IN-DEPTH 13 November 2017
Mexico: Bringing order out of chaos
Industry experts believe it isn’t a matter of if but when Mexico’s fundamental legislatory revamp will come to pass. However, after years of pushbacks and delays, it’s understandable to question why the situation has yet to been addressed. We looks at whether or not this fluid situation will crystallise into a solid platform for growth
By Caroline Watson
Due to the interpretive nature of Mexico’s gambling laws, a certain degree of uncertainty and lack of clarity has prevailed since the industry was legalised back in 1947. In 2004 the Mexican Government made an attempt to shed some light on the situation, introducing the Regulations to the Federal Law on Games and Drawings, which aimed to introduce further clarity to the somewhat hectic and misunderstood gambling market. However, due to a number of delays, Mexico has entered 2017 with still no concrete legislation to overhaul the outdated laws.
Due to the country’s perceived ‘weak’ central government, gambling legislation has been somewhat pushed into the metaphorical corner, whilst the government deals with more pressing issues, including the ongoing battle with Mexican drug cartels. This lack or regulation has led to the emergence of unregulated casinos and illegal gambling locations across the country. The delayed bill would help tackle the underground operations by introducing protections against money laundering, in addition to rising the gambling minimum age from 18 to 21.
The new Federal Betting and Raffles law, if approved, could see the Mexican online gaming market become a single-nation entity that is only serviced by a few providers, whilst there will be a more transparent regulatory system of existing land-based gambling. Miguel Angel Ochoa Sanchez, President of La Asociación de Permisionarios Operadores y Proveedores de la Industria del Entretenimiento y Juego de Apuesta en México (AEIJA) originally predicted that the law would go through in 2016. Even though the Mexican legislature’s Lower House approved the law in December 2014, the Senate is proving to be a much steeper hill to climb.
A significant contributor to government coffers, the Mexican gaming industry gives an annual US$300m in tax revenue, in addition to employing 35,000 citizens, with a further 105,000 indirectly employed. In order to create a strong and stable framework for those operating in the extremely lucrative industry, the need for this fundamental piece of legislation is explicable.
The long-delayed rewrite of the country’s gambling laws are unlikely to be approved until 2018. According to the Head of the Mexico’s gambling industry association, Mexico’s new Law of Games and Sweepstakes will not pass in the current legislative session, pushing the bill back another year. Sanchez told Mexican media outlet Milenio.com that the senators “ask for reports on why things happen in states, what are the casinos’ issues... instead of asking, they should do their work, they have important legislation in their hands”.
Nonetheless, some senators are keener to get legislation through than others. At the beginning of the year, José Maria Martinez, President of the Senate’s Board of Directors, urged his fellow senators to expedite the process. The necessary amount of federal oversight is long overdue in Mexico’s
gaming industry, with illegal activity rife and international operators dominating the local market.
Although the market has become easier to manage, back when casinos were first legalised in 2008, some areas were unambiguous whereas others required further legal interfacing and explanation. Vice President of Latin America AGS, Drew Pawlak comments on the ever-changing nature of the market: “Mexico has always been a dynamic gaming market. It has improved over the years, but there are still many areas of the country, and certain state or federal departments that have different views. However, the market can change quickly with different administration or when new department heads come into power.”
Many have described Mexico’s gaming industry as “chaotic”, with little guidance in place and almost zero control. On the other hand, as Alfredo Lazcano and Francisco Del Real, Partners at Mexican law firm, Lazcano Sámano say: “Maybe the term ‘chaotic’ is not accurate, since there was no chaos, but emptiness of the legal framework for gaming activities in Mexico when the Gaming Law stood alone. The lack of uniformity in the criteria set out by the authority made the industry look like guaranteed trouble, but the gaming industry has become a far more mature field than it was in its beginnings.”
The Gaming Regulations forbid the development of facilities for betting games and drawings nearby schools in order to protect minors, reiterating the importance of responsible gaming. Instead, the Mexican government has specifically targeted the installation of casinos in tourist-driven areas. Back in 2015, Mexico prepared to authorise the construction of casinos in popular tourist resorts, including Acapulco, Baja California
and the Mayan Riviera.
The development of casino resorts in tourist-saturated areas would give heed to the fact that government officials are attempting to deter locals from participating. The country’s Interior Minister previously stated that the government intended to keep new casinos from “springing up in urban areas, where they’re more likely to rely on local clientele”. However, Lazcano and Del Real add that there are currently “no designated exclusive areas for casino developments, so the viability of every project filed by the operators is equally analysed by the Secretaría de Gobernación (SEGOB) through the Directorate General of Games and Drawings, whether it is located in any of these tourist-driven areas.”
Whilst it may be a plausible argument that developers are more likely to get consent in touristic locations, this does not seem to have a direct coalition with the government’s plans to deter locals. The Mexican law firm partners add: “Primarily tourist-driven destinations in Mexico are attractive enough for tourists regardless of having casinos installed therein or not; although it is not inaccurate to say that those locations with casinos undoubtedly benefit from their operations.”
