The best bet: The gaming industry is expected to register rapid growth

A surge in the gambling industry in the past seven years has prompted a review of the legislative framework regulating the industry. Mexico’s gambling industry is the second-largest in Latin America after Argentina, generating annual revenues surpassing $10bn. With a new law expected to be introduced in 2014 bringing transparency, the industry is set for continued growth.

OLD LAW: The Federal Game and Raffle Law (Ley Federal de Juegos y Sorteos), which dates to 1947, prohibited gambling and betting outside of designated sports and attributed regulation and enforcement of industry activities to the Secretariat of the Interior ( Secretaría de Gobierno, SEGOB). In 2004 a new regulation was introduced, which, while not legalising gambling per se, is vague enough to allow gambling activities in SEGOB-authorised establishments. Even so, with the technological advances of the past few decades the federal law has become obsolete, leaving areas such as online gambling outside of the legislative scope.

The 2004 regulation attracted investment and foreign players. Firms were encouraged to invest in Mexico to distribute slot machines, as an expanding industry replaced the previous bingo-type machines with Las Vegas-type slot machines. The slot machine business has been particularly profitable. Mexican casinos have anywhere from 200 to 1000 slot machines, while large European casinos have on average 200. There are currently around 400 legal land-based gambling centres, while SEGOB has a total of around 800 licences to be awarded, which means the market has reached only 50% of its present potential.

The legislative vacuum and the amount of uncontrolled growth has led the current administration to reconsider the current legislative framework. As of March 2014, SEGOB was finalising a proposal expected to be introduced to Congress in the next legislative session, which begins in September. According to local media, the proposed bill would replace the 1947 law to bring clarity and create a stable framework for investment. One aspect of the proposal is the creation of a National Gambling Commission, an independent body that would oversee licensing, regulation and enforcement and include representation from the ministries of both economy and tourism.

THE PROPOSAL: One important aspect the new law would cover is online gaming, currently unregulated in Mexico and valued at a minimum of $300m annually. According to the international consulting firm H2 Gambling Capital, Mexico is the fastest-growing market in online gaming in Latin America and is expected to continue to grow at a fast pace in the short term. The proposal aims to prevent illegal online gaming and illicit operations associated with it, such as money laundering, while earning additional tax revenue and bringing added protection to the consumer. Since there is no framework in place for online gambling licences, to date SEGOB has awarded only three permits for online betting for land-based casinos to Grupo Caliente, PLJE7 and Betcris. Of the $109m in annual tax revenue paid by casinos, only 3% is derived from online gambling by the three authorised casinos. The bill also seeks to curb the growing number of unlicensed casinos, which according to SEGOB amounted to a fifth of casinos in 2012. The added transparency and clear framework for businesses is expected to attract a significant amount of investment, in particular from the US whose presence in the casino business has yet to be felt. A number of foreign companies already have a presence in the Mexican market. Colere is the biggest foreign company operating around 100 casinos, accounting for around 20% of the market. Prisa, a Colombian outfit, also owns around 20 casinos.

There are also signs that the industry is beginning to target tourists. The Association of Licence-holders, Operators and Suppliers of the Entertainment and Gambling Industry is pushing to have hotels in destinations such as Cancun, Los Cabos and Puerto Vallarta add slot machines to their entertainment offering and anticipates the installation of 20-30 slot machines in hotels in beach destinations as early as 2014.

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The Report: Mexico 2014

Tourism & Entertainment chapter from The Report: Mexico 2014

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