The Future of Gaming in Latin America

There have been some major developments in the Latin American market of late. The government of Ecuador has closed all the casinos in the country. There is the looming spectre of nationalization in Argentina. Corruption scandals linked to the gaming industry are once again making headlines in Brazil. And in Mexico, a deadly attack on a casino in Monterrey continues to have wide repercussions nationwide. So what else can we expect in this rapidly evolving market?

Perhaps the most significant development for operators could be some major changes on the way in Argentina, or more specifically, in the province of Buenos Aires. Rumors of nationalization first began to surface in June 2012 with an article in daily newspaper, Clarin. Citing sources close to the government, the article argued that President Cristina Fernández de Kirchner was looking into the possibility of nationalization as a means of bolstering her popularity and cutting any remaining links between her administration and the gaming industry in Buenos Aires. Later articles supported these findings, with one local insider going as far as to say that the government was looking into ways of nationalizing the casino industry throughout Argentina.

Events, however, took a surprising turn in July, when governor of the province of Buenos Aires, Daniel Scioli, signed a decree that granted extensions of 14 bingo licenses until 2027. In Argentina, state workers receive two annual bonuses a month. Due to the present economic crisis in the province, Scioli was unable to pay the first instalment and, in the face of a number of all out strikes, he turned to the gaming industry for extra funding. The announcement was met with immediate criticism from the Kirchner camp. Relations between Scioli and Kirchner have become increasingly strained, especially since Scioli announced that he would run for president in 2015.

In a move widely understood as a means to undermine Scioli, Kirchner supporter Mario Caputo announced he would seek to nationalize bingo halls and gaming in the state. Soon afterward, vice governor of the province, Gabriel Mariotto, called for a conference to discuss the issue of nationalizing gaming as a means of generating additional tax revenue to pay state workers.

Even if the gaming industry is not nationalized, it is clear that the gaming industry in Buenos Aires is now firmly fixed in the political spotlight and significant changes are undoubtedly on the way. One proposal is to raise the tax revenue from slot machines located in state-run casinos. Under present rules, slot machines at these locations are provided by a third party and, as such, the state receives only a percentage of their generated income. Lawmakers are also calling for changes to the way the 44 bingo halls located in the province are taxed. Currently, they pay a license fee instead of a tax on income.

In Mexico, significant developments have come in the wake of one of the most violent episodes in the nation’s drug wars. In August 2011, a group of armed men attacked, and then set fire to, the Casino Royale, located in an upmarket neighborhood of the city of Monterrey, leaving 52 people dead. Since then, there have been many calls for Mexico’s Interior Ministry to better regulate the industry, especially as it was discovered that the fire escapes of the Casino Royale were blocked. Raids on betting establishments have continued apace nationwide, with agents closing down premises found to be operating either without a license or after failing to meet health and safety standards.

There have also been calls for Mexico’s Gaming Law of 1947 to be scrapped. Although there have been several attempts in the past, the events in Monterrey—and the subsequent revelations surrounding the way the industry is regulated— could finally push the Mexican government closer to enacting new gaming legislation. A recent proposal put forward by AIEJA (The Mexican Operators and Providers for the Entertainment and Gaming Industry) would establish an independent gaming regulatory board, made up of a number of government officials, each from different departments. This new board would be responsible for monitoring the industry and granting licenses.

Despite the events at the Casino Royale, Mexico’s gaming market is growing. According to estimates released by AIEJA, 2 million people will have visited Mexico’s 360 legal gaming establishments by the end of 2012. And if Mexico does pass a new gaming act, the legal gambling industry could grow—according to some estimates—by 400 percent over the coming years.

