Last week, the Hong Kong Jockey Club (HKJC) revealed a flurry of enhancements to wagering for their 2020-21 season which begins in September.

The HKJC will be offering the forecast bet, known as an exacta in America, a reintroduction of a bet that has been absent, locally, for the best part of five decades.

The quinella (first two horses in any order) and quinella place (two of the first three horses in any order) are the most popular wagers in the jurisdiction which generated roughly $16 billion from its 88 race dates and roughly 20 imported simulcast cards from a season ago.

To ensure proper liquidity (sufficient pool size to attract large bets without monumental market shifts) for the exacta pool, the HKJC announced it will merge exacta bets into its trio pool (a trifecta box bet), using technology provided by Longitude, a NASDAQ-owned firm which has partnered with the HKJC since 2013. To understand how merging pools works, this five-minute video from Longitude helps explain the process, while this article published in May 2019 will help too.

An added benefit to those regular participants in the trio pool will be a reduced takeout rate, with the exacta/trio merged pool offering a takeout rate of 19 percent. Previously, the trio takeout rate was at 25 percent. The takeout drop of 5.5 nominal points represents a 22 percent decline from the previous rate, a boon for players, yielding higher payouts to winning players which will yield increased betting churn.

Even further, the HKJC will increase the rebate customers receive on its quinella and quinella place pools by 20 percent, going up from 10 to 12 percent. The rebate applies to all losing bets of HK$10,000 (about US$1,300) or more, placed either in person or through one of the HKJC wagering platforms, in either the win, place, quinella and quinella place pools. The win and place losing rebate remains at 10 percent.

BETTOR ENHANCEMENTS, BETTER SPORT

In this one release, the HKJC introduced a new bet type for their customers, facilitated this bet type with modern tote technology, reduced takeout on an existing bet type and increased rebates on two bet types for a segment of customers.

The South China Morning Post reported on the amendments:

“We believe these changes will provide more value and options for different segments of our racing fans, meanwhile reinforcing deep pool liquidity which is one of the competitive advantages of Hong Kong racing as a global commingling hub,’ Jockey Club executive director of customer and international business development Richard Cheung Che-kit said. ‘More gaming demand will also be channelled back for good causes.’

“The latter point refers to one of the Jockey Club’s charters, which is to serve the community, and as a result it is one of the biggest charity donors in the world.

“After paying its tax obligations, 90 per cent of the club’s annual operating surplus is donated to charity, with HK$4.3 billion [US$550 million] going to 294 projects in 2018-19.”

Betting is a truly massive business in Hong Kong, with total handle being nearly 50 percent higher than all of American racing’s handle last year despite offering wagering on about 97 percent fewer races.

There is plenty of competition in the marketplace which makes this overall performance all the more impressive.

Macau, an hour’s ferry ride from Hong Kong, and now connected to Hong Kong via a bridge and tunnel complex, puts Las Vegas to shame from a pure betting consideration (in 2017, Macau gaming revenues were five times that of Vegas casinos).

The HKJC also runs soccer (football) betting, which started in the 2003-04 season with total handle of HK$16 billion and has grown to HK$114 billion by the end of the 2018-19 campaign. Unregulated online operators (the so-called illegal markets) provide even sterner competition for racing, soccer and all other sports, with massive rebates, credit betting and low overhead.

The battle is relentless, and it drives HKJC innovation.  

But racing wagering’s success in Hong Kong was not always the case. In 2016 at the Jockey Club Round Table Conference in Saratoga Springs, the HKJC’s Chief Executive Officer Winfried Engelbrecht-Bresges reviewed the challenges Hong Kong faced from external forces and what was needed to regain racing’s competitiveness.

“…[We] still found ourselves in a difficult situation from the business side because our pricing, we think, was wrong. We saw a significant dip in our turnover after the Asian financial crisis. We had another issue with SARS. So, if you look at the business results, you could argue why put all this effort in to the [handle] if [it was] reducing?

“What we found…was that we had significant competition from Macau and the illegal market, and especially the illegal market was what concerns us, because they were offering rebates to attract the top players to play with them. We could convince the government to change the turnover tax to a gross margin tax, and we introduced a rebate of 10% of bets on standard bets over an amount of 1,200 U.S. dollars. This immediately showed the price elasticity, that we could turn around the decline we had in racing, and we in a way were able to capture a significant first part of the illegal market.”

The HKJC saw nominal total handle fall from HK$92.3 billion to HK$60.0 billion over the ten seasons ending in 2005-06, a raw decline of 35 percent. Over the next 13 seasons, annual handle rose to a peak of HK$125 billion, a nominal increase of 108 percent from its lowest point. The total number of race days for wagering to accumulate such handle did increase, but at its peak, only by about 25 percent.

NO EXCUSES

When Americans are presented with the Hong Kong model as one to follow, simple excuses fly with ease.

“It’s a monopoly, they have total control…The betting culture is different…There’s no comparison.”

While the HKJC exercises extreme controls on many aspects of the business, in particular horse ownership, the sustainability of racing through competitive prize money has been well-assured because of the relentless improvement of the wagering product. Ensuring this attractiveness is a host of free information. Millennial horseplayer John Camardo outlined the attractiveness of wagering on Hong Kong because of the free data available in his January letter.

Workout videos, extraordinary veterinary records, free past performances and detailed sectional times, among other information, is all easily obtained via the HKJC website.

Just because something is going well now does not mean one can ignore evolution. If anything, it provides even more incentive.

In one fell swoop, the HKJC addressed three major issues in ways almost exactly opposite to the behavior of American operators over the previous 20 years - they increased customer options, enabled by modern technology and improved pricing for customers. With its global commingling of tote pools in place, Hong Kong is attracting an increasing amount of wagering from America.

It’s simple to see why.