GGB is committed to providing updated news and analysis on our weekly news site, GGBNews.com.

Gaucho Gaming

The casino industry in Argentina and Uruguay is changing, maturing

Gaucho Gaming

Casinos in South America have their genesis in Argentina. The first casino opened in Mar Del Plata in 1939. Uruguay has an equally rich gambling history, beginning with horse racing and progressing to gaming.

ArgentinaÆs gaming industry has mushroomed in size since a 1993 change in regulations forced the stateÆs divestiture of gaming assets and the transfer of administrative control from the federal Loteria Nacional (the National Lottery)ùwhich operated only a handful of state-owned casinos at the timeùto authorities in each of its 24 provinces. Thus, the countryÆs operating model became fully privatized, and its governance decentralized, and the provinces gained the autonomy to individually regulate and tax what would become todayÆs thriving collection of privately owned and operated gaming facilities.

Argentina is now home to 135 casinos and game rooms (home to an estimated 45,000 slots and video bingos) which last year generated an estimated $2.5 billion in revenues. The unanswered question weighing over the entire market is, after 15 years of booming growth, where things can go from here.

By contrast, the primarily state-owned Uruguayan gaming sector, weighed down by years of floundering performance at its casinos followed more recently by a series of scandals from its state gaming administration, is just now finding itself forced into the crossroads of privatization. Uruguay has 15 casinos and 26 gaming rooms (which house an estimated 5,600 slots), of which only two are privately owned and operated. However, whereas the stateÆs corruption entrenched and dismally performing casinos are taxing both the publicÆs wallets and their patience, the privately owned projects have become largely profitable and gone on to provide substantial economic benefit to municipal economies in which they reside.

Economists would argue that it has been the governmentÆs interventionist tendencies, which undermined UruguayÆs ability to take off alongside Chile in the recent economic boom there. And, in reference to the countryÆs casinos, it is the average Uruguayan who has asked the government to get its act together or get out altogether.

Uruguay: Impending change?
The probing of casino management at the state-owned facilitiesù in an attempt to answer why UruguayÆs public casinos donÆt perform in any way close to their private counterpartsùultimately led to serious charges of corruption being filed against senior government officials. While state-owned casinos are mandated to contract private companies to provide slot machines and other services, the Uruguayan GovernmentÆs former national director for casinos, Juan Carlos Bengoa, is currently facing charges of corruption over allegedly fraudulent contracts he awarded to close associates for certain casino services between 2000 and 2005.

Just last monthù less than a year after BengoaÆs removalùhis replacement, V?ctor Hugo Ozano, along with the national director of customs, Luis Salvo, were also both removed from their positions under suspicion of a new round of corruption related to state-owned gaming operations. The latest political fallout comes as the state is finalizing a selection process which began last year when it effectively decided to privatize MontevideoÆs historic Hotel-Casino Carrasco by opening a tender to award a 30-year management contract for the casino to a private company. In a seamless transition to new leadership (the state has since appointed its newest director for casinos, Fernando Nopsitch), the tender process has so far gone unscathed.

Under the terms of the tender, the winning bidder will agree to restore the CarrascoÆs once-prestigious hotel, closed since the early 1990s, but will also take over management of its underperforming state-run casino for the duration of the 30-year contract.

The municipal council of Montevideo began evaluating offers in May in collaboration with the National Corporation for Development. A point system is being employed to determine the winner, with five points awarded for projected employment and salaries, five for plans to attract international tourists and wealthier patrons and 10 points for expertise in hotel and casino management. Four leading hotel operators have entered the bidding for the Carrasco contract, including Hyatt and Accor, the latter of which would operate the casino alongside Spanish gaming group Codere.

At present it is uncertain when the government will release the final decision. Ultimately, though, the tender winner will join in the HarrahÆs operated property at the Conrad in Punta del Este, a major international tourist destination, and at the Maro±as race track (operated by Spanish firm Codere), as the countryÆs third privately run facility.

Uruguay is geographically well positioned between two immense population centers in Argentina and Brazil, with a relatively well-off local population to boot (relative to comparable Latin American economies). The country is home to more than one well-established international tourism destination, and the Uruguayan government is also leaps and bounds ahead of most in the implementation of systems to counter money laundering in casinos, which combined with generally stable politics and economy make the country a good match for foreign investment dollars. With underperforming state operations clearly not able to realize available market potential, there is much to be gained by increasing the number of independently operated (professionally managed) facilities in this market, and the environment is ripe to garner the participation of more top operators to make this happen.

However, it is too early to tell if the “new” gaming administration under the leadership of Nopsitch will steer clear of scandal long enough to drive a more rapid privatization of the stateÆs remaining facilities, or even if continued privatization is his intent. While the countryÆs gaming industry is certainly well positioned for growth if the new leader can deliver the privatization scenario, absent this, it is likely things will only continue to deteriorate.

ArgentinaÆs Next Steps
As Uruguayans contemplate the structural underpinnings of their gaming sectorÆs future, operators in Argentina search for ways to extract more from the market and jostle for the positioning necessary to achieve it. The blaring consensus is that Argentina still has much untapped potential. The question remains, however, “What is the best way to tap it?” In the countryÆs largest markets, such as in and around Buenos Aires, the situation is likely to become generally more competitive as projects and strategies become larger and/or more sophisticated in an attempt to find an answer to that question.

