There have been casinos in Uruguay for more than a hundred years, and compared to its Latin American neighbors, where casino gaming has been a divisive and politically charged issue, casino gaming has been relatively uncontroversial. This is largely in part due to a rather unusual way of regulating casinos called the “mixed system.”
Casinos in Uruguay had been state owned and run since the 1950s. Then, in 1996, the government began to offer licenses to the private sector. Setting no limit on the number of tables or slot machines, the government, in return for 35 to 45 percent of profits, would run the casino while the investor would be responsible for equipping and furnishing the casino, overseeing security, and promoting the casino, particularly to tourists.
Many feared that the involvement of the state would negatively impact profits, but this has proved not to be the case. In fact, year-on-year gaming income has increased instead, and many traditional tourist locations that had fallen into a state of disrepair have, with the help of the private sector, been brought back to their former glory.
Today, out of the $150 million (all dollar amounts U.S.D.) in gaming revenue generated per year in Uruguay, 80 percent comes from the casinos operating under the mixed system. As a result, it looks increasingly likely that all casinos in Uruguay could one day be run under the mixed system.
The cause for the mixed system has further been strengthened by the poor showings of the casinos that are still state owned and run. Since 2000, the wholly state-run casinos have been operating at a loss, and in 2008, they were rocked by a scandal involving high-ranking gaming officials. In fact, Juan Carlos Bengoa, who one held the title of Head of Casinos in Uruguay, is now on probation, having served a 27-month sentence after being found guilty of corruption and bribery charges.
As a result, his replacement, Congressman Fernando Nopitsch, who assumed the role in 2008, almost immediately offered 14 new licenses to private investors. This included the Nogaro hotel in tourist hot spot Punta del Este.
The Punta del Este Example
The Nogaro had been run and owned by the state since 1946, but since December 2009, it has been run under the mixed system by private company Vida Plan SA. The casino, which will open its doors to the public next summer, cost $18 million to build. It will house 300 slot machines as well as offering table gaming and simulcast horse racing, and it is part of a larger complex that, once completed, will include a refurbished hotel, restaurants and a theater. As such, it will rival in size the nearby Caesars-run Conrad Punta del Este Resort and Casino.
Less than happy with this, lawyers acting on behalf of the Conrad argued in 2008 that, under its initial agreement with the government, signed in 1997, no mixed license casino would be permitted within a 30 km radius of the premises. They further contested that if another casino were to be built, it would have to cost more than $207 million, which is what it cost to build the Conrad.
Nevertheless, the mixed system license was granted. It is hoped by Uruguayan gaming officials that two major casinos located on the Uruguayan peninsula and acting in competition will be mutually beneficial. It is estimated that the newly restored Nogaro’s profits will increase by 35 percent each year and that a combined 1.5 million people will visit the three casinos in Punta del Este (apart from the two large-scale casinos, there is a third smaller state-run casino) during the next summer season, betting at least $10 million.
Indeed, Punta del Este looks poised to be one of the most important gaming destinations in Latin America. Besides its natural beauty, it is ideally located. It is only two and a half hours by plane from Sao Paulo, Brazil, where casinos are banned, and it is only 35 minutes by plane from Buenos Aires, where table gaming is restricted to two boats that are permanently moored off the city harbor. But it is the Brazilian market that the Conrad has so adeptly targeted in the past—so much so that, in 2009, 70 percent of the rooms reserved in the Conrad were occupied by Brazilians.
With more than 1,500 slot machines, the Conrad is the largest casino in Latin America, and it offers Las Vegas-style gaming 24 hours a day. It is the only casino to have a completely private license, and in March of this year, it went through a $100 million face lift.
The Conrad’s five-star hotel has five restaurants and 300 rooms and is located strategically in the heart of this increasingly popular resort. Today, the extremely glamorous Punta del Este is the second most popular tourist destination in Uruguay, after capital city Montevideo. Once graced by the presence of the Rat Pack, more recent visitors have included Leonardo DiCaprio, Robert De Niro and Naomi Campbell, while for local celebrities it is the place to be seen during the summer season.
“Punta,” as it is commonly referred to, continues to do well despite the economic crisis and attracts more tourists year on year. Last summer’s season was a record, as it was aided by the increasing number of cruise ships that now drop anchor in the harbor. Last summer, 108 cruise ships stopped in Punta del Este, bringing an additional 260,000 tourists to visit its shores.
The Other Licenses
The increase in tourist revenue is reflected nationwide. In 2005, tourist revenue stood at $480 million. In 2009, this increased to almost $1.3 billion. Uruguay received 3 million visitors last year, and numbers continue to go up. In the first four months of this year, Uruguay received 930,000 tourists, a 3.6 percent increase compared to the same period in 2009. Tourism (Uruguay’s second biggest industry) income for the same period stood at $744 million, a 15 percent increase compared to the previous year.
Other mixed casino licenses look likely to be granted in tourist hot spots across the country, and this is especially true in Montevideo, where the granting of new licenses is in part due to the success of the nearby Maroñas racetrack, which is located on the outskirts of the capital.
The racetrack follows the racino model, whereby large-scale casinos or slot parlors are attached to racetracks. The racino model has proved very successful in other Latin American countries such as Panama and Argentina, as they have given a much-needed boost to the horse racing industry. The Maroñas racetrack, a national monument, had fallen into disrepair by 2002, when a joint venture between Spanish gaming company Codere and Argentine company Hípica Rioplatense S.A invested $50 million in restoring the track to its former glory.
The premises now houses more than 1,500 slot machines and stages three races weekly, and it has proven very popular with locals and tourists alike. Indeed, the newly appointed Head of Casinos Javier Chá recently expressed his support of the turf industry, using the Maroñas as a positive model. This has prompted insiders to believe that more racinos could be on the way in Uruguay.
Many casinos, some located in famous hotels and emblematic landmarks, had also fallen into disrepair but, thanks to the mixed system, are now being fully restored. Such is the case for the famous Carrasco hotel located on the banks of the River Plate in Montevideo.
The Carrasco was built in 1921, and it was announced in November of last year that a group of investors headed by Codere had won the 30-year concession to run the hotel and casino there. Codere has been very active in Latin America and operates six large slot parlors in Uruguay besides its operation in the Maroñas racetrack. The group will invest $60 million in refurbishing the hotel and rebuilding the casino. Once complete, the newly developed complex will be called the Sofitel Montevideo Casino Carrasco and Spa.
But interest is not limited to Montevideo and Punta del Este. At the moment, 15 groups of investors are poised ready to take part in the mixed system in locations dotted all over the country. There are five possible licenses on offer along the Brazilian border as well as licenses available in Paysandú, Maldonado, Durazno and the very popular colonial town of Colonia de Sacramento, a major gateway to Uruguay via ferry from Buenos Aires.
In all, 35 mixed licenses are on offer, with one of the biggest investors being Argentine company Kaskira SA. The group already holds a stake in a casino in Colonia and has announced plans to invest $80 million in the casino industry.
Another Argentine company looking to invest in Uruguay is ICM Boldt, which this month was awarded the concession to run the casino in top tourist destination Rivera. The $23 million investment there will include a new hotel and a casino with 150 slot machines and 18 table games.
With the new mixed system licenses on offer, Uruguay is a potentially interesting market for investors. Unlike Chile, where the 18 new licenses have already been awarded, and Argentina, where casino gaming is relatively well developed, Uruguay’s growing tourism industry still offers investors a chance to get on board in the increasingly significant Latin American market.