In September 2010, the left-wing President of Ecuador, Rafael Correa, announced that his government was seeking to ban casinos. Claiming that casinos in Ecuador had become hotbeds of corruption and money laundering, Correa told the local press that his administration would put the question before the Ecuadorian people as part of a referendum. If the Ecuadorian people agreed with the president’s views on the issue, then all of the 55 casinos and bingo halls in Ecuador would be closed down forthwith.
As a result of the move, members of the Ecuadorian Bingo and Casino Association immediately stated their opposition, claiming that if the new law was approved, it would infringe upon their property rights as enshrined by the Ecuadorian Constitution and would also lead to a wide proliferation of illegal gambling nationwide. The date of the referendum was finally set for May 7, and in a move widely perceived as a means to further prove the legitimacy of his regime ahead of the 2013 presidential elections, 10 crucial issues were put before the Ecuadorian people.
Ecuadorians were allowed to vote “yes” or “no” for Correa’s proposed reform package, which included proposed limits on the press and changes to the constitution, as well as a ban on gambling. It also sought to grant Correa more control over the ownership of the media and to strengthen presidential control over the judicial branches of government.
Naturally, some of these issues were highly complex and many Ecuadorians later confessed that they had not fully understood all of the questions, despite the fact that many of the questions included annexes and explanatory notes. As for gambling, the wording of the question changed slightly from how it was originally drafted. Ultimately, Ecuadorians were asked to answer “yes” or “no” to the following question, which appeared as question number seven on the ballot paper: “Do you agree that businesses devoted to games of chance such as casinos and slot machine parlors should be banned?”
Almost 4 million Ecuadorians (47.7 percent of the voters) voted that they were in favor of such a move, meaning that many skilled and experienced casinos workers, many of whom had been working in the industry for almost 15 years, look as if they could soon be out of a job. Although the government has offered to retrain them and find them work in the tourist sector and other growing sectors in the economy, this naturally has come of very little consolation. It also means that the government will lose around $20 million in tax revenue per year.
Under previous legislation, casinos operating in Ecuador had to offer, in addition to slots, at least four different types of table gaming in five-star hotels and two to three types of table gaming in three- and four-star hotels, respectively. This was then changed in 2008 when the “Regulation of Casinos in the Tourism Law” was approved by Correa. According to Article 5 of this act, casinos could in the future only be part of a “hotel de lujo,” meaning a five-star hotel located in a tourist hot spot. Today there are 32 large-scale casinos that fall under this category.
Casinos in Ecuador have traditionally been seen as a means of strengthening the tourist industry. In 2007, the Ministry of Tourism initiated a program known as “Paldentur” (Plan Estratégico de Turismo Sostenible del Ecuador), which aims to double visitor numbers to Ecuador by 2020. Over the coming years, almost $200 million will be invested in order to improve tourist infrastructure and promote sustainable tourism. At the same time, Ecuador is busy promoting itself around the world as a tourist destination by emphasizing its diversity.
Traditionally, Ecuador has invested very little in attracting international tourists compared to its competitors, such as Peru, Colombia and Costa Rica. However, via the “Four Worlds Programme,” the Ecuadorian government has promoted itself by emphasizing the four very different aspects Ecuador has to offer within its borders: the Andes, the Amazon, the Lowlands and the Galapagos Islands. In 2008, the number of tourists visiting Ecuador went beyond the 1 million mark for the first time in its history, and tourist numbers are expected to increase significantly over the coming years.
A great part of the problem for the casino industry has been the proliferation of stand-alone slot machine parlors that are not attached to casinos and that have not attracted tourists, but instead local players. These slot parlors are, in most cases, allowed to operate via a license granted to them by local municipalities. At the same time, the number of illegal slot machines has increased in bars, nightclubs and other public places.
As a result of the rise in illegal gaming slot machines outside of casinos, they were banned by Articles 91 and 92 of the Tourism Regulation Law in December 2002. Then, in 2005, the government decreed that any business apart from a casino that had a slot machine had to remove it from the premises or face prosecution. The decree also granted the police the power to confiscate and destroy illegal slots.
Unfortunately, the government did very little to put this law into practice, with the result that there are now, according to government figures, 121 slot parlors that house more than 3,000 slot machines (although some estimates put the total of illegal slot machines as high as 7,000). These slot machine parlors alone employ almost 1,500 people and account for an estimated 70 percent of the gaming market in Ecuador (not including lotteries).
In fact, the proliferation of stand-alone slot parlors and slot machines operating outside hotels is very much to blame for the upcoming casino ban. Indeed, according to Fausto Flores, representative of the legally established casinos in Ecuador, it was the Ministry of Tourism’s failure to regulate gambling in the first place that has led to the ban.
Flores, in an interview to a local television station two days before the referendum, claimed that the new gaming law “demonized investors” and was a result of the Ministry of Tourism’s lack of leadership in the issue. Flores also told the press that, should the ban take place, the Ecuadorian government would have to offer compensation to both foreign and international investors who have, in some cases, invested millions of dollars in the country.
So what does the future hold for the 55 casinos and bingo halls that now come under the ban?
Although the referendum was held on May 7, the results weren’t officially confirmed until May 20, and the results did not hand Correa the landslide victory he and his supporters were expecting. In fact, votes for Correa’s “yes” campaign won with a 47.1 percent average, and the “no” campaign accounted for an average of 41.1 percent.
Although Correa’s personal popular rating is still high, his party has 50 seats in the National Assembly, which is 11 short of a majority; and, like many of the proposed reforms voted for in the referendum, the law banning casinos will in all likelihood have to be passed into law by the National Assembly. For casinos, this means that Article 5 of the Tourism Law that permits casinos in five-star hotels will have to be revoked.
If this proves unsuccessful, Correa could ban casinos by making them illegal under the penal code or ban them directly by presidential decree. Another, and much fairer, option is to allow casinos in five-star hotels a period of time to earn back their initial investment. But, as reported by local news portal El Commercio, this could take at the very least another five years. According to the vice president of the Ecuadorian Bingo and Casino Association, investors have invested around $170 million in the Ecuadorian casino industry in the last few years.
One positive outcome could be that the new referendum will lead to an immediate crackdown on the slot parlors and illegal slot machines that have proliferated over the last years. These do not come under the protection of the Tourism Law of 2008 and should therefore be easier to shut down now that the results of the referendum are in. What is clear is that casinos that are legally operating in five-star hotels will fight any closures in the courts to protect their investment and the rights of the 4,000 or so casino workers in the country.
So although the prospect looks bleak for the casino industry in Ecuador, it is not quite the end of the road just yet. The government needs first to change the Tourism Law, which will take at the very least six months, and the casinos will in all likelihood fight for stays of closure in the courts. These could well be granted, as the new law arguably infringes on owners’ and citizens’ rights. What is clear is that the failure of the government to more clearly regulate the sector has led to a situation where legitimate investors are now facing a very uncertain future indeed.
James Marrison has been covering the casino industry in Latin America for over seven years and has written in-depth features on every country in the region. Marrison has worked as a research contributor for Global Betting and Gaming Consultants and serves as a consultant for industry professionals for the Gerson Lehrman Group. Marrison is also a researcher into the online gaming markets in Europe.
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