LATIN AMERICA: Lessons to be learned south of the border
by Roger Tomas
January 8, 2013
Latin America is
undergoing unprecedented economic expansion with regional growth for 2012
between three to four percent, and projected annual growth for the next five
years to be over five percent.
In stark contrast to Europe, Latin America is bubbling with new
businesses and is definitely worth wagering on with part of your international
expansion budget. Nonetheless, any
gaming company worth its salt needs to do its research prior to making the
plunge.
Here are a few examples of
companies that did not do their homework before taking their steps into Latin
America, and paid the consequences:
• A Venezuelan businessman
paid $100,000 to an attorney in Panama for what he thought was a valid gaming
license. Turns out the license was a simple preliminary zoning certificate
without any real value. Situations such as this occur more frequently than one
would expect in many countries and in a variety of industries.
Fortunately, this story has a
happy ending—the Venezuelan businessman retained a reputable law firm which was
able to assist him in locating an investment target. In this case they
introduced the investor to a viable gaming company, with all its valid
licenses, that was interested in having a new investor come in as the new
majority shareholder.
• Then there is the case of
an Eastern European gaming operator that rolled out a full-scale entry in the
markets of Mexico, Peru, Bolivia, and Colombia without effectively doing all
its due diligence. The end result was
that they pulled out of these markets faster than the blink of an eye.
In Mexico the pull-out was due to a combination of factors including
poor personnel selection and, more importantly, a poor choice of locations for
their casinos. Location was also the cause of their downfall in Colombia, where
a bad locality forced the closure of a newly equipped casino.
In Bolivia the operator’s
problems originated from the lack of a local partner with the financial and
political wherewithal to affect change, at a time when the gaming industry in
the country was becoming excessively politicized. The end result was that the managing director
of the company in Bolivia became the target of legal action, thereby slowing
any possible business operation.
In effect, all the errors of
this Eastern European operator have their origin in one clear mistake: the lack
of an in-country management team that understood the distinct cultural
differences of gaming in Latin America.
LOCAL PARTNERS, PATIENCE URGED
Another case where a knowledgeable boots-on-the-ground management team
may have helped market newcomers occurred in Nicaragua, where new operators to
the market quickly encounter a harsh reality—the existence of a market leader
willing to enter into a price and promotion war at the drop of a hat with any
new competitors. Naturally the only beneficiary of these price wars is the
gaming customer, who maintains no loyalty to an operator, but rather changes
casinos solely based on the best promotions. In the past few years precisely
because of a lack of any market study, there have been a number of casino
closings including the Fantastic in Managua, the Casino in the Hotel Gran Plaza
on two occasions, and the Nicaraos operated by a Chinese/Colombian group, among
several others.
Another typical error of
operators entering Latin America is to become impatient and make capital
expenditures before the path is completely clear to do so. Case in point: the
German and Guatemalan operators who wanted to open a casino in Panama based on
information from their political contacts.
Believing they were assured of obtaining a casino license, they went
ahead and built a 20,000-square-foot casino. Little did they know they were missing
an important gaming permit for that market, and their casino never opened its
doors. The property was eventually acquired by the Spanish operator Cirsa, one
of the largest operators in Latin America, which also learned and grew through
the school of hard knocks in other international markets.
Peru is another market that
has been tricky for outsiders to understand, much to their eventual detriment.
For example, Ladbrokes and Sodak—two successful gaming companies with
international experience—established operation in Peru, only to abandon them a
short time later. If these companies had taken a mid- and long-term view and
shown more patience and foresight they might have been able to profit from a
market which is today among the strongest in the region. Beyond the fiscal
factors, the root problem for these companies was the lack of a flexible
business mentality to adapt to the local business Peruvian culture.
We also shouldn’t overlook a
new casino in Panama that suffered from a lack of due diligence. A poorly advised international operator chose
to establish a casino in a hotel which didn’t meet the minimum legal
requirements established by the Panamanian government. After finishing the construction, the
operator ended up having to fight a costly two-year legal battle to obtain a
“reinterpretation” of the gaming regulations, and finally opened the casino.
Two years after opening, the casino has had to close its second floor due to a
lack of business.
To be honest, my company has
had its bumps in the market as well. In Guatemala we planned on establishing a
casino in the Proceres shopping center in the capital city. The target market was to be mid- to high-end
players as the shopping center’s location had high traffic volume on one of the
best corner locations in the city. A few
months after opening the casino, we learned there had been a series of violent
robberies in this shopping center in years past and much of the middle class
population we were targeting took their disposable income to a different
shopping center on the other side of town. We had to convert the casino to
cater to a lower-end patron base; which lowered our profit expectations as
well.
Market analysis with a local
firm while in the planning stages would have saved us an abundance of time and money.
There exist dozens of
examples like these in Latin America, as well as in other international markets
when operators don’t do all their research and decide to jump into a new
market. Impatience in market entry is not
exclusive for any particular nationality. North American operators, Italians,
Russians, and many more have all had their adventures of delving into new
markets.
Possibly some of the cases cited above were inevitable,
however we believe many could have been wholly avoided or at least mitigated by
proper planning and listening to local market specialists. In our next article
we will draw some conclusions based on the above cases and draw from our 20
years of experience in the gaming industry in these Latin American markets.
Roger Tomas
is a partner with Tomas Tapies Harrison
Gaming (TTH), a casino consultancy firm with offices in Mexico,
Spain and the United States. He was previously president of Interra Latin Gaming Consultants and founder/shareholder of Steel Gaming. He can be reached at www.tthgaming.com.
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