Monday September 5, 2011 :   Local taxation is hampering competitiveness, says CEO
 
The ability of the Hong Kong Jockey Club to compete against foreign companies is being impacted by heavy taxation, the CEO of the organisation complained over the weekend, intimating that a move into offshore internet betting may have to be considered.
 
Chief executive Winfried Engelbrecht-Bresges told the South China Morning Post that the company may be forced to set up an offshore satellite wagering operation to circumvent double taxation issues if it is to take part in overseas betting pools.
 
"I think we have to forget about commingling beginning during the current season – but we are also getting to the point where it's now or never," he said. "I really hope the government will compromise on the taxation obstacles so we will be commingling by the start of the 2012-13 season."
 
Commingling is a procedure by which bets placed on one country's racing with an operator in another country are funnelled into the "home" pool where the race is staged.
 
"We don't have any plan to go offshore at this stage, but it is something we would have to consider if we do not get action soon," said Engelbrecht-Bresges.
 
"We have huge illegal exchanges operating just outside our door, and with other countries banding together in a commingling hub to take legal bets between different nations, the external forces on all sides are building up and we are going to be shut out. We don't live in a vacuum – ultimately, these operations can endanger our business right here."
 
Legal betting on Hong Kong racing exists in a number of foreign countries, the newspaper reports, but bets go into small local pools and the Jockey Club receives a 3 percent fee. The club says these pools add up to HK$3 billion to HK$4 billion a year, and believes that would double if wagers went into Hong Kong's more stable "home" pools.
 
The sticking point is the Jockey Club cut is less than it would receive from a bet sourced in Hong Kong, but the government is not prepared to take less than its usual cut. That renders the process commercially unviable for the foreign operator and the Jockey Club.
 
Important racing countries such as Australia, South Africa and France have formed relationships around the world, setting the prices and framework for the process.
 
Earlier this year, Australia's Tabcorp and Phumelela, of South Africa, agreed to set up a global hub, overcoming technological barriers to exchanging bets between different jurisdictions, but also based in a tax haven to enable aggressive pricing. And this development has the Jockey Club worried.
 
"If we are not part of commingling, then we are rivals and there is a danger the hub will be big enough to start diverting bets from our pools by offering attractive deals to some of our very price-sensitive major customers," Engelbrecht-Bresges said.
 
"That's when commingling will cease to be an offshore issue, seemingly unconnected to our HK$80 billion Hong Kong wagering business. Then we could find part of that turnover heading offshore to the hub. Our position as a world leader is not in danger now, but it may be in a few years and that would endanger our contributions to the community through taxation and charity."
 
The last resort, said Engelbrecht-Bresges, would be to set up a Jockey Club base for commingling, outside Hong Kong's jurisdiction and separate it from local operations.
 
"Amazingly, the end beneficiary of commingling would be the government, which is providing the obstacles," Engelbrecht-Bresges claimed. "In our increased simulcasting of overseas races, for example, the government, and therefore the community, has benefited by more than HK$150 million, the Jockey Club by around HK$10 million after we have paid all the expenses involved."
 
The Jockey Club estimates commingling would be worth an extra HK$180 million-plus a year to the government.