Report on Illegal Basketball Betting in Hong Kong - A market that should not exist

Report on Illegal Basketball Betting in Hong Kong (A market that should not exist)

Francis T. Lui

Center for Economic Development, Professor of Economics

The Hong Kong University of Science and Technology

In collaboration with:

December 2015

Report on Hong Kong Illegal Basketball Betting

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RESEARCH TEAM

Prof. Francis T Lui

Director of Center for Economic Development, Professor of Economics


Principal Investigator

With research and analytical support from:

Prof. Kam Wing Siu

Professor of Economics


Oliver Wyman


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PREFACE

Hong Kong people have long participated in a wide variety of gaming and gambling activities and it is well-documented and researched in various studies commissioned by the Home Affairs Bureau (HAB) of Hong Kong, including the regular report titled A Study of Hong Kong People’s Participation in Gambling Activities.1 The forms of gambling discussed in these reports cover most of the popular gaming and gambling activities we know in existence in Hong Kong locally, such as Mark Six, horse racing, football betting, casinos, mah-jong, social gambling, and casino ships.

Oliver Wyman is a consulting firm that does work in the gaming sector globally, and this study is part of our regular insights publications on gaming and gambling activities through which we present findings on segments of the gaming and gambling industry that are relatively under-documented in literature. The illegal basketball betting market in Hong Kong was chosen as the topic of this research report for several reasons:

- Globally, basketball is one of the most popular sports for betting, usually just after football. - In established overseas market such as France, the size of basketball betting is at least 15%

that of football betting (ARJEL, 2014). - Basketball is an extremely popular sport in Hong Kong that rivals football, but unlike

football, basketball betting is not currently regulated in Hong Kong - With no legal operator, all betting demand on basketball in Hong Kong is captured by illegal

/ offshore bookmakers

There is good reason to believe that there is an active community of illegal basketball bettors in Hong Kong, and their risk is underestimated as it is neither well documented nor tracked on its impact and implications for Hong Kong. Thus, the objective of this study is to:

- Quantify the prevalence rate of illegal basketball betting in Hong Kong - Examine betting behaviour and motivations of illegal basketball bettors - Investigate how illegal / offshore bookmakers target Hong Kong basketball bettors - Assess the risk posed by the illegal basketball betting market in Hong Kong as of 2015 - Gauge the potential changes and evolution of this market from 2015-2020 - Discuss the policy implications of illegal basketball betting in Hong Kong

Through extensive qualitative and quantitative fieldwork, this report aims to shed light on the nature and scope of illegal basketball betting in Hong Kong in order to facilitate informed policymaking to combat the problem.

For this study, Oliver Wyman partnered with Professor Francis T. Lui from HKUST, who served as the Principal Investigator of the study. In addition, Professor Kam Wing Siu from HKUST provided research support on research methodology and insights. The Research Team obtained funding from the Hong Kong Jockey Club and has been given full autonomy to issue an independent review and establish a solid fact-base around the subject.

1See Hong Kong Polytechnic University, 2002; The University of Hong Kong, 2005, Hong Kong Polytechnic University, 2008; Hong Kong Polytechnic University, 2012


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TABLE OF CONTENTS

RESEARCH TEAM ................................................................................................................................................................ I

PREFACE ............................................................................................................................................................................. II

TABLE OF CONTENTS ..................................................................................................................................................... III

EXECUTIVE SUMMARY ..................................................................................................................................................... 1

1. RESEARCH DESIGN ................................................................................................................................................... 9

1.1. QUANTITATIVE RESEARCH ................................................................................................................................................... 9 1.1.1. Street intercept survey ............................................................................................................................................ 9 1.1.2. Booster survey samples ....................................................................................................................................... 10

1.2. QUALITATIVE RESEARCH .................................................................................................................................................. 11

2. BETTOR PROFILE (MASS SEGMENT)................................................................................................................ 12

2.1. PREVALENCE OF ILLEGAL BASKETBALL BETTING AMONGST MASS BETTORS ................................................................ 12 2.2. DEMOGRAPHIC PROFILES .................................................................................................................................................. 12

2.2.1. Age ............................................................................................................................................................................... 12 2.2.2. Overseas exposure ................................................................................................................................................. 13 2.2.3. Monthly personal income .................................................................................................................................... 13 2.2.4. Education .................................................................................................................................................................. 14 2.2.5. First exposure to illegal basketball betting.................................................................................................... 14

2.3. WAGERED AMOUNT .......................................................................................................................................................... 15 2.4. ILLEGAL BASKETBALL BETTING MOTIVATION ................................................................................................................. 15 2.5. BASKETBALL BETTING BEHAVIOUR .................................................................................................................................. 16 2.6. HOW ILLEGAL BASKETBALL BETTORS ENGAGE IN BASKETBALL RELATED ACTIVITIES................................................. 17

2.6.1. Playing basketball .................................................................................................................................................. 17 2.6.2. Watching basketball matches ............................................................................................................................. 18 2.6.3. Betting frequency ................................................................................................................................................... 20 2.6.4. Betting products ..................................................................................................................................................... 20

2.7. CONSUMPTION OF BASKETBALL CONTENT ...................................................................................................................... 22 2.7.1. Basketball-related websites / mobile apps ................................................................................................... 23 2.7.2. Newspaper coverage of basketball ................................................................................................................... 25

3. BETTOR PROFILE (HIGH VALUE) ...................................................................................................................... 27

3.1. DEMOGRAPHIC PROFILE .................................................................................................................................................... 27 3.2. FIRST EXPOSURE TO ILLEGAL BASKETBALL BETTING ...................................................................................................... 27 3.3. WAGERED AMOUNT ON ILLEGAL BASKETBALL ................................................................................................................ 27 3.4. BOOKMAKER USAGE .......................................................................................................................................................... 28

4. ILLEGAL BASKETBALL BETTING JOURNEY .................................................................................................... 29

4.1. KEY BOOKMAKERS IN HONG KONG ILLEGAL BASKETBALL BETTING MARKET .............................................................. 29 4.1.1. Local illegal bookmakers ..................................................................................................................................... 29 4.1.2. Offshore bookmakers ............................................................................................................................................ 31 4.1.3. Macauslot .................................................................................................................................................................. 33 4.1.4. Promotions to entice illegal basketball bettors ............................................................................................ 34

4.2. ILLEGAL BASKETBALL OFFERING ...................................................................................................................................... 36 4.2.1. Importance of illegal basketball offering to key bookmakers ................................................................. 36 4.2.2. League coverage...................................................................................................................................................... 36 4.2.3. Bet type offering ..................................................................................................................................................... 38


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4.2.4. Bet line offering ....................................................................................................................................................... 38

5. SCOPE OF ILLEGAL BASKETBALL BETTING IN HONG KONG ...................................................................... 39

5.1. THE ILLEGAL BASKETBALL BETTING MARKET IN 2015 ................................................................................................. 39 5.1.1. Market composition ............................................................................................................................................... 39 5.1.2. Illegal basketball betting margins ..................................................................................................................... 39 5.1.3. Mass segment projection of illegal basketball betting ............................................................................... 39 5.1.4. High value segment projection of illegal basketball betting .................................................................... 40 5.1.5. Total market size projection of illegal basketball ........................................................................................ 40 5.1.6. Market share by bookmaker type ..................................................................................................................... 41

5.2. KEY DRIVERS OF ILLEGAL BASKETBALL MARKET GROWTH ............................................................................................ 42 5.2.1. Surge of basketball betting interest in Hong Kong ...................................................................................... 42 5.2.2. Accessibility to illegal / offshore betting platforms .................................................................................... 44 5.2.3. Faster 3rd party payment / e-currency ............................................................................................................ 45 5.2.4. Threat from Macau................................................................................................................................................. 46 5.2.5. Risk exposure amongst Hong Kong youngsters ........................................................................................... 47

5.3. FUTURE RISK...................................................................................................................................................................... 48 5.3.1. Global basketball betting markets .................................................................................................................... 48 5.3.2. Situation of Macau .................................................................................................................................................. 48 5.3.3. Hong Kong illegal basketball betting market projection ........................................................................... 48

6. IMPLICATIONS AND CONCLUDING REMARKS ............................................................................................... 50

6.1. HONG KONG ILLEGAL BASKETBALL BETTING MARKET ................................................................................................... 50 6.2. FRAMEWORK FOR COMBATING ILLEGAL BASKETBALL BETTING .................................................................................... 50 6.3. CHANNELLING ................................................................................................................................................................... 50

6.3.1. Demand channelled back by legal channel .................................................................................................... 52 6.3.2. Estimated uncaptured tax revenues ................................................................................................................ 52

6.4. PREVENTION ...................................................................................................................................................................... 52 6.5. ENFORCEMENT .................................................................................................................................................................. 53 6.6. CONCLUSION ...................................................................................................................................................................... 54

7. REFERENCES ........................................................................................................................................................... 55


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EXECUTIVE SUMMARY Based on an extensive random street survey and detailed qualitative research on the illegal basketball betting market in Hong Kong, this study aims to shed light into an often overlooked topic in Hong Kong’s discussions of gaming and gambling activities. More specifically, only horse racing and football betting are regulated in Hong Kong, and past academic studies have focused primarily on the prevalence of these two activities.

Given that basketball is one of the most popular sports in the world with high participation in basketball betting globally, there is good reason to believe that Hong Kong has underestimated the size, risk and implications of illegal basketball betting in Hong Kong.

Market Overview: How many Hong Kong people bet on illegal basketball in 2015? How much do they lose? Who are they betting with?

- There are an estimated 33k-36k Hong Kong people participating in illegal basketball betting in 2015, accounting for up to HKD1.2 billion in gambling losses per year

Global industry experts typically segment gambling activities by two types of bettors: mass bettors and high-value bettors. Mass bettors compose the majority of the betting population but contribute to only a small portion of turnover and gross margins, while the opposite is true for high-value bettors. Both segments were assessed in developing this view.

From the random street survey, the prevalence rate of illegal basketball betting in Hong Kong was found to be 0.9% for the mass bettor segment, equivalent to 25k bettors. They reported an average wagered amount of HKD 52,200 per year.

Triangulating with industry experts and local illegal bookmakers, high-value bettors in Hong Kong are estimated to be another 8k-11k bettors, or 25-30% of the total Hong Kong illegal basketball bettor population. They wager approximately HKD 3.6m per year, contributing to the majority of basketball betting turnover.

With a conservative estimate of 4% margin for mass bettors and 3% for high-value bettors, this equates to total gambling losses of up to HKD 1.2 billion per year.

- There are 3 main types of bookmakers for Hong Kong illegal basketball betting: Local illegals, offshore bookmakers, and Macauslot

For all three main bookmaker types, there are several things in common: betting accounts can be set up directly in Hong Kong, it is easy to place bets once an account is opened, and due to the unregulated nature of basketball betting in Hong Kong, they all deploy aggressive promotions.

Local illegal bookmakers have long been involved in illegal gambling activities in Hong Kong, and are estimated to have c.65% share of the local illegal basketball market. They are actively


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involved in illegal betting of horse racing, football, and other sports, and cross-sell bettors of other sports into betting on basketball with familiar bet types and lines.

Typically, local illegal bookmakers recruit potential bettors and facilitate their betting journey through an agent network. It is common practice for local agents to offer credit lines worth thousands of dollars upon account opening that is settled at the end of the month through flexible deposit methods ranging from cash, credit card, bank transfers or even 3rd party e-wallets. The agent will typically provide a username and password to a website to place bets, and take bets through SMS applications such as WhatsApp, or via tele-betting devices.

Offshore bookmakers are estimated to have another c.30% market share of the Hong Kong illegal basketball betting market. Offshore bookmakers are the global market leaders that are legal in their country of origin, typically in the UK or Australia. With their extensive bet offerings and features, they have been able to attract Hong Kong illegal basketball bettors mostly when they were studying / working abroad, or browsing for extensive betting information on offshore websites. Offshore bookmakers now offer Chinese-language betting platforms and convenient e-payment system to appeal to Hong Kong bettors. Offshore bookmakers are well-known for offering superior digital information and service via the web/ mobile app, with even integrated live streaming of basketball games for in-play betting.

