The English-language daily newspaper the South China Morning Post said this week it wants a ‘debate’ on alternatives to the legal betting monopoly enjoyed in Hong Kong by the Hong Kong Jockey Club (HKJC).
The paper says it’s necessary because the current monopoly system regulating legal betting in the city isn’t working. The SCMP cites, as an example, record seizures of cash generated by unauthorised soccer betting syndicates in Hong Kong and across the border in mainland China during this year’s FIFA World Cup in South Africa.
The SCMP suggests the debate should include the possibility of licensing private gaming franchises within Hong Kong. That would potentially be a revolutionary change from the system in place since 1952, when the custodians of Hong Kong’s horse racing club came up with a novel way to raise tax in order to house a million Chinese immigrants fleeing the mainland following the victory of Mao Zedong’s communist party in China’s civil war.
Focusing the debate on present needs, the SCMP states: “Other jurisdictions have got around the dilemma by licensing private gaming franchises, bringing them under regulatory control and into the tax net. Illegal operators are either crowded out of the market or have to accept a smaller market share. In a perfect world, the Jockey Club model might well socialise all gambling. In the real world, the community should have a serious debate about it.”
The SCMP‘s instincts in calling for an end to HKJC’s monopoly are impeccably capitalistic in the tradition of the Shanghai entrepreneurs who fled to Hong Kong after the communist government took power in China in 1949. The paper may, however, be missing some of the bigger picture.
HKJC has actually been as proactive as the government will allow it to be in expanding its gaming offer in the face of dwindling interest in horse racing among the younger generation. Its annual report for the year ended 30th June 2009 shows that HKJC’s turnover from soccer betting has risen more than tenfold since it first introduced the product range in 2003. In the 2003-04 results, soccer betting generated HK$3.3 billion (US$420 million at current exchange rates) in pre-tax revenue for HKJC. In 2008-09, it brought in HKD35.1 billion (USD4.52 billion). That’s not bad from a single betting product stream targeted at a purely domestic market of around 5.5 million adults. It compares pretty favourably with the USD15.4 billion generated by games of fortune in Macau in 2009 by 21.7 million visitors.
Large amounts of revenue from horse racing have been reinvested into HKJC’s racing infrastructure and marketing. As a result, in 2008-09, football betting contributed more (HKD370 million) to community causes via the HKJC Charities Trust than the core horseracing product (HKD110 million).
The Jockey Club has argued publicly and privately in the past that the issue is not whether private gambling franchises should be allowed as alternatives to the HKJC, but that the Club itself should be allowed to pursue a more aggressive commercial policy. That’s in terms of reducing the tax levied on the bets, increasing the maximum daily dividends allowed, increasing the betting products offered and in developing the way products are delivered to customers. All these suggested initiatives are designed to fend off the competitive threat from the unauthorised bookmakers.
The SCMP acknowledges that aspect of the problem in its leader.
“It [the HKJC] has struggled to compete or wring concessions out of the government, such as more race days and more flexible betting on major overseas horse races. Officials appear to be more concerned about avoiding antagonising the anti-gambling lobby of church and education groups that campaigned unsuccessfully against legalising soccer betting seven years ago. Yet any widespread gambling interest among the public that is not satisfied by the club is bound to become a goldmine for illegal bookmakers and organised crime syndicates.”
The Jockey Club has been offering ‘in play’ and so-called ‘Asian handicap’ online betting on soccer games, including the major European Leagues and FIFA tournaments, since 2003.
The problem now seems to be that the unauthorised bookmakers have either clawed back ‘market share’ on soccer gambling or simply created new demand. A likely reason for this is that illegal bookies can offer a bigger percentage in prize money of the cash originally staked than HKJC, because they don’t have anything like the same overheads. In particular, they have no need to share revenue with the authorities, either in tax or payment to community causes. Tax is levied at 50% of net stake receipts for HKJC soccer betting and the Club also gives some of its operational surplus on all betting operations to community causes. The unauthorised bookmakers—provided they have a sufficiently large prize pool—can potentially offer bigger individual dividends than the HK$10 million (US$1.29 million) per account per betting day allowed by HKJC. Illegal bookies also reportedly offer punters credit for gambling—something which for regulatory and ethical reasons, the HKJC simply cannot do.
Issuing commercial franchises for gambling services within Hong Kong, as suggested by the SCMP, would only help legitimate operators to compete with illegitimate ones on prize money if the tax burden on the legal product was drastically reduced. And issuing new commercial franchises won’t of itself deal with the competitive threat posed by gambling credit issuance by the unlicensed product. The chances of Hong Kong allowing credit-based soccer betting in the manner of credit-based VIP table play in Macau, with credit issuance by the bookmakers and any player losses covered by those players liquidating assets if necessary, is so remote as to be barely worth considering.
Short of every Internet and telephone user in Hong Kong having to give their identity card number every time they want to surf online or make a voice call (with all the civil liberties implications that involves), it’s difficult to see how unauthorised online and proxy telephone betting can be stopped.
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