The Jockey Club's Race against Cyber-Betting
By George Pence
At twilight almost every Wednesday from September through June, Hong Kong's gambling-mad population converges on the grandstands of the Happy Valley horse-racing track, one of the two racing grounds run by the venerable Jockey Club. Purple bow-tied attendants whisk tonier guests to the luxury boxes where they sip fine French wines and nibble salmon hors d'oeuvres. Meanwhile, in the $1.28 seats, a smattering of race-weathered locals, fashionable twentysomethings, and thrill-seeking tourists guzzle local lager, chomp Big Macs, and scrutinize the racing pages with obsessive intensity. Then, a siren blasts, and cheers of triumph -- or murmurs of disgust -- ripple through the stands as the horses race around the track.
But for many in Hong Kong, one of the most wired cities in the world, penciling in betting stubs at Happy Valley is starting to look a bit quaint. Cyber-betting is rapidly becoming the preferred way of wagering, and residents can visit a host of online gambling sites and put their paychecks down on anything from craps and baccarat to Wimbledon, the Royal Ascot -- and on horses at Happy Valley.
However, these Internet odds-takers may soon be victims of their own success: Jockey Club CEO Lawrence Wong has asked Hong Kong's Legislative Council to propose a bill to restrict banks and credit-card companies from allowing their customers to pay Internet gambling debts with credit cards, which Wong hopes will make online transactions so inconvenient that bettors would return to the grandstands.
Why the crackdown? The Jockey Club has an exclusive franchise to operate the only two legal forms of gambling in the city, the Mark Six Lotto and horseracing. And Wong fears that Internet wagering could hurt its monopoly. As the city's largest taxpayer, the Jockey Club certainly has enough clout to make this bill a reality. Hong Kong's government depends on the club's fiscal health to fill its coffers and keep taxes low. Last year, the organization anted up $1.6 billion in gambling duties and profits tax -- 11% of Hong Kong's annual tax revenue.
And that's not all. The club donates plenty to charity -- $147 million last year and $1.3 billion over the past decade. Furthermore, any threat to Hong Kong's low 15% maximum income tax raises uncomfortable speculation in the business community. Club sources point out that the income tax rate would rise by about four percentage points if the Jockey Club weren't around to contribute to the economy.
Wong's desire to stamp out cyber-gambling is understandable. Betting turnover at the racetrack has fallen 12% from its 1997 high of $11.8 billion. The percentage of Hong Kongers visiting gambling sites nearly doubled in the fourth quarter of 2000 and remained at about 40% through April, 2001, the latest month for which data are available, according to NetValue Ltd., an Internet research firm.
Still, it's unclear whether cyber-betting is the real problem haunting the Jockey Club. While many punters are wagering on the Web, others aren't betting on horse-racing at all, a phenomenon reflected in the thinning crowds at the track. Attendance at Happy Valley and its sister track Sha Tin is down 160,000, or 5.5%, below last year's mark -- despite the Jockey Club's decision to sponsor 10 additional races this year.
Why the precipitous decline? As the tastes of Hong Kong's young, educated middle-class come to resemble those of the West, betting on sports like soccer is becoming more popular than horse racing -- making the tracks seem more like colonial relics than hip places to spend cash. A recent government report estimates that illegal soccer gambling in Hong Kong is a $2.56 billion industry and is growing fast. Last year, city authorities seized $34.5 million from raids on illegal soccer bookmakers -- more than four times the amount seized in 1998, the year of the last World Cup.
Critics argue that the club's plan to ban cyber-gambling and police the Net encroaches on personal privacy rights. And if the Legislative Council passes such a bill, who'll do the policing? Probably not the government. The proposal assigns liability for cyber-betting to the facilitator of the financial transaction between bookie and bettor. Identifying the culprits would require banks and credit-card companies to investigate their clientele. However, the bill has no provision for investigations. For that reason, a ban may ultimately accomplish little.
Nonetheless, the club has used its influence to whip up government support for its assault on cyber-gambling. And another government proposal to license the Jockey Club for soccer gambling in time for next year's World Cup also promises to pass. These two measures show that in the Legislative Council, as at the track, the odds are stacked in the club's favor.
Pence is an editorial assistant in the Hong Kong bureau of BusinessWeek
Edited by Thane Peterson