Macauslot is well-known in Hong Kong, and is a legal sports betting operator in Macau that is estimated with c.5% market share. Due to its proximity to Hong Kong and the illegality of basketball betting within Hong Kong, a large proportion of the basketball betting turnover generated by Macauslot is estimated to be contributed by Hong Kong bettors.

Macauslot directly targets Hong Kong bettors by offering direct Hong Kong deposit methods as well as offering a Hong Kong betting hotline for support. With their membership card m-slot, points can also be accumulated to exchange for Hong Kong – Macau ferry tickets. The long duration and apparent nature of Macauslot has led many Hong Kong bettors to believe that it is a legal alternative for basketball betting when it is not.

- These bookmakers position basketball as important as football with aggressive offerings Basketball is one of the most important sports these bookmakers offer, along with football. From a sample of 7 illegal / offshore bookmakers surveyed, 100% of them offer football and basketball, with the next most popular sport tennis offered by only 57% of them. They also offer extensive promotions and rebates to attract new account openings and participation in basketball betting. It is estimated that over 9,000 major league basketball matches around the world are offered by these bookmakers in total. The popularity of basketball has allowed for round-the-clock betting throughout the year in Hong Kong. Each match could have over 60 bet types and 100 bet lines offered, with many bet types that are similar to those of football.


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Bettor profiles: Who are these illegal basketball bettors? Why and how do they bet? How do they obtain basketball betting information?

- Illegal basketball bettors tend to be younger with overseas exposure, and bet out of interest in the sport Compared to other sports bettors, illegal basketball bettors are significantly younger. From street intercept surveys, 69% of illegal basketball bettors are below age 40, compared to only 32% of non-basketball sports bettors. Furthermore, illegal basketball bettors are more likely to have overseas exposure. 23% of illegal basketball bettors have resided abroad for over a year, compared to just 9% for non-basketball sports bettors.

- Mass bettors have an average annual wagered amount of HKD 52k, while high value bettors are estimated to wager HKD 3.6m per year Based on survey results, the average basketball bettor wagers c.HKD 52k per year, with the wagered amount typically spread out among a few matches per week. Based on interviews with industry experts and local illegal bookmakers, high-value bettors are estimated to wager an average of c.HKD 3.6m per year, which is significantly higher than the average mass bettor. This figure is in line with reported wagered amounts from high value bettor interviews.

- They bet out of interest in the sport, and conduct research and watch live basketball matches while betting These illegal basketball bettors are primarily motivated to bet out of interest in the sport. The top three reasons cited for betting motivations were: “driven by watching matches”, “support basketball team/player”, and “huge fan of basketball as a sport”. Motivated by their interest in the sport, illegal basketball bettors in Hong Kong conduct extensive research and watch live games when they bet on basketball. Based on survey responses, illegal basketball bettors follow the game live, study odds of different bet types and matches to assess the risks / returns, and research extensively before placing large bets. Almost 70% of the illegal basketball bettors surveyed watch basketball games weekly or more frequently. With the convenience and advancements in technology, the primary channels for watching basketball games are online and mobile streaming.


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- Most illegal basketball bettors bet at least weekly on a variety of leagues, with in-play betting quickly gaining popularity 56% of illegal basketball bettors bet on a weekly basis, with another 33% on a monthly basis. NBA is the most popular league bet on with 100% of illegal basketball bettors participating in it, but many also bet on other leagues such has Euroleague, CBA, and NCAA, indicating that the popularity of basketball and basketball betting has spread beyond the NBA. 53% of illegal basketball bettors surveyed bet in-play, and local illegal bookmakers have mentioned that the bet style has been gaining popularity in recent years. When bettors bet in-play they place bets during a live game, rather than before the match starts. As mentioned earlier, offshore bookmakers now offer live streaming to increase excitement and encourage in-playing betting, and UK bookmakers have mentioned as much as 75% of their basketball betting is in-play.

- They follow basketball closely through multimedia, most of which have been penetrated by illegal / offshore bookmakers Illegal basketball bettors follow basketball information closely through a variety of channels, including websites, television, mobile apps and newspapers / magazines. A detailed examination of these channels frequented by these bettors reveals that the majority have been penetrated by illegal / offshore bookmakers with advertisements and promotions. Bettors use online and mobile channels for a variety of purposes, including reading basketball news, watching live games, accessing betting related information, and placing bets. Many of these features are offered by illegal / offshore bookmakers free of charge in order to engage potential bettors, with their apps easily downloadable and accessible in Hong Kong. For many other popular information / live streaming websites, bookmaker ads can be found on the side or as pop-ups to encourage click-through to the bookmaker website. Local media has covered basketball extensively for years, and often offers illegal betting odds and tips to the Hong Kong public. As mentioned by an interview with a local sports editor, betting information is key to driving readership, and odds for next day matches are featured prominently in the basketball section.

Future risk: How will the illegal basketball betting market in Hong Kong evolve? What are the key drivers?

- Globally, basketball betting has been growing rapidly, primarily driven by technology and rising popularity of NBA

For instance, basketball betting turnover in Nevada has risen from USD 830m in 2010 to USD 1,109m in 2014 at a steady CAGR of +8% p.a. Whereas in France, basketball betting turnover


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has been driven by increasing NBA viewership and has grown at an exponential rate of 49% p.a. from EUR 22m in 2010 to EUR 110m in 2014.

- The Macau basketball betting market has grown at 15% p.a. gross margins in the past 5 years, primarily driven by HK people; referencing Macau growth, the Hong Kong illegal basketball market could reach c.2.4b HKD gross margins by 2020

Macau basketball betting market has grown from HKD922m turnover and HKD77m gross margin in 2010 to HKD2.0b and HKD134m in 2014 respectively. It has shown an extremely strong growth of 22% p.a. in turnover and 15% p.a. in gross margins that has been primarily driven by Hong Kong people.

Referencing Macau’s historical growth, the illegal basketball betting market in Hong Kong could grow to HKD1.6b gross margins by 2017 and HKD2.4b gross margins by 2020.

- The illegal basketball betting market in Hong Kong is set to grow significantly under some key driving forces There are several key driving forces identified that could fuel the growth of Hong Kong’s illegal basketball betting market in the next several years, creating a surge of basketball interest in Hong Kong and lowering the entry barrier for illegal / offshore bookmakers:

⇑ Popularity of NBA ⇑ Accessibility to illegal / offshore betting platforms ⇑ Faster 3rd party payment / e-currency ⇑ Threat from Macau ⇑ Risk exposure amongst HK youngsters Continued absence of a legal betting channel in Hong Kong

Popularity of NBA

Advertisers and NBA will continue to shape basketball interest in the Asian markets, including Hong Kong. Between 2013 and 2014, basketball-related advertising spend in Hong Kong has more than doubled from HKD 14.4m to HKD 35.6m. Coupled with the rise of more star Asian basketball players such as Jeremy Lin, and basketball stars visiting Hong Kong at a frequent rate, there is a clear upward trend in basketball interest.

Recent strategic partnership between Tencent and NBA will also increase penetration of NBA via stronger digital platform offerings for China fans, as WeChat is already the second most popular social networking mobile app in Hong Kong, ahead of Facebook even.

Accessibility to illegal / offshore betting platforms

Mobile / digital technology will continue to ease access to illegal / offshore betting platforms. Smartphone penetration in Hong Kong has risen from 35% in 2011 to 63% in 2013. The Android platform, which is open-source and allows for easier access to illegal betting apps, has increased its market share from 58% in 2012 to 71% in 2014 against other operating systems


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such as iOS. Rapid increase in network speeds has also increased number of 4G LTE users from c.800k in 2012 to 2.2m in 2013.

Faster 3rd party payment / e-currency

Furthermore, it is becoming increasingly difficult to block payments and monetary transfers of illegal bettors in Hong Kong to local / offshore bookmakers. Direct payments through banks and credit cards could be blocked if regulated, but there is now a wealth of 3rd party e-wallet and currency options to choose from. These options allow personal bank account and financial details to remain obscure from merchants, and prevent banks from blocking such payments. Based on industry reports, e-wallet is expected to continue increase in popularity and increase its share from 36% in 2012 to 43% in 2015.

Threat of Macau

Macau’s increased convenience and attractions will continue to draw more traffic from Hong Kong, especially after the opening of the HK-Macau-Zhuhai Bridge, which will reduce travel to 20 minutes via car, down from the one-hour ferry trip in 2015. Approximately 20k cars have already applied for the permit, and the number of visitors to Macau from HK is expected to greatly increase.

Macau casinos are also actively expanding their range of entertainment to become more family-oriented, with large infrastructure plans for non-gaming entertainment to drive traffic. For example, Galaxy has recently spent a reported HKD 57b to create a New York Broadway theatre with 3,000 seats.

With a decline in VIP gambling margin contribution from 72% in 2010 to 60% in 2014 due to corruption crackdowns, Macau casinos now have more motivation than ever to continue diversifying its gambling business as well. One option is to closely replicate the Las Vegas model and develop the sports betting scene. Las Vegas casinos are well-fitted with dedicated sports books where customers can view and bet on live games for a fully integrated betting experience right inside the casinos.

In addition, industry stakeholders and observers have been eager to push for deregulation of the sports betting scene in Macau in recent years. Given the need to mitigate declining business from games of chance and the enthusiasm from the private sector, Macau might in the near future consider eliminating the monopoly on sports betting. This move would further attract Hong Kong bettors to bet illegally in Macau.

Risk exposure amongst HK youngsters

As more and more Hong Kong youth study abroad, a larger critical mass will be exposed to offshore bookmakers. UK and Australia, both freely licensed betting markets, have seen consistent growth in enrolments from Hong Kong students. The UK higher education survey has shown consistent 12% growth per year from c.10k students in 2010/11 to c.15k students in


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2013/14. This is similar to Australia’s higher education of c.12% growth per year from c.5k students in 2010/11 to c.7k students in 2013/14.

Implications: What can Hong Kong do to combat illegal basketball betting?

- Hong Kong can learn from other countries to develop a holistic framework to combat illegal betting with three pillars: Channelling, Prevention, and Enforcement. Channelling illegal demand to a legal operator allows betting to take place under a well-controlled and regulated environment. By allowing a legal operator to offer competitive products and services with responsible gaming measures, it will allow profits to be channelled back to the community via betting duties and charities. Prevention of illegal basketball betting through regulators, schools, NGOs, and legal operators is a key component to raising awareness of the risks of illegal betting, particularly amongst HK youth. It also plays an integral role in treatment of pathological gamblers / at-risk youth, and conducting research on the basketball betting topic in Hong Kong. Enforcement through regulators, police, and monetary bodies also sends the necessary message across to illegal operators in Hong Kong. This could be achieved in a number of ways – crack down illegal operators, arrest illegal bettors, combat cross-border illegal activities, and block access to illegal / offshore websites and apps. However, based on the research findings, it does not seem that the above pillars are being effectively implemented in Hong Kong.

- Channelling: Unlike in other countries, there is not yet a legal channel for basketball betting in Hong Kong The NBA has also openly pushed for regulating basketball betting to provide fans with a safe way to enjoy the professional sport. In an article on the New York Times by the NBA commissioner Adam Silver, he writes, “…despite legal restrictions, sports betting is widespread…those who wish to bet resort to illicit bookmaking operations and shady offshore websites.” It is the strong belief of the NBA league that legalizing sports betting will be a safer option for fans to enjoy the sport. This is particularly relevant to Hong Kong as it has no legal channel for diverting illegal basketball betting demand despite the rapid growth. Countries such as China, Macau, Taiwan, Korea, Australia, UK, France, Germany, Spain, Italy, and Canada all provide a legal betting channel for basketball. For the US, sports betting is legalized on a state by state basis, and basketball betting is legal in Delaware, Montana, Nevada, and Ohio only.


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Should there be a legal channel for basketball betting in Hong Kong, street intercept survey has indicated 97% of HK illegal basketball bettors could be channelled back, as they would definitely or likely consider betting with a legal channel if available.

Based on the estimated illegal basketball betting market size of HKD 1.2b and assumptions that a large portion of the gross margins can be channelled back (80%) and that the government taxes the same betting duty rate on basketball as football (50%), the Hong Kong government is estimated to be losing up to HKD 0.5b in tax revenues every year. While this uncaptured source of revenue could have been fund community projects, profits from illegal basketball betting are instead used by criminal organisations to fund other illegal activities today.

- Prevention: Dedicated preventive measures are needed to develop public understanding and awareness on the scope of the problem There is currently a lack of awareness and research studies to understand the illegal basketball betting market in Hong Kong. As mentioned in the preface, none of the previous reports and studies the research team has come across have mentioned incidence rates or other information regarding this topic. Outside of Hong Kong, there are also examples of active campaigns to prevent illegal betting. One of these examples is Singapore’s “Red Card” anti-illegal betting campaign. Stronger measures for prevention in Hong Kong would require a similar focus on illegal betting.

- Enforcement: Police crackdown efforts on illegal sports betting should centre not only on football but also basketball During the World Cup in 2014, the HK police have made significant efforts in cracking down illegal sports betting with 80 articles reported from major local newspapers. In contrast, during the NBA finals of 2014, there were zero articles mentioned on illegal basketball betting rackdowns.


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1. RESEARCH DESIGN

A combination of quantitative and qualitative fieldwork and research was used in this study. To establish the prevalence of illegal basketball betting in Hong Kong, a random street intercept survey was conducted across 17 locations in Hong Kong. Additional booster survey samples were added to better understand bettor motivation and behaviour. However, due to the illicit nature of basketball betting in Hong Kong, underreporting in the street survey was expected.

Moreover, interviews with industry experts indicated that the gaming sector is highly driven by high-value bettors, who comprise a small percentage of the population but account for a large part of revenues. This segment is unlikely to be captured in a mass street survey. Hence, a combination of qualitative interviews and focus groups are crucial for a complete understanding of the market.

Two focus groups of mass bettors were conducted to gain the needed in-depth understanding of their betting behaviour and needs. Another 30 interviews were conducted with high-value bettors to understand how they differ from mass segment bettors. On the supply side, 5 interviews were conducted with local bookmakers and expert interviews in order to gain an understanding of overall market dynamics and competitive landscape. These interviews were supplemented with extensive desktop research on various bookmakers and their offerings.

Last but not least, adjacent stakeholders in the media and at gambling prevention NGOs were interviewed to gain additional insight on the scope of illegal basketball betting in Hong Kong and its societal implications.

1.1. Quantitative research

1.1.1. Street intercept survey The street intercept survey sample size was n = 1,529 Hong Kong males aged 15 and above. Only males were targeted for the survey given prevailing understanding that sports betting is a largely male-dominated activity in Hong Kong.

Random sampling methodology was adopted for the face-to-face street intercept survey, with hard age quotas based on census data, and soft quotas on working vs. non-working population. Interviews were conducted with a CAPI (Computer Assisted Personal Interviewing) approach at 17 residential and commercial locations across Hong Kong in two phases – 1,045 samples were collected from December 2014 to January 2015. The remaining 484 samples were collected from mid-to-late April 2015, after the commencement of NBA playoffs for the 14-15 season. This phasing was designed to better reflect the seasonality of NBA matches, with 1230 games in the regular season (October to April) building up to a maximum of over 100 matches in the post-season playoffs (April to June). With the playoffs being the most anticipated period in the NBA season, prevalence rate during the playoffs was expected to be higher than that of the regular season.

The street intercept survey covered a range of topics related to illegal basketball betting, including sports betting prevalence, interest in basketball, illegal basketball betting frequency and amount, betting behaviour and motivations, and betting products. While a fallout rate was recorded for all


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respondents in order to establish an prevalence rate, only sports bettors were asked to complete the survey. Results from the survey are presented in Section 2 below.

While telephone surveys can also typically achieve a similar level of random sampling as street intercept surveys, this study intentionally opted for in-person interviews due to the illicit nature of basketball betting in Hong Kong. Telephone surveys typically target households during after-work hours, where respondents are much less likely to be truthful due to the presence of family members. Hence, the street intercept survey across 17 locations in Hong Kong likely yielded more accurate results. This choice of methodology would also likely result in significantly higher prevalence of horse racing and football betting in this study, compared to past studies commissioned by the HAB, which employed a telephone household survey methodology.

Limitations of the street intercept survey

In the context of understanding the illegal basketball betting market in HK, there are significant limitations to the street intercept survey due to potential response bias and sample bias. Underreporting and/or misreporting are both expected, as the survey concerns basketball betting, which is illegal in Hong Kong. This is a common issue in research measuring the prevalence of gambling and problem gambling, as well as studies concerning other socially undesirable and/or illicit activities (Volberg, 2004). If a given activity is perceived by the respondent to be socially unacceptable, he or she is much less likely to provide a truthful response in a street interview setting (Tourangeau & Yan, 2007). Moreover, bias may also be present in terms of non-response / refusal rates. Thus, while age, gender, and working population have been controlled for the sampling methodology, survey responses may be biased along other attributes and behaviour.

In addition to response bias within collected survey samples, there is likely significant sample bias as “hidden populations” are unlikely to be captured in a street intercept survey. More importantly, these “hidden populations” are typically groups that exhibit more intense behaviour, both in terms of frequency and amount. Experience in research on drug use in particular suggests that using mass prevalence surveys alone is insufficient to measure the magnitude of the problem as the most problematic users will typically not be captured (Fowler, Kinner, & Krenske, 2007). A similar dynamic applies to the gaming sector, in which high-value bettors account for a large portion of the market, but are typically difficult to identify. Adopting a targeted qualitative approach such as snowball sampling is a crucial to understanding the behaviour of hidden populations (Faugier & Sargeant, 1997).

1.1.2. Booster survey samples Given that basketball bettors are relatively difficult to identify in a street intercept survey, an additional 105 illegal basketball bettor booster samples were added to provide more data points for understanding betting motivation and behaviour. The same survey was conducted in locations with higher prevalence rates of bettors, and these results are not factored into the calculation of the incidence rate.


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1.2. Qualitative research To supplement the street intercept survey, qualitative interviews were conducted with various stakeholders in the market. On the demand side, 2 focus groups were conducted with 12 mass bettor participants in total. These focus groups provided additional nuance on betting motivations, behaviour and bookmaker usage. Moreover, 30 interviews were conducted with high-value sports bettors to shed light on this “hidden population” not covered by the street survey. Contacts were made via a snowball sampling method, whereby interviewees referred us to their contacts. These interviews allowed us to compare behaviour and motivations with the results from the mass street intercept survey, and provided important data points for triangulating the betting frequency and wagered amounts of high value bettors.

On the supply side, 5 contacts working / have worked with illegal / offshore bookmakers were interviewed for an understanding of the overall competitive landscape, offering, as well as understanding of high-value bettors. Results from the survey and high-value bettor interviews were then triangulated with bookmaker estimates to provide a more robust estimate of the market situation.

The Research Team also reached out to 2 media contacts and 5 NGOs doing work in gambling prevention. The media contacts were able to provide information on coverage on basketball and basketball betting-related information in local media, while NGO staff provided insight on the typical characteristics of pathological gamblers and what can be done to prevent problematic gambling in Hong Kong.

In addition to quantitative and qualitative research, extensive desktop research was conducted in order to map out detailed betting offerings and journeys for different bookmakers. These were used to confirm survey findings and to illustrate the typical experience of Hong Kong illegal basketball bettors.


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2. BETTOR PROFILE (MASS SEGMENT)

2.1. Prevalence of illegal basketball betting amongst mass bettors 13 out of 1529 respondents reported betting on basketball illegally in the past 12 months, which translates to a prevalence rate of 0.9% within the Hong Kong male population aged 15 and above.

Figure 2.1 Prevalence of illegal basketball betting

Number (%) of respondents Male population aged 15+

1529

Total sports betting in the past 12 months 1001 (65%)

Betting on horse races 851 (56%)

Betting on football 609 (40%)

Betting on basketball 13 (1%)

2.2. Demographic profiles

2.2.1. Age Illegal basketball bettors tend to be younger than other sports bettors, with less than 50% of surveyed being below 30 years old, compared to only 16% of other sports bettors. Moreover, the incidence of basketball betting among young bettors was particularly high, with 2.2% (3 out of 136) respondents aged 15-20 betting basketball, compared to 0.7% (10 out of 1393) of those aged 21 and above.

[See table on following page]


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Figure 2.2 Age of respondents

Number (%) of respondents Male population

aged 15+ Non-basketball sports bettors

Basketball bettors

1529 988 13

15-17 61 (4%) 5 (1%) 2 (15%)

18-20 75 (5%) 31 (3%) 1 (8%)

21-24 88 (6%) 50 (5%) 1 (8%)

25-29 116 (8%) 72 (7%) 2 (15%)

30-34 121 (8%) 74 (7%) 1 (8%)

35-39 124 (8%) 88 (9%) 2 (15%)

40-44 126 (8%) 95 (10%) 0 (0%)

45-49 135 (9%) 88 (9%) 2 (15%)

50-54 159 (10%) 123 (12%) 0 (0%)

55-59 150 (10%) 104 (11%) 2 (15%)

60-64 123 (8%) 86 (9%) 0 (0%)

65 or above 251 (16%) 172 (17%) 0 (0%)

2.2.2. Overseas exposure Illegal basketball bettors are more likely to have resided abroad for more than a year than other sports bettors, with over 20% of illegal basketball bettors citing extended overseas residence, compared to 9% among other sports bettors.

Figure 2.3 Overseas exposure of respondents

Number (%) of respondents Male population

aged 15+ Non-basketball sports bettors

Basketball bettors

1529 987 13

Have overseas exposure 162 (11%) 85 (9%) 3 (23%)

Do not have overseas exposure 1366 (89%) 902 (91%) 10 (77%)

2.2.3. Monthly personal income Illegal basketball bettors tend to have slightly higher income than non-basketball sports bettors, with over 40% of illegal basketball bettors making HKD20, 000 and above, compared to 25% for non-basketball sports bettors.


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Figure 2.4 Monthly personal income of respondents


Non-basketball sports bettors

Basketball bettors

1529 986 13

No Income 453 (30%) 242 (24%) 2 (15%)

Less than HKD4,000 24 (2%) 8 (1%) 0 (0%)

HKD4,000 - HKD5,999 16 (1%) 9 (1%) 0 (0%)

HKD6,000 - HKD9,999 93 (6%) 70 (7%) 0 (0%)

HKD10,000 - HKD14,999 268 (18%) 194 (20%) 2 (15%)

HKD15,000 - HKD19,999 302 (20%) 221 (22%) 3 (23%)

HKD20,000 - HKD24,999 149 (10%) 104 (11%) 1 (8%)

HKD25,000 - HKD29,999 62 (4%) 41 (4%) 2 (15%)

HKD30,000 - HKD39,999 79 (5%) 57 (6%) 1 (8%)

HKD40,000 - HKD49,999 38 (2%) 19 (2%) 2 (15%)

HKD50,000 - HKD59,999 16 (1%) 12 (1%) 0 (0%)

HKD60,000 or above 22 (1%) 9 (1%) 0 (0%)

Refused (unprompted) 7 (0%) 2 (0%) 0 (0%)

2.2.4. Education Illegal basketball bettors tend to be more highly educated, with 54% receiving tertiary or university education or above, compared to only 21% among non-basketball sports bettors.

Figure 2.5 - Education level of illegal basketball bettors


Non-basketball sports bettors

Basketball bettors

1529 988 13

Primary or no formal education 204 (13%) 144 (15%) 0 (0%)

Secondary or matriculation 943 (62%) 636 (64%) 6 (46%)

Tertiary or university 380 (25%) 207 (21%) 7 (54%)

Refused (unprompted) 2 (0%) 1 (0%) 0 (0%)

2.2.5. First exposure to illegal basketball betting Many focus group participants indicated that they first started betting on basketball illegally due to the influence of peer / family members who also share an interest in basketball. Most illegal basketball bettors began betting at a young age – typically starting sometime between secondary school and their first entry into the workplace.


