When a betting business posts annual revenues only 1.5% lower than the previous year but manages to preside over a 30% fall in profits in the equivalent period, it has some explaining to do.
When that business is the Hong Kong Jockey Club (HKJC), possibly the best-protected state gambling monopoly on planet Earth, it’s easy. You just bite the hand that feeds you and blame excessive government taxes. HKJC may however have some grounds for disgruntlement.
HK Jockey Club chairman John Chan announced late last week that 2008 profits had fallen to HKD700 million from HKD1 billion a year earlier–i.e., 30 percent. Yet in almost the same breath the club confirmed estimated turnover for 2008 of HKD66.5 compared to HKD67.6 billion in 2007—a drop of only 1.5 percent.
It’s not unknown for companies to experience wide fluctuations in profit. One common explanation touted by businesses is that the previous year’s accounts included exceptional items such as sale of assets. Another commonly cited factor is one-off capital investment. Neither of those explanations has been offered in HKJC’s case.
Mr Chan blamed the reduction in profit on factors including economic downturn, the introduction of rebates for big gamblers in 2006 and the high betting tax, which starts at 72.5 percent of net stake receipts for horse racing, and 50 percent of net stake receipts for soccer betting.
The HKJC is the only body legally licensed to provide betting services in Hong Kong, including sports betting on horse racing and soccer, and Hong Kong’s lottery, and donates its entire operating surplus to charity. That raises the interesting question as to why the Hong Kong government would rob Peter to pay Paul by allegedly over-taxing the Club on its net receipts when the surplus is going to social causes in any case.
What Mr Chan didn’t say is that HKJC effectively subsidised Hong Kong’s role as the equestrian venue for the Beijing 2008 Olympics by forking out for the building costs of the Olympic facilities from its own balance sheet. This may account for some of the ‘missing’ HKD300 million.
When the Olympic funding deal was first struck back in 2005 the HKJC was given a nod and a wink that the territory’s government would agree in return a new, less aggressive, tax regime. Then a small matter called the global credit crisis came along, and the rest as they say is history. The perceived reneging by the government on this tax deal may account for the willingness of HKJC’s chairman to raise the ‘T’ word reasonably aggressively in public.
It goes to highlight the symbiotic but at times uneasy alliance between the horse racing and gambling industry professionals who run the Club on a day to day basis, and the local politicians who sanction its activities and who aggressively protect it from unlicensed local competition and international online betting companies.
The harsh reality is that HKJC is a politicians’ plaything designed to subsidise the taxation system and has been since the days of British administration. When the government needs extra cash (like during a recession) it can find ways of incorporating its social programme as part of HKJC spending. When the government is flush with cash from land sales and corporate tax (like during a boom) it allows the HKJC to post larger profits and thus creates a feel good factor among the local population when that cash goes to ‘charadee’.
Why no one in the Hong Kong media seems to question this annual financial equivalent of stage magic remains a bit of a mystery to Asian Gaming Intelligence.
What seems clear is that unless the HKJC is given more autonomy to pursue new product lines and more aggressive marketing tactics, then no amount of Internet fire walling against overseas online betting sites will protect it in the long term from the erosion of its player base. That’s especially the case if Macau Jockey Club’s product offer continues to improve and if Macau casinos are allowed to run sports betting books from their premises, as was mooted last year, or if Macau ever gets round to licensing online betting.
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