Hong Kong’s Gambling Empire Is Losing Horsepower – Bloomberg – Bloomberg

Before Hong Kongs return to Chinese rule, Communist leader Deng Xiaopinghad a reassuring message for those worried about the departure of the British from the capitalist enclave. Dont fret, the architect of the handover said: Horses will still run, stocks will still sizzle, dancers will still dance.

The dancing has continued, the stock market isnt far off its record high, and the horses indeed still run. Yet 20 years after the handover to China, one of the citys most-venerable institutions, the Hong Kong Jockey Club, which has been called an "ATM for the government" for its huge contributions to the citys tax coffers and charity efforts, is facingtrouble.

Disinterest among manyyoung people and an upcoming bridge link to the glittering casinos of Macau threaten the future of the money-spinning gambling monopoly. Already the amount bet on racing fell 1.7 percent in the latest season for which numbers are available, ending mid-July 2016, from the previous year. While its still a lot of money that HK$106.1 billion ($13.6 billion) was almost 30 percent more than the total of the most-common type ofbettingon thoroughbreds in all of the U.S . gambling on horse racinghas grown an anemic 1 percent a year on average for two decades.

Spectatorsat theJockey Club's Happy Valley Racecourse in Hong Kong.

Photographer: Justin Chin/Bloomberg

The pressure is on them to remain relevant, saidDavid Dodwell, chief executive officer of Strategic Access Ltd., a Hong Kong-based public policy consultancy. An awful lot of the welfare infrastructure that has been built over the decades in Hong Kong is attributable to it.

Finding new sources of cash from allowing simultaneous betting in places like London and New York, as well as increasing the appeal to younger people at home, are critical to keeping a major funding engine of the Hong Kong government racing ahead. The Jockey Club is also expanding into China, a move that could position it well should betting on horses, halted after the 1949 revolution, someday return.

The Jockey Club accounted for about 7 percent of Hong Kongtax revenuelast year equivalent to a third of the citys education budget and 35percent of itssocial welfare spending. It donated HK$3.9 billion to schools, hospitals and other charities, making it the largest donor in Asia and the sixth largest worldwide, according to theWorld Charity Index. The government is also relying on the club rather than the legislature to fund a controversial museum project.

It has become a kind of ATMfor the government, saidTanya Chan, a Legislative Council member and government critic. "The government knows very well where to go if they want a substantial sum of money."

Horses on the track at Happy Valley.

Photographer: Justin Chin/Bloomberg

The Clubs voting members and stewards read like a Whos Who List of Hong Kongs richest and most powerful, including billionaires who control virtually all of the citys significant property, retail, entertainment, utilities and infrastructure building, along with other business luminaries:Li Ka-shing,Lee Shau Kee,Henry Cheng,Stanley Ho,Allan ZemanandCanning Fok.

Major powerhouses of politics are there, too: Former Chief JusticeAndrew Li; former Finance Secretary and Chief SecretaryHenry Tang; former head of the Hong Kong Monetary Authority,Joseph Yam, who on Thursday was appointed to the city's Executive Council, or cabinet; and former Legislative Council PresidentRita Fan.

"For a long time, it has been a place where entrepreneurs and officials can mix together and have the same status," said Eddie Chu, another LegCo member and government critic. "The Jockey Club maintains its power not by horse racing but by its network of powerful people gathering together."

Withtwo race tracks, more than 100 off-track betting outlets, soccer-wagering services and a lottery, the club can be generous because generations of Hong Kongers grew up spending their money and time at the track.

BettingatHappy Valley Racecourse.

Photographer: Justin Chin/Bloomberg

My friends and I were crazy about horse gambling 20 years ago, said Tony Yu, 40, a construction company manager who used to spend several hundred Hong Kong dollars on tickets and beers at the track, especially on payday. Those days are long past. Who do you see reading the horse-racing page in the newspaper and going to the Jockey Club to buy tickets? Old-timers!

The club also faces competition from across the Pearl River Delta, where Macaus casinos are now aggressively targeting Hong Kong, Jockey Club CEO Winfried Engelbrecht-Bresgeswrote in the most recent annual report. With the expected completion later this year of a bridge linking the two cities for the first time, traveling toSands China Ltd.s Venetian andMelco Resorts & Entertainment Ltd.s City of Dreams will be even easier. The bridge will undoubtedlyexacerbate the problem" already facing the club, Engelbrecht-Bresges wrote.

The Jockey Club has found ways to keep the money flowing. One solution has been to expand the number of races per season. Back in the mid-1990s, there were 75 days in a season, with 595 races; now there are 88 in the season, with 807 races. The club also moved into soccer in 2003. Such wagering accounted for HK$86.8 billion in bets in the most recent fiscal year, up 11 percent from the previous year.

A horseswims in anequine pool atSha Tin Racecourse in Hong Kong's New Territories.

Photographer: Justin Chin/Bloomberg

While mainland China doesn't yet allow betting on horses, the Jockey Club is establishing a foothold there. It plans to open a new training facility across the border in Guangdong province next year. Twice the size of the Jockey Clubs facility in Hong Kongs New Territories, the site will be able to host about 660 horses.

Worldwide, the club has broadened its reach through whats known as commingling, or allowing people overseas to bet on Hong Kongs horses. In the 2013-14 season, the Jockey Club began taking bets from Australia, New Zealand, Singapore and Macau. It has also expanded its reach to South Africa, Ireland, Canada and parts of the U.S., where Hong Kongs Happy Valley races are available via simulcast on Wednesdays at 8 a.m. New York time throughTVG Networks online betting site and cable channel,one of several operators in the U.S. with Jockey Club deals.

Last November, the Jockey Club announced anexpansionto the U.K. that enables customers ofLadbrokes Coral Group Plcand anotherbetting shop operator to bet on Hong Kong races. The Jockey Club announced a similaragreement last year with Canadian racetrack owner and online betting services provider Woodbine Entertainment Group.

Inside a Ladbrokes bookmakerin London.

Photographer: Chris Ratcliffe/Bloomberg

Hong Kong is attractive for global gamblers, according to Ken Kirchner, former executive director of the Pennsylvania Racing Commission and president of consulting firm FalKirk International. Bettors can wager on unusual options such as a triple trio, three consecutive trifectas, and get huge payouts because Hong Kongs gambling pool is large, he said.

Theyre run under strict regulation and authority, so you feel like youre betting into a very honest product, Kirchner said.

Hong Kong offers more data on horses than other venues, including the only consistent publishing of veterinary reports, said Ron Luniewski, president of Xpressbet, a Washington, Pa.-based company that provides online betting.

"Thats a big deal. I give them a lot of credit for that," he said. In a lot of ways, Hong Kong racing is the gold standard globally.

Commingling now accounts for about 6 percent of the Jockey Clubs betting income, according toRichard Cheung, head of marketing, and is forecast to top 10 percent by the end of the decade.

Hong Kong is a very small place, Cheung said. To seek growth we must go elsewhere.

As it expands globally, the Jockey Club will still have a challenge winning back people like Yu, the construction manager.

Now I seldom bet because there are so many other options, he said. I earn more money than before, so I can afford to invest money in the stock market.

People leaveHappy Valley Racecourse.

Photographer: Justin Chin/Bloomberg

With assistance from EbenNovy-Williams

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Hong Kong's Gambling Empire Is Losing Horsepower - Bloomberg - Bloomberg