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“Some of the guys that I play basketball with would talk about it, so the first time I just pooled with them to place a bet. After a couple of times, I decided it would be less hassle if I just opened an account myself.”- mid-40s, IT manager

“My family has been betting with the same bookmaker for years, so they would ask me if I want to bet on anything. Since we always watch basketball together at home, I just told them place a bet for me one time. That’s how I got started.” – late-20s, manufacturing manager

As these responses suggest, referral by peers or family members was a key influencing factor in determining their first bookmaker.

2.3. Wagered amount In order to establish incidence rate of basketball betting by age, income, and education distribution, only the samples from the street intercept survey (n=13) were used in the previous sections. However, for the remaining analysis in this report, booster survey samples are also used to increase the sample size to n=118 for more robust deep-dive on betting behaviour and motivations.

Based on combined street intercept and booster survey results, the average annual wagered amount among mass illegal basketball bettors was found to be HKD52,200. 42% of respondents wager HKD10,000-50,000 per year, but this amount could exceed HKD100,000 per year for some bettors.

Figure 2.6 Annual wagered amount of mass illegal basketball bettors Number (%) of respondents Basketball bettors

118

Less than HKD 10,000 29 (25%)

HKD 10,000-49,999 50 (42%)

HKD 50,000-99,999 20 (17%)

HKD 100,000 and above 19 (16%)

2.4. Illegal basketball betting motivation Illegal basketball bettors are largely motivated to bet by their interest in the sport. The top three motivations for basketball betting cited were: 1) “betting makes watching basketball matches more exciting”, 2) “to support a favourite team / player”, and 3) “huge fan of basketball as a sport”. In contrast, more gambling / money-oriented reasons resonated with fewer respondents.


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Figure 2.7 Reasons for betting on basketball Number (%) of respondents rating 8 or above out of 10 Basketball bettors

118

Whenever I am able to watch a basketball match, I want to bet on it to make it more exciting 79 (67%)

I do it mainly to support my favourite team/player 49 (42%)

I am a huge fan of basketball as a sport 47 (40%)

I get a sense of achievement when I win a basketball bet 35 (30%)

I bet because all my friends/family bet 35 (30%)

Betting gives me an avenue to talk to both friends and strangers (breaking the ice) 34 (29%)

I think basketball betting is easier to win, when compared with other gaming/gambling 27 (23%)

Basketball betting is another opportunity for me to bet 25 (21%)

There is ample information around on basketball 21 (18%)

It is convenient to bet 15 (13%)

I treat it as an extra source of income 6 (5%)

These views were echoed strongly among focus group participants, most of whom are avid fans of basketball:

“I bet basketball because I am interested in the sport, not just to bet; I do it to support my team.” – early-20s, retail sales

As survey results suggest, betting is also perceived to add an element of excitement to watching basketball matches:

“I feel much happier and more excited if I’m betting on the game that I’m watching.” – mid-30s, driver

“I also follow the CBA, but obviously the level of playing is not as good as that of the NBA. So betting on it makes it much more exciting.” – early-30s, logistics officer

2.5. Basketball betting behaviour Survey results indicate that basketball bettors tend to watch the matches that they bet on, study odds and conduct pre-betting research, which is in line with their interest in watching and following basketball. 41% indicated that they always watch the game if they bet on it, while 30% indicated that they study odds prior to placing bets, and 25% conduct research before large bets.


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Figure 2.8 Basketball betting behaviour Number (%) of respondents ranking 8 or above out of 10 Basketball bettors

118

I always watch the game if I bet on it 48 (41%) I study the odds of different bet types and matches to assess risk and return before placing my bets 35 (30%)

I always research before placing large bets 30 (25%) Whenever I was betting, I bet on whatever sports available and do not focus on basketball only 28 (24%)

I regularly compare the odds between bookmakers 23 (19%)

I always place a wide range of bet types 23 (19%)

I place most of my bets on credit 18 (15%)

I arbitrage/hedge my bets 18 (15%)

I always place 'high risk, high return' bets (e.g. All-Ups or Correct Score) 13 (11%)

2.6. How illegal basketball bettors engage in basketball related activities Driven by their interest in the sport, illegal basketball bettors engage in basketball in a variety of ways. They play basketball as a sport, watch basketball matches, and follow basketball-related news via various channels. This section explores the ways in which basketball betting is closely linked to basketball interest, and conducts in-depth investigation into how basketball fans might be exposed to betting-related information.

2.6.1. Playing basketball Illegal basketball bettors actively participate in basketball as a sport. 24% play basketball weekly, while 25% and 21% play monthly and quarterly respectively. Further probing from focus groups suggest that while many bettors no longer play basketball as frequently, they became fans of the sport due to participation when they were younger:

“I used to play basketball almost every day when I was in university… It’s hard now that I have a job and everything, but I still try to play with friends once a month.” – mid-20s, insurance agent


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Figure 2.9 Basketball playing frequency Number (%) of respondents Basketball bettors

118

Daily/ Almost daily 2 (2%)

Weekly 28 (24%)

Monthly 30 (25%)

Quarterly 25 (21%)

Annually 11 (9%)

Not in every year 9 (8%)

Never 13 (11%)

2.6.2. Watching basketball matches Basketball bettors watch basketball matches frequently, with 10% watching matches daily or almost daily, and 69% watching matches weekly.

Figure 2.10 Basketball watching frequency Number (%) of respondents Basketball bettors

118


Weekly 81 (69%)

Monthly 20 (17%)

Quarterly 2 (2%)

Annually 1 (1%)

Never 2 (2%)

They use a variety of channels to watch matches, with online streaming being the most popular. 53% of illegal basketball bettors cited internet (desktop) streaming as their main channel for watching basketball, while another 25% cited mobile streaming as the main channel.


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Figure 2.11 Main channel for watching basketball Number (%) of respondents Basketball bettors

118

Internet streaming (PC) 63 (53%)

Mobile streaming 30 (25%)

Paid TV channel 19 (16%)

Free TV channel 3 (3%)

Other 1 (1%)

Free platforms such as online P2P software and online streaming sites were found to be very popular among focus group mass bettors. Virtually any basketball league such as the NBA, WNBA, NCAA, and Euroleague can be accessed via these sites. Netizens often share “free” viewing links through discussion threads on online forums such as Discuss!HK:

“I use a P2P software called SOPcast . You just search the links online and then access it through the software. The quality varies, but why pay when you can watch for free?” – mid-20s, insurance agent

“I like to use this mainland site called A 直播. It lets you watch live matches from CCTV and other mainland channels, which have Chinese commentary.” – early-30s, driver

Those who prefer to pay typically subscribe to multi-device packages. For example, those who have a subscription to Now TV at home may also access content via the Now TV mobile app, on which they can live stream NBA matches. Similarly, the NBA League Pass, a multi-platform digital subscription package offered by the league, allows fans to watch live games and replays across multiple devices. With an annual subscription fee of HKD1599.99 (c .HKD133 per month), subscribers have access to live stats, highlights, and all regular season and playoff games.

Figure 2.12 Screenshot of NBA League Pass Figure 2.13 Screenshot of Now TV App

Paid and free TV channels, though less popular, also cover all major basketball leagues. Viewers can access information on major leagues such as the NBA, WNBA, NCAA, Euroleague, FIBA, via paid TV


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channels Now TV and Cable TV. Moreover, the free TV channels TVB and ATV also offer coverage of local matches and key international matches via news and sports programmes.

2.6.3. Betting frequency The majority of illegal basketball bettors surveyed are regular bettors, rather than casual bettors who may have only tried basketball betting once or twice in the past year. The highest proportion of illegal basketball bettors interviewed in the street survey (56%) bet weekly.

Figure 2.14 Illegal basketball betting frequency in the past 12 months Number (%) of respondents Basketball bettors

118


Weekly 66 (56%)

Monthly 39 (33%)

Quarterly 6 (5%)

Annually 5 (4%)

2.6.4. Betting products Leagues bet on

NBA is by far the most popular league for illegal basketball betting, with 100% of those surveyed saying that they bet on NBA matches. However, bettors bet on a variety of lesser known leagues as well, such as the Euroleague, CBA, and NCAA.

Figure 2.15 Basketball leagues bet on by survey respondents Number (%) of respondents Basketball bettors

118

NBA 118 (100%)

Euroleague 47 (40%)

China Basketball Association 22 (19%)

NCAA 12 (10%)

Other betting activities

Among all surveyed basketball bettors, at least 80% of them also gamble on other activities. Most of them are engaged in Mark Six and football betting.

Figure 2.16 Other betting activities by survey respondents

Number (%) of respondents Basketball bettors

118


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Basketball 118 (100%)

Mark Six 115 (97%)

Football 112 (95%)

Horseracing 98 (83%)

Bet style

In terms of bet styles, 96% of illegal basketball bettors place pre-match bets, as most NBA matches occur early in the morning Hong Kong time. Over half (53%) place in-play bets, while 36% bet all-up, which are combinations of multiple bet lines.

In-play betting has quite a high percentage amongst basketball bettors. It is driven by the fluid nature of NBA; a prominent sports betting company in England could receive 75% in-play for its basketball bets (Zwerling, 2015).

According to focus group participants, they typically place in-play matches in order to make up for losses in their pre-match bets, or to chase gains. Some bettors prefer all-up bets due to the higher odds, but single bets remain the preferred bet style.

Figure 2.17 Bet styles penetration Number (%) of respondents Basketball bettors

118

Single, pre-match 113 (96%)

Single, in-play 63 (53%)

All-Up 43 (36%)

Bet type

In terms of bet types, 32% illegal basketball bettors indicated Match Over / Under as their most frequent pre-match bet type, followed by 20% for Point Spread and 12% for Odd / Even. Results were similar for most frequent in-play bet types, with 15%, 10% and 14% of bettors betting most frequently on Match Over / Under, Point Spread, and Odd / Even respectively. These results suggest that the most popular bet types are all line bets, which involve wagering against a spread determined by the bookmaker. Local bookmakers indicated that the popularity of line bets is consistent between football and illegal basketball bettors and has facilitated the conversion of illegal football bettors to illegal basketball betting.

Figure 2.18 Most frequent pre-match bet type Number (%) of respondents Basketball bettors

118

Match Over / Under (Full / Half / Quarter) 38 (32%)


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Point spread / Handicap 24 (20%)

Odd Even (Match / Team) 14 (12%)

Double results (Half/Full) 10 (8%)

Money line 10 (8%)

Team Over / Under (Full / Half / Quarter) 9 (8%)

Win Margin 7 (6%)

Specials (e.g. team with highest scoring quarter, race to 10 points, champion) 1 (1%)

I don't bet pre-match 5 (4%)

Figure 2.19 Most frequent in-play bet type

Number (%) of respondents Basketball bettors

118

Match Over / Under (Full / Half / Quarter) 18 (15%)

Odd Even (Match / Team) 16 (14%)

Point spread / Handicap 12 (10%)

Win Margin 9 (8%)

Double results (Half/Full) 5 (4%)

Team Over / Under (Full / Half / Quarter) 1 (1%)

Player Over / Under (Full / Half / Quarter) 1 (1%)

I don't bet in-play 32 (49%)

2.7. Consumption of basketball content Basketball fans consume news and media via many channels. 84% of those surveyed use websites, 59% watch television, 47% use mobile or tablet apps, and 46% use newspapers for basketball-related information.

Figure 2.20 Channel used for basketball-related news Number (%) of respondents Basketball bettors

118

Website 99 (84%)

Television 70 (59%)

Mobile or Tablet App 55 (47%)

Newspaper 54 (46%)

Magazine 21 (18%)

Others 1 (1%)


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None of the above 2 (2%)

Basketball bettors actively consume basketball content through both conventional and digital media platforms, many of which have been penetrated by illegal / offshore bookmakers. The below table summarises the information offered by different channels:

Figure 2.21 Main purposes of different channel in consuming basketball content

General basketball news

Live basketball matches

Basketball betting-related info Bet placement

Online (PC)

Mobile

Newspaper

Television

2.7.1. Basketball-related websites / mobile apps

In terms of online / mobile sources, the official NBA site / app was found to be the top source of information for basketball bettors, with 75% respondents indicating usage. It is followed by Yahoo! Sports (43%) and betting websites (32%).

