Chile has the fastest-growing, best-regulated, most sophisticated casino market in South America.

Gran Casino Los Angeles, opened by Casinos Austria International in July 2008, contains 200 slot machines, 10 table games and a luxury 90-room hotel.


In Rinconada in Chile’s Valparaiso Region, Salguero Hotels recently opened the latest addition to the fastest-growing, best-regulated, most sophisticated casino market in South America. The US$31.3 million resort was the 15th to open in Chile since 2006, when the government began awarding 18 new licenses and a new industry was born.

Just two days before the Rinconada launch at the end of August a local development group called Ivisa opened the $46 million Casino del Pacífico in the coastal town of San Antonio. Casinos in the towns of Ovalle, Coyhaique and Castro, representing the final three licenses, are due to open by the end of 2010.

“We are thrilled to see that the expansion is taking place as planned. The regional impact is significant, in terms of infrastructure, jobs and tax revenues,” said Francisco Leiva, who heads the country’s new gaming commission, the Superintendencia de Casinos de Juegos, or SCJ. “The aspiration and goals of the new regulations are becoming a reality.”

The new regulatory regime, created under a federal law enacted in 2005, is not only completely revamping Chile’s gaming industry, it is helping to upgrade the country’s tourism infrastructure. The total investment in the 18 licenses, which will generate 9,400 permanent direct jobs and an estimated 17,000 indirect jobs, amounts to more than $743 million, an impressive figure for a country the size of Chile.

What is unique about the new regulations, which were debated by the government and the national parliament for years, is they require operators to build “integrated” projects in which casinos serve as the centerpiece of multi-use resorts that include fancy hotels and convention facilities, restaurants, bars, spas, theaters, sports venues and even museums. This sets them apart from the seven casinos that pre-date the 2005 law. The new licenses were awarded in a competitive bidding process in which all comers were invited to participate. Bids were evaluated based on their projected benefits for tourism and the larger economy. And to ensure these benefits were distributed as broadly as possible the law prohibited the opening of casinos in the capital city of Santiago and limited to three the number of casinos per self-governing region, of which there are 16 in the country (the metropolitan area of Santiago included), the provincial equivalents of U.S. states.

The license tender attracted important international companies such as Spanish casino and machine gaming giant Cirsa, Panama-based Thunderbird Resorts, Casinos Austria International, South Africa’s Sun International and Panama-based Latin Gaming. Established local operators, particularly the Martinez family’s Enjoy, as well as local entrepreneurs and groups that saw an opportunity in the soon-to-boom industry, fully mobilized for the tender. Following a controversial process in which Thunderbird was disqualified on a technicality and Cirsa’s proposals were not selected, the SCJ distributed 15 licenses in 2006 and the remaining three in 2008. The licenses are good for 15 years and are renewable. The first casino to open under the new regime debuted in August 2007 in the ski resort of Termas de Chillan in Pinto. This small casino was followed by an avalanche of openings - Antofagasta, Copiapo, Mostazal, Santa Cruz, Talca, Talcahuano and Los Angeles in 2008; and this year, in addition to Rinconada and San Antonio, Osorno, Temuco, Valdivia, Punta Arenas and Calama.

The 13 casinos that were operating in the first half of 2009 (prior to the Rinconada and San Antonio openings) received almost 1.8 million visits over that period. Average spend per visit was US$52, an increase of 13.2 percent over the same period in 2008. The casinos generated combined gross gaming revenues of US$84.8 million, a robust 78 percent increase over the same period in 2008. Slots, of which there were more than 6,100, accounted for 73.5 percent of revenues ($62.3 million), while table games generated 26.1 percent and bingo 0.4 percent.

Not surprisingly, this new industry was fast becoming an intensely competitive one, with slots paying out $825.4 million of the $887.8 million bet over the period for a return of 93 percent, well above the 85 percent minimum required by law, a fact which Leiva attributes to operators’ efforts to develop player loyalty.

Monticello Grand Casino - emblematic of the new era of destination gaming in Chile.

‘UNFAIR COMPETITION'

With the bulk of Chile’s wealth concentrated in and around Santiago the 2005 casino law was enacted as part of an effort to diversify the economic base and develop local businesses, tourism in particular. The country relies heavily on tourism, thanks to an abundance of exuberant natural attractions, including high mountains perfect for winter sports, lakes, lush valleys and vineyards, islands, parks and deserts. Despite the global recession tourism was up 4 percent through the first half of 2009, generating about US$1 billion. The federal government is investing heavily to improve infrastructure in the most popular areas. The new casinos not only represent a new tourist attraction, they contribute in their own way to the infrastructure improvement program. They also pay under the new law a 20 percent tax on gaming revenues which is distributed locally. (They also pay the country’s regular 19 percent VAT.) Towns hosting casinos get half the proceeds of the gaming tax, the regional governments receive the other half. By law, the municipal and regional governments must spend these revenues on projects that will directly benefit their local populations, such as infrastructure improvements or public education or health care. The money cannot be diverted to cover administrative or public workers’ wage costs.

Monticello Grand Casino opened in October 2008 as the largest casino in Chile and quickly became the country’s revenue leader. One of its strengths is its location in Mostazal just 30 miles south of Santiago, which allows it to draw bettors from the country’s most populous city. This coveted license in the O’Higgins Region went to a consortium led by Sun International and includes Austria-based slots and operations giant Novomatic Group.

In the first six months of 2009, Monticello accounted for 36.1 percent, or $30.6 million, of the combined gross gaming revenues of the 13 new casinos then in operation. Thanks to its location it attracts not only the country’s largest casino crowds but also the biggest spenders. Through the first half the average spend per visit at Monticello was $75, according to official figures, well above the national average and considerably ahead of second-place Enjoy Antofagasta at $55.

The consortium is investing more than $200 million in their lucrative venture, which includes a 155-room hotel, convention and meeting space, a spa and fitness facilities, theaters, clubs, restaurants, bars, cafes and a sports arena. Part of the complex is still in construction, but the casino is fully operational and features 1,500 slots, 80 table games and 300 bingo positions.

The largest casino operator in Chile continues to be Enjoy. Founded 34 years ago by the Martinez family, the group operates four of the seven casinos that pre-date the 2005 law. These include the traditional casino in the coastal town of Viña del Mar in the Valparaiso Region, the preferred destination of Santiago gamblers for decades. Enjoy was awarded three of the new licenses. Two of them, in Antofagasta and Santa Cruz, are in operation. The third, in Castro on the island of Chiloe, is under a Dec. 29, 2010, deadline to open.

Eyeing the opportunities and concerned about competition from strong international groups, the Martinez family has reorganized the company. In July, 30 percent of the equity was sold to investors in an initial public offering, the first for an entertainment company in Chile, which raised US$42.6 million, beating market expectations. Enjoy says it plans to invest $341.9 million in new casino projects over the next few years, of which $284.9 million has already been spent. About 90 percent of this investment is destined for Chile, the balance for casino projects with partners in Argentina and Croatia.

Local groups Fischer and Valmar, Panama’s Latin Gaming and Casinