Hong Kongs Bookie Wont Bet on Change

3/26/2001 (By Suh-kyung Yoon/HONG KONG) FOR MORE THAN 100 years, the Hong Kong Jockey Club has comfortably held the monolpoly over Hong Kong’s love of the game of chance.

Until now. Internet bookies are pushing into Hong Kong, shattering the club’s cartel by luring away punters and eating into its bottom line–revenues have fallen almost 20% since 1997. On-line gambling has become a thorn in the side of governments worldwide as bookmakers take their betting duties and legal responsibilities offshore. But nowhere is the problem as urgent as in Hong Kong, where the unique nature of the Jockey Club turns the loss of betting dollars into a problem for every taxpayer.

Much is at stake. Started by British colonialists, the club has been a cornerstone of modern Hong Kong, donating all its profits to the government and charities. It is the territory’s largest taxpayer, contributing 11% of the government’s revenues last year, or HK$12.6 billion ($1.6 billion). That’s enough to fund the entire police force for a year. Without the club’s dues, Hong Kong’s low 15% maximum salaries tax rate would soar to over 20%. The club also donates over HK$1 billion each year to 170 local charities and has built public institutions like the Academy of Performing Arts and the University of Science and Technology.

In economic terms, the Jockey Club is an old-fashioned government-protected monopoly; all other forms of gambling are illegal in the territory. As the only game in town, it generated HK$83.4 billion in revenues last year, more than trading firm Jardine Matheson, Hong Kong’s largest company.

If it is to survive the Internet onslaught, the Jockey Club needs to change tack. It must learn to become cut-throat and commercial to beat the on-line pirates. The largest user of information technology in Asia, according to IT-industry magazine CIO, it certainly has the technology to do so. Its systems can process up to 6,000 transactions per second, more than most stock exchanges in the world. But burdened by its not-for-profit and monopoly legacy, the club is sitting on the sidelines, refusing to face its rivals head on. Instead, it is lobbying the government to ban Internet gambling, a law that will be impossible to enforce.

It’s not that the club is averse to change. In the past five years it has transformed itself into a well-oiled corporation, befitting its size. Formerly led by retired British generals who ran it like a gentlemen’s club, it has become more business-oriented under its first Chinese chief executive, Lawrence Wong. The ex-Ford Motor executive talks more about “brands,” “economies of scale” and “customers” than about horses and odds. Even his executive director of racing, Winfried Engelbrecht-Bresges, calls himself a “production manager.”

But just as the club is hitting its stride as a well-managed business, technology is throwing it off course. Over 700 Internet bookmakers, who pay no taxes and few overheads, are offering bigger pay-outs and more betting options, like soccer and basketball games. Internet measurement firm NetValue says 41% of Hong Kong Internet users visited a gaming site in December, double the number just six months before. Worse, most of these cyber-punters were under the age of 34–an audience the Jockey Club has had difficulty attracting.