Figure 2.22 Sites / apps used for basketball information Number (%) of respondents Basketball bettors

118

NBA 89 (75%)

Yahoo! Sports 51 (43%)

Betting websites 38 (32%)

ESPN 31 (26%)

Online forums (e.g. Discuss, Golden, etc.) 19 (16%)

Local newspaper websites 18 (15%)

Sina Sports 12 (10%)

Livescore 10 (8%)

Scorecenter 2 (2%)

Others 2 (2%)

Do not use sites / apps 12 (10%)

Survey results show a high usage of betting websites for following basketball-related news. Close to 1/3 of surveyed basketball bettors indicated that they rely on betting websites as their main source for researching news, stats, and odds prior to placing bets:


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“I use a mainland website called hupu.com. It combines news, analyses, and betting into one stop. I like it because the commentary on site is insightful and not as ‘politically-correct’ as the official site.” – Secondary school student

“I just use Macauslot for everything. You can research all the player and team stats and then place the bet all on the same site. It’s the easiest.”- early-40s, business owner

Figure 2.23 Screenshots of match analyses and betting platform on hupu.com

Figure 2.24 Screenshots of NBA news coverage and team/player stats on Macauslot

For watching live games, closer examination of live streaming sites reveals that many illegal bookmakers have penetrated free online basketball streaming sites with advertisements linking to betting websites. Thus, even those who visit the sites to watch matches are frequently exposed to the enticement of illegal bookmakers.

Figure 2.25 Screenshot of A Zhibo Figure 2.26 Screenshot of 360 Zhibowang


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Offshore bookmakers also have very robust information offerings, with players like Ladbrokes, bet365, and bwin offering extensive news, statistics, and even live streaming for basketball matches. These features serve as a “hook” to attract information seekers to bet on the site.

Figure 2.27 Screenshots of basketball information offerings by offshore bookmakers News Statistics Live streaming

2.7.2. Newspaper coverage of basketball Given 46% of basketball bettors turn to newspapers as a source of information, this study also looked into local newspaper coverage of basketball as compared to other sports to measure interest. Newspapers typically allocate content based on the interest of their readers, meaning that higher coverage of a given topic can be considered a proxy for interest among readers. Analysis of newspaper coverage of major matches and tournaments for basketball, football, tennis, and golf in 2014 showed that 70% of all NBA games were covered in the news, second only to football. This shows both consistent media coverage of basketball and strong perceived interest in the sport among readers.

Figure 2.28 Local newspaper coverage on sports leagues, 2014 % match/tournament days covered 1,2

Football - British Premier League 100%

Basketball - National Basketball Association 70%

Tennis – Wimbledon 53%

Gold – Golf Majors3 41% 1Sampling of 14 match days for EPL and NBA during regular season 2Newspapers included: Apple Daily, Ming Pao Daily News, Oriental Daily News, Sing Pao, Sing Tao Daily, The Sun, Wen Wei Po 3Golf majors includes Masters, U.S. Open, Open Championship, and PGA Championship Source: Wisenews


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In addition to robust coverage in terms of match days covered, major newspapers also provide basketball betting-related information, even though basketball betting is illegal in Hong Kong. Interviews with the sports editors of two major local newspapers confirm that demand for betting information among the readership is high:

“Betting information is key to driving readership in the sports section. We have provided odds since the 1990s, when people all bet with Macauslot.” – Sports editor, local newspaper

Newspaper clippings below illustrate the prevalence of betting information in newspapers, both in print and online, even for a betting activity that is illegal in Hong Kong.

Figure 2.29 NBA section of Oriental Daily News featuring

odds for next day's match

Figure 2.30 NBA section of The Sun featuring odds for next

day's match

Figure 2.31 Headline news feature championship odds;

dedicated page for basketball


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3. BETTOR PROFILE (HIGH VALUE) In order to capture the “hidden population” of high value bettors not reflected in the street intercept survey, individual interviews were conducted with high-value bettors to understand their illegal basketball betting behaviour. Overall, betting motivations, information sources used and preferred betting products were found to be consistent among mass and high value bettors. The key similarities and differences between high value bettors and mass bettors are highlighted in the section below.

3.1. Demographic profile Similar to that of mass bettors, the age profile of high value bettors tended to be younger than non-basketball sports bettors, with the majority being in their 30s to 40s. As expected, they tended to be from higher income groups and were even more likely than mass bettors to have had overseas exposure, typically in the form of studying abroad or work experience.

3.2. First exposure to illegal basketball betting Since a disproportionate number of high value bettors had studied abroad, many picked up an interest in basketball while overseas, where the sport is extremely popular.

“I first started following basketball when I studied in the US. My friends would talk about it all the time and we would watch matches together. Eventually I opened my own betting account in university.” – early-30s, high-value bettor

As is the case with mass bettors, peer influence played a huge role in their first exposure to illegal basketball betting. Some also cited the popularity of basketball in Hong Kong popular culture during their childhood as an important driver of their interest in the sport:

“I developed an interest in basketball since childhood, through the manga series Slam Dunk and collecting cards of basketball stars.” - early 40s, high-value bettor

3.3. Wagered amount on illegal basketball Since high value bettors wager significantly larger amounts than mass bettors, their wagered amounts were estimated based on interviews and subsequently cross-checked with local bookmakers:

“I have a friend who wagers at least HKD 25k per match, 4 matches per week”, i.e. c.5m annually – mid 30s, high-value bettor

“My friends and I can bet up to 80-100k per match if it is a big game.” - early 40s, high-value bettor

“Top 30% of my basketball bettors easily account for over 90% of the total wagered amounts” – Local illegal bookmaker

Based on various data points, the average annual wagered amount of high-value bettors was found to be c. HKD 3.6m. Detailed triangulation methodology is discussed in Section 5.1.4.


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3.4. Bookmaker usage High value bettors who began sports betting abroad typically started betting with one of the many offshore bookmakers that operate legally overseas, such as William Hill and bet365. Once they have opened an account and set up payment, bets can be placed relatively easily from anywhere in the world. Hence, upon return to Hong Kong, they bring their betting accounts with them and continue to bet despite the illegality in Hong Kong.

Local illegal bookmakers also indicate that a large proportion of their business is driven by high value bettors. These high value bettors are typically avid sports bettors who also bet on horse racing and football. Thus, their local illegal bookmaker usage was carried over from other sports to basketball.

Figure 3.1 Summary of typical profile of high value bettors High-value bettors Demographic profile Higher income, 30s-40s, more likely to have overseas exposure,

highly educated First exposure to illegal basketball betting

Exposed to basketball culture through studying overseas and/or local popular culture

Wagered amount Average annual wagered amount of c.HKD 3.6 million Bookmaker usage Overseas returnees typically bring offshore bookmaker accounts

back, while local hardcore sports bettors bet with local illegal bookmakers


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4. ILLEGAL BASKETBALL BETTING JOURNEY

4.1. Key bookmakers in Hong Kong illegal basketball betting market As per the Gambling Ordinance of Hong Kong, it is illegal for anyone in Hong Kong to place wagers with unlicensed operators. Hong Kong currently has only issued two sports betting licenses and both are to The Hong Kong Jockey Club - one for horse race betting and one for football betting.

Despite the lack of a legal channel, there are a number of ways for Hong Kong bettors to bet on basketball. According to the industry interviews conducted by the research team, the basketball betting market can be largely classified into 3 groups of bookmakers as follows:

4.1.1. Local illegal bookmakers Local illegal bookmakers can be taken as the conventional type of bookmaker in the market. These bookmakers have been around mainland and Hong Kong long before internet betting became popular. A focus group respondent recalled starting to bet with a local illegal basketball bookmaker nearly 20 years ago.

Due to their local presence, both the bookmakers and the agents they employ are regularly prosecuted by the Hong Kong Police Force. Local operators are commonly found to be operated by criminal organisations who use bookmaking to fund other illegal activities. An industry source indicated that “nearly all of the illegal betting articles which [he has] seen on the newspaper are talking about the local illegal bookmakers”.

Recruitment

Local illegal bookmakers operate with a loose network of agents in Hong Kong and mainland China to recruit bettors. Each agent manages his/her own group of bettors and shares a small % of the gross win as their commission fee. Local agents work in a pyramid structure where higher tier agents deal with bettors of higher value and manage lower tier agents. Figure 4.1(Right) Typical structure of local illegal bookmaker agent network

As these agent networks are completely underground, it is difficult to know how extensive their operations are. Nearly anyone could become an agent, such as bar owners, students, experienced bettors who want to make commissions to compensate for losses, etc. For security reasons, bettors

Lower tieragent

Main bookmaker

Mass Market Customers

(c.4% margin)

High Value Customers

(c.3% margin)

High-rollers typically get 1% rebate as they deal directly with high tier agents Lower tier

agent

Typically based locally and operated by illegal organizations, or based in Philippines

High tier agentHigh tier agent


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typically have to be introduced to agents via personal contacts. For basketball betting, local agents can easily convert existing illegal football bettors due to the personal nature of the business.

Local illegal agents work very flexibly and can facilitate any part of the betting journey of a basketball bettor. They help bettors open betting accounts, make deposits and place bets through a variety of informal channels, including WhatsApp, the hugely popular messaging app amongst HK mobile users.

Local illegal bookmakers have also started to leverage technology to explore alternative channels to recruit customers. Some bookmakers operate their own websites and handle non-personal account registrations, while some commission web-based agents to recruit bettors online.

Payment

Payment to local illegal bookmakers is flexible as it is conducted through agents. Focus group respondents reported face-to-face payment as the most common way as they personally know the agent and it is most immediate. Alternatively, bank payment or cheques are also accepted and it is difficult for banks to monitor these payments. Novel web-based agents also accept 3rd party payment platforms or credit cards.

Betting platform

Once registration is completed with agents, a set of username, password and website link are given to the basketball bettors. Bettors can access the betting platforms through desktop website, mobile website or even mobile apps. Many of these websites operate multiple domain names to make tracing and blocking difficult. A popular means of betting reported in focus groups is to contact the agent through personal communication tools including phone-call, SMS, or instant messaging apps.

Figure 4.2 Screenshot of online and mobile betting platforms of local bookmaker

Huangguan

Figure 4.3 Screenshot of online betting platform of local illegal bookmaker SBOBet


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Retention

To retain bettors, credit lines are commonly extended through agents after a brief background check. New bettors can receive a credit line of HKD3,000 to 5,000 and only have to settle the gains/losses at the end of the month. Rebates are also offered for substantial losses, and bettors with higher turnover are given larger credit lines.

To make sure bettors are used to basketball betting, product offerings across football and basketball sports are very similar. As mentioned by one of our industry leads, “[they] want to make sure [their] bettors know that football and basketball betting are very similar.

Figure 4.4 (Right) Screenshot of key

football vs. basketball bet types provided by

local bookmaker Huangguan

Football bet types: HAD, Asian Handicap, Over/Under, Odd/even Basketball bet types: Handicap, Over/Under, Odd/even

4.1.2. Offshore bookmakers Offshore bookmakers are relatively new to the market as they expanded into China / Hong Kong only through digital platforms. Globally, these offshore bookmakers are the market leaders in technological and product trends. They are often licensees in their own country and comply with relevant regulations in those geographies, but betting with them in Hong Kong is still illegal under the Gambling Ordinance.

Recruitment

With a superior offering, offshore bookmakers attract Hong Kong basketball bettors with overseas exposure to open accounts during their stay abroad for study or work:

“I opened my account when I was abroad…it is very convenient with the Chinese interface.” – early 30s, high-value bettor

These basketball bettors typically gain exposure to the bookmakers through online and offline recruitment advertisements, which are popular in UK and Australia where sports betting is a licensed activity. Some bookmakers also target the special group of overseas Chinese / Hong Kong bettors by offering Chinese betting interfaces.


