Jockeying for a Piece of the Action

Online gambling rivals muscle in on the Jockey Club's turf

Lawrence T. Wong should be one of Hong Kong's most powerful men. He is chief executive of the Hong Kong Jockey Club, which operates the only two racetracks in the city, as well as the betting facilities where Hong Kong punters flock. This nonprofit powerhouse has long enjoyed a government-ensured gambling monopoly in a city that--legally and illegally--bet some $20 billion last year. The Jockey Club is Hong Kong's biggest taxpayer, accounting for 10% of government revenues. And since 1.5% of betting receipts goes to charity, Wong is the city's leading philanthropist, funding hospitals, universities, and other good works.

Yet Wong is feeling mighty insecure these days. Since he took the reins of the Jockey Club in 1996, betting receipts have been falling (chart), while stiffer taxes are taking a bigger bite of revenues. Moreover, Wong complains, illegal bookmakers are grabbing more of his pie because they pay some 15% more on winning bets than the Jockey Club. As a result, he says, "we've become drastically uncompetitive."

Now, with the economy faltering, the former Ford Motor Co. exec is facing new competition from abroad. Bookmakers operating legally in Britain, Gibraltar, and Australia are targeting Hong Kong, offering phone or online betting to local gamblers on everything from Hong Kong horse racing to British soccer. The way Wong sees it, his overseas rivals are "robbing Hong Kong people" because they don't pay local taxes or contribute to charity. For their part, officials fear falling levies on horse racing will put further pressure on already hard-hit government finances. As a result, legislators are looking to make it more difficult for overseas betting shops to cater to local gamblers.

FIXED ODDS. While the debate has been going on for over a year, things heated up in October, when Australia's Centre Racing launched an online service offering "fixed-odds" bets on Hong Kong horses. For the Jockey Club, this was a serious challenge, since under its system--one used worldwide--the odds change along with the betting pool until the race starts. By contrast, fixed-odds bets offer the gambler surety: If you place a bet on a horse today at odds of 5:1, the odds won't change even if the horse attracts a flood of money before race time tomorrow. In November, William Hill Organization Ltd., one of Britain's top betting groups, said that it, too, would begin taking fixed-odds bets on Hong Kong horse races.

The popularity of the new betting services is hard to judge because neither Centre Racing nor William Hill will disclose any figures. But fixed-odds betting is popular and helped both companies to grow quickly. Moreover, with Hong Kong horse races still commanding a betting pool of more than $1 million, it's easy to see why bookmakers are looking for a piece of the action.

Online betting execs say they are doing nothing illegal--and are unapologetic about galloping into the Jockey Club's arena. "The Hong Kong Jockey Club has enjoyed a monopoly position for many years," says David Hood, spokesman for William Hill in London. "Now they are reacting angrily to competition." Terry Lillis, founder of Centre Racing, dismisses Wong's rhetoric as "posturing" and says Centre Racing is in the market to stay. Since his customers are betting in Australia, not Hong Kong, Lillis says, "there's no legal way they can stop me."

Still, the government aims to try anyway. Legislators intend to make it illegal for offshore operators to take bets from Hong Kong. But such a law would almost certainly prompt court challenges. Wong's assertion that offshore operators are "stealing our intellectual property" because the races are held in Jockey Club facilities is also on shaky legal ground.

Besides, the Jockey Club is itself angling for bets on events organized by others. For instance, Wong is encouraging the government to legalize betting on soccer in time for next year's World Cup. He also wants the government to tax bottom-line earnings--what's left after the club has paid winners, donated money to charity, and covered its costs--rather than top-line earnings. That might help protect the Jockey Club monopoly a little longer. But with more overseas operators in the wings, the odds of a return to the good old days are slim.

By Bruce Einhorn in Hong Kong

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