By Alfredo Lazcano (*)

"Casino revenue is decreasing worldwide and Mexico is not the exception"

Alfredo Lazcano is a Mexican Attorney specialized in the Gaming, Sports and Entertainment Industry with twenty years of legal experience. Is a General Member for Mexico at the International Masters of Gaming Law (IMGL), an Affiliate Member of the Association of Gaming Equipment Manufacturers (AGEM), and Legal Advisor of the Committee for AGEM Mexico. He regularly contributes as speaker in main international events, as well as article contributor in the most important gaming publications; his academic work in those fields usually focuses in combating illegal operations, responsible gaming, as well as best practices and technical standards. Since 2001 is Partner at Lazcano Sámano, S.C., one of the law firms with major experience and reputation in the Latin-American gambling sector, with offices in Mexico City and operations in Mexico, Panama, Bolivia and other important jurisdictions of the same region.

Mexico 
| 06/10/2015

Historically, Las Vegas, Nevada, is the casinos Mecca per excellence; however, very few people in this industry know that revenue in this iconic gambling lieu has been completely stuck since 2005. Alfredo Lazcano and Francisco Del Real from Lazcano Sámano, S.C. reveal some interesting facts about the current status of the gaming industry and the potential in Mexico.

Indeed, ten years ago, Sin City used to generate 9 Billon US Dollars a year, which is more less the same earnings currently reported in 2015. This means that, in terms of traditional gambling profits, nothing has changed in the last decade at the Strip, even when back in 2005 some of the newest mega casinos like Wynn, Palazzo, Encore, Aria, Cosmopolitan, which have added around 30,000 slot machines altogether since then, were not open yet.

Other US jurisdiction that used to ever shine during the 80’s and 90’s, Atlantic City, New Jersey, has suffered a decline in profits at its casinos, so much that in a same period of time four out of twelve casinos have been closed, according to observers.

Moreover, the biggest gaming market in the world, Macau, fell 49% in early 2015; undoubtedly an enormous and impressive loss, especially if we bear in mind that this premier Chinese jurisdiction generates approximately five times the revenue of Las Vegas.

Now, in connection with Mexico, the Ministry of Treasury has reported a decrease in the Special Gaming Tax (IEPS) income greater than 10% diving from a peak of nearly 200 Million US Dollars in 2010 to about 170 Million US Dollars in 2014.

What is causing the decline in revenues of casinos?

In our opinion, causes are many and varied, for example: the global economic crisis, the exponential growth in sales of goods and services on the Internet (e.g. online gambling), the opening of more and more casinos due to the legalization of gambling worldwide, and the anticorruption measures recently imposed by the Chinese government (for the specific case of Macau), among many others.

In the particular case of Mexico, this decrease is also attributable, in addition to the aforesaid reasons, to some closures of casinos executed by the Mexican Gaming Regulatory Body, which is observing a stricter enforcement of the law since President Enrique Peña Nieto took the administration of the country in 2012.

The same revenue decrease phenomenon is evincing in other jurisdictions around the globe, so it would be idle to refer to each of them because the falling trend is evident, and worse, unavoidable.

Is there any possible solution to the drop in the worldwide casino profits?

Yes, there could be a solution, but at the same time it means a huge challenge. Gaming Industry is looking to new generations for its own survival; the problem is that some experts believe that this generational transition is actually an “emergency situation”, as said by Gregg Giuffria, owner of G2 Game Design and former co-owner of Hard Rock Hotel & Casino in Biloxi during the 2015 Southern Gaming Summit.

Thus, the imminent opportunity for casinos to resurface lies primarily in the newcomer generation called “Millennials”, which is basically compound by the people born between 1980 and 2000. This wave of youth people is about to start inheriting the wealthiest positions in the economy from previous generations (“Baby Boomers”, “Gen X”, etc.). Statistics indicate that by 2018, this economic empowerment transition will be in full effect –and its value could reach the impressive amount of 30 Trillion US Dollars.

Millennials are already about a third of the world’s population and dominate technology of all kinds (especially the one linked to telecommunications), simply because they were born and grew up with it (videogames, smartphones, tablets, etc.); and constantly display more interaction among the multiple social networks deployed across the Internet (only 1 in 5 contacts are in person).

Like other generations, Millennials love to play; they spend an average of 12 hours a week. But they are not gambling at casinos. This helps to explain why online gambling is getting stronger and stronger every year; however, land-based casinos and online operators would be encountering the same problem if they don’t pay attention to this disruptive generational change.

The important difference with these younger generations of gamblers is that they want to do more than press a button and passively watch reels of the slot machines spin. They value the authenticity of the goods and services they buy, as well as transparency of open environments that foster social experiences.

In a few words, Millennials don’t seem to like traditional slot machines, but they would be willing to place bets on skill-based, arcade-style or competition games developed from popular titles on their smartphones or videogame consoles, like “Candy Crush”, “Call of Duty” or “Angry Birds”, at the same time they are able to share that interactivity and amusement with friends in their social networks.

Taking this into account, the gaming equipment and technology suppliers have been developing new games that eventually would supersede the traditional slot machines; there are predictions ensuring that these long-standing moneymakers of the casinos, would only occupy the 50% of any gambling space in 5 years, and only 10-15% in 10 years from now.

The biggest challenge here is that, before a new style of game is introduced at casinos, it must first overtake regulatory obstacles. Laws urgently need to be refreshed –or even rewritten– in order to allow new forms of both land based and online gambling.

Nevada is the first jurisdiction that already approved slot machines requiring skill to win or a combination of talent and luck; therefore, it is clear that other pioneer jurisdictions would be soon adopting the proper regulatory changes in order to advance in the same direction.

Mexico could be ready to enter into these new era but only if the bill of gambling law that is pending of final approval by the Mexican Senate is passed in the near future. Such bill was already approved by the House of Representatives on December 2014, and intelligently establishes a paradigm shift that allows the operation of any game that implies a bet, regardless the degree of skill or chance involved; the foregoing contrasted against the current law, which initial premise is the categorical prohibition of all games of chance and all betting games.

The Mexican bill of gambling law represents a great breakthrough and must be considered a role model in the regulation of gambling for other jurisdictions, since it’s a law that truly includes all sectors of this Gaming Industry (operators, regulators, suppliers, programmers and players); moreover, it sets a hall regulatory system around responsible gaming, and clearly sets all the tools that the Regulating Body may use to enforce the law from the beginning, providing legal certainty for both new investors and current agents.

It is expected that said Mexico’s bill of law would come into effect before the end of this year or early 2016; otherwise, the Mexican Gaming Industry may soon enter into a deep and unprecedented revenue decline (just as it has been happening to other places that are a reference in this industry), and could lose its place as one of the most attractive and biggest markets in Latin America.

By Alfredo Lazcano

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