Casino Enterprise Management

Latin America is “El Dorado”… Also for Gaming!

By Alfonso de Leon, Founding Partner, Axon Capital (alfonso.leon@axon-capital.com)

In the recent years, where the downfall of the western world is pushing business leaders towards new markets and regions, Latin America has won followers in most business fields. It is commonplace nowadays to read about the region in economic reports,and how it is a core business area for companies within the commodities and natural resources industries, where you can find opportunities from the largest untapped oil reserves in the world in Venezuela, to the largest worldwide copper reserves in Chile or the endless production of wheat and soybeans in the Argentinian, Brazilian, Uruguayan and Paraguayan farms, from where most of the feeding needs for the Chinese population are being met.

Also, it is important not to forget that Latin America owns nearly 50% of all the worldwide drinkable water reserves, which in a 7 billion people’s planet is an important asset that may lead them to make important geopolitical decisions throughout the 21st Century.

What’s not so obvious, yet stands out to those who know the region well, is that Latin America has become a very interesting and growing market for the gambling industry, both in the offline and online sectors. Latin America is still a “gambling opportunity” (no pun intended) for multiple reasons that we will try to explain in this paper.

First of all, and the cornerstone to why this is an interesting market, is that, in fact, there is “A Market”. Across Latin America we find a total population of more than 500 million people; most of them (except Brazil) share a common language, Spanish, and all share a common Latin culture.

This community is younger than the average of the western world, has a much higher reproductive rate, which makes them a growing population and, because of their Latin culture, is very passionate and sports oriented, which makes them an interesting consumer profile for the gambling industry.

In the end, we don’t have to forget that the per capita consumption of gambling products in Spain is one of the largest in the world, and Latin Americans are mostly the great grand children of the Spaniards.

In respect to their current social and economic situation, Latin America has not been nearly as affected by the current economic crisis. Countries like Peru or Colombia have maintained GDP growth rates in the last 2 years of nearly 9% each, and the large economies of the regions such as Mexico and Brazil have kept growth rates in the region of 5%. Also, one of the biggest achievements of the region has been the growth of a middle class population that now demands all types of products and services, and leads the growth of local consumption, making them one of the most attractive target markets for growth in multinational companies, like car manufacturers or electronic products companies. In Brazil alone, thanks to reforms lead by president Lula da Silva, more than 25 million people moved up from poverty into middle class in the last ten years alone.

Finally, Latin Americans grow everyday more interested in their own region, and this pushes them to reinvest their wages within their local economies, as well as spending more of their money locally, instead of exporting their spending and savings to the US or Europe. Whereas before a Latin American with saving and consumption capacity sent their money abroad due to mistrust in local economies or currencies, and also because in terms of leisure, the security problems that the region suffered for many years, made them feel very unsecure when spending, the truth is that, although there is room for improvement, Latin American currencies and economies are performing better that the US or Europe, the banks where the Latin Americans were holding their deposits abroad are being questioned and, in terms of security, with the exception of some situations as the recent Mexican tragedy linked to the drug cartels, there is a much better environment, especially in the large cities of each of the countries, that allows leisure activities to grow quite well. We don’t have to forget that Brazil, for example, will be hosting both the Soccer World Cup and the Olympic games, which is something that talks by itself of where leisure stands there.

So while there are major forces driving up the size of the Latin American economy in general, the gambling industry is still in diapers, which leaves the door of opportunity open for new comers and established players in the land based and online gambling business. The history of Latin America serves the answer to why gambling has lagged behind other businesses. For most of the 20th century, the region was governed by right wing, ultra catholic dictatorships who obviously prohibited gambling due to ideological reasons. Also tourism was non-existent due to the lack of access and development of the different countries, so there wasn’t even an excuse to promote ring fenced resorts where gambling was for “foreigners only” (this, with little exceptions like Panama in a certain moment). Latin Americans were going to the US to spend their dollars, and the rest of the world wasn’t flying in to spend theirs.

The general population was highly influenced by the Catholic culture and ideology, so gambling was perceived as something “Taboo” for the last two centuries. The outcome of all this is that there were no significant national monopolies in the region, with the exception of CAIXA in Brazil, when the industry started to awake a few years ago. A lot of the existent private operators present in some countries, who were used to performing their businesses in the black market, acquired a great deal of experience for doing business in the shadow and therefore didn’t build serious, properly established organizations that could perform in the long term in a growing and regulated market. Consequently, this has created a one in a lifetime opportunity for interested players looking into the region both in the land based, online or lotteries spaces.

In the case of land based operators, since most of the countries have started to take seriously the industry as a new tool to finance their budgets through the gaming levies, most of those domestic and unprofessional organizations that were in place have started to suffer because of improved controls that regulators are putting in place. Also, because of the CAPEX that some of the few professional groups across the region have, such as CIRSA, CODERE or CASINO CLUB, greater investment in the new premises make them far more attractive to customers than were the usual clandestine halls, which drives them to capture important market shares in each of the countries, and receive very attractive paybacks on investments. There is and will be for the next years an attractive M&A and consolidation strategy in this industry across most of the countries in Latam.

In online, the opportunity is also a credible and attractive one. The fact that the population in Latin America is growing young (most of them belonging to the digital era), with a 100% mobile penetration across the different countries, and with broadband markets like Brazil with 22 million users, Mexico with 15 million or Argentina with 5 million, and in each of the cases with double digit annual growth rates, together with an increasing bankarization and access to payment solutions, backed by solid financial groups that are jointly present in most of the countries at the same time, such as SANTANDER or BBVA , and also a common culture and language across the 500 million inhabitants, which leads them to share companies offering media services in each of the individual markets, makes the region an interesting target in market size, now estimated in nearly USD 1 billion by H2 Gambling Capital (an in my personal opinion with much higher growth potential in relative value than some of its peers), and also in where efficiencies and synergies could be found for the execution of entry strategies. Finally, the initiatives already announced by, among others, governments like the one in Chile, Peru or Colombia, and also the already established regimes in Mexico and some provinces in Argentina, makes the region a regulated/soon-to-be regulated area in where legitimate business can be built up quickly.

Finally, in the lottery space, although a product that has been in each of the local markets for a longer period than the others, the fact that it was operated through a fragmented environment of small and provincial lotteries that were not enough attractive to the consumer because of their limited size, also leaves a space open for a consolidation game, either by joining forces with National Bodies interested in building national scale lotteries under traditional distribution channels like the only relevant one in the region (CAIXA in Brazil with a USD 4bn gaming revenue), or by alternative channels, like electronic and mobile lotteries, in where one of the most important issues that lotteries had in the past to succeed in the region, the logistics for the distribution in a vast geography, not allowing them to have national footprint across these immense countries, will be solved by a technological solution, the mobile, currently with a 100% penetration rate in Latam.

In any case, and leaving aside the details, it seems obvious that economic, business and social growth for the next decades is going to be coming from Emerging Economies. Latin America is one of them, and also assuming that there is less already established competition in the gambling industry, than the one in other parts of the world with comparable attractive future, like China or India, with their satellite gambling “heavens”, the opportunity is there, is real and is waiting. I hope to see you taking advantage of it!

For more information, visit www.axon-capital.com.