1. Timothy McNally, Executive Director, Security, Hong Kong Jockey Club Online Gaming - Implications for Regulators

2. 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

3. 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

4. Betting Operations 848,000 Telebet accounts in Hong Kong 93,000 Customer Input Terminals Mobile betting Two way terminals Internet betting coming soon

5. 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

6. 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)

7. Challenges Illegal bookmaking Offshore operators Illegal soccer gambling Internet gambling

8. Common characteristics of challenges Pay no local taxes No contribution to charities No government regulation Illegal in HK

9. 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

10. 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

11. 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

12. 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)

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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)

20. 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."

21. 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

22. 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

23. Target: Internet Asia Ladbrokes Cantonese service accounts for one third of online service turnover Victor Chandler trying recruit Cantonese speakers Far East punters targeted

24. 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

25. 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.

26. 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?

27. 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

28. Questions?