The Gaming Boom in Panama

ver since 1997 when the government first privatized casinos, Panama has become an increasingly bright spot in the Latin American casino industry. Originally the property of the state, the privatization of casinos has led to a gaming boom in Panama, which now encompasses not only casino gaming, but sports betting, bingo, lotteries, slot parlors and a recently constructed racino. Bets made in Panama in 2005 reached $513 million. This has increased steadily year on year, so that today per year all bets on all betting products go beyond the $1 billion mark.

At present, there are 16 casinos in five-star hotels in Panama, the majority of which are located in the capital, Panama City. There are a further 25 slot parlors, almost 12,000 Class III slot machines, over 250 gaming tables and 3,500 more slot machines that can take a maximum bet of $3 and are permitted in bars and cafes.

Despite the global crisis in the first two months of this year, bets made at the 15 casinos in Panama stood at $230 million—a $29 million increase compared to 2010. With the granting of an additional four casino licenses, the market looks set to expand even further in the coming years. But just how much room for expansion is there in this currently vibrant market?

This will depend a great deal on tourist numbers coming to Panama. Casinos were originally intended to provide an impetus to the tourist sector, and the gaming law of 1997 allowed for casinos in five-star hotels with a minimum of 300 rooms. Since then, casinos built in hotels have often been fairly large scale, reaching in some cases up to 40,000 square meters in size.

Offering a wide array of gaming options, the grandest casinos are located in the heart of downtown Panama City, and along with table gaming, offer, in some cases, up to 500 slot machines. Slot parlors in Panama are also frequently large scale. Invariably going under the name “casino,” slot parlors in Panama can range in size from 30 slot machines upward to 200.

Although tourist numbers slumped in 2009, the tourism industry in Panama is showing signs of a relatively quick and sustained recovery. Combined tourist income for the entire Central America region declined by 20 percent in 2009, with 8.8 million tourists visiting the region—2 million less than the previous year. Yet, despite the ongoing global economic slump, in January 2010, the number of tourists visiting Panama increased by 5 percent compared to the same year, and tourist numbers are on the rise again with 2 million tourists expected to visit Panama by the end of this year.

Apart from more than 1,000 tropical islands, tracks of pristine rainforests and a large and extremely varied array of activities to offer, Panama is a safe country with a strong economy with modern resources, and an infrastructure making it highly popular with tourists and business travelers alike. Panama is also increasingly accessible from destinations worldwide. Copa Airlines offers the leading hub in Latin America at Tocumen International Airport in Panama City—the biggest airport in Central America.

Serving a total of 57 destinations in 28 countries, including most recently Toronto and Brasilia, the hub handles daily and direct flights from destinations in the Caribbean, North America and Central and South America. Besides the Tocumen International Airport, more direct flights will be available in the future from the United States and Europe via the reopening of the Howard Airport near the Panama canal. They will also be available via a new airport that will be constructed farther inland on the site of an abandoned North American base.

Panama’s service-based economy depends heavily on the tourism industry, and as the tourist sector begins to emerge from the slump of 2009, so has the Panamanian economy. According to government forecasts, Panama’s economy will have a reported growth of around 9 percent by the end of 2011. But it’s not just tourism that is fueling growth. Panama’s building boom continues apace with the constructions of several large-scale five-star hotels, high-end condominiums and office blocks.

Due to favorable tax rates, along with other financial incentives, Panama is also seeing a large number of multinational corporations, locating either offices, and in some cases even their headquarters, in the capital. There are now more than 100 branches of multinational enterprises in Panama, meaning that Panama is becoming an increasingly significant hub for global commerce and banking.

As the economy improves, this naturally will have a positive knock on effect on the casino industry. Although gambling revenue is highest at the casinos, revenues are high across the board (apart from lotteries that only account for a small amount of the gambling market). In 2010, the 16 casinos reported a combined income of $600 million. Bets made in slot machines in casinos and slot parlors between 2000 and 2010 stood at $6,564 million. In the same 10-year period, gross earnings for the casinos went beyond $1,644 million.

Although the amount bet in the casinos and other betting establishments are high, the actual profit made by casinos has been affected negatively by the global economic crisis. From 2005 to 2008, the casino sector experienced annual growth of around 9.5 percent. In 2009, this dropped to 2 percent.

This is not only because the number of tourists visiting luxury hotels had decreased during that period, but also due the increasing number of slot parlors that have been authorized since 2008. Growth, however, has also been affected by the implementation of a minimum salary put in place in 2010 that has greatly increased costs along with a heavier tax burden.

Between January and November 2010, gaming tax revenue in Panama for all products stood at $41.6 million. Of this amount, tax revenue made by the casinos stood at $35 million. In the first quarter of 2011, gaming tax revenue increased by almost $8 million, and in September increased by $1.4 million, compared to the same month in 2010. Today, taxation on all types of gambling combined accounts for 15 percent of the Panamanian yearly budget, and in the future could account for significantly more.

In 2009, the government began to consider singling out casinos as a way to raise even more taxes. The additional revenue was to provide $100 per month for each Panamanian citizen over 70 years old, and to cover the costs of a pay rise for the police. Under initial proposals, taxes on casinos would double from 10 percent on gross income to 20 percent raising the tax from $35 million to $70 million.

The additional tax on casinos was eventually passed by the National Assembly as part of wider fiscal reform package in September 2009. The new law, which addressed mainly the question of real estate and capital gains tax, changed the tax on casinos from how it was originally envisaged by the assembly and also imposed a fee for the rights to run a casino in Panama.

According to the law, hotels with casinos on their premises now have to pay $1 million for the rights to run a casino, while slot parlor owners have to pay half a million dollars for the permission to operate. In addition to this, tax was increased on both slot machine parlors and casinos. For casinos, monthly gross income tax increased from 10 percent to 12 percent in 2010 until the end of 2011, and will increase again to 15 percent from 2012. For slot parlors, taxation stood at 16 percent beginning January 2010 and will increase to 19 percent from 2012-2013 and then increase once more to 22 percent from 2014 onward.

Market leader in Panama is Spanish company Codere. The company operates more than 50,000 slot machines worldwide and has become increasingly present in Latin America—especially in Panama, Argentina and Mexico. Codere operates six casinos in Panama under the Crown Casino brand, and in August 2010 the company purchased Thunderbird Inc.’s 63.6 percent stake in six casinos in Panama operating under the Fiesta casino brand. Codere also runs the Turff Bet & Sports Bar at the Presidente Remón Racetrack. The racetrack now follows the “racino” model which has proven successful in other Latin American countries such as Uruguay and Argentina.

Since 2006, Panama’s importance in the Latin American market has also been confirmed by the increasing popularity of the South American Gaming Expo and Congress Panama (SAGSE) in Panama City. Since 2006, SAGSE has been attracting gaming professionals the world over. This year’s conference, which took place in June, not only recorded a record number of visitors, but also provided space for 50 percent more exhibitors compared to the previous year.

El Junta de Control de Juegos (the Gambling Control Board) seems willing to continue to offer more casino licenses to new hotels. And more licenses are being granted apace. This year it was announced that four more large-scale casinos will open their doors before the end of 2011, and there are three more hotels that have also applied for a casino license. Together, the four new casinos will provide the state with an estimated $4 million in additional tax revenue per year.

Gambling legislation of 1997 established a clear legal framework in which the industry could operate. The industry has grown under the supervision of the Gambling Control Board in a well-regulated business environment. As a result, the casino sector in Panama has quickly become one of the most dynamic in the region. Despite the steep increase in tax as Panama’s economy improves and the tourist sector recovers from the slump the casino industry, Panama looks poised once more to expand further.

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