- The Washington Times - Friday, February 29, 2008

HONG KONG — The 124-year-old Hong Kong Jockey Club, whose racetrack revenues are among the secrets of the territory’s economic success, is facing a modern threat: glitzy casinos being built by Las Vegas operators in nearby Macao.

The new competitors are draining at least $2.4 billion a year in potential betting revenue, or about 20 percent of last year’s take, said Winfried Engelbrecht-Bresges, the club’s chief executive officer.

“Our customers are definitely their prime targets,” he said in an interview in a club VIP room, where floor-to-ceiling windows offer a vista of the famous Happy Valley racetrack and the towering skyscrapers that encircle it.

Although the club has the monopoly on gambling in Hong Kong, its revenues are squeezed by illegal bookmakers and, more recently, by casino-resorts in Macao, which last year raked in more gambling revenue than the Las Vegas Strip.

“If you look at the expansion of gaming opportunities and venues in Macao, which have only just started … it’s serious money,” said Mr. Engelbrecht-Bresges, a veteran racing administrator who was a professional soccer player before he joined the club in 1998.

The Jockey Club, like many other places in the former British colony, is a blend of West and East.

When the British arrived in the 1840s, they brought their love of horse racing, turning a malarial swamp into the Happy Valley racetrack. It was a hit with Queen Victoria’s Chinese subjects, and remained so through 156 years of British rule. The return of Hong Kong to Chinese sovereignty 11 years ago hasn’t changed a thing.

For the Chinese, renowned for betting on everything from fighting crickets to the stock market, a night at Happy Valley is almost a rite of passage, and many are reluctant to label it gambling.

“Horse racing is a sport. It’s a sport where people can use their brains,” said Tony Chen, 46, leaning on the trackside railing where moments earlier 10 horses thundered past toward the finish line.

Like many of the Chinese packing the four-tier stands that night, Mr. Chen had studiously scanned his racing forms, circling numbers and crossing out names. He said he had made about $250 after just four races.

It’s all too complicated for Michael Lee, 65, which was why he was at the ferry pier headed for Macao.

“You need to study the background of the horses before placing a bet. It’s so time-consuming and troublesome,” he said.

“All I need to do is jump on the ferry, then I can go to different casinos and gamble in Macao. … Poker, blackjack, baccarat — you name it,” he said.

Macao, the former Portuguese colony less than an hour away by high-speed ferry, now gets 40 percent of its gambling revenue from Hong Kong residents like Mr. Lee, though the vast majority of gamblers are mainland China’s newly wealthy, Mr. Engelbrecht-Bresges said.

Mr. Engelbrecht-Bresges said he fears the impact on his club’s ability to contribute to society and to the government’s coffers.

Almost since it was founded in 1884, the Jockey Club has played an unusual role in supporting the robust, low-tax capitalism that made Hong Kong rich. Last year, it paid $1.6 billion in betting taxes, or about 8 percent of the government’s overall tax revenue, and donated $134.6 million to its various causes, from medical institutes to parks.

In the 1950s, after Mao Zedong’s communists took power in mainland China, millions of Chinese fled to Hong Kong. The Royal Hong Kong Jockey Club — it dropped “Royal” when Hong Kong reverted to Chinese rule — played a major role in housing and financially supporting the refugees.

The communists outlawed gambling, and Macao and Hong Kong became the only Chinese enclaves where it was permitted.

While Hong Kong allowed betting only on horse racing, Macao had casinos long before it returned to Chinese rule in 1999. Until the government broke up the monopoly held by tycoon Stanley Ho six years ago, they were utilitarian affairs.

Las Vegas operators such as Steve Wynn and Sheldon Adelson have changed all that. Mr. Adelson opened the swanky Sands Macao in 2004, and followed up in August with the Venetian, a $2.4 billion casino-resort complete with gondolas punting down indoor canals.

Mr. Engelbrecht-Bresges said the Jockey Club must evolve to retain customers — especially the high rollers who are being lured to Macao by promises of free helicopter rides, hotel rooms and other five-star perks.

“In this changed environment, when you have Macao a boat ride or helicopter ride away, we have to move with the times,” the German club chief said. “And if we don’t, then customers will vote with their feet.”

Mainland China also could become a competitor. Beijing approved regular horse racing in the central city of Wuhan, in Hubei province, and is considering allowing gambling on the races next year on a trial basis, the official Xinhua news agency reported this month.

A more immediate threat to the Jockey Club is illegal bookmakers who siphon business, offering better odds because they don’t pay taxes or incur the cost of running horse races.

The Jockey Club estimates that the underground market for horse betting is between $6 billion and $8 billion a year. That is more than half the Jockey Club’s total revenues of $12 billion last year.

Last year, the club managed to reverse a slide in revenues after the government allowed it to offer 10 percent rebates to gamblers losing on bets of $1,280 or more, just as the illegal bookmakers were doing.

Associated Press writer Dikky Sinn contributed to this article.

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