HONG KONG — The 124-year-old Hong Kong Jockey Club, whose racetrack revenues are one of the secrets of the territory's economic success, is facing a decidedly modern threat: glitzy casinos being built by Las Vegas operators in nearby Macau.

The new competitors are draining away at least $2.4 billion a year in potential betting revenue, or about 20 percent of last year's take, estimates the club's Chief Executive Officer Winfried Engelbrecht-Bresges.

"Our customers are definitely their prime targets," he said in an interview with The Associated Press in a club VIP room, where floor-to-ceiling windows offer a vista of fabled Happy Valley racetrack and the towering skyscrapers that encircle it.

Although the club has the monopoly on gambling in Hong Kong, it has seen its revenues squeezed by illegal bookmakers, and more recently, casino-resorts in Macau, which last year raked in more gaming revenue than the Las Vegas Strip.

"If you look at the expansion of gaming opportunities and venues in Macau, which have only just started ... it's serious money," said Engelbrecht-Bresges, a veteran racing administrator and former pro soccer player before he joined the club in 1998.

EAST-WEST BLEND

The Jockey Club, like many things in the former British colony, is a blend of west and east.

When the British arrived in the 1840s, they brought with them their love of horse racing, turning a malarial swamp into the Happy Valley racetrack. It was a big hit with Queen Victoria's Chinese subjects, and would remain so through 156 years of British rule. The return of Hong Kong to Chinese sovereignty 11 years ago hasn't changed a thing.

For Chinese, renowned for betting on anything from fighting crickets to the stock market, a night at Happy Valley is almost a rite of passage, and many are reluctant to label it gambling.

"Horse racing is a sport. It's a sport where people can use their brains," says Tony Chen, 46, leaning on the trackside railing where moments earlier 10 horses thundered past toward the finishing line.

Like many of the Chinese packing the four-tier stands that night, Chen had been studiously scanning his racing forms, circling numbers and crossing out names. He said he'd made about $250 after just four races.

RACING 'TROUBLESOME'

But it's all too complicated for people like 65-year-old Michael Lee, which is why he was at the ferry pier, headed for Macau.

"You need to study the background of the horses before placing a bet. It's so time-consuming and troublesome," he said.

"All I need to do is jump on the ferry, then I can go to different casinos and gamble in Macau. ... poker, blackjack, baccarat — you name it," he said.

Macau, the former Portuguese colony less than an hour away by high-speed ferry, now gets 40 percent of its gaming revenue from Hong Kongers like Lee, although the vast majority of gamblers are mainland China's newly wealthy, says Engelbrecht-Bresges.

Engelbrecht-Bresges said he fears the impact on his club's ability to contribute to society and to the government's coffers.

Almost since it was founded in 1884, the Jockey Club has played an unusual role in supporting the robust, low-tax capitalism that made Hong Kong rich. Last year, it paid $1.6 billion in betting taxes, or about 8 percent of the government's overall tax revenue, and donated $134.6 million to its various causes, from medical institutes to parks.

In the 1950s, after Mao Zedong's communists took power in mainland China, millions of Chinese fled into Hong Kong. The Royal Hong Kong Jockey Club — it dropped "Royal" when Hong Kong reverted to Chinese rule — played a big role in housing and financing the refugees.

The communists outlawed gambling, and Macau and Hong Kong became the only Chinese enclaves where it was permitted.

MONOPOLY BROKEN

While Hong Kong only allowed horse race betting, Macau had casinos long before it returned to Chinese rule in 1999. But until the government broke up the monopoly held by tycoon Stanley Ho six years ago, they were utilitarian affairs.

Las Vegas operators such as Steve Wynn and Sheldon Adelson have changed all that. Adelson opened the swanky Sands Macau in 2004, and followed up last August with the Venetian, a $2.4 billion casino-resort complete with gondolas punting down indoor canals.

Engelbrecht-Bresges says the Jockey Club needs to change to keep its customers — especially the high rollers who are being lured to Macau by promises of free helicopter rides, hotel rooms and other five-star perks.

"In this changed environment, when you have Macau a boat ride or helicopter ride away, we have to move with the times," the German club chief said. "And if we don't, then customers will vote with their feet."

Now there's the possibility mainland China itself could become a competitor. The Beijing government has approved regular horse racing in the central city of Wuhan in Hubei province, and is considering allowing gambling on the races in 2009 on a trial basis, the official Xinhua News Agency reported this month.

A more immediate threat to the Jockey Club is illegal bookmakers who siphon off business, offering better odds because they don't pay taxes or incur the cost of running horse races.

The Jockey Club estimates the underground market for horse betting is between $6 billion and $8 billion a year. That's more than half the Jockey Club's total revenues of $12 billion in 2007.

Last year, the club managed to reverse a slide in revenues after the government allowed it to offer 10 percent rebates to gamblers losing on bets of $1,280 or more, just as the illegal bookmakers were doing.