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Figure 4.5 Screenshot of online ads by offshore bookmaker Bet365

Figure 4.6 Screenshot of Chinese account registration with online offshore bookmaker

Bet365

Payment

A wide range of immediate payment methods are accepted for foreign and even mainland accounts. The most convenient way for Hong Kong bettors would be a foreign credit or debit card if they own one. Alternatively, offshore bookmakers all accept a wide range of 3rd party payment platforms including Skrill, Entropay, and Paypal. Mainland China online bank transfer are also accepted by some bookmakers such as Bet365.

Betting platform

Bettors can access these offshore betting platforms with ease after an account is opened abroad. Some offshore bookmakers such as Bet365 may even allow account holders to log into their betting platform in Hong Kong directly through computers or mobile devices, without any need to use VPN.

Retention

Many offshore bookmakers are able to retain bettors using comprehensive digital offering. Some bookmakers such as Bet365 even offer a wide range of live-streamed basketball matches for in-play betting. Besides a wide range of bet types, offshore bookmakers typically provide very detailed statistics that appeal to more information-driven bettors:

“My friends use offshore bookmakers’ websites to check the statistics because they can find all they need.” – early-20s, basketball bettors

Figure 4.7 (Right) Screenshot of Bet365 in-play

betting platform

Livestreaming

Bet slip

Bet line markets


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Figure 4.8 (Right) Screenshot of basketball news section provided by offshore bookmaker Bet365 in Chinese

Figure 4.9 (Right) Screenshot of basketball database provided by offshore bookmaker Bet365

4.1.3. Macauslot Macauslot may well be the most well-known bookmaker amongst Hong Kong basketball bettors - it is one of the earliest operators for legalised football and basketball betting in Asia and has been providing basketball betting for over 10 years. While located physically in Macau, Macauslot targets Hong Kong bettors who visited Macau regularly due to its close proximity.

Bettor recruitment

It is very convenient for basketball bettors to open accounts with Macauslot, as Hong Kong residents can access and fill in the form directly online. No ID proof is required at the time of registration.

Figure 4.10 Screenshots of account registration page with Macauslot.

Hong Kong residents and complete the form in

3 minutes

Immediately after completion of form, bettors can access the betting platform

without verification


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Given Macauslot is illegal in HK, the presence of an easily accessible registration method enhances the perceived “legitimacy” of the bookmaker amongst Hong Kong basketball bettors. Some focus group respondents perceive Macauslot as a legal way also due to its longstanding history in sports betting in Asia.

“Isn’t Macauslot legal for me? It has been around for so long.” – late 30s, basketball bettor

Payment

Macauslot offers the most direct payment method for Hong Kong local basketball bettors. Hong Kong bettors are able to use a Hong Kong issued credit card to top-up the Macauslot betting account immediately. Bank transfer and cheque are also accepted. Another way reported by a focus group respondent is to travel to Macauslot branches in Macau physically to settle payment as he believed that it is the safest.

Betting platform

To place bets, Hong Kong basketball bettors can either dial the Hong Kong-based hotline or access the digital betting platform from Hong Kong.

Figure 4.11 (Below) Screenshot of Macauslot betting hotline posted on their website

Figure 4.12 (Below) Screenshot of Macauslot website betting platform

Figure 4.13 (Below) Screenshot of Macauslot mobile betting platform

Retention

In order to further retain Hong Kong basketball bettors, the customer relationship management (CRM) scheme of Macauslot has been designed to attract regular Hong Kong visitors to Macau. Macauslot has their own m-Slot card that accumulates points through placing bets. Points accumulated can be used to exchange for free ferry tickets between Hong Kong and Macau, as well as discounts at various Macau merchants.

4.1.4. Promotions to entice illegal basketball bettors Unregulated in Hong Kong, illegal and offshore bookmakers deploy aggressive promotions at various stages of the illegal basketball betting journey. The below table illustrates some of the promotions offered by different bookmakers:


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Figure 4.14 – Promotions by key bookmakers Type Examples

Account opening bonus

15% deposit bonus for new accounts (Local

illegal bookmaker)

100% bonus upon first deposit (Bet365)

Deposit rebates

3% bonus on credit card deposits

(Macauslot)

2% bonus for deposit through bank

transfer (Local bookmaker) Loss rebates

Weekly loss rebate (Web agents of local illegal bookmaker)

All-up bonus

Wager boost-up on basketball all-up bets (Bet365)


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4.2. Illegal basketball offering

4.2.1. Importance of illegal basketball offering to key bookmakers Basketball is one of the most important sports to bookmakers, especially the ones focused in Hong Kong and mainland China. Below is a table that show the prevalence of most popular sports among key basketball bookmakers to Hong Kong bettors:

Figure 4.15 – Sports offering by key bookmakers Football Basketball Tennis Baseball

Local illegals

Huangguan

Yongligao

SBOBet

IBCBet

Offshore Bet365

Ladbrokes

Macau Macauslot

Indicative penetration amongst 7 key bookmakers

7 out of 7 (100%)

7 out of 7 (100%)

4 out of 7 (57%)

4 out of 7 (57%)

For bookmakers who offer a wide range of sports for betting, basketball is often located at a prominent position of their betting menu, thus reflecting its prominence to bettors:

Figure 4.16 (Below) Screenshot of betting menu for local illegal bookmaker SBOBet

Figure 4.17 (Below) Screenshot of betting menu for offshore

bookmaker Bet365

4.2.2. League coverage Illegal / offshore bookmakers cover a variety of basketball leagues around the world spread across multiple continents and taking place at different hours. Within just the major leagues, there are over 9,000 matches possible for betting round-the-clock, 365 days a year.


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Figure 4.18– Primary basketball leagues1 covered by key bookmakers* Match by region and typical time Local illegals Offshore Macau # of games

every year

8AM-2PM (Americas)

NBA 1,200+

NCAA2 5,000+

WNBA 250+

8PM-4AM (Europe and Middle East)

Euroleague 100+

France Pro A 200+

Spanish ACB 300+

Italy 200+

Poland 200+

Greece 150+ VTB (East Europe) 200+

Israel 150+

10AM-8PM (Asia-Pacific)

China 350+

South Korea 250+

Australia 100+

Total # of matches that could be offered: 9,000+ 1Offered by at least 2of the following bookmakers: Huangguan, Yongligao, SBOBet, IBCBet, Bet265, Ladbrokes, Macauslot 2NCAA Division I only *Indicative, counting regular seasons based on number of teams and number of games played in regular season only

In particular, offshore bookmakers are much more comprehensive in their league / match offerings. Bet365 was even found to offer matches from Hong Kong basketball leagues, further indicating that local basketball interest is spurring demand for betting.


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4.2.3. Bet type offering While most bookmakers offer a limited range of basketball bet types, some bookmakers offer over 60 pre-match bet types for a single NBA match. In contrast, legal football betting in Hong Kong, with less than 30 bet types, is dwarfed by basketball betting offerings. Below is a table that summarises bet types offered by key bookmakers:

Figure 4.19 – Pre-match bet type offered by key bookmakers # of bets for each bet type category Local illegals Offshore Macau

Huangguan SBOBet Bet365 Macauslot

Winning line / double results 0 0 2 2

Handicap 7 6 1 2

Over / under 7 18 1 4

Odd / even 6 18 3 1 Others - Winning margin - 3-points - First / last to score - Highest scoring quarter - Rebounds / steals / freethrows - Specials

3 22 7 1

Total 23 64 14 10 When comparing the above bet type offerings to football betting, there is significant overlap and similarities. This finding supports what local illegal bookmakers have said in attracting crossover bettors from football.

4.2.4. Bet line offering Most illegal / offshore bookmakers offer only a couple of lines that give similar odds across both sides to hedge their exposure effectively. However, offshore bookmakers can offer over 30 bet lines for popular bet types, making for a total of over 100 bet lines within a single match.

Figure 4.20– # of bet lines for key bet types offered by key bookmakers

# of bets for each bet type category

Local illegals Offshore Macau

Huangguan SBOBet Bet365 Macauslot

Full time handicap 3 3 33 1

Full time over / under 3 2 32 1


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5. SCOPE OF ILLEGAL BASKETBALL BETTING IN HONG KONG

5.1. The illegal basketball betting market in 2015 To gauge the scope of the problem of illegal basketball betting in Hong Kong, an understanding of the total market size and composition is needed. Based on fieldwork results and key assumptions derived from bookmaker and industry expert interviews, the Research Team has projected the potential size of the market in the section below.

5.1.1. Market composition Industry interviews found that industry experts segment the market by wagered amount of bettors. Similar to the gaming industry at large, the basketball betting market is highly driven by high value bettors. In this study, the market is segmented into two groups - mass bettor and high value bettors. High value bettors constitute a small proportion of the total betting population, but contribute the large majority of the wagered amount and gross margins:

“We split our customers by wagered amount, and give those who bet more better margins and rebates” - Local illegal bookmaker

“In the UK, high value bettors are typically 20-30% of the market, and easily contribute 80% of margins.” - UK industry expert

5.1.2. Illegal basketball betting margins Interviews with local illegal bookmakers found that typical margins for mass basketball bettors is c.4%, with up to 1% rebate for high value bettors due to much larger bet sizes. Industry experts indicate that offshore bookmakers in legal markets such as Macau typically have higher margins, at c.7-8%. However, due to the illegality of basketball betting in Hong Kong, a conservative low-end estimate of 4% for mass bettors and 3% for high value bettor is assumed in this market projection.

5.1.3. Mass segment projection of illegal basketball betting Bettor population:

Based on census data (Census and Statistics Department, 2015) and the surveyed incidence rate, there is a projected 24,911 male basketball bettors in Hong Kong.

Figure 5.1Projection of mass illegal basketball bettor population Hong Kong general male population aged 15+ (mid-2014) 2,929,900

Surveyed incidence for basketball betting 0.9%

Projected population of mass segment bettors 24,911

Wagered amount:

Average annual wagered amount among surveyed mass basketball bettors was HKD 52,200.


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5.1.4. High value segment projection of illegal basketball betting Bettor population:

Based on industry expert and bookmaker interviews, high value bettors are assumed to contribute around 25-30% of the total illegal basketball betting population:

“There are 25-30% of customers who bet much more than the ordinary illegal bettors you can come across” – Local illegal bookmaker

Extrapolating with this assumption gives c.8,000 to 11,000 high value basketball bettors in Hong Kong.

Figure 5.2 Projection of high-value illegal basketball bettor population High case Low case a) Mass segment basketball bettors 24,911 24,911 b) Expected population contribution of mass 70% 75% c) = 100% - (b)

Expected population contribution of high value 30% 25%

d) = (a) / (b) * (c) Projected population for high value basketball bettors 10,676 8,304

Wagered amount:

Based on interviews with local illegal bookmakers, high value share of total basketball betting margins is estimated to be around 90-95%. Applying this ratio to the projected size of the mass segment, and assuming 3% margin for high value bettors, the average annual wagered amount among high value bettors was approximated to be HKD 3.6 million. This figure was then cross-checked with and confirmed in interviews with high value bettors.

Figure 5.3 Estimated wagered amount of high-value illegal basketball bettors High case Low case e) Mass segment total gross margins HKD0.06b f) Expected margin contribution of mass 5% 10% g) = 100% - (g)

Expected margin contribution of high value 95% 90%

h) High-value margin rate 3% i) = (e) / (f) * (g) / (h)/ (d)

Projected wager amount per high value basketball bettor 3.6m 2.9m

5.1.5. Total market size projection of illegal basketball Based on the projections above, the total illegal basketball betting market in Hong Kong is estimated to have 33-36k Hong Kong males aged 15+ accounting for c.HKD 0.9-1.2 billion in gross margins per year. High-value bettors account for c.25-30% of the total bettor population, but c.90-95% of total losses. A summary of the market size projection is presented in the following table:


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Figure 5.4 Summary of illegal basketball market size estimation and methodology

Estimated # Methodology

Mass

Population c.25k Extrapolation of mass survey prevalence rate of 0.9% onto population of Hong Kong males aged 15+ from government statistics

Wagered amount HKD 52k Declared results from mass survey

Margins c.4% Margins as indicated from in-depth bookmaker interviews

High value

Population 8-11k Best estimate from benchmarking global industry experts and triangulated with local illegal bookmaker estimations

Wagered amount HKD 2.9–3.6m Estimated from direct interviews with high value bettor

interviews and local illegal bookmakers

Margins c.3% From interviews, c.1% margin is typically offered to attract high value bettors that is credited to their account

Total market

Population c.33-36k

Sum of mass and high value segments1 Wagered amount HKD 31-40b

Margins HKD 0.9-1.2b

1 Using high-end estimate of High Value wagered amount

5.1.6. Market share by bookmaker type Based on industry interviews, it is estimated that local illegal bookmakers capture more than half of the illegal basketball gambling losses in Hong Kong. The large share of local illegals and offshore bookmakers is driven by the presence of high value bettors attracted to their low margins and bet offerings.


