Long-odds bet on a change of heart

For decades the chinese government has resisted pressure to allow gambling on horse racing

While gambling remains illegal on the Chinese mainland, Europe's largest horse-race betting operator Pari Mutuel Urbain is keeping a close eye on China's emerging equestrian industry, hoping to gain first-mover advantage once there is any sign of the ban being lifted.

The recent growing interest in equestrian sports in China has prompted Philippe Germond, chief executive of the Paris-based betting operator, to frequently travel to various Chinese cities to promote the French business model of horse-race betting in a market he believes could be worth 100 billion euros annually ($136 billion) if legalized.

"If at some point in the future the Chinese government decides to legalize betting on horse races, we can offer the French business model that may fit the expectations of the Chinese government," Germond says.

In France, about 80 percent of the funding of the horse-racing industry comes from betting revenue. The entire net profit of PMU goes to the financing of the French horse-racing industry, including breeding, training and organizing races, Germond says.

PMU, while being a private company, is managed by a committee consisting of members of the French Ministry of Agriculture and the Ministry of Economy and Finance, which means that the business is highly controlled and regulated by the state, Germond said.

PMU is also willing to transfer to China its system of communication and information technology that manages and monitors 12,000 betting outlets across France in real time and processes billions of transactions on a yearly basis.

"What we are trying to demonstrate is that horse-race betting can be operated in a way that is highly controlled by the government with strong IT technology to ensure there is no cheating or manipulation of the races," Germond says.

There has long been speculation about China lifting the ban on horse-race betting . Local and foreign investors have already placed their bets by investing in building racetracks, training facilities and breeding horses in cities including Beijing, Shanghai, Tianjin and Wuhan, the capital of Hubei province.

Tianjin, for instance, has invested 1.4 billion yuan ($230 million) to build an Equine Culture City, an extravagant five-year project that includes 4,000 stables, a clinic, 150 offices for trainers, international-standard racetracks and a horse auction center, according to media reports.

Hohhot, capital of the Inner Mongolia autonomous region, last year held the first China Equestrian Cultural Festival, which was acclaimed as the first high-level international horse-racing event ever held in the Chinese mainland since the government legalized horseracing in 2008.

Although there is no imminent sign that Beijing will legalize betting on horse racing soon, the Chinese market will be an inevitable destination for French betting operators and horseracing organizers, which are facing decline domestically because of the economic crisis in Europe.

In 2012, PMU posted a net profit of 865 million euros, down by 1.3 percent on the previous year.

"Betting on horse races in France is a mature business so the capacity to expand with double-digit growth is no longer feasible," Germond says, adding that the current economic crisis in Europe has resulted in tightening the leisure budgets of its customers, given that the betting business is directly linked to the macroeconomic environment.

"Expanding the business outside France is our priority to maintain the growth of our activity and net profit," Germond says. Last year, PMU achieved 94 percent year-on-year international growth, which helped compensate for the slowdown at home, he says.

In 2012, PMU began to export its betting products to the United States, South Africa and Belgium, which generated an extra 112 million euros of turnover for the company, according to its financial report.

Germond says he has similar hopes for the Chinese market if the activity is legalized in the country. PMU is looking at exporting its products and services in China, which will allow Chinese punters to directly bet on French horse races in the future.

"The people of France spend more than 9 billion euros on betting on horse races a year. That's a country with only about 60 million inhabitants. You can imagine what the potential will be for a country with a population the size of China."

But Germond admits that betting on an overnight change of heart by the Chinese government on horse-race gambling remains a long shot.

Some industry experts say legalizing betting on horse races is a sensitive subject in China because the government may worry about its negative effect on social stability and financial security.

"We may benefit in the future but we understand that it is not just a business decision but also a political decision for the central government," Germond says, noting that the first step should be building a high quality international-standard equine industry in China including breeding, training and organizing races.

France Galop, the governing body that regulates flat and jump races in France and the parent company that owns PMU, has signed an agreement on the exchange of horse-race sponsorship and the export of French horses with Chinese company Desert Star Holdings Ltd, a Hong Kong-registered investment company in the equine business and the main investor in the Tianjin horse-racing project.

"It is an opportunity for us to bring our experience and knowledge to China," says Bertrand Belinguier, the president of France Galop. "The project of creating a 'horse city' in Tianjin seems extremely attractive to us."

lixiang@chinadaily.com.cn

(China Daily European Weekly 02/28/2014 page19)