In early 1994, a newly engaged (and very green) marketing consultant to IGT named John Long uncovered a large gaming initiative being considered by the Mexican government. That project would have allowed 60,000 video gaming machines to be legally placed throughout the country in bars, restaurants, hotels and other age-controlled locations. As controversial as it was at the time, if it had been deployed, the initiative would have created the largest geographic video lottery operation in the world. Instead the project fell victim to presidential politics in the ‘94 election year, became further complicated with the assassination of the leading presidential candidate from the controlling political party in Mexico, and was abandoned.
Four years later, after decades of being limited to wagering primarily in race and sports books — and occasionally on rifas, or number drawings, at state fairs and community events as provided in the still-prevailing 1947 law — Mexicans started seeing Spanish-style Bingo halls appear throughout the country as key operators received permission from the secretary of the interior and as regulators became more liberal in their interpretation of “legal games” and “raffles of numbers.”
Included in the 1994 project evaluation team were two key figures that would later play pivotal roles in the introduction of electronic gaming devices into Mexico more than a decade later. One of those figures was Bob Luciano, now CTO of Bally Technologies, who took note of the Mexican market as well as the laws in effect. The other was Miguel Mikasinovic, then IGT’s Buenos Aires-based regional sales manager and now the company’s VP for all of Latin America.
Luciano’s earlier inventions and product introductions by Sierra Design Group (SDG), which were somewhat concurrent with the pioneering Bingo efforts of Multimedia Games, had already helped transform the Native American tribal economy in the United States. This was based on the simple premise that legal Bingo-style games could be played electronically by employing a central server to draw numbers and by creating a visual experience for players that was similar to traditional wagering devices. The concept of an electronic drawing of numbers was again destined to play an important role, only this time in Mexico.
Starting in mid-2005, history began repeating itself when three significant equipment contracts were signed in succession with the three largest holders of multi-site permits. This was to be followed by an armada of smaller gaming suppliers, who in 2006 began rushing to enter the Mexico market as independent operators, taking their cue from the three big operating companies’ government-ordained moves into the lucrative placement of bingo-based electronic gaming.
In September 2005, Bally Technologies surprised the industry with the announcement that it had entered into a key agreement with Spanish gaming giant Codere for the potential placement of thousands of Class II-style central determination games and systems throughout Mexico.
According to John Connelly, Bally’s VP – International, that cornerstone agreement included venues where Codere had management agreements with large Mexican gaming permit holders, including Tijuana-based Caliente, the largest and most-established permit holder in the country. That initial business arrangement between Bally and Codere continues to provide Bally with recurring revenue, and Codere and its venues/partners with updated games and state-of-the-art products.
In 2005, IGT also scored a big contract for Class II games and systems — and most recently for its AVP platform — with Corporación Interamericana de Entretenimiento SA de CV (CIE), a publicly traded entertainment company with permits that allow it to open more than 60 wagering locations throughout the country.
A last significant turnkey contract for Class II-style games and systems was struck in 2006 between Multimedia Games of Austin, Texas, and Mexico media giant Televisa, which was the third and newest company to join the gaming landscape. Televisa received a permit from Mexico’s secretary of the interior to open 60-plus wagering locations just prior to the start of the last presidential campaign.
Multimedia’s plunge into the Mexican gaming waters came as no surprise to American observers, given its long history as a domestic Bingo and Class II gaming pioneer. In fact, with the tectonic shift in Class II tribal gaming in the United States, Multimedia’s new focus was seen as giving the company a new beachhead for growth potential with its mature Bingo-style product line and the all-important recurring revenue model underlying its move.
A Growing Market for Other Suppliers
The pairing of the big three Mexican operators with the big three U.S. manufacturers was predictable and seemed to establish relatively equal footprints for what are likely to become 180 or so of the most formidable gaming locations in the country. But according to some estimates, the actual number of potential locations in the country is more likely 300–400, given the panoply of multi-site permits that have surfaced in Mexico in the past few years. This large new up-for-grabs market in Mexico has created an obvious opening for suppliers — above and beyond the big three operating companies — in the nearly 200 additional locations owned by independent operators.