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Figure 5.5 Market share of key bookmaker types Bookmaker Estimated share Rationale

Local illegals ~65% Local illegals capture significant portion of the mass market leveraged by its strong network of agents (survey)

High-value bettors use either local illegals or offshore bookmakers for basketball betting (interviews) Offshore ~30%

Macauslot ~5%

Macauslot gross margin for basketball betting at HKD134m in 2014 (Official figures)

At least 50% of Macauslot’s business come from Hong Kong (Industry interviews)

Significant % of survey respondents use Macauslot

More detailed methodology for estimating Macauslot’s market share is presented in the following table:

Figure 5.6 Estimation of Macauslot market share of illegal basketball betting

Source

j) Macauslot total gross margins in 2014 HKD 134m Official figures

k) Estimated contribution of HK bettors c.50% Industry experts

l) = (j)*(k) Estimated Macauslot gross margins contributed by HK bettors

c. HKD67m Calculation

m) = (l) / HKD 1.2b Macauslot market share ~5% Calculation

5.2. Key drivers of illegal basketball market growth At up to HKD 1.2 billion in losses, the illegal basketball betting market in Hong Kong is sizeable and should not be neglected. Moreover, there are strong reasons to believe that the market will continue to grow rapidly in the next 2-5 years, driven by a host of factors outlined below.

5.2.1. Surge of basketball betting interest in Hong Kong Popularity of NBA

An indicator of growing interest in basketball is advertising spend on basketball-related topics. From 2013 to 2014, advertising spend in Hong Kong on basketball-related topics grew from HKD 14.4m to 35.6m, representing a 147% increase. To put the figures into context, basketball advertising spend on TV was 1.3 times that football in 2013. Growth in advertising spending likely reflects growing interest among consumers in basketball, as well as industry belief that there is untapped potential for the basketball sport in the market.

Figure 5.7 Total basketball-related advertising spend in Hong Kong, 2013-14


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m HKD 2013 2014

Television 8.7 20.8

Magazines 0.9 6.4

Newspaper 2.0 3.8

Others 0.2 1.9

MTR 2.3 1.8

Interactive 0.3 0.9

Total 14.4 35.6 Source: Third-party media agency

Hong Kong basketball fans have experienced a closer link with NBA in recent years. There are more ethnically Chinese basketball players in the tournament. The emergence of Yao Ming in the early 2000s and more recently Jeremy Lin have contributed to a surge in popularity of NBA across Greater China.

In addition, star NBA players visit Hong Kong from time to time to promote themselves. For instance, LeBron James, a 4-time NBA Most Valuable Player winner, visited Hong Kong in July 2014 to attend fans events and played basketball with Hong Kong children.

Figure 5.8 Screenshot of Time Magazine's cover for Jeremy Lin. Lin was awarded Time’s “100 Most

Influential People in the World” in 2012

Figure 5.9 Photo of LeBron James playing basketball with children in Hong Kong in 2014

NBA business expansion in Asia and China

Given that the NBA is by far the most popular league for basketball betting, the NBA’s active development of Asian markets - including China – will play a key role in driving the growth of the Hong Kong illegal basketball betting market. China is a key market for the NBA, and the league has aggressive expansion plans including licensing and marketing deals, digital partnerships, and a 130,000 sq. ft. NBA centre in Beijing designed to the NBA brand (Sin, 2014).


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Recently, the NBA signed a deal that would be make Tencent the league’s Exclusive Official Digital Partner in China, effective from Jul 15. This expansive partnership will grant Tencent exclusive rights of developing NBA-related interactive digital content, as well as to operate the league’s official broadcast subscription, NBA League Pass (NBA, 2015). Given that WeChat is the second most popular social networking app on both the Google Play and Apple App Store rankings, this partnership has the potential to greatly accelerate the penetration of NBA content in Hong Kong.

Figure 5.10 Digital content to be provided under NBA-Tencent agreement

Live broadcast of NBA games – Developing and launching Chinese NBA League Pass

Enhanced NBA programmes- Self-producing NBA-featured programs

Fan communities – Establishing fan communities through Chinese social media platforms

Interactive gaming- Developing official Chinese NBA game apps

Continued growth of the sport in the region is expected, and an increased offering in Chinese-language will continue to drive growth in interest and participation by Hong Kong basketball fans, particularly within the younger generation.

5.2.2. Accessibility to illegal / offshore betting platforms Growth of mobile internet usage and infrastructure gains from improved bandwidth will further make mobile betting more accessible and convenient. Increased betting convenience facilitated by betting apps will continue to drive the illegal betting market.

According to data from Our Mobile Planet, a survey conducted by Google, smartphone penetration in Hong Kong increased from 35% to 63% from 2011 to 2013, which represents a 79% increase in two years (Google, 2013).


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Unlike iOS, Apple’s mobile operating system, open-source mobile operating systems such as Android have relatively weak monitoring procedures, allowing betting apps to be freely downloaded in Hong Kong, even though all forms of betting with non-authorised operators are illegal. Android’s market share has increased in recent years, growing from 58% to 71% from2012 to 2014 (StatCounter Global Stats, 2015). This means that more people will be able to access illegal and offshore betting platforms readily.

Evolution of telecom technology from 2.5/3G networks to 4G has increased mobile internet speeds to improve high-definition streaming and live in-play betting experiences. TeleGeography. a telecommunication consultancy, reported that the number of 4G LTE subscribers in Hong Kong increased by 1.8 times from c.800k in 2012 to 2.2m in 2013, demonstrating both substantial growth and further room to expand (Telegeography, 2014).

5.2.3. Faster 3rd party payment / e-currency As detailed in Section 4, a variety of payment and deposit methods are offered by illegal/offshore bookmakers, including e-payments systems like Skrill, and online payment via credit cards. Moreover, alternative payment methods that have emerged in recent years are able to provide additional layer of obscurity to gambling transactions online.

In the past, banks and credit card operators were the only means to pay for betting activities. However, users’ bank accounts and financial detailed are shared with merchant, creating additional risk. Moreover, banks and credit card operators can block payments when they detect suspected gambling transactions.

Today, bettor have access to e-wallet systems such as Paypal and Skrill essentially function like virtual Octopus cards. As bettors deposit through an e-wallet, bookmakers do not know the financial information of bettors. Banks and credit card are unable to track the money flow after it is transferred into bettors’ e-wallets. Emergence of e-wallet and its kind has made financial blockage to illegal basketball bookmakers more and more difficult.

According to a report by Worldpay, the contribution of e-wallet is expected to rise from 35% in 2012 to 43% in 2015 for all alternative payments with gambling/gaming merchants (2012). This reflects an ongoing need for bettors to have a private and safe payment channel and at the same time an increasing difficulty for enforcers and financial institutions to track flow of money.

In the future, peer-to-peer payments will be the leading trend in mobile payment, where users can directly transfer money to each other anytime, anywhere. Already, popular social networking apps Facebook messenger and WeChat have introduced payment platforms within their app interfaces, allowing users to transfer money to each other and make purchases without leaving the app (Constine, 2015). As mobile payment becomes integrated into digital social networks, the transfer of money for illegal betting will become even more difficult to track and regulate.


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Figure 5.11 Screenshot Facebook messenger payment interface

Figure 5.12 Screenshot of WeChat Lucky Money campaign interface

5.2.4. Threat from Macau Macau’s aggressive development as Asia’s top gaming and sports enjoyment destination in recent years will fuel growth of basketball betting among Hong Kong bettors, who currently do not have access to a legal channel in Hong Kong. Completion of the Hong Kong-Macau-Zhuhai Bridge by 2016 will vastly reduce travel time between Hong Kong and Macau to 20 minutes via car, compared to the hour-long ferry trip required today. The opening of the bridge is also expected to greatly increase the number of Hong Kong visitors to Macau, and over 20,000 cars have already applied for a permit (TimeOut HK, 2014).

At the same time, Macau has followed the Las Vegas model and shifted its growth focus in recent years to build large-scale non-gaming entertainment facilities to attract more visitors to the city. Galaxy Macau resort plans to spend a reported HK57 billion to build a New York Broadway-style theatre with a 3,000 seating venue in order to attract more families to the resort (Mao & Chan, 2015). A series of similar projects have also been announced by other casino operators, such as Melco Crown Entertainment Ltd’s plans to open a family entertainment centre complete with a Batman ride in cooperation with Time Warner Inc.

Sports betting could also be a key development opportunity for Macau. Since 2010, the gross margin contribution of VIP baccarat to overall games of fortune in Macau has dropped from 72% in 2010 to 60% in 2014, indicating a gradual strategic shift away from high-rollers (Gaming Inspection, and Coordination Bureau, 2015). Macau casinos thus have a large incentive to integrate non-gaming elements into their entertainment portfolios in order to sustain business growth.

Macau could again follow Las Vegas’ example in offering sportsbooks in casinos, which offer dedicated spaces where fans can view live matches and place bets. Macau already hosts major sporting events such as the Macau Grand Prix and Clash in Cotai boxing fight nights. However, these sporting events are largely disconnected from betting. In contrast, the Mayweather-Pacquiao fight in May 2015 was expected to have drawn at least USD 50 million in wagers for Las Vegas sportsbooks (Matuszewski, 2015), revealing large potentials in opening up sportsbook products to vast number of gamblers.


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Figure 5.13 Photo of sportsbook venue in Las Vegas Hotel and Casinos

The threat from Macau could be even more imminent if Macau liberalises its sports betting market, breaking Macauslot’s monopoly on the business. Various groups have pressed for reforms in the sports betting landscape in Macau in recent years. In late 2012, the chairman of the British Business Association in Macau (BBAM) called for deregulation of sports betting in the city, stating that “if the Macau government opens up its market, you can see many big British companies coming here.” (Choi, 2012) More recently, Jorge Godinho, a professor specialising in gaming law, has pressed for the end of the monopoly on sports betting, as “all casinos should be able to have a sports book like in Las Vegas”. The need for change has never been more pressing “at a time when there is concern about the slowing revenue of games of chance”, meaning that “sports betting seems to be the obvious easy way to raise additional revenue”(Godinho, 2015). Indeed, the one-year extension terms to the monopoly license offered by Macau authorities could suggest potential willingness to “open up the [sports betting] sector to competition” (Macau Business, 2011).

5.2.5. Risk exposure amongst Hong Kong youngsters As survey results indicate, basketball bettors are more likely to have experience residing abroad before, where they picked up basketball as an interest and subsequently began betting on it.

There has been ongoing steady increase in overseas enrolment from Hong Kong students. Both higher education enrolment figures of Hong Kong students in UK and Australia have been increasing at 12% between 2011 and 2014. HK students receiving higher education in the UK has shown 12% growth per year from c.10,000 students in 2010/11 to c.15,000 students in 2013/14 (Higher Education Statistics Agency, 2015). This is similar to Australia’s higher education of c.12% growth per year from c.5,000 students in 2010/11 to c.7,000 students in 2013/14 (Department of Education and Training, 2015). There are already 17,000 Hong Kong students studying in these two countries in total.

This trend will likely continue to grow and serve as a potential driver for illegal basketball betting as those who pick up the habit abroad bring it home to Hong Kong.


