Horse racing – the estranged son of betting in Macau 
Insight provided by Pedro Cortés, Managing Partner at Rato, Ling, Lei & Cortés – Advogados

I
ntroduction
Horse racing in Macau dates back to the 17th century. The first hippodrome was located at what is now the Leal SenadoSquare. It was only built for festive occasions or important eventsas weddings and other celebrations of the crème de la crème of Macau.

In the 19th century, horse races were also held regularly in a hippodrome located where Macau Electricity Company is based.
 These races lasted until the establishment of Hong Kong and the creation of Hong Kong Jockey Club in the second half of the century. 

It was not until 1927 that activities resumed, until 1941 when the Pacific War hit Macau, with a small number of races thereafter.

In 1977, harness racing was authorized by Decree-Law No. 28/77/M, which awarded harness racing operations to a concessionaire through a concession contract and allowed the system of pari-mutuel and lotteries.

T
he activity was not profitable, and racing ceased in 1988. With the takeover of the concessionaire by a Taiwanese group, racing resumed on December 10, 1989. Due to financial difficulties, Macau Horse Racing Company Limited was taken over by a consortium led by Dr. Stanley Ho and STDM, which resumed operations in 1991.

Overview

The specific sector of horse racing in the Macau Special Administrative Region has been since 1991 insignificant in terms of gross gaming revenue (GGR). It accounted for only MOP 60 million (USD 6.25 million) in 2020 and MOP 28million (USD 3.5 million) for the first half of 2021.


Nonetheless, 
if we consider the handle, the amounts were more significant: MOP 252 million (USD 31.5 million) in 2020 and MOP 138 million (USD 17.6 million) for the first half of 2021.



Legislative framework
Under Law 16/2001 (Gaming Law), four types of gambling are permitted in Macau:
  • games of fortune and chance – those in which the result is contingent exclusively or mainly on the luck of the player;
  • pari-mutuel – a system of betting on animal racing or a sporting event in which the winners split the total amount bet, after deducting commissions, fees, and taxes, in proportion to the amount individually wagered;
  • operations offered to the public (lotteries) – those in which the hope of winning depends solely on the luck of the player who buys the ticket; and
  • interactive gaming – games of chance in which a prize in cash or other value is offered or may be won under the respective rules.
Operating these gaming activities is the absolute reserve of the state (or, in the case of Macau, the Special Administrative Region). Gambling operations by any other entities are subject to the prior grant of a concession.

Such is the case with horse-racing
 where it provides for a concession awarded to only one company, Macau Horse Racing Company Limited (formerly Macau Trotting Company, Limited), which has the exclusive right to operate horse racing. 

The concession commenced on 2 September 1978 and has been renewed and amended on a number of occasions since then. The most recent renewal was in 2018 for a period of twenty-four years and six months until 2042. 

The concession 
contract states that the object of the concession is the operation of horse racing and the types of pari-mutuel betting and lotteries based on the results of the races. 

T
ypes of pari-mutuel betting and the races are governed by regulations approved by the Government on the proposal of the concessionaire. The current regulations are similar to those in the international horse racing industry. 

The concession contract specifies two important types of financial obligations: the payment of the annual rent and taxes on the turnover. 

The a
nnual rent is currently MOP 15 million (USD 1.875 million), and the taxes are based on the turnover with progressive rates:

Annual betting turnover (million MOP)

From

Up to

Tax (%)

Accumulated (rent plus tax – million MOP)

2,500

3,000

0.5

17.5

3,000

3,500

1

22.5

3,500

4,000

1.5

30

4,000

4,500

2

40

Over 4,500

 

2.5

 


Under the Decree-Law no. 28/77/M, the concessionaire was granted with tax exemptions – for the direct operations of the horse racing – on complementary profit taxes and any other taxes and contributions, except stamp duty.
 
No taxes are levied on the pari-mutuel prizes under the concession contract. 

The concessionaire is entitled to deduct a commission of 19% - for the winner, place
, and quinella – and of 22% in relation to the other types of bets from the turnover of bets, being the remaining meant for prizes. 

This commission
 shall cover the amounts due to the Macau Special Administrative Region and operational expenses. 

Concession contract
After several extensions since the first contract was signed with terms that varied in length– on 18 March 2018, the Macau Government decided to extend the concession for twenty-four years and six months, ending on 31 August 2042. 

Some conditions were imposed on the concessionaire 
Macau Horse Race Company Limited – including the mandatory increase of the share capital up to MOP 1.5 billion (USD 187.25 million), stating in the contract milestones for such raise until 31 December 2023.

The non-compliance with this obligation will lead to the suspension or the termination o
f the exclusive concession. 

On 31 December 2018, new obligations and deadlines for completion were imposed on the horse racing concessionaire to comply with the Investment Plan that it has submitted to the Government. Such 
commitments include the renovation of the equine swimming pool, stables, central building, stands, tote board, and tracks (turf and sand). 

There are other ancillary obligations which include the construction of hotels and tennis courts, shopping mall, offices and parking, theme park and riding school, as well as other surrounding public areas access. The non-compliance 
with the deadlines by the concessionaire constitutes a violation of the concession under penalty of suspension or termination imposed.

Comment
Although horse racing has never been a popular activity in Macau, especially when compared to the great success that the Hong Kong Jockey Club represents not only in terms of revenue but also as a tourist attraction, the fact is that the concessionaire of horse racing in Macau has a significant asset to expand gambling activities - which are almost exclusively based on casino gambling - and, more importantly, tourism diversification.

T
he site where the activities will take place is close to the Cotai tourism and entertainment hub, where the integrated resorts are located, which could make this activity complementary to the casino offering.

This could be a new experience for tourists coming to Macau, 
in line with other countries the most significant events draw crowds and turn over billions of dollarsas well as for Macau residents, who could have, for instance, a riding school and theme park by 2025. 

T
radition and cultural and social roots are crucial in horse racing to attract fans, but it is also possible to develop new practices. Macau, the world capital in terms of gambling revenue from a single jurisdiction, can use the resources it has for this purpose.