Within the first decade since the issuance of the Gaming Regulations, casinos have proven to have had the biggest impact among Mexican consumers. To date there have been around four different attempts to curb the gaming laws in Mexico to ensure the government has enough authority over the casino industry. Earlier this year, Senator Jose Maria Martίnez expressed concern about how one third of the estimated 100,000 slot machines installed across the country are not certified. He highlights the fact that a vast increase in the number of uncertified slots was due to the 2004 amendment of the 1947 Act, allowing casino operators to expand their services. The fact that so many machines are left unregulated means that players have zero assurance that the games they are playing are not fixed. According to a report on G3Newswire, Senator Martίnez stated: “The legal vacuums that persist make it difficult to regulate this activity, while the number of bookmakers, games, and raffles continues to grow with electronic scrap or uncertified machines.”
Drew Pawlak claims that these ‘uncertified’ slots are bound to be certified somewhere else in the world. The issue at hand is which official body is in place to effectively regulate and ensure what is certified in this field. “Think of it like this: there are three regulatory pillars. The first pillar is a very clear law and framework supported by the government. The second is a solid administration process that creates the rules within the framework. The third is the ability to enforce those rules fairly and equally across all industry stakeholders. If you lack any one of these pillars, the foundation is unbalanced. In Mexico’s case, all pillars are a bit uneven.”
Lazcano and Del Real further state: “Gaming operators are reluctant to become transparent with regards to their machines due to ‘legal holes’ in the legislation. Current Mexican legislation still does not establish mandatory certification for gaming machines.” The push to alter the country’s gambling legislation is more out of concern for the lack of governance and the controversy that has surrounded the issuance of gaming licenses by SEGOB. Senator Martinez’s desire to get the bill through the Senate as a matter of urgency becomes increasingly clear when evaluating the lack of safeguards put in place for those playing in this unfettered market.
Pawlak establishes that these legal inconsistencies exist due to the unstable nature of Mexico’s legislative framework: “Part of the challenge in Mexico is that there is not one department that administers gaming in the country of each state; rather, there are many. So, if there was a formal gaming commission set up at the federal level, whose sole focus was to maintain operator licensing, manufacturer registration, and game and approval authorisation, it could streamline and stabilise the market. Then, if each state had its own local authorisation department that could oversee casino placements, employee licensing etc. it could be much easier for all stakeholders.”
Furthermore, legislators want “umbrella licenses” prohibited, as they give operators the ability to run a number of sports betting shops and slot parlours under one gaming license. Additionally, the government intends to abolish the authority of local courts from protecting casinos and issuing stays of closure when they are found to be breaching current gaming laws. The legislation will allow operators who have licences under the 1947 Act to continue to operate until their license expires, after which they will have to apply for a new license meeting all of the stipulated requirements. Although the proposed gambling law revamp promises to deal with a number of pressing issues, the legislative process in Mexico can be slow and often unclear.
Whilst casinos create a number of legal conundrums, Mexico’s iGaming industry is really starting to pick up some traction. According to analysts, the country holds great potential to turn into a popular hub for international iGaming operators. “In the past year we have seen a prodigious growth in preferences for online gaming,” affirms Del Real and Lazcano. “A change in the regulation of the gambling industry would result in an even greater impact of not only online gambling but other types of online betting or social activities too, such as Fantasy Sports, eSports etc. which would promote a full entry of larger international corporations into the local market in the future.”
Currently, several of the larger operators are already authorised to offer iGaming in Mexico, “but again, there is inconsistency as to who can do this, how it can be done, and how suppliers can comfortably operate in this market and still be compliant in more formally-regulated markets,” affirms Pawlak. With no clear guidelines to follow, problems arise for local operators when the larger offshore companies want a slice of the pie.
As Lazcano and Del Real verify: “Some major local operators in Mexico could be blocking a necessary and more modern legislation focused on setting wider grounds for the legality of iGaming, which would allow major online international operators to make an easier choice when deciding whether to make a straight incursion into the Mexican market or not, representing more competition for these local operators.
“This seems a little bit absurd since currently the grey offshore operators are already obtaining huge profits from Mexican gamblers but these operators are not being enforced to comply with the provisions of the Gaming law and the Gaming Regulations, which gives them considerable advantage over Mexican operators that are indeed not only forced to comply with such legislation, but also to pay local taxes to the Mexican government.”
Miguel Angel Ochoa Sanchez has vocally expressed his disdain for the offshore companies who fail to operate within the country’s borders without contributing any benefits to Mexico. “Online gaming is very worrying, because it is growing exponentially and we cannot control who comes to play or if that person is underage. There are firms like American PokerStars.com or Bet365.com, who do not pay taxes or create jobs in Mexico,” he said. “The money is going to their countries.”
All the issues raised would make you question as to why anyone would want to slow down this process of legislatory amendments. However, as Lazcano and Del Real point out: “Unfortunately some groups supported or integrated by legacy operators keep blocking the passing of the new law or any amendment to the existing framework, arguing that no changes need to be made, since they may want to preserve their current status quo, as the legislation in force would continue helping them on their way to obtaining substantial control of the gaming industry in Mexico.”
Looking to the future, the proposed gaming law would bring some essential federal oversight to Mexico’s booming gaming industry and it’s not a matter of “if” but “when”. The updated piece of legislation would undoubtedly strengthen the oversight of the Gaming Regulator, creating a more transparent marketplace, opening doors for new operators, whilst promoting a healthier coexistence between the operators, players, supplier and authorities. As Pawlak confirms: “We all hope a more stable market is created. With added stability, I think Mexico could be a great global gaming market, but until there is stability, operating in Mexico will still have its challenges.”