Online Gaming in Latin America

Latin America offers a potentially lucrative market for online gaming businesses. Interactive gambling companies are challenging state-run monopolies and the market is becoming more liberalized in Europe, and in the long-term, Latin America could follow suit. Over the last 10 years, the land-based casino industry in Latin America has been one of the consistent bright spots for the industry. Governments in almost every country have sought to more fully regulate gambling and have passed significant laws that provide clear guidelines and a framework under which the industry may operate. As a result, gaming has grown substantially in the region and has increasingly won recognition as a legitimate business that can generate substantial tax revenues.

While the gaming industry continues to gain ground, gambling as a pastime has become more popular, widespread and acceptable. Although small compared to other regional markets, over the last 10 years the gambling industry in Latin America has consistently recorded fast growth. According to research by PricewaterhouseCoopers, the land-based casino industry in Latin America is now worth $4.3 billion. And, according to a report published by Research and Markets, the online gambling market in Latin America could, in the future, potentially generate more than $150 billion per year.

With Brazil, Chile and Argentina leading the way, increased access to broadband has been one of the key factors behind this growth. Across the region, broadband has experienced a compound annual growth rate of 16 percent to 18 percent. Although low compared to some regions, broadband penetration is expected to reach 9 percent to 12 percent of the total population by the end of next year and will continue to grow at a fast rate over the next 10. This has been coupled with an increase in use of 3G mobile phones, which doubled in 2011. According to a recent report published by Wireless Intelligence, at the end of 2011, the number of 3G connections in Latin America had reached 100 million.

The online gambling industry in Latin America also benefits from an underdeveloped brick-and-mortar sports betting market. While the number of sports betting shops are growing, they are growing at a very slow pace in most countries, and the offer is still strictly limited to a handful of sports. Indeed, in some countries in the region, sports betting is strictly limited to games offered by the national lottery, and many of these games are outdated and unpopular. Even in Argentina, with its huge passion for soccer, the only way Argentines can legally make a bet on their favorite sport is via a game called Prode, which records revenues of less than $100,000 per year. A similar case exists in Brazil. Even with the upcoming World Cup in 2014, betting on football and sports other than horseracing is only possible via lottery-type sports betting run by the state monopoly, CAIXA.

Generally speaking, even when there have been calls to ban interactive gaming, local governments have been slow to legislate on the issue. Not only is such a move unpopular, but it is hard to implement. Consequently, as interactive gambling is not specifically forbidden by local laws, operators are able to offer their services locally.

Most interactive gambling companies offer their services in Spanish and Portuguese and accept a wide number of payment options. These, in some cases, include popular local payment methods such as Boleto Bankario, one of the fastest-growing online payment options in Brazil. Furthermore, while advertising of interactive gambling in the region as a whole remains minimal, players are quickly learning of the variety of betting options available through poker fan websites and word of mouth. At the same time, advertising of interactive gambling is becoming increasingly visible in mainstream media.

Naturally, attitudes to online gaming vary from country to country, with the Brazilian government arguably being the most strongly opposed. In Latin America’s biggest economy, gaming continues to be a controversial issue, due to the bingo corruption scandals of 2004, and this has had a knock-on effect on the online gaming industry. In 2008, the Brazilian Congress attempted, but ultimately failed, to ban online gaming with legislation along the lines of the American Internet Gambling Enforcement Act. Then in 2010, the Brazilian Senate looked to ban payments to and from online gambling sites and considered compelling Internet servers to block access to online betting sites.

While this also failed to make it into law, the government still remains essentially hostile to the industry, with the majority of lawmakers opposed in principle to gaming. Despite the fact that the illegal gaming sector is worth an estimated $5 billion annually, gambling is not a priority issue for the current administration. As such, the present situation is likely to continue for the foreseeable future, with a swift upsurge in popularity in online gaming during the FIFA World Cup, scheduled to be held locally in 2014. In the meantime, the local poker circuit is becoming increasingly popular, and interactive gaming companies advertise themselves quite openly in local media.

In Argentina, which has the largest percentage of Internet users in the region, online gaming is legal, but offshore companies are less visible. This is because, under current rules, only a very small number of local interactive betting sites are permitted to offer their services and, then, only in the province where they operate. For the time being, this does not include the capital. On a national level, there is no law in place that specifically covers the issue of online gaming. Despite the fact that, in theory, only locally based servers can offer online gambling, Argentines regularly access and use offshore gambling sites—many of which accept local currency as payment. Today, Argentina now ranks second after Brazil in terms of online gambling revenue.

As is the case in Brazil, legislative attempts to ban offshore sites from offering their services in Argentina have failed. In 2008, members of the Lower House of Deputies attempted to ban access to offshore betting sites. In 2010, there was an attempt to ban online gaming altogether, but both measures found little support. For now, the government has shown signs that it is willing to address and more closely regulate the sector in an effort to combat illegal gambling, but will probably not block offshore gaming companies under present plans.

Elsewhere, in Mexico, the growth in casino-style gaming has led to an increased interest in betting online, especially as the broadband industry in Mexico has developed so rapidly. Growth is also being driven by sports betting. Sports betting is becoming more popular, with new betting shops attached to gaming centers proliferating rapidly nationwide. Today, the three biggest gaming companies in Mexico—Grupo Caliente, CIE and Apuestas Internacionales—all run sports betting establishments.

Gaming companies already established in Mexico are permitted to apply for an online license, but Mexicans also bet via offshore betting sites, which can often offer a wider array of services and better odds. Mexico’s gambling laws date back to 1947, but are facing repeal once more under present plans initiated by the government via SEGOB (Mexico’s Interior Ministry). Promoted by the arson attack that took place in the state of Nuevo Lyon in August last year, and because of continued irregularities in the sector, it is still unclear if the government will address the issue of online gaming in the new act. Although Mexico has been on the verge of repealing its gaming laws on many occasions, the events in Nuevo Lyon do seem to be pushing the drive for change. The new act could well be comprehensive enough to legislate over the offshore gaming sector.

In other nations such as Chile, the issue is clearer cut. In Chile, online gambling is illegal, and the government has been quick to sanction any online gambling company that has sought to promote itself in local media. According to recent statements made by members of the gambling control board, lawmakers are eyeing European legislation very closely to see the outcome of the liberalization of the market in places such as Spain, Italy and France. In the future, the gambling control board could begin to offer licenses to offshore companies looking to get on board.

In fact, legislative developments in Europe could well play a significant role in shaping the future of the online gaming market in Latin America, especially if new online gambling acts in countries such as Spain and Italy prove successful. Unlike Europe, where online companies can formally complain that state monopolies are blocking the free flow of services between member nations, the impetus in Latin America could well come from within.

Not only will governments be able to benefit from additional gaming tax revenue, but a well-regulated sector could help eradicate illegal gambling. Illegal gaming continues to be a significant issue, especially in Brazil and Mexico, and a well-regulated online gaming sector would provide a far more attractive alternative to players. Also, generally speaking, and with the very clear exceptions of Brazil and Chile, the state monopolies over gaming in most countries in Latin America aren’t nearly as well established as they are in Europe, so moves to permit offshore companies could be met with less opposition.

Exactly when each government will address the issue of online gaming is difficult to know. But the reality is that gaming via offshore betting sites is already well established around the region and has been for some time. Lawmakers are increasingly taking note, and significant changes look more and more likely in the near future.­