In response to this opportunity, smaller domestic and international gaming suppliers, such as Cadillac Jack, VGT, Zitro, FB Metronia and Bluberi, have already decided to capitalize on Mexico’s rapidly expanding gaming base. Others, like South Carolina-based SED, U.K.-based Cyberview, and ID Interactive of Buenos Aires, are all eyeing the country for future growth.
Today, the typical gaming establishment in Mexico is comprised of a modest race and sports book, a Bingo hall, and between 100 and 500 electronic gaming terminals. The countrywide average appears to be around 275 electronic wagering units, provided by anywhere from one to four manufacturers, in each gaming location. Although no official machine count exists, knowledgeable observers put the installed base of Class II or Bingo-style games at between 40,000 and 50,000 devices in operation today at approximately 175 locations.
If the ultimate number of locations settles at about 300 sites (assuming the government finally deals with the illegal operations), it is feasible that the realistic potential for the number of games in the country may be as high as 75,000 to 100,000 units. Assuming only half of the nation’s 108 million citizens are potential patrons, the adjusted number of people per slot machine is still somewhere between 550 and 700. Compare this ratio to the United States’ approximately 375 people per gaming device, or even Australia’s1 110 to 120 people per gaming device, and it is easy to see why manufacturers are lining up with products for the Mexican market — especially as there are no clear limits (so far) as to the number of games possible at any given location.
One of the most remarkable aspects of the Mexican gaming industry is how rapidly it is maturing, even within the context of its mini-casino format (or maxi-parlor, depending on how you view the genre). Although one third of the country’s population lives in Mexico City’s metropolitan area, the advanced prototype gaming market is actually Monterrey, Nuevo León. Monterrey is a modern and vibrant city with a metro population of approximately 4 million. Monterrey also has the dubious distinction of probably having both the most illegal or gray-market venues and the most illegal machines.
Whatever the reason for Monterrey’s advanced proliferation of gaming the early introduction of gaming machines there has had a “maturing-effect” on players and operators, and may serve as a barometer for Mexico’s future gaming appetite.
By most accounts, the national average for net daily win in Mexico for all the legal Class II-style machines is between $50 and $75 per day. Operators in Monterrey, on the other hand, typically enjoy a house average net daily win of between $85 and $125 — and that’s in a city with something like 20 legal gaming locations with an average venue size approaching 500 machines, and perhaps another 20 venues operating under dubious permits with machines of questionable legality (i.e. flat-out Class III devices).
The other interesting trend in Monterrey that is remarkably similar to historical trends in the United States is that multi-line and mega-line low-denomination video games already have traction, as the players there have been exposed to these state-of-the-art games for five or six years — ironically due to the early and illegal introduction of Class III-style games prior to the formal legalization of electronic wagering via central-draw methodology.
While the North American suppliers already providing electronic games and systems to Mexico operators are generally reporting satisfactory market results and good returns, most look forward to better regulations and substantive enforcement.
Balancing Risk and Opportunity
Virtually every manufacturer interviewed for this article expressed a desire for more clarity on existing rules and regulations for gaming in general, and for electronic gaming devices and systems specifically. For example, while there is a general understanding of and appreciation for the central-draw requirement for Class II-style gaming machines in Mexico, there is no specification regarding the preferred or required methodology for winning draws. As a result, some manufacturers are concerned that others may be pushing the envelope a bit too hard when it comes to game math and technology.
According to Connelly and Mikasinovic, the rapid proliferation of gaming in Mexico has actually made the political process of tightening formal regulations even more difficult. As a result, there has recently been an effort on the part of the major permit holders, as well as the major manufacturers, to band together as an association to create industry standards and self-policing practices. Mikasinovic said: “IGT must always put compliance first, and this is especially important for a large company like ours that is licensed in so many jurisdictions. In fact, despite the regulations in effect in a market like Mexico, IGT’s default view of regulations is always in line with our most stringent regulations, such as Nevada.”
