International edition
June 20, 2021

124-year-old local institution losing us$ 2.4 billion a year in betting revenue

Hong Kong Jockey Club threatened by casinos

(Hong Kong).- The Hong Kong Jockey Club, a 124-year-old local institution steeped in history and tradition, is facing a decidedly modern threat: glitzy new casinos being built by Las Vegas operators in nearby Macau.

T

he new competitors are draining away at least us$ 2.4 billion a year in betting revenue, or 20 percent of its annual take, estimates Chief Executive Officer Winfried Engelbrecht-Bresges.

"Our customers are definitely their prime targets," Engelbrecht-Bresges said in an interview with The Associated Press in one of the club’s updated VIP rooms, where floor to ceiling windows offer an expansive vista of the race track and the towering city skyscrapers that encircle it.

He said that Hong Kong gamblers account for about 40 percent of gaming revenue in Macau, just an hour away by high-speed hydrofoil ferry. The Jockey Club holds the monopoly on legal gambling in Hong Kong.

Horse racing has been part of Hong Kong almost since it was colonized by the British in 1841. The original Happy Valley Racecourse was built on malarial marshland five years later, and the Royal Hong Kong Jockey Club started taking bets in 1884. The "Royal" was dropped from the name after Britain returned Hong Kong to China in 1997.

The club, which gives all its profits to charities and community projects, holds horse races on two tracks, takes bets on international soccer matches and overseas horse races and runs a lottery.

It pays a heavy tax on betting profits, 72.5 percent for horse racing and 50 percent for soccer. Last year, the club paid us$ 1.6 billion in betting taxes and donated us$ 134.6 million to its various causes.

Local regulations limit horse racing to 78 days a year and off-track betting to 10 overseas races annually. Engelbrecht-Bresges is lobbying the government to loosen those rules.

Macau, a former sleepy Portuguese backwater, surpassed Las Vegas in gaming revenue last year, raking in us$ 7 billion, while the Strip made us$ 6.7 billion. Wynn Macau, MGM Grand and Venetian Macao are among the new players. "If you look at the expansion of gaming opportunities and venues in Macau, which have only just started ... it’s serious money," Engelbrecht-Bresges said.

Macau is not the only competitor for the racetrack’s 1.3 million gamblers. Illegal bookmakers siphon off business, offering higher odds because they don’t pay taxes or incur the cost of running horse races, said Rob Hart, an analyst with Morgan Stanley.

The Jockey Club estimates the underground market for horse betting is between HK$50 billion to us$ 6.4 billion to us$ 7.7 billion a year. That’s more than half the Jockey Club’s total revenues of us$ 12 billion in 2007.

Last year, the club managed to reverse a slide in gaming revenues after the government allowed it to offer 10 percent rebates to gamblers losing on bets of us$ 1,280 or more, just as the illegal bookmakers were doing. "We have hit the illegal market in a really hard way," Engelbrecht-Bresges said, adding that there had been a significant increase in bets in the over us$ 5,000 segment.

Analysts agreed that the rise of Macau’s mega-casinos poses a new challenge, particularly in the battle for new customers. "It’s much harder to get people interested in horse racing, which is a specialized skill, than in playing baccarat, which is really based on a lot of luck," said Grant Chum, an analyst at investment bank UBS.

Conversely, a certain contingent of horse racing fans is unlikely to switch, he said. "For the hard-core horse race gambler, it’s hard to see how they can get the same thrill out of placing a bet on a game of cards," he said.

Still, worries Engelbrecht-Bresges, "the issue with horse racing is ... if you lose contact for three months, the probability you will stop betting on horses is significantly higher because you have lost track of the horses. This kind of behavior change can have a major impact on our customers."

The newly launched casinos are tempting high rollers with free helicopter rides, hotel rooms and other perks, he said. "In this changed environment when you have Macau a boat ride, or helicopter ride away, we have to move with the times," he said. "And if we don’t, then customers will vote with their feet."

Gambling opponents, however, say any regulatory changes will encourage more gambling. In Hong Kong, 5.3 percent of the population suffers from problem and pathological gambling, compared to 3.5 percent in the US according to a Hong Kong University study last year.

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