Hong Kong Jockey Club Statement on Proposed Increase of Football Betting Duty

January 29, 2023 | Sports Betting

HONG KONG, SAR (January 26, 2023) — In response to the New People’s Party (NPP) proposal to significantly increase Hong Kong’s football betting duty by 30%, the Hong Kong Jockey Club (the Club) would like to reiterate that the NPP’s proposal represents a lack of understanding of the competition in the wagering market and the Club’s investment and business. It will create irreversible damage to Hong Kong by destroying the Club’s longstanding successful business model and Hong Kong’s world status as a leading racing jurisdiction and will jeopardise the public interest of Hong Kong.

The NPP’s proposed football betting duty increase will theoretically raise the Club’s taxation to the government from the current HK$25 billion to more than HK$31 billion. As a result, the operating revenue from wagering before operating costs will be reduced by HK$6 billion, from HK$15 billion to HK$9 billion. This is a drastic reduction of 40%. It will result in a zero surplus at best or more likely a negative one, preventing the Club from making necessary investments to secure its future and from contributing to the community. In reality, however, consumer behaviour can be highly dynamic. Any perturbation such as a tax increase, or simply the perception of such, could easily result in a disproportionate response, even if the tax increase is not immediately passed on to consumers directly. The change in demand triggered by a perceived price change in the wagering business would be substantial.

The Club is the only licensed betting operator in Hong Kong but not the only operator. It is facing fierce competition in an uneven playing field from Macau as well as from illegal and offshore bookmakers across the globe. This is because Hong Kong has the highest betting duty rates in the world, ahead of other operators by 15% to 65 %. In addition, illegal and offshore bookmakers, who are not subject to regulatory restrictions,  provide better odds, a wide range of betting products such as basketball, Formula One, golf and tennis, etc., and credit lines. This makes it increasingly difficult for the Club to compete. Any increase in football betting duty will reduce the Club’s competitiveness and drive more Hong Kong people to bet with illegal and offshore bookmakers. Under these circumstances, the government will receive less, not more, tax and duty.

To compete with illegal and offshore bookmakers and so keep Hong Kong’s wagering money in legal channels, the Club has recently invested HK$5 billion in a state-of-the-art IT system. Over the next five years, the Club will invest a further HK$7 billion in IT systems, applications and infrastructure, as well as HK$15 billion in racecourse stables and customer facilities in Hong Kong and the Greater Bay Area. Any increase in football betting duty will harm our ability to invest for a sustainable business. In addition, any football betting duty increase will affect racing. Given the existing high take-out rate in racing, the Club cannot pass the duty increment to its customers in order to increase its surplus. As such, the Club will not be able to invest in world-class racing products via increases in prize money, racecourse customer facilities, IT technology, etc. for the upholding of Hong Kong’s world-class racing as an international brand.

Regarding the Club’s Charities Trust, it has been responsibly deploying a sound financial investment strategy to manage the donation received from the Club every year for the betterment of society. Between 2011/12 and 2021/22, Trust donations increased from HK$1.7 billion to HK$6.6 billion, representing a 288% increase. During the same period, the Club’s net margin increased by only 96%, from $7.6 billion in 2011/12 to HK$14.9 billion in 2021/22.  In line with the Club’s refreshed charities strategy since the start of the current season, the Trust has begun deliberately and significantly reducing the current reserves level in order to fulfill the Club’s strengthened commitment to bettering society. Multibillion-dollar commitments like Tai Kwun’s ongoing revitalisation remain a work in progress, while the Trust continues to support other mega projects like the HK$3.5 billion Hong Kong Palace Museum, which was funded outside our regular donation stream.

Besides financial support, grantees have particularly commented that they very much value and appreciate the Trust’s emphasis on capacity building as well as its subject expertise and convening capabilities. Furthermore, the Club has established a deeply shared sense of reciprocal trust with the welfare, education, health, culture and sports sectors over the past few decades due to a healthy annual allocation from the Club’s operating surplus, which has enabled the Trust to make substantial donations and build philanthropic know-how.

Unlike most other philanthropic organisations around the world, the Trust does not have a sizeable reserve or endowment from which the majority of its donations are derived. Its reserves, while significant, would not support nearly the level of donations it has made up to now were the Club’s annual operating surplus to be substantially reduced, for example by an increase in betting duty that is already uncompetitive.

The Trust’s continuing ability to better society is entirely dependent on a future business environment that has significant uncertainties, from intensifying competition to economic headwinds to inflationary pressures. Against this background, any increase in betting duty will affect our donation to NGOs, our role in filling gaps in charities and services and supporting the underprivileged, as well as donations to construct important facilities for the city such as the Hong Kong Palace Museum, the CUHK Medical Centre and the campus of HKUST.

SOURCE: Hong Kong Jockey Club.

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