Club handed reins to revitalise industry
The racing industry tax reforms handed down by Legco yesterday have the potential to revitalise Hong Kong's racing industry after 10 straight seasons of decline.
But the key word is potential, and the management decisions the Jockey Club now take will be crucial to whether or not that potential is realised.
Yesterday's passing of the Betting Duty (Amendment) Bill is a milestone in the governance of racing, which may even have a knock-on effect worldwide. It may soon be seen as the most important legacy of chairman Ronald Arculli as he completes his fourth year at the helm of one of the world's foremost racing clubs.
Firstly, the bill changes the way racing is taxed, without giving the industry a tax break. Racing now comes in line with most other businesses and will be taxed on profit, rather than unfairly on betting turnover.
So confident is the Jockey Club that the package of reforms will help grow the business that it has guaranteed the government it will not get less tax under the new system. The Club, with its immense reserves, will be its own underwriter in the unlikely event of an early duty shortfall as the new system is implemented. But tax reform is just one aspect of the package. The more important aspect is that the Club has been significantly freed up from anachronistic legislation that compromised its ability to do business.
The Club was possibly the only business in 'Asia's World City' where the government set the price of the product. The 'product' is betting and the 'price' is the take-out rate, currently $1.80 for every $10 bet on win, place or quinella bets - even more on the exotic bet types. In the good old days, when racing was the only game in town, horse racing was just the golden goose and nobody understood that the 18 per cent take-out was actually too much. The players kept playing, the turnover graphs kept rising and both the Jockey Club and the government kept raking it in.
But since the year of the handover, 1997, it's been all downhill. Reality, in the form of hot competition for the entertainment, leisure and gambling dollar, began to bite hard. The burgeoning Macau casino industry, soccer betting, sports betting, online gaming, overseas licensed bookmakers and their illegal, unlicensed local brothers have contributed to the decline of turnover and government revenues.
The shame of it is, it took 10 years of financial haemorrhaging before finally getting any action from government, with turnover having been slashed from $92 billion to $60 billion.
In the wake of yesterday's legislative reforms, the Jockey Club can now manage dynamically, and set takeout rates at more realistic and competitive levels. Ideally, that would be 10 per cent for win and place, and 12 per cent for quinella bets. However, the Club may ultimately give a smaller reduction in take-out rates (to appease the anti-gambling lobby) but compensate by offering discounts on turnover for higher volume players.
