Many a seasoned industry veteran will give you an expression of complete disbelief when you recite the details of the growth of the gaming market in Mexico. Their skepticism is understandable.

Mexico has been its own worse enemy with a history of false starts and unfulfilled promises when it comes to legalization efforts. Failing to get the necessary regulatory approvals nearly ruined Autotote in the 1990s, and only a few years ago much noise and fanfare were made during President Vicente Fox’s administration that new legislation was imminent and casino doors in resort destinations would open soon. Again, nothing ever materialized.  

Not much has been written about Mexico gaming either, even though prominent manufacturers are involved, including Bally Technologies, IGT and Multimedia Games. These three vendors alone have more than 17,000 machines in operation in an industry estimated at 30,000 to 35,000 units nationwide. This shows the Mexican market as being larger than most U.S. jurisdictions. And what is even more striking is that by most estimates the unit count could double over the next two to three years, making Mexico one of the top growth markets in the world.

So why is there so little press?  One primary reason is the absence of a major North American operator. However, some of the most esteemed Mexican companies are deeply and irreversibly committed, including longtime race and sports book operator Caliente, Entertainment and leisure leader CIE and one of Mexico’s pre-eminent companies, Televisa, a media and entertainment powerhouse. Two of Spain’s best-known operators, Codere and Cirsa, are both key players. Codere is by a wide margin the largest with more than 100 facilities currently operating under management with its partners, Caliente and CIE. Codere has remained much of a secret, but now that it’s gone public on the Spanish stock exchange you will be hearing much more about them. Codere is the largest operator in South and Central America and Mexico with 50,000 machines in its casinos and bingo halls.

Another possible reason for the light coverage is the type and size of the facilities and the products in those facilities. Many of the properties have fewer than 100 machines with the staple being an electronic bingo product which is more akin to the so-called Class II games in the tribal markets of Oklahoma and Florida than the glitzy casinos of Las Vegas. The customers are almost all locals. For even in the U.S. border towns the difficulty in crossing the border, combined with a recent upswing in violence, has all but ruined the American tourist market.

But don’t be fooled, there are ample opportunities for profits. Impressive, too, is the attention to quality, services and brand management offered by the leaders — Caliente, CIE and Televisa — at their facilities, exemplified by the US$40 million expansion and restoration of the famed Caliente race course in Tijuana, now known as Agua Caliente Casino and Resort, which offers 1,000 electronic gaming machines and approximately 5,000 gaming spaces, including a race and sports book and live bingo and an expanded adjacent soccer stadium that stands as a showcase for the potential of other facilities. While not as grand as the offerings at Caliente, many other facilities also deliver a high quality and variety of product, including expansive live bingo operations and race and sports books with tiered offerings to satisfy the discriminating tastes of even the most elite punters.

But one of the more limiting aspects is the absence of table games. New products that offer versions of electronic roulette, craps and Sic Bo have recently entered the market. These not only show promising revenues, they also represent variety and access to a new player base and products that invigorate the facilities with shouts of excitement and commotion.

The final reason for the media silence on Mexico gaming is that it is not yet acknowledged as an industry. Its message of a bright future, offering profits, capital investment and employment by the thousands, has been muted by an environment that lacks standards and clear rules and is further drowned out by the seemingly endless headlines created by illegal operations, corruption and crime. 

OBSTACLES TO OVERCOME

The first necessary element for the creation of a successful industry is the establishment of an effective regulatory system. This means that rules must be established, and adherence by its constituents to those rules must be enforceable, and if the rules need revisions then it should be done with transparency and with the participation of the affected parties. This is not news to the leaders of gaming in Mexico. They are abundantly aware of the issues and are taking steps to address them.

To understand this more fully it helps to begin with a discussion of the basics of how gaming in Mexico is governed and the processes that are in place.

