Casino Industry Takes Off in Chile

Five years ago, the Chilean Congress passed its most significant gaming law in the nation’s history. The law, first driven by the administration of then President Eduardo Frei, had been on the table since 1999 and was aimed at regulating casinos, increasing their numbers, and more equally distributing the tax revenue they generated.

After an extremely turbulent time in both the Senate and Chamber of Deputies, the law was finally passed in 2005 and operators were invited to bid for the 18 new licenses on offer. The law, known as Act N° 19.995, also created an independent gaming commission called the Superintendencia de Casinos de Juego (SCJ), which would be responsible for regulating the industry.

Before 2005, there were seven casinos in Chile, which combined generated about U.S. $85 million in gaming revenue per year. The new law has now green-lighted-large scale casinos with both slot machines and table games. As the law was designed to help stimulate tourism, it was decided that five types of gaming would be allowed on casino premises: bingo, cards, roulette, dice and slot machines.

Licenses for the new casinos run for 15 years, and during the bidding process the absolute key to winning a licence was an operator’s ability to prove that its project would significantly increase tourism in the area. Once the license was granted, the operator was given two years to get the casino up and running and an additional three years to have adjoining amenities ready. However, in many cases operators applied for and were granted permission to expand the investment in their wider facilities on offer surrounding their gaming operations.

As a result, many of the new casinos in Chile are part of a brand new five-star hotel and wider entertainment facility. Indeed, some of the new casinos not only offer gaming in a Las Vegas-style setting, but they also boast conference centers, bars, restaurants and, in one case, even a museum.

One of the reasons it took so long for the law to be approved by both Houses of the Chilean Congress was the issue of exactly how the casinos would be taxed and how those taxes would be divided. Before the new act was approved, tax income generated by casinos went directly to the municipality in which the casino was located, providing major sources of revenue to local governments. Under the new act, the tax income is now divided between the regional government and the local municipality.

It is estimated that once all of the 18 casinos are up and running, combined they will provide U.S. $29 million per year to the municipalities where they are located, and the same amount again to the province. In fact, this is the amount of tax revenue that each establishment now generates. It is believed that, in the long term, the tax income generated from casinos will have a profound effect on the provinces and towns in which they operate.

The second largest obstacle to the law when it was originally debated was the question of whether casinos should be permitted in Chile’s capital, Santiago. Santiago is home to a third of the country’s population, and it was feared that if a casino was allowed there, it would have an unfair advantage over every other casino in the country. Furthermore, it would undermine the underlying principle of the gaming law: Namely, that casinos should be a means by which to increase tourist revenue—something that Santiago does not suffer from. Consequently, it was decided that a casino license would not be granted in the capital.

Chart 1: The New Casinos

The largest casino in Chile is the Monticello Grand Casino and Entertainment World in San Francisco de Mostazal, which is a short 50 km from Santiago. The Monticello, a joint venture between Novomatic and Sun International, is part of a five-star hotel. In 2009, the property accounted for a 35.4 percent share of gross income made by the new casinos. The Monticello, however, was one of eight casinos that were forced to shut down after Chile was hit by a devastating earthquake in February this year. Fortunately, none of the eight have suffered irreversible damage and five have already reopened. The Monticello, which suffered $10 million worth of damage, reopened on June 30. Despite the closings, the earthquake has actually had little impact on the casino industry’s revenues in Chile. Figures recently released by the Chilean Gaming Board show that gaming income actually increased by 28 percent compared to the same period in 2009, increasing from U.S. $84.83 million to U.S. $109.42 million. As was expected, the bidding process for each of the licenses was extremely fierce. Although some foreign and local operators complained that there was a bias toward casino operators already established in Chile, generally speaking, the granting of the licenses went relatively smoothly. Now there are 15 brand-new, large-scale casinos operating in 10 separate regions nationwide.

Chart 2: Total Products Installed

Chart 3: Income and Visitors

Twelve of the 15 new casinos are located in urban centers. Eight opened their doors to the public in 2007 and 2008, and an additional seven opened in 2009. The remaining three will be located in Castro, in the Los Lagon region; Ovalle, in the Coquimbo region; and Coyhaique, in Chile’s deep south.

A good many foreign casino operators were already showing an interest in bidding for licenses back in 1999, when the law first went up for debate in the committee stage. Not only was the market underdeveloped at that time, but Chile also had long-established mechanisms in place to ensure that foreign investors were (and are) protected legally.

Chile’s Foreign Investment Statute, D.L.600, which dates back to the 1970s, guarantees foreign investors exactly the same rights as Chileans. Operators may also repatriate their profits and capital to their own country. Some of the world’s leading gaming operators have invested in Chile, in many cases forming joint ventures with local companies. In fact, 53 percent of total investment in Chile’s new casino industry comes from abroad.
With the new licenses, Chile’s casino industry has transformed beyond recognition over the last five years. Now that the majority of the new casinos are up and running, for the first time we are getting a clear idea of just how well they are faring.

According to recent statistics released by the Chilean Gaming Board in 2009, gaming revenue steadily increased month by month, more than doubling from U.S. $6.198 million in January to U.S. $12.434 million in December. Slot machines are by far the most popular draw and account for 91.4 percent of total bets made. Some of the world’s leading manufactures of slot machines have been targeting the new Chilean market for some time now, and so far the three biggest winners have been Bally, with 1,162 gaming machines sold; ATRONIC with 1,391; and WMS with 1,315.

So far the figures are showing very clearly that, for now, the casinos in Chile are doing extremely well. Indeed, Chile is fast becoming one of the bright spots in Latin American gaming, and with three new casinos on the way, a well-regulated and transparent industry in the region could show the way for other countries now considering green-lighting casinos.

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