Timothy McNally,Executive Director, Security,

Hong Kong Jockey ClubOnline Gaming -

Implications for Regulators

Hong Kong Jockey Club

• Sole provider of horse racing and legal betting in Hong Kong

• Management of the Mark Six for the Hong Kong Lottery Commission

• Largest tax payer in Hong Kong

• Largest charitable donor in Hong Kong

Hong Kong Jockey Club• Non-profit charitable trust• Betting turnover of over

HK$83 billion (US$10 billion) in 99/00

• Tax payment of over HK$11 billion (US$1 billion) in 99/00

• Charity contribution of over HK$1.8 billion (US$120 million) in 99/00

• Total staff of almost 20,000

Betting Operations• 848,000 Telebet accou

nts in Hong Kong• 93,000 Customer Inpu

t Terminals• Mobile betting• Two way terminals• Internet betting comin

g soon

Why the Monopoly in HK?

• PREVENTS:• Corruption• Organised crime

involvement– Loan sharking

– Money laundering

– Race fixing

• BENEFITS:• Ensure government

tax revenue• Ensure contribution

for charity - HK model• Reduce community

cost

Government decision to control gaming

Challenges to Revenue

• 95/96: HK$80.6 (US$10.34)• 96/97: HK$92.3 (US$11.84)• 97/98: HK$91.4 (US$11.72)• 98/99: HK$81.3 (US$10.42)• 99/00: HK$83.4 (US$10.69)• Decline in revenue after 1997

(all figures in $ billions)

Challenges

• Illegal bookmaking

• Offshore operators

• Illegal soccer gambling

• Internet gambling

Common characteristics of challenges

• Pay no local taxes

• No contribution to charities

• No government regulation

• Illegal in HK

Internet Gambling• Sites offering new

communication to existing sports gaming service (e.g. - Ladbrokes)

• Sites offering exclusive Internet gaming (e.g. - casino)

• Hundreds of sites

Internet Gaming Operators• Ladbrokes, William Hill, Darwin All-

Sports, Dr Ho.com, Easybets, etc

• Many offer offshore books on HK horse races, some in Chinese language

• Many linked to local media (SCMP, Apple Daily, etc) web sites

ALL pay NO HK tax, no contribution to HK but take HK betting dollar

Internet Gaming - Downside

• Unregulated offshore casinos– Fraud of punters– Prey on compulsive gamblers– Easy access to minors/children

• Diversion of gaming dollars without benefit to community

• Trend will increase as Internet usage grows

Geographical Jurisdiction Problems

• Favoured offshore locations – Costa Rica (80+ operations)

– Antigua (31+ Internet gambling licenses)

– Curacao, Grenada, Dominican Republic (4+ Internet gambling operations licensed)

– Netherland Antilles, Trinidad, St. Vincent, Cayman Islands (1 Internet gambling operation licensed)

Offshore Internet Gambling

• Operations licensed in tax havens

• No recognition of laws in other sovereignties

• No mutual assistance agreements to enforce law

• No effective government regulation or oversight

Enforcement Problems

• Existing gambling laws drafted decades ago

• Law should be technology neutral or will be surpassed):– Legislation tied to a particular technology may

quickly become obsolete and require further amendment.

• Global Internet surpasses legal jurisdictions

Government revenue collection & regulatory authority defeated

Four Regulatory Models• US: ban Internet gambling by residents

• Australia: allow licensing to ensure propriety

• Europe (Holland, Austria, Finland, Norway) & HK: allow licensed Internet gambling to residents only - on activities legal within their jurisdiction

• Small jurisdictions (Costa Rica, Caribbean, Gibraltar, Alderney, etc): granting Internet gambling licenses

Australia

• Interactive Gambling (Moratorium) Act 2000

• Creates criminal offence, prohibits a person from providing an interactive gambling service unless already providing before 19 May 2000; severe punitive fines for offenders

• Prohibition ceases at end of 18 May 2001

Australia

• Queensland, Victoria, Tasmania, South Australia, the ACT and NT not supporting 12-month moratorium on new forms of interactive gambling

• Some States already providing Internet gambling licenses before May 2000

• No uniform Federal and State approach

• National enquiry underway

USA• Government pressure to ban Internet

gambling

• Interstate sports betting via Internet: Federal offence (1961 Wire Act)

• State law requires legality of any gaming operation at both ends (i.e. punter & bookmaker)

• 48 of 50 States have some legalised gaming

US Prosecutions• Feb. 2000 - Jay Cohen, CEO of World

Sports Exchange in Antigua, was found guilty in NY of violating the Federal Wire Act - 21 months jail, fined US$5,000

• L.A. based youbet.com paid US$1.3 million penalties & move operations out of California (State prosecution)

Attorney General Janet Reno:

• "The Internet is not an electronic sanctuary for illegal betting. If a state outlaws soliciting or accepting bets, you can't evade those requirements by going on line."

United Kingdom

• UK home to headquarters of major established bookmakers

• Liberal regulatory framework compared to USA

• grab.com: U.S. Internet gambling site was visited by 421,000 Britons in Dec. 2000

• Legal to gamble on an Internet site situated offshore

UK Legal Position

• Gambling legislation pre-dates Internet

• New Internet betting service requires license from local licensing Magistrate

• Gaming must be in licensed premises - no Internet license possible

• Ladbrokes, Coral, Victor Chandler, in Gibraltar (British dependency)

• William Hill in Ireland & Antigua

Target: Internet Asia

• Ladbrokes Cantonese service accounts for one third of online service turnover

• Victor Chandler trying recruit Cantonese speakers

• Far East punters targeted

HK Gambling Ordinance: Proposed Amendments

• Extraterritorial: bets placed with a bookmaker overseas

• Prohibit promotion of above activity

• Prohibit knowing use of premises for promotion or facilitation of bets

• Prohibit broadcast of odds or tip via TV or radio within 12 hours of event

Way Forward• Legislative treatment of Internet gambling

must be a local government decision to conform with the authorisations, regulation & controls required by that jurisdiction.

• If activity is prohibited in the physical world but not in the virtual world, then the Internet becomes a haven for criminal activity.

HK Gambling - Way Forward

• Viability of new gambling legislation?

• Question of wagering on other sports?

• Structure of the HK betting duty? (i.e. tax on revenue or profits?)

• Public controversy over any new gambling; increased social cost?

• New government solutions?

Summary• Diversion of total funds, untaxed &

unregulated, leads to lower quality gaming service, with no community input

• Government responsibility to balance the right of individuals to entertainment choices, establish regulatory framework, ensure international legal requirements met

Betting revenue should return to the community

Questions?