On the note of compliance, as many American companies have already discovered, and despite the 1947 law and the relatively new 2004 regulations, dozens of mini-casinos seem to operate throughout Mexico outside of regulations and without proper authorization. These operations were often started under the guise of rogue letters of approval that seem to have been issued over the years by certain government officials for the operation of so-called “entertainment devices” or “skill games.” Just as curious is the disparity between the numbers of authorized operators on the Mexican government’s official website2 of Juegos y Sorteos, the federal “games and sweepstakes” agency — which, at the end of 2007, listed only 23 bona-fide permit holders and the number of locations each has in operation today.
Clearly the illegal or gray operators in Mexico pose a dilemma for the current government and, in the eyes of current holders of valid administrative permits as issued by the Department of the Interior, represent unfair competition that is also outside the scope of applicable gaming taxes. In another twist, Mexican administrative law ironically provides interim protection against capricious actions by the government via the all-too-well known Amparos (Federal Appeals) for any business or property, so although efforts to clean up and close down dubious operators continues, it may be several years before all illegal operations are eliminated. In the meantime, wise suppliers must keep a mindful eye on the validity of the permits they rely on for their product placements.
Finally, as the mini-casino segment continues to blossom, there remains the future possibility of full-blown mega-casino resorts in Mexico, possibly sponsored or developed by big American gaming companies. In fact, it seems that not a year goes by that industry wags don’t spot a proposed new law or political agenda on the Mexican gaming radar screen. It’s likely to happen some day, but not until strict new laws and regulations are enacted to protect the big players — much as occurred in Macau.
As Connelly underscored: “Bally advocates the market become fully regulated. We believe it would be to everyone’s benefit if an international regulatory agency like GLI became involved. This would protect the gaming operators, the gaming equipment manufacturers and the players.”
Until that time, given the stature of the large and influential companies that are already in the gaming business under its current format, it is fairly clear that the status quo will remain in effect until the current permits are sorted out and built. Besides, if Mexico’s national economy can already see the prospect of 300 medium-sized businesses contributing nearly $3 billion dollars a year to its GDP and $.5 billion in direct gaming taxes (under the new law in effect as of Jan. 1, 2008), not to mention 50,000 fresh jobs, why wouldn’t the government foster the current industry?
2008 should prove to be an interesting — if not watershed — year for gaming in Mexico.
1 The emerging mini-casino trend in Mexico has more in common with the Australian “social-club” gaming venue model than the traditional casino format of the United States, including tribal gaming. The mini-casinos evolving in Mexico are modest in size and are typically located in or near existing amenities, such as shopping centers, or within identifiable neighborhoods, as is typical of the club format in Australia.
2 Go to: http://juegosysorteos.gob.mx/. Select the link at the left called “Permisos Otorgados”; then select the last category on the page, “Hipodromos, Galgodromos, Frontones, Centro de Apuetas Remotas y Salas de Sorteos de Numerous”. The authorized permit holders of wagering locations are listed by owner, with the presumed locations opened as noted.
BALLY TECHNOLOGIES
Bally initially approached the Mexican market with an understandable degree of caution. However, the company has since found that as its largest customer, Codere, continues to open venues with Class II-style product all over the country, both parties have enjoyed an accelerated education by and about Mexican players as well as on product mix and floor management.
Today, in concert with Codere’s experienced management team and Bally’s talented analysts, Connelly is not only pleased with the decision to deploy the company’s state-of-the-art Class II Alpha platform, but is also committed to a portfolio of top titles and premium games for the future. For example, Bally’s popular Hot Shot Progressives™ are producing in excess of $300 in win-per-unit-per-day in some locations. Equal success has been found with the company’s recently introduced five-reel stepper games.
MULTIMEDIA GAMES
With its rich experience in tribal development, particularly in helping new operators get into operation quickly and efficiently, Multimedia Games’ fit with the emerging Mexican gaming market has been a natural one.
