On the Rails

PUBLISHED : Wednesday, 12 January, 2011, 12:00am
UPDATED : Wednesday, 12 January, 2011, 12:00am

So the world moves on. Or does it? Well, apparently not where the Hong Kong Jockey Club and commingling intersect.

As we understand it, that bureaucratic speed bump known as the Home Affairs Bureau is looking more like the Great Wall of China where commingling is concerned, with the very real danger now emerging that Hong Kong will be left on the wrong side of it as the rest of the world links up to do business.

Commingling of bets, for those who have been out of town, is the process by which those racing fans already watching Hong Kong racing in Australia can place bets on it that will be mingled with the betting pools here.

Under the current, old-fashioned system, they are already betting on Hong Kong racing, but into local, very much smaller pools that offer no real stability in terms of knowing what the final dividend will be.

The winner that pays 10-1 in Hong Kong might pay 2-1 in Australia, or it might pay 20-1, because the dividend pools are not connected. But the worst aspect of that is that, because their local pool is so very small, it might only take a few bucks on the one that is showing 20-1 to make it 2-1, so it doesn't really encourage participation even from those who want to participate. For this, the Jockey Club gets a small fee.

Under commingling, when the bets go into the Hong Kong pool, which is more attractive due to its size, the club would get a takeout as it does from locally-placed bets.

It is the size of the government's share of that takeout which is the sticking point - or only one of them, it now appears - since taking the same share as from locally-wagered bets makes the whole thing unviable to the betting operator overseas which funnels the money this way.

We hear from Jockey Club sources that there has recently been correspondence from Home Affairs, a rare event in itself, in which the Bureau has shown some interest in the matter again.

Only now, the concept of reciprocity is a new hurdle.

Yes, they say, there might be a case for letting punters overseas bet into Hong Kong pools - since the Jockey Club estimates that some $3-4 billion annually is already being wagered on Hong Kong racing in all those small pools with those overseas operators.

Now they just can't see the point in Hong Kong punters betting into pools overseas.

One-way traffic is a particularly frequent occurrence on Hong Kong's roads, but it can't be the case with commingling. Reciprocity is at the heart of the concept.

To get access to foreign horse players does require allowing them some access to Hong Kong customers. There are, what, seven million people here?

There are many more millions elsewhere and the simplicity and attractiveness of the racing product here is going to appeal to many horse players despite them living halfway around the world.

It's an idea already being milked by other jurisdictions between each other - Australia, New Zealand, South Africa, France, England ... you get the picture. It's an idea that was championed by the Jockey Club before the inception of commingling, but the folks at Sports Road are nothing but spectators as these links are being forged between other racing centres.

To a growing extent, there is cross-pooling between them and it is showing results and, furthermore, the commercial reality is that the price of making these relationships happen is being hammered out and determined without the Jockey Club having any input. The chat, or lack of it, with Home Affairs has gone on for four years without result and in the last year without even much progress.

Jockey Club officials are now talking about the coming six months as the vital window of opportunity that is closing. By that time, enough of these relationships will be in place to prevent the Jockey Club being able to twist anyone's arm for a better deal for what is a better product.

And if you are in the group that wonders aloud whether there is any truth to the idea that people in other countries want to bet millions on Hong Kong racing, then look no further than the illegal offshore bookies and exchanges operating on it in Singapore and Malaysia.

The very same exchanges we at this column suspect of being the culprits behind many of the 'brown odds' horses - the big last-minute dumps this season - are reportedly turning over bets on Hong Kong racing at a rate not much less than the Jockey Club itself. Even if such reports are out by 100 per cent, or 200 per cent, that is tens of millions.

The interest is out there and, with commingling, it is just a mouse click away from having access direct into local pools instead of some shady offshore operation. Should the government be going into bat for a business that is the biggest taxpayer in Hong Kong?

Since the original tax restructuring in 2006 that allowed large bet rebates and heralded a new age of turnover increases after a decade of negative growth, the government has been the big winner, not the Jockey Club.

As we mentioned earlier, the rebates mean that a decent part of turnover in the rebate pools is returned to large-ticket punters and eats into the club's revenues.

The result is that the last four completed seasons saw Jockey Club gross revenues rise from $3.3 billion to $3.4 billion, the difference in which might almost pay the cost of prize money and expenses for the extra 100 races now conducted each season.

In the same time, the government has had no additional costs but a revenue growth from $7.9 billion a year to $9 billion.

Now that sounds like something worth working to keep on its current upward path.