In the third instalment of iNTERGAMINGi's emerging market analysis, James Walker takes a closer look at the diverse, enigmatic and colourful region of Latin America

A recent report from the Centre for Telecoms Research indicated that there would be 30 million broadband users in Latin America by 2011. This figure alone, which represents a three-fold increase on 2006, immediately and effortlessly seems to substantiate the increasing claims that Latin America is the next hot spot for i-gaming firms.

Economic risk in the area has indeed substantially decreased over recent years. This, coupled with a projected GDP growth that hangs around mid single-digits for many key countries in the region (Argentina, 5.6 per cent; Panama, 6.5 per cent; Uruguay, 4.9 per cent), has resulted in Latin America attracting a great deal of interest from some of the leading players in the global online gambling industry.

In March 2007, 888 Holdings acquired the bingo business of Globalcom for US$43m in an effort to increase its liquidity in the wake of the UIGEA. More recently, the company announced a tie-up with one of Latin America’s most popular poker brands, Tower Torneos, which will see the two companies work together to develop a series of bespoke online games in the region.

This gradual shift towards Latin America has been mirrored by numerous companies, with high-profile deals being struck in the area by Bwin, Playtech and BetonSports, to name but a few. However, while the region certainly holds a great deal of potential, experts in the field have warned that Latin America is not a market to be entered into lightly.

When questioned over which forms of gambling were most popular in Latin America, James Kilsby, a spokesman for regulatory information firm Gambling Compliance, highlighted the fact that the region (which measures 21,069,501sq.km) should never be treated as a monolithic entity: “It is important to remember that there are many cultural differences between the different countries in the region - and sometimes vast differences between the different regions within a given country - so making generalisations is extremely difficult,” he said.

In exploding some of the more typical stereotypes, it immediately becomes apparent that the Latin American market is far more complex than one may have initially first thought. For example, although Roman Catholicism is the dominant religion of the region as a whole, it must be noted that Protestantism is growing steadily; Guyana and Suriname have significant Hindu and Muslim communities; and Jewish communities can be found across South America. Moreover, although Spanish is the most widespread language of the continent, the majority of South Americans (51 per cent) speak Portuguese, the official language of Brazil. Dutch is the official language of Suriname; English the official language of Guyana; and French the official language of French Guiana.

Taking a cursory glance at these two basic cultural markers thus reveals a huge spectrum of diversity, and this only increases as one ventures further into Latin American culture.

Entering the market

Fernando Ors is chief development officer for Codere, which, after 25 years of operations, has become one of the principal operators in Latin America. “When it comes to entering the market, region-specific cultural knowledge is hugely important for creating value in any gaming business,” he told iNTERGAMINGi.

Kilsby stressed that this ‘knowledge’ can be obtained through strategic alliances and conducting business through a reliable and respectable partner: “There are undoubtedly a great many challenges. The fundamental starting point is establishing contact with reliable local partners who have knowledge and experience of the market you want to target, and who can keep you fully up to date with the political and regulatory climate.”

Steve Quinn of GB Group, which provides electronic age and identity verification solutions to the gambling industry, added: “There is a clear opportunity for traditional and online gambling operators in South America, and to really make it work, they need to operate just as they would in any other developed territory.

“A clear social responsibility policy is a must - it is vital that operators make it known to governments that they are investing in non-invasive but robust systems to combat fraud and money laundering and prevent under-age players from gambling,” continued Quinn. This strict approach to social and corporate responsibility can only have a positive effect on overall customer acquisition strategy, brand reputation and, ultimately, shareholder value.”

Mobile formats

Recent research, Internet Penetration in Latin America, clearly shows just how quickly online and mobile operations in Latin America are set to grow in the near future. “Mobile gaming is set to become much more important than online gaming in terms of penetration,” said Ors. “While the mobile format still clearly has its drawbacks, within the next four years there will more than 400 million mobile phone users in Latin America - nearly a two-fold increase from now to 2011.”

Kilsby confirms this view, stating: “There is every chance that mobile gambling could outgrow the internet in Latin America. Although internet penetration is expected to grow dramatically, the mobile phone is already well on the way to becoming ubiquitous in most Latin American countries. However, much will depend on the attitude of the larger mobile phone operators to carrying gambling services on their networks, which is in turn reliant on more comprehensive regulation of remote gambling by the governments.”

“The wider Latin American market is now embracing virtual and mobile gambling,” added Quinn of GB Group. “While traditional gambling via casinos and slots is still popular, live gambling on mobile phones and via high speed, touchscreen gaming terminals is fast becoming the norm. Columbia, where gambling is estimated to be worth COP2bn, is seeing major growth in this area. In Chile, online and mobile gambling has become popular particularly for state lottery operator, the Polla Chilena de Beneficencia.”

Key countries

Argentina leads the way in Latin America when it comes to gambling stakes as a percentage of GDP, with this figure standing at 2.6 per cent in 2006. Although this is still behind the global average of 3.4 per cent, Argentina has become a major focus for international online gambling companies - and for good reason. The country has the most casinos in South America and the largest - the Casino de Tigre, with over 70 table games, 1,700 slot machines and remote video terminal gaming machines.