Meanwhile, in Chile, the Gaming Board continues to report increasing returns year after year. In 2005, the Senate passed a major gaming law that allowed for the construction of 18 large-scale casinos in hotels. There are now 17 casinos up and running. Casino Austria initially owned the license to construct a casino (its second in Chile) in Ovalle, in the Coquimbo region. However, the company has abandoned the project and the license is once again up for tender. The casino may be located outside the Coquimbo region, as long as it is in a region where there are fewer than than three casinos. It must also be located outside the capital Santiago and outside the coastal region of Arica, where special rules apply. The licensing process will officially begin in January 2013.

Now that the casino industry in Chile is more fully developed, it appears as if the government may be looking at other ways to more closely regulate, and even possibly expand, other gaming sectors. In June 2012, Sens. Antonio Horvath and Ricardo Lagos submitted legislation that would grant a limited number of online casino licenses to the Senate’s Finance Commission—a move that could have a significant impact on the industry. During the initial debate, when Chile was first considering granting licenses, the possibility of permitting online gambling was discussed, but was ultimately rejected as lawmakers decided to first see how the land-based industry would develop over the coming years.

According to draft legislation, which seeks to amend the original act, the growth of new technologies, such as 3G phones and wider access to broadband, has since “generated the need to establish clear regulatory guidelines both for operators and participants alike.” While the government is not particularly strict on banning offshore Internet gambling sites from offering their services to Chileans at present, the new act seeks to grant licenses only to those casinos that are already permitted to operate in Chile.

Other jurisdictions in which the road to regulation has been less smooth include Colombia and Paraguay. Since April 2012, Colombia has had a new Gaming Control Board called Coljuegos. Its members are now chosen directly by the president and selected from different government departments. This came after it was discovered that members of the previous gambling control were accepting bribes in return for granting stays of closure.

In 2012, Coljuegos began a wide-sweeping investigation into all gambling establishments in Colombia to ensure that licenses are valid and their accompanying rules are being followed to the letter. Despite an estimated 70,000 slot machines and 3,200 gaming centers operating in the country, there is—according to local experts—significant room for growth in the sector and the country still lags behind compared to many countries in Latin America. It is believed that tax revenue generated from the gaming sector could increase fivefold over the coming years.

In Paraguay, where illegal gambling is widespread, the government has recently passed legislation that will see much tougher penalties imposed on those found to be breaking gambling laws. It is also believed that the Gaming Control Board could once more begin to open up the bidding for new licenses for casinos in five-star hotels in tourist hotspots. In Paraguay, the number of tourists is on the rise and the nation is quickly becoming known as a popular eco-tourist destination. Furthermore, the tourist board is heavily promoting Paraguay to other countries in Latin America, especially Brazil, where casino-type gaming is not permitted.

As always, the gaming landscape in Latin America has changed considerably with some surprising—and sometimes—sudden changes on the way, taking many observers by surprise. At the end of 2011, Nicaragua passed a gaming law, which had been shelved for almost 10 years, in a matter of hours, while the government of Ecuador, after a nationwide poll, banned casinos altogether. Yet, there has been more positive news in Peru as the Peruvian Gaming Control Board moves with surprising swiftness to curb illegal gaming. In Brazil, however, a new wave of corruption scandals, linked once again to a famous numbers runner, has made the opening up of the Brazilian market increasingly unlikely.

From an investor’s point of view, the more traditionally stable markets such as Argentina and Uruguay may look slightly less appealing. Even though nationalization may be a long way off (if it ever happens at all in Argentina), the recent nationalization of Spanish oil company Repsol S.A., along with the increasing militancy of the Argentine government, may be enough to deter many. At the same time, casinos in Uruguay, which only accept dollars, are already reporting reduced returns due to the restrictions in place on Argentines exchanging dollars for pesos.

Fortunately, other markets are opening up. And in countries such as Paraguay, which have for a long time been slightly overlooked, there are definite signs of improvement. The same can be said of other nations such as Bolivia, Peru, Colombia and Nicaragua. There are positive signs that the industry could soon expand, due to an increased political willingness to curb illegal gambling and more fully regulate the sector.

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