Televisa, the company’s main customer, has taken a measured start to developing the 60-plus locations authorized under its permit, but Multimedia has been able to provide a ready portfolio of
Spanish-translated games, in combination with its proven system, to several large independent operators. These features, along with packaged training and bundled marketing programs, complement the player tracking component of the company’s Slot Management System. At the end of 2007, Multimedia had more than 50 titles in its library of games available for the Mexican market.
According to Executive Vice President Gary Loebig: “The original Class II games were first developed by Multimedia Games and have evolved over time to what you see in Mexico. Since they were developed in the U.S. Class II world, our products were pretty much ready for the Mexico market. Adjustments were made, however, to customize and to accommodate player preferences here in Mexico. We also went through both the process of certifying our machines’ functionality under Mexican law, using the local Universidad Nacional Autónoma de México and Gaming Laboratories International in the United States. This provided us with documentation to support our product’s operation in Mexico. We have also adapted our machines to the Mexican consumer, making language adjustments and adding play features that seemed to better fit local consumers.”
IGT
IGT’s commercial approach with CIE is based on a flat-lease basis and views Mexico as a sophisticated market that requires top themes and advanced features. Mikasinovic takes a pragmatic and simplified approach to the introduction of new products for the rapidly maturing player base. He views the market as being composed of essentially three player types or skill levels: knowledgeable gamblers, those with mid-level experience, and entry-level players who gravitate to the simple Bingo games. He adds a fourth category to the list with those who participate in Brazilian-style games, which IGT is now in the process of releasing its own versions of.
During its initial deployment phase in Mexico, IGT introduced 65 games modeled after its successful Class II library, and in 2007 the company added another 25 titles, including games created specifically for Mexican players based on the company’s experience.
VGT
Another independent gaming manufacturer that has found much success in Mexico’s Class II-style market is Smyrna, Tenn., -based Video Game Technologies Inc. (VGT). VGT’s approach has been to grow its business organically and to build sound, loyal relationships around well-performing games and products.
VGT Market Analyst Kevin Rosenberg says: “When we started in Mexico, we knew it was something completely new and that it would take time to be fully understood and regulated. That is
why we keep our engineering team ready to continually adapt
our products.”
CADILLAC JACK
Cadillac Jack entered the market fast and early. The company today boasts more than 6,300 machines placed on participation at more than 60 halls nationwide and has complemented its core gaming products with its signature Cadillac Cash progressive link. In addition, the company has developed a new series of Brazilian-style Latin Bingo games and a Bingo-based card game specific to Mexico.
Significantly, Cadillac Jack also seems to have done the best job of assimilating itself into the Mexican business culture while perhaps becoming the dominant independent supplier of games. It has forged tight relationships with key independent operators, built service and support infrastructure in strategic areas and focused significant resources while tailoring its products to the sensibilities of Mexican players.
When asked about his company’s rapid penetration into the country, Cadillac Jack Chair Mike Macke pointed out its ongoing commitment to fundamentals. “The Mexican business environment is growing and changing all the time,” he said. “It is very important to understand this environment on a local basis. We stay proactive by heavily investing in local resources, including two offices, a team for sales and marketing, engineering, and service and installation personnel. Mexico is our number one growth market.”
BLUBERI
Formerly known as Labtronix, Bluberi Gaming Technologies of Quebec, Canada, dove into Mexican gaming waters early. The company has installed several thousand machines throughout Mexico in the past two years and continues to methodically translate its library of more than 40 games into Spanish.
Like its competitors, Bluberi provides a turnkey system of games, point-of-sale terminals and back-end, and floor-wide progressives.
Long has been a product and market development consultant for major manufacturers and gaming companies since 1994. He has also been extensively involved in several gaming projects in Mexico. Long can be reached at suncomjohn@aol.com.
Lazcano is a litigator with many years of experience, including complex civil cases involving gaming interests, as well as the government of Mexico and regulators. He can be reached at (5255) 3187-0690 or als@lazcanosamano.com.
Benavides is a practicing attorney representing some of the largest corporations in Mexico. He can be reached at jlbenavides@benavideslaw.com.mx.
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