The Competition Threatening Hong Kong Jockey Club

Illegal internet betting sites luring customers?

It seems that after many years of having monopoly on gambling, Hong Kong Jockey Club is for the first time facing the pressure of the web-based competition, the Bloomberg business news service reports.

According to the CEO of the Jockey Club, Winfried Engelbrecht-Bresges, the main competitors are 'unauthorized Internet betting sites' which avoid paying gambling taxes or royalties to the track, thus being able to offer more attractive odds.

Being the city's exclusive provider of horse racing, football betting and lotteries, the Club is at the same time its largest single taxpayer. Last year, Hong Kong accrued around 7 percent of tax revenue HK$12.8 billion ($1.64 billion) from the club, maintaining the income tax rates among the lowest in the world. The Club is also the city's source of charitable donations, contributing HK$1.52 billion in the year ended June to various fields including health and art.

The Club's executive director for racing says that cca. HK$105 million is bet on every race, which is over 50 times the average at U.S. tracks last year. The local government takes minimum 72.5 percent of what's left in taxes after payment of prizes and winning bets.

Andrew Harding, Head of the Secretariat of the Asian Racing Federation in Sydney, commented on the current situation: 'Online gaming has eroded racing's capacity to ensure it achieves a fair return from all the wagering that takes place.'

One of the solutions is 'comingling', when online bookmakers link with race courses in other countries to take bets on each other's races, thus expanding the pool of potential bettors and offering better odds.

However, Hong Kong's tax authorities prohibit comingling as it would allow double taxation - the Jockey Club's overseas revenue could be taxed twice (both locally and in the country where the bet was made) eliminating any profit. Bloomberg reports that Hong Kong's authorities said they are 'willing to review the taxation structure for inbound commingling.'

The figures from Bloomberg report show that annual revenue for illegal bookmakers from Hong Kong horse races is between one-third and 100 percent of the Jockey Club's receipts. As a result, the government lost minimum 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.

According to consulting company GBGC, Hong Kong's gross racing revenue grew 3.6 percent to $1.5 billion in the year ended June 2010, while Internet gambling grew 10.4 percent to $11.9 billion. The Jockey Club has started offering internet betting services, and currently 30 percent of its earnings rely on online soccer betting with possibility of branching out to other sports.

Commenting on growing competition, Stephen Burn, Global Racing Director of the operator Betfair, said: '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.'

Burn also said that Betfair doesn't take bets on Hong Kong horse races, concluding that 'there is a tidal wave of people who want to use the new technology'.

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