Over its 126 years, the Hong Kong Jockey Club has survived equine flu, the Japanese occupation, bribery scandals, and the end of British colonial rule. Now the club is looking to cope with its biggest challenge yet: the Internet. Though members still flock to the club's two tracks to sip Château Margaux and take in the races, a growing share of the money wagered is bypassing the club in favor of unauthorized betting websites. "Competition is just a mouse click away," says Winfried Engelbrecht-Bresges, 56, the club's chief executive officer. "Our competitiveness is at risk."
Unauthorized bookmakers—both online and offline—take bets on Hong Kong horse races equal to somewhere between 33 percent and 100 percent of the Jockey Club's receipts, the club estimates. Given that the club last year accounted for some 7 percent of Hong Kong's tax revenue, making it the city's biggest taxpayer, that would mean the government lost out on at least HK$2.6 billion ($334 million), based on the HK$7.9 billion in racing duties the club paid in the year ended last March.
Since Internet betting sites pay no Hong Kong taxes or track expenses, they can offer more attractive odds, says Engelbrecht-Bresges. Many are based in far-flung locations such as the South Pacific island of Vanuatu or Curaçao in the Caribbean, so outside authorities are powerless to go after them. "Online gaming has eroded racing's capacity to ensure it achieves a fair return from all the wagering that takes place," says Andrew Harding, secretary general of the Sydney-based Asian Racing Federation. While Hong Kong's gross racing revenue grew 3.6 percent, to $1.5 billion in the year ended in June, global Internet gambling last year jumped 10.4 percent, to $11.9 billion, say GBGC gambling consultants.
The Jockey Club is no stranger to the Net. Some 35 percent of the club's bets on horse racing now come through its website or mobile devices, up from 22 percent in 2006. Engelbrecht-Bresges wants the government to authorize the expansion of the club's betting operation into basketball and other sports to keep that share growing. The club's good reputation as Hong Kong's only track operator could help it build its online business because gamblers may not trust unregulated sites, says James Hollins, equity analyst at Evolution Group in London. "In the ideal scenario you have one brand and platform for sports, poker, casino, and bingo," says Hollins.
Another option for fighting online bookmakers is to link up with racing courses elsewhere to pool bets, a system that lets track operators offer better odds since more money is at stake. In Hong Kong, though, the Jockey Club's overseas revenue would be taxed both at home and in the country where the bet was made, eliminating any profit, Engelbrecht-Bresges says. The Hong Kong government said in an e-mail that it might consider a change in that policy.
An even bigger opportunity could lie on the mainland, where horse racing is banned. To attract Chinese high rollers, the Jockey Club spent $100 million on a clubhouse in Beijing. Says Engelbrecht-Bresges: "Ten years ahead, I'm pretty convinced there will be horse racing in China."
The bottom line: With gambling websites taking revenues from the Hong Kong Jockey Club, managers there are looking for new ways to compete.