Pulling Up Lame

The Hong Kong Jockey Club has been separating gambling-crazy locals from their cash for 118 years. Yet most Special Administrative Region residents speak of the horse-racing monopoly not with resentment but with a hint of veneration. When toting up personal possessions signifying ascendance in Hong Kong society, along with the Mercedes-Benz and the house on the Peak goes a Jockey Club membership card. Access to the club’s posh dining rooms and exclusive turfside suites is an honor generally reserved for the lite, the wealthy and the connected.

When big money intersects with horse racing, however, even the most polished institution can get a little mud on its linen. The arrival of the Year of the Horse finds the Jockey Club bogged down in its worst gambling scandal in memory. Last month, two of the club’s top jockeys, South African Robbie Fradd and Irishman John Egan, were called in for questioning in a race-fixing investigation conducted by Hong Kong’s Independent Commission Against Corruption. According to the ICAC, a four-month probe called Operation Green turned up evidence that racing professionals were providing inside information to illegal bookmakers and manipulating the outcome of races. Also called in for questioning were 17 other individuals, including former South China Morning Post racing editor Lawrence Wadey.

This is not the first time the club has been smeared. In 1996, jockey Stanley Chin was arrested for bribing other riders to throw a race at Hong Kong’s Sha Tin track. Chin, who was paid by a businessman from mainland China to rig the order of finish so punters could cash in on a long-shot combination bet, was sentenced to three years in prison. No charges have been filed as yet in Operation Green. The Jockey Club had no official comment, but chief executive Larry Wong acknowledges the investigation “is an emotional setback.”

More than that, it’s another blow to an august institution. Races at the club’s Happy Valley and Sha Tin tracks are an obsession to hundreds of thousands of Hong Kong punters, who gather in the bleachers, at off-track betting outlets and in front of TVs in countless noodle shops whenever the ponies are at the post. The club’s takings ($1.4 billion last year) make it Hong Kong’s largest taxpayer as well as the SAR’s most dependable charitable donor. Gambling money has built playgrounds, cultural centers and other civic improvements around the city.

But the HKJC has been off stride lately. With the racing season just past the halfway point, turnover is down by almost $200 million from the previous year, and a five-year slide in racetrack attendance shows no sign of abating. The troubled local economy is partly to blame. So too are new competitors: illegal bookies, Internet gambling and increasingly popular sporting alternatives such as football are all cutting into revenue. Late last year, big time British bookmaker William Hill began accepting online bets on races at Happy Valley and Sha Tin. The Jockey Club is not amused. “These guys are raiding the coffers of Hong Kong,” says Wong. “They’re not legitimate. They don’t have a license in the territory. They don’t pay tax in the territory.”

So far, the government has done little to defend one of its prized monopolies. But as other formerly protected franchises (such as telephone companies) have discovered, there often is no defense when offshore competitors muscle in with new technology. “The Jockey Club hasn’t kept up with reality,” says Louis Hop Lee, chief of sales for Asia for http://www.horsepower2.com, a website that takes bets on the outcome of cartoon horse races. Lee says the Jockey Club should be taking advantage of the Internet to diversify beyond SAR borders. “It’s the same old story,” says Lee. “Small, nimble startups are moving first.”

To improve their odds, officials are lobbying for a change in the way the club is taxed so they can match the higher payouts offered by illegal bookies. Currently, the government skims 14% from every bet, limiting the amount of cash returned to punters. The club wants to be taxed on its profits, like other companies. “If we could give a 95% return on the betting dollar, that would give us a real edge,” says Wong. The Jockey Club also has its reputation going for italthough as the current race-rigging investigation shows, even that is no sure thing.