Argentina also has the largest percentage of internet users in South America in relation to its population (26 per cent). Historically, gaming activity in the country has been state owned, although restrictions on privately owned activity have eased, allowing for the emergence of independent operators. The recent smoking ban in Buenos Aires is also thought to be potentially beneficial to the online gaming industry, as more players of games such as bingo choose to remain at home.

Brazil, meanwhile, has one of the lowest internet penetration rates in South America, with this figure standing at just over 14 per cent in 2006. The country’s gambling industry is beset by a burgeoning illegal market, which is estimated to be worth US$7.8m a year.

Antigua and Barbuda was one of the first jurisdictions to license interactive gaming and wagering companies in 1994, and with over 30 active licensees it remains one of the world’s top online gaming jurisdictions. Antigua and Barbuda has been very proactive in regulating the offshore gaming through its Interactive Gaming and Interactive Wagering Regulations paper that enforces corporate probity and international best practices.

The Division of Gaming is committed to ensuring that Antigua and Barbuda is internationally regarded as a Tier 1 jurisdiction of choice, and its regulations and regulatory enforcement remain first rate. The jurisdiction’s regulatory regime comprises a three-pronged focus on money laundering prevention, player protection and industry enhancement.

There is currently an ongoing debate among online gambling players and providers as to the relative favourability of Costa Rica as an online gambling jurisdiction. Unquestionably, Costa Rica is a major centre of online gambling outlets because of its traditionally favourable conditions - in particular the low licence fee and loose regulations. These conditions, however, are gradually changing and the balance is slowly dipping in favour of alternative locations, most notably the gambling jurisdiction of Panama.

Panama adopted regulations governing the licensing of electronic games of chance and wagering activities in late 2002. The regulations allow master licences to be granted that are valid for up to seven years upon payment of a licence fee of US$40,000. There is also an annual licence fee of $20,000.

It has been argued by some that, as a base for online casinos, Costa Rica has become the victim of its own success. Because of the high concentration there of online gambling websites, the country has naturally enough been the origin of an equally high concentration of scams and scandals. However unfairly, this has given Costa Rica a bad reputation in the minds of a large segment of a well-educated online gambling market who know their origins. There is also suggestion that this poor reputation may not be merely statistical. The ease and cheapness of setting up has also helped to make the Costa Rican online gambling industry a hotbed of mediocrity.

It may not be time to pull out of Costa Rica, but for new entrepreneurs entering the industry, the alternatives are looking increasingly tempting. Bodog is certainly staying put in Costa Rica, but if it wasn’t for the cost of moving, perhaps it would soon be on its way to Panama too.

Despite the fact that Argentina has the largest percentage of internet users in Latin America, it is perhaps Mexico which holds the most potential for online growth in the short and medium term. A new law passed in 2004 has allowed operators to obtain permits from the Mexican government to accept bets by remote channels such as the internet and telephone as well as over the counter.

This law has attracted a lot of interested parties to the Mexican market and the 18.6 million internet users that live there. “Televisa, the world’s largest Spanish-language media company, has since entered the market and is looking to tie in its lottery games with television programming and make use of the internet,” Kilsby said. “I think a lot of operators will look at how Televisa progresses in Mexico with a view to tying up similar deals with larger media companies in other Latin American countries.”

Trade fair boom

The growth of Latin America in both the land-based and online gaming markets is exemplified in the fact that Casino Affiliate shows such as GIGSE and CAP Europe are becoming bigger than ever before. The expanding market in the region has also led to the Latin-American Gaming Fair (ELA) 2008 - planned for Monterrey, Mexico - announcing that it has increased the area reserved for exhibitors, after applications for space doubled in the space of one month.

“Mexico is an emerging market, a big market, and exhibitors want to show all these new clients that they are the best,” said Ramiro Carvajales, operations manager for the ELA. “We believe our Latin-American fair will follow the traditional pattern laid down by Las Vegas, London and Buenos Aires: large, attractive stands showcasing a wide range of products.”

Meanwhile, the leading affiliate conference CAP Euro has announced that it will be introducing a stream on the first day in Barcelona that is conducted in Spanish. Lou Fabiano, founder of CAP, commented: “The igaming market is increasingly turning its attention to non English-speaking countries, and CAP Euro wants to reflect this by bringing in localised content to its conferences.”

Looking ahead

Although there has undoubtedly been some growth through online lottery sales and a limited number of other ‘official’ products, growth in online gaming in Latin America has undoubtedly been held back by regulatory uncertainty, the relatively low level of internet penetration in the region and a lack of effective payment solutions.

Despite this, however, internet penetration and broadband connectivity is expected to grow several fold over the next few years - leading to potential for growth in the online sector. Also significant is the fact that some of the region’s larger economies have recovered strongly from the economic crises of 2001/2002. And compared to the region’s often turbulent political past, the last five years have been a period of relative stability in most countries. Perhaps this is part of the reason why international operators are starting to pay more attention to Latin America when considering their business development plans.

“There is no doubt that Latin America is a market of great potential - the real question is when will it come to truly fulfil that potential?,” said Kilsby. “So much of gaming still happens on the black market, meaning that the majority of revenue from gambling never falls into the hands of legitimate gaming operators or the governments.

“In a number of countries, the desire to tackle corruption and organised crime, as well as earn tax revenue from gaming, could lead to more stringent regulations that ultimately prove to be attractive to international operators,” Kilsby concluded.