Outside of the capital region, however, smaller branded and independent facilities alike (typically ranging from 100 to 300 slots with 10 to 20 table games) continue to grow steadily in number, servicing smaller cities and towns in these regionsùbut continue to comprise the majority of the countryÆs supply. Similarly, larger markets like Mendoza (the fourth-largest city in the country) are still receiving attention from major regional playersùChileÆs Enjoy is developing a $65 million hotel casino in the city.

The Federal District, generally thought of as the Buenos Aires metropolitan area, is controversially the only city in Argentina that remains under the authority of the Loteria Nacional, despite a 1994 legislative amendment, which dictates that the Federal District should be, like the provinces, fully autonomous in this respect. Casinos are banned in the Federal District, but bingosùhousing an estimated 10,000-12,000 slotsùare permitted, and 46 of the facilities exist along with two full floating casinos that operate on the waters of the Port of Madero, close to downtown Buenos Aires, protected from the district ban because they technically operate on federal water.

The Trilenium Casino is also located in El Tigre, a Buenos Aires suburb, and also caters to the Buenos Aires metro area market. The facility currently hosts 1,800 machines and 75 tables. Within South America, it is presently only rivaled in size by Sun InternationalÆs Monticello Casino which recently opened outside of Santiago, Chile.

In addition, Argentina will soon also be able to claim that it hosts an even larger casino facilityùthe Casino de Rosario complex being built in Rosario City (the third largest city in Argentina). The Rosario entertainment complex is a joint venture between Spanish gaming group Cirsa and ArgentinaÆs Casino Club that will include 80 gaming tables and 2,000 slots, a five-star hotel, and a conference center.
 
Because gaming operations in the Federal District fall under federal jurisdiction, unlike the countryÆs provinces, the municipality is forced to share tax revenues with the federal government and furthermore is unable to exercise any input or influence on the taxation levels. This has caused increasing frustration among city politicians as they struggle to find ways to meet the growing budgetary needs of the city.

In this context, the ultimate outcome from the clash between the Loteria Nacional and the ravenously budget-strapped Buenos Aires political machine may prove to unlock some previously unavailable plays in the countryÆs largest market.
   
Capital Idea
For example, Mayor Mauricio Macri was elected in Buenos Aires last year on a platform of achieving greater autonomy for the capital city. Consistent with this, he openly sought to bring regulatory oversight of gambling under the municipalityÆs control. However, in a recent turn of events, the mayor submitted a proposal last August that would fully cede control over gambling activities within Buenos Aires city limits to Loteria Nacional, according to local media reports. In return, however, the mayor has demanded the city be reimbursed with a higher proportion of casino revenues.

Were this measure to pass, while likely accommodating the cityÆs fiscal goals, it also has potentially large implications for the gaming supply in the city of Buenos Aires.
Before he left office, former Argentine President Nestor Kirchner extended the validity of Casino ClubÆs permit to provide slot machine gaming at the Palermo racetrack (located within Buenos Aires city limits) until 2032, and further gave permission to install an additional 1,500 machines at the venueùpresently the site already holds the greatest number of slot machines at any single facility in the country with 3,000.

Casino Club is owned by Argentine gaming magnate Cristobal L?pez, a man with well-known personal connections to the former president and his wife (the current president) Cristina Kirchner, which many in the industry and the Argentine press speculate has driven his wild successes in the national gaming industry. Casino Club also owns 50 percent of the floating casino operations in Puerto Madero, a stake in the Rosario casino, and a substantial number of other casinos operating in primary and secondary markets throughout country.

On top of his expanding operations at Palermo, L?pez has openly lobbied for some time to receive a license to operate up to 5,000 new slot machines at the San Isidro racetrack, located 12 miles outside of downtown Buenos Aires, but he previously received stone-wall opposition from former Buenos Aires Governor Felipe Solß (as well as the ArgentinaÆs politically influential Catholic Church), and thus his efforts proved fruitless.

Now, however, against the backdrop of potentially expanded federal jurisdiction that has been proposed by Macriùwhich entitles Mrs. Kirchner to remain directly involved in permit decisionsùSolß has been replaced by former Nestor Kirchner vice president Daniel Scioli, contrastingly an avid and open supporter of the installation of slots at San Isidro. So, with the biggest roadblock removed, the second racino now seems a plausible near-term outcome under the assumptions that Loteria Nacional remains in control of the jurisdiction and L?pez would now choose to utilize to his supposed Kirchner connection. While such an outcome is not likely to occur without substantial resistance from existing Buenos Aires operators and further church opposition, L?pez has in the past proven himself a tough opponent ins such battles.
 
The Argentine press has further speculated that L?pez lobbying for operations in San Isidro is largely an effort to distract his opposition from the real play he may be making for the financially distressed La Plata racetrack, a similarly golden opportunity to cannibalize a substantial amount of Buenos Aires slot play. And still others take it a step further and assume that Casino Club is after both locations. For his part, L?pez has only directly stated that he seeks further investment in the countryÆs gaming industry for his Casino Club.
 
The Buenos Aires metropolitan area contains approximately one-third the countryÆs population in a very concentrated area, thus drawing the largest facilities and the largest amount of operator interest.
 
An expansion of the Palermo slot operation within the city limits along with the addition of slots at the most accessible San Isidro racetrack (and possibly also at La Plata), as discussed in the above scenario, would surely have harsh implications on these comparatively less accessible facilities immediately outside the city, but even more so on the smaller bingos within the city limits.

Dino Guiliano is Principal & Managing Director at DGSA International--collaborators and partners in planning and executing the international growth initiatives of the world’s premier gaming and hospitality firms. DGSA is based in San José, Costa Rica with affiliate offices throughout Latin America.  He can be reached at [email protected].