Carlos Fonseca Sarmiento, a partner in law firm Varela & Fonseca Abogados and a member of the International Masters of Gaming Law (IMGL) discusses the challenges and opportunities for operators in the region and why Peru looks set to lead the way in a rapidly expanding online marketplace.
Which countries in Latin America currently have a legal framework for online gaming and what are the strong and weak points of the legislation for these markets?
With varying degrees of scope and complexity, at present there is regulation for online gambling in Peru, Costa Rica, Nicaragua, Colombia, Panama and several provinces in Argentina. Of these, I think that currently you could say that Peru is most advanced because it allows operators the option to offer their service from abroad or to be based in the country. Despite this, however, there are still issues with the tax burden and problems with processing payments. Several other countries also share this problem with the impact of taxation, for example, in Colombia, which additionally has the restriction that only Colombian residents can play. That is, a foreign tourist can gamble in a landbased casino or buy a lottery ticket but they are not permitted to play on an internet site licensed by the regulatory authority, Coljuegos. Panama has the opposite issue – while it was the first country in Latin America to regulate online gambling – Panamanian residents are still not allowed to gamble online. In Nicaragua, only the operators of landbased casinos can offer iGaming, for which they can partner with foreign online operators. In Costa Rica, there is no regulatory authority that oversees online gaming, although the same is true in Peru. The strong point, however, is that the market continues to expanding, and all the operators based in these jurisdictions are seeing growth, despite their legislatory limitations.
How much demand is there for iGaming in Latin America and how big is the potential market?
I can confirm from my experience with Latin America- facing companies, particularity those operating in Peru, that in the last two years they have seen their business grow by more than 100 percent. The Latin American market still has no limits to its potential to expand, while the main online operators have previously concentrated on Europe and Asia, they are just now entering South America. However, the principal markets in the region – Brazil, Mexico, Chile and Argentina – present several legal challenges, since in Brazil and Chile online games of chance are illegal, while in Argentina, the problem is that each province is a separate regulatory jurisdiction. In other countries, due to lack of regulation online gambling has not yet been introduced on a large scale. Additionally, even in the case of those jurisdiction where it is legal, such as Peru, many international operators are not aware that they can offer their games online, irrespective of whether they are based in the country or offshore. But this will gradually change, what we’re seeing in Panama, Nicaragua and now Colombia, is that governments are beginning to see the potential of the industry and are looking to encourage the development of the online sector.
What are the legal and economic considerations for businesses operating in this sector?
There are four issues that need to be taken into account: i) The legal framework, i.e. whether iGaming is prohibited, and in the case that it is, whether this restriction applies to all online gambling actives or solely games of chance. ii) Intellectual property, operators need to register both their domain names and their trademarks. iii) Payment methods and payment processors, operators must look at the relationship between the banks and the gambling industry in the country, in addition to the customary means of payment for players, e.g. credit cards, electronic wallets etc. iv) Marketing, how to build and retain a user base. It is necessary to establish how best to advertise to reach the market, via advertisements on television or in newspapers, sporting sponsorship, endorsements etc. Additionally, customer service policies, customer tracking, and use of social networks play a role.
There is a strained relationship between the banking and gaming sectors in Latin America, with many banks declining to offer their services to operators. How does this situation affect the iGaming sector?
Unfortunately this is the reality, the main banks in the countries where online gaming is legal have a policy of not accepting online gambling transactions due to concerns surrounding money laundering. Although in practice, there are companies that are accepted by these banks, which indirectly allow the transaction to be processed. In Latin America, where e-commerce transactions are not yet well established, many players use direct banking channels to make their transactions or deposit their bets, for example through deposits or direct online transfers to operators’ bank accounts. In other cases, it is necessary to hire companies that provide payment services to demonstrate to the banks that the transactions are transparent. When all is said and done, if there is demand for online gaming, then the operator and the player will see how to make their relationship work, with or without the banks, but it’s true that the difficulties over the issue of transactions continues to hinder the sector.
To what extent does the client base for land- based casinos and online businesses overlap and what are the opportunities for landbased operators to expand into the online sector?
In my opinion they are distinct industries, while generally speaking both are in the entertainment sector, they cater to different market segments. That said, nothing prevents a landbased casino operator from seeking to enter the online sector, but if they want to be successful then they need to understand that it is a different audience. Slot machine parlours, for example, have a target audience that is comprised of women over 45, whereas players online are generally men between 30 to 40 and the focus is on sports betting. But now we also have the millennials – people between 19 to 36 years old – hooked on eSports. Games such as League of Legends for example, must have around 70 million registered users, more than double the population of Peru. More and more people are betting on eSports, and as technology advances, online games will have to do so as well.