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5.3. Future risk

5.3.1. Global basketball betting markets Basketball betting has seen rapid growth globally. Basketball betting turnover in Nevada has risen from USD 830m in 2010 to USD 1,109m in 2014 at a CAGR of +8% p.a. In France, basketball betting turnover has grown at an exponential rate of 49% p.a. from EUR 22m in 2010 to EUR 110m in 2014. According to ARJEL, the official gambling commission in France, the increase has been primarily driven by increasing viewership for NBA (Autorité de régulation des jeux en ligne (ARJEL), 2014). Basketball lottery was launched in 2009 in China, and has experienced 34% annual growth from 2012-14. In New Zealand, basketball betting was the most popular sports for betting due to the offering of NBA live streaming by the sports betting operator.

Figure 5.14 Evolution of basketball betting market overseas Annual turnover 2010 2012 2014 CAGR

Nevada, US (m USD) 830 975 1,109 8%

France (m EUR) 22 55 110 49% Source: ARJEL, France; Centre for Gaming Research, University of Nevada, Las Vegas

Annual turnover 2012 2013 2014 CAGR

China (m RMB) 2,129 2,657 3,824 34%

New Zealand (m NZD) n/a 47 57 22% Source: China Sports Lottery; New Zealand Racing Board

5.3.2. Situation of Macau Given the close proximity of the two special administrative regions and the important role of Macau in Hong Kong people’s participation in gaming activities, growth of the Macau basketball betting market can be used as a proxy for the growth rate of the Hong Kong illegal basketball market. As the table below shows, the compound average growth rate (CAGR) of the Macau market was 15% from 2010-2014, meaning that it grew at an average rate of 15% per year in gross margin.

Figure 5.15 Evolution of Macau basketball betting market, 2010-2014 m HKD 2010 2011 2012 2013 2014 CAGR

Turnover 922 999 1,641 1,757 2,017 22%

Gross margin 77 83 108 146 134 15%

Basketball size as a % of football (in margins) 20% 23% 26% 35% 22% - Source: Gaming, Inspection and Coordination Bureau, Macau SAR

5.3.3. Hong Kong illegal basketball betting market projection To estimate the future trend of the illegal basketball betting market in Hong Kong, the historic growth rate of Macauslot is applied to the 2015 market size. The following table lists the key assumptions used in projecting bettor population and average spending (gross margin):


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Figure 5.16 Summary of illegal basketball market size projection methodology

Estimated

CAGR Rationale

Total gross margin +15.0% p.a. Assumed to follow Macauslot P5Y performance

Of which:

Population +9.5% p.a.

Population growth (+1% based on HKSAR Government statistics)

Increased accessibility and interest to basketball betting (Assumed +8.5% with reference to trends detailed previously) o Popularity of NBA o Accessibility to illegal / offshore betting platforms o Faster 3rd party payment / e-currency o Threat from Macau o Risk exposure amongst HK youngsters

Spending (gross margin)

per person +5.5% p.a.

Inflation (+4.1% based on HKSAR Government statistics) Disposable income growth (+1.4% based on HKSAR

Government statistics) Basketball betting spending growth (0%, based on focus group

indication) Bookmakers margins (0%, based on focus group indication)

At this growth rate, the illegal basketball betting market in Hong Kong is expected to reach HKD 1.7 billion in gross margins by 2017, and HKD 2.4 billion by 2020, involving c.56k bettors. If left unchecked, the problem can rapidly grow out of hand and have damaging consequences to Hong Kong society.

Figure 5.17 Projection of Hong Kong illegal basketball betting market

# pax, m HKD 2015 2016 2017 2018 2019 2020 CAGR

Today Y1 Y2 Y3 Y4 Y5 -

Population 35,587 38,968 42,670 46,723 51,162 56,022 9.5%

Gross margin (m) 1,205 1,385 1,592 1,831 2,105 2,420 15%


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6. IMPLICATIONS AND CONCLUDING REMARKS

6.1. Hong Kong illegal basketball betting market The Hong Kong illegal basketball betting market in 2015 is large and is expected to grow rapidly in the next 2-5 years. However, relative to efforts to combat illegal football betting, illegal basketball betting has largely been neglected by the government and law enforcement bodies. If left unchecked, an increasing number of young people will be exposed to illegal betting activities. As such, the Hong Kong government should reference overseas examples and develop a comprehensive strategy to combat illegal basketball betting through a three-pronged strategy of prevention of problematic gambling, enforcement against illegal betting channels, and channelling of demand to an authorised legal operator.

6.2. Framework for combating illegal basketball betting

Figure 6.1 Potential framework for combating illegal basketball betting in Hong Kong Channelling Prevention Enforcement Party responsible

Legal operator Regulator / Schools / NGOs / Legal operator(s)

Regulator / Police / Monetary bodies

Potential actions

Offer legal, competitive product and service

Conduct regular research on illegal basketball betting to help public understand its scope and trend

Crackdown on illegal operators

Arrest illegal bettors

Enforce responsible gambling measures

Raise awareness especially among youngster and high risk group

Combat cross-border illegal activities

Channel profits back to community via betting duties and charity

Treat pathological gamblers and at-risk youth

Block access to illegal / offshore betting websites / mobile apps

In the following sections, the Research Team will assess the degree to which Hong Kong has successfully implemented these measures, and set forth recommendations for combatting illegal basketball betting in Hong Kong.

6.3. Channelling After many years of staunch opposition toward betting on professional sports, the NBA has recently stated its open support for fully legalising sports betting, as it is currently only legal in a handful of states in the US. In a New York Times op-ed article published in November 2014, NBA commissioner Adam Silver argued that sports betting should be legalised in order to channel growing demand back to legal and safe channels, writing that “[The US] Congress should…authorise betting on professional sports, subject to strict regulatory requirements and technological safeguards”. He argues that despite legal restrictions, technological advances have enabled much easier access to illegal betting channels, and “those who wish to bet resort to illicit bookmaking operations and


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shady offshore websites.” Moreover, the increasing interest in betting among basketball fans cannot be ignored, as “there is an obvious appetite among sports fans for a safe and legal way to wager on a professional sporting event” (Silver, 2014).

Indeed, many developed countries have already established legal channels for basketball betting:

Figure 6.2 Legal sports betting offering in selected countries in the world

Country /

region Legal betting channel for:

Football Basketball Racing Other sports

Asia Pacific

China

Hong Kong

Macau

Taiwan

Korea

Australia

Europe

UK

France

Germany

Spain

Italy

North America

US1

Canada 1: Sports betting (except racing) is only available in Delaware, Montana, Nevada and Ohio

Hong Kong could also consider channelling basketball betting demand away from illegal operators via a legal channel. The Home Affairs Bureau formulates and monitors gambling policy in Hong Kong, and the current policy direction of the bureau is “to restrict gambling opportunities to a limited number of authorised and regulated outlets” (Home Affairs Bureau, 2015). As such, all forms of gambling (except mah-jong parlours) operate on a non-profit and non-commercial basis with a charitable element – the Hong Kong Jockey Club operates the Mark Six lottery, horseracing betting and football betting in Hong Kong. All proceeds are either contributed to the government in the form of betting duties, or dedicated to charitable causes.

If properly monitored and regulated, an authorised legal operator can effectively divert profits away from criminal organisations back to the government in the form of betting duties. Mandated charitable contributions from the legal operator will also add to funding for societal causes. Furthermore, strict access requirements and account opening procedures that can be easily enforced can help to prevent underage gambling.


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6.3.1. Demand channelled back by legal channel 97% of basketball bettors surveyed indicated that they would “likely” or “definitely” consider betting through a legal channel if one should become available.

High-value bettors interviewed also indicated similar willingness, citing that “[they] would definitely bet with a legal channel if [they] had the choice, but right now there isn’t any.”

Figure 6.3 Legal channel purchase intention Number (%) of respondents Basketball bettors

118

Definitely 75 (64%)

Likely 39 (33%)

Unlikely 4 (3%)

Definitely not 0 (0%)

6.3.2. Estimated uncaptured tax revenues In addition to having negative societal impact, illegal basketball betting also results in economic losses in the form of uncaptured tax revenues. Here the assumptions are that:

- 80% of gross margins could be channelled back (64% answering “Definitely” plus half of the 33% answering “Likely”)

- Betting duty rate for basketball would be the same as football, at 50% of gross margins

Following the 2 assumptions above, it was estimated that HKD 1.2b gross margin * 80% * 50% ~ HKD 0.5b in uncaptured taxes every year. However, a large portion of gross margins from illegal basketball betting are currently used by illegal operators to fund criminal activities.

6.4. Prevention In Hong Kong, the Ping Wo Fund is the key source of funding for gambling prevention, education, and research initiatives. The fund was established in September 2003 by the government to “fund preventive and remedial measures address gambling-related problems”. In 2012, the fund spend HKD 11 million on counselling and treatment and remedial services, HKD 2.8 million on the Ping Wo Fund Sponsorship Scheme and School Project Grants, and another HKD 3.3 million on publicity and research programs (Yau, 2013). Despite total annual expenditures amounting to over HKD 16 million, however, little research and prevention has been done on illegal basketball betting in Hong Kong.

Since the regularly commissioned report Study on Hong Kong People’s Participation in Gambling Activities does not measure the specific prevalence of illegal sports betting outside of football and horseracing, the problem of illegal basketball betting in Hong Kong is not well understood. Thus, stakeholders have had little idea of the scale and scope of illegal basketball betting. Further and regular research will be needed to assess and develop a strategy to address the problem.


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In addition, current gambling prevention campaigns in Hong Kong mainly centre on football betting, with little awareness on the risks associated with basketball betting. Launching dedicated education and publicity campaigns to prevent illegal betting can help to educate the public and raise awareness on the issue. For example, Singapore’s National Crime Prevention Council launched a Red Card “anti-illegal” betting campaign specifically targeting illegal betting.

Figure 6.4 Screenshot of anti-illegal betting campaign in Singapore

6.5. Enforcement A review of media clippings on anti-illegal gambling law enforcement efforts reveals that while the police conducts regular raids on illegal bookmakers, most major operations centre on major football events such as World Cup, with no targeted approach for major basketball events such as the NBA finals.

Based on results from Wisenews, a news archiving database online, there were 80 articles on major local newspaper that reported police’s crackdown of illegal football betting activity during the World cup period of June to July 2014. In contrast, there was no news at all relating to the crackdown of illegal basketball betting activity throughout the year.

Figure 6.5 Methodology of news search on crackdown of illegal football betting activity

Local newspapers covered

9 major local Chinese newspapers (Apple Daily, Hong Kong Economic Journal, Hong Kong Economic Times, Ming Pao Daily News, Oriental Daily News, Sing Pao, Sing Tao Daily, The Sun, Wen Wei Po

Timeframe 1 June 2014 to 31 July 2014

# of news articles featuring Hong Kong Police Force’s effort in crackdown of illegal football betting activity

80

Methodology

Search engine: Wisenews; Keywords used: “World Cup”, “illegal betting”, “police”; Results returned form search engines were judged by researchers on relevance of articles

Targeting basketball betting as well can send a strong message that no form of illegal sports betting is tolerated in Hong Kong.


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Figure 6.6 Media clippings on police operations against illegal betting targeting World Cup

Oriental Daily, June 2014

South China Morning Post, June 2014

Police press release, July 2014

The police should continue to cooperate with other jurisdictions in order to conduct large-scale cross-border anti-illegal bookmaking operations, targeting major matches in basketball just as it has done in football. Moreover, law enforcement authorities should actively regulate online sports betting and enforce geo-restrictions on offshore betting websites in order to prevent bettors from accessing these betting channels.

6.6. Conclusion Through extensive qualitative and quantitative fieldwork, this study has found that the illegal basketball betting problem in Hong Kong has been historically underestimated, and has high potential to grow rapidly if left unchecked. As the technological barriers to illegal online betting fall and basketball interest gains momentum in Hong Kong and the Asia-Pacific region, more and more basketball fans will be exposed to basketball betting channels and related information. In light of the information presented in this study, the Hong Kong government must now weigh the various policy options to best combat the problem of illegal basketball betting, lest it continues to worsen.


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Report on Illegal Basketball Betting in Hong Kong - A market that should not exist