(Yicai) Nov. 23 -- Chinese internet behemoth Tencent Holdings, which is the majority shareholder in Douyu International Holdings, will probably implement tighter monitoring of the game-centric livestreaming platform’s adherence to the law after Douyu’s chief executive officer was arrested last week on suspicion of opening a casino, which is illegal in China.

“Tencent, which holds a 37.7 percent stake in Douyu, will likely step up the firm’s compliance with regulations and improve its business model,” You Yunting, a lawyer and senior partner at DeBund Law Offices, told Yicai. Shenzhen-based Tencent is Douyu’s biggest source of livestreaming gaming rights, he added.

Douyu’s operations are not likely to be affected in the short run, and in the long term, the company may focus more on e-sports, market insiders said. The firm’s board of directors and senior management will formulate an emergency plan.

Tencent will probably continue to invest in Douyu, said Zhang Shule, a gaming industry analyst.

Chen Shaojie has been arrested on suspicion of opening a casino, according to a statement released by police in Chengdu, southwestern Sichuan province yesterday.

Douyu was informed on Nov. 20 that Chen was arrested by Chengdu police on or around Nov. 16, the Wuhan-based company said yesterday. No reasons for the arrest were given, it added.

The CEO is responsible for ensuring the company abides by the law, You said. The fact that Chen was arrested probably means that he was engaged in the illegal activity in person. “This could have to do with the pressure of fierce external competition, slowed or even negative growth or even an internal performance assessment,” You added.

This is not the first time that Douyu has been in trouble with the law over gambling. Three livestreamers were found guilty by a Chengdu court of organizing over 4,200 lotteries from a Douyu studio involving over 4.4 million people between March 2017 to September 2020 and were fined a total of CNY1.6 million (USD230,932). Two were also given six-year jail sentences.

Douyu owns 4 percent of the live studio operator, Chengdu Jiutu Culture Media, according to corporate information provider Tianyancha. It was the first incidence of a live-streaming platform operator to be involved in a gambling case.

Since Douyu went public on the Nasdaq in 2019, its business performance has been on the decline. Last year the firm racked up net losses of CNY90.4 million (USD12.7 million), in 2021 it squandered CNY620 million (USD86.7 million) while in 2020 it made a net profit of CNY540 million.

Douyu’s share price [NASDAQ:DOYU] closed down 0.2 percent at USD0.90 yesterday, giving it a market capitalization of USD289 million. The company has lost 92 percent of its value since listing. If the stock price fails to return to above USD1 by April 22 next year, Douyu might be delisted.

Editor: Kim Taylor