The modern era of gaming was established when new rules were promulgated and new “permits” (permisos) were issued in 2005. Under these rules, permit holders were allowed to open facilities offering race and sports books, electronic bingo machines and other numbers games and live bingo as listed on their permits, all under the watchful eye of an office of the Ministry of Interior known by its initials as SEGOB. SEGOB’s responsibility is to interpret these rules and regulations and certify the compliance of permit holders with those rules, including the games offered for play. The rules, however, are not sufficiently comprehensive to address many issues and they lack transparency so that participants can build upon each approval or decision. These weaknesses are compounded by the difficulty in clarifying or changing the rules since most require legislative action. The end result has been a series of ad hoc approvals and a lack of uniformity and standards which in turn has led to confusion among both operators and manufacturers. More aggressive operators have exploited the tenuous legal system by going to the courts to obtain amparos, which are similar to temporary restraining orders and allow them to operate games without the approval of the Ministry of Interior.

While it’s enough to make legitimate participants want to throw up their hands that is not what has happened. Quite the contrary. The industry has responded by forming a strong group, the Associación des Permissionarios des Juegos y Sorteos (Association of Gaming and Lottery Licensees), to fill in the gaps in the rules and standards and institute a private model of governing until SEGOB and the central government can shore up the legislative edifice. The Association, which is open to all legal operators, is headed by Alfonso Perez, former president of GTECH Mexico. The group’s mission, said Perez, is “to create and promote a better understanding of the gaming-entertainment industry and [promote] its organized and responsible development through a long-term vision.” He has identified the economic development of the country within an environment of security, legal certainty and transparency as a key part of its vision. The Association has also embraced manufacturers, some of whose key members include IGT, Bally, Multimedia, Zitro, FBM and Video Gaming Technologies. It is also addressing the need for standards, testing and regulations and has selected NYCE, an independent Mexican-based testing laboratory, to help in these critical areas. NYCE, through the efforts of Carlos Pérez Munguía, has bolstered its reputation by aligning itself with the world-renowned Gaming Laboratories International to increase its capabilities for high-quality testing and other services. The NYCE/GLI alliance could prove to be a valuable resource for SEGOB as they expand their technical knowledge and oversight.        

A FUTURE OF PROMISE

The issue of integrity is also being addressed, and several companies have voluntarily taken significant steps to strengthen their international reputations. Compliance programs and committees were limited mainly to American companies at first. Now Caliente and Codere have both established formal compliance programs and retained prominent former law enforcement officials to ensure adherence.

Eduardo Hernandez, president of Caliente, stated, “We recognize that business has irreversibly changed and we now operate in a global industry and to maintain competitive advantages we have to not only meet our own high standards of integrity but must be more transparent and able to demonstrate it to our many new partners.”

The same is also true for Zitro, a Spanish company that has more than 6,500 gaming machines in operation in Mexico and is widely recognized in the country for its high-earning products and consistently successful new product introductions. Johnny Ortiz, its president, has bolstered compliance efforts because he believes that Mexico could be a springboard for Zitro’s expansion into other markets, particularly those with a significant Spanish population.

Notwithstanding these many successes, much work remains to be done. Observers are impressed with the thoughtful strategy of the Association of Gaming and Lottery Licensees and the steps taken so far. With only about half of the available licenses issued actually in operation there is simply too much opportunity and resolve on the part of industry leaders for Mexico not to flourish. Greater attention to underserved areas such as marketing and player development will also stimulate growth. For manufacturers the opportunities are significant as the market continues to grow and new products such as electronic multi-player table games complement the existing product and not only command more floor space but allow for existing facilities and those under development to become larger and more economical to operate. The market can easily support more than 60,000 units.

Operators are in a prime position with ample opportunities for growth through the addition of new facilities and the further refinement of existing ones. The threat posed by illegal operations will diminish as the Association becomes stronger and deprives them of access to the better products of its membership. While illegal operators may not be eliminated entirely they will not thrive and will be limited to no more than a regional or local presence. The Mexican government, with its hands full with other more pressing concerns, will eventually become active in its enforcement efforts. Until then it is in a much better position now to focus on more modest improvements such as standards and regulation. 

Achieving all of the above will inevitably lead to the attraction of large North American operators who will come to see the Mexican market as a safe and attractive investment and will add a tourist/destination gaming element to what is currently a locals-only market. They also will seek out the best local partners in an effort to bring some of the majesty they have created elsewhere. 

What we’ve seen as a history of false starts and unfulfilled promise may have been in reality the awkward first steps in Mexican gaming’s emergence as a major industry.