the lottery license. Basically, the government does not wish to grant too many license to avoid backlash from the Muslim community of encouraging Haram activities. This is also part of the reason why Berjaya has not been successful in vying for a sport betting license.

Other than the usual "luck" factor that will affect the total revenue and  another factor that can create some fluctuation will be the number of draw days allocated. Berjaya Toto conducts its draw 3 times a week on Wednesday, Saturday and Sunday. 365*7/3 will give us 156.429 days, which means total number of draw days a year is likely to be 156 or 157. This will have a marginal impact on the revenue. Each of the 3 NFOs are also allocated extra draw days called special draw. The number of special draw days differs from year to year according to the mood of the government and usually ranges from 5 to 12. In 2010, Berjaya Sports Toto was allocated with 20 days, but revenue does not actually increase. The reason is that instead of a special draw, all 3 NFOs are allocated common special draw day as compared to the exclusive specival draw days in the past which will generate higher revenue.

With regard to illegal betting, which is a common sign around the world, Berjaya Toto is not as impacted as compared to its competitor. The reason again lies in the type of games they have over their competitors. 4D, 5D are games that bookies can easily take the bets as the payout is not substantial to the extent that they will suffer a huge loss due to "luck". However, for games like Toto 6/52 and e.t.c, the payout is extremely high and one needs to reach a certain scale to be assured of profitability.

In conclusion, we can expect to see up to 10% fluctuation in revenue and profit depending on numerous factors including total prize payout (luck), number of draw days, size of jackpot as well as possible changes in taxation. Generally, revenue and profit will still be relatively stable as 75% of revenue comes from 4D which enjoys the law of large number theory to the largest extent. As compared to a casino business, capital outlay is also much lower. However, between Berjaya Sports Toto and Sports Toto Malaysia, it seemed like  Berjaya Sports Toto might be a better bet as it is selling off a mature business at a PE of 17. That aside, Berjaya Sports Toto will still control Philippines Gaming Management which is in the business of managing lotteries business and has a very high profit margin.

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