Hong Kong Jockey Club feeling the heat

The Bloomberg business news service reports that the Hong Kong Jockey Club, long used to a monopoly on gambling, is feeling the pressure of competition from what it describes as ‘unauthorised Internet betting sites.’
Winfried Engelbrecht-Bresges, the 55-year-old German CEO of the Jockey Club, told Bloomberg: “Competition is just a mouse click away. Our competitiveness is at risk.”
The Club is the city’s sole provider of horse racing, football betting and lotteries is also its largest single taxpayer. Hong Kong accrued about 7 percent of tax revenue HK$12.8 billion ($1.64 billion) last year from the club, helping keep income tax rates in the former British colony among the lowest globally.
The operator is also the city’s biggest source of charitable donations, spending HK$1.52 billion in the year ended June on everything from hospices for single mothers to art archives.
About HK$105 million is bet on every race, says the club’s executive director for racing….more than 50 times the average at U.S. tracks in 2010. After prizes and winning bets are paid out, the Hong Kong government takes at least 72.5 percent of what’s left in taxes.
The Club claims that all this is threatened by a rise in unauthorised Internet betting sites, which avoid paying gambling taxes or royalties to the track, enabling them to offer more attractive odds.
“Online gaming has eroded racing’s capacity to ensure it achieves a fair return from all the wagering that takes place,” said Andrew Harding, who heads the secretariat of the Sydney- based Asian Racing Federation.
Some tracks are trying to fight the problem of “free riding” by online bookmakers by linking with race courses in other countries to take bets on each other’s races. The system, called commingling, broadens the pool of gamblers the race operators can access, allowing them to offer better odds.
Hong Kong’s tax regime makes such deals prohibitive because the city doesn’t make allowances for double taxation. The Jockey Club’s overseas revenue could be taxed twice – in the country where the bet was made and in Hong Kong – removing any profit.
The city’s government said in an e-mailed response to Bloomberg that it is “willing to review the taxation structure for inbound commingling.”
According to the Bloomberg report, it is estimated that annual revenue for illegal bookmakers from Hong Kong horse races is between one-third and 100 percent of the Jockey Club’s receipts. That means the government lost at least HK$2.6 billion in revenue, based on the HK$7.9 billion in racing taxes the club paid in the year ended March 2010.
Hong Kong’s gross racing revenue grew 3.6 percent to $1.5 billion in the year ended June 2010. By comparison, it is estimated that Internet gambling last year grew 10.4 percent to $11.9 billion, according to GBGC gambling consultants.
The Jockey Club has not completely shunned internet betting – it already gets 30 percent of its earnings from online soccer betting and would like to expand into other sports with government permission, executives say.
Meanwhile, internet companies like Betfair are not afraid to compete if there is a level playing field.
“It’s more and more difficult for Hong Kong to maintain its monopoly and have a thriving business when there are so many competing alternatives out there, both illegal and legal,” said Stephen Burn, Betfair’s Global Racing Director.
“There is a tidal wave of people who want to use the new technology.” Burn emphasised that Betfair doesn’t take bets on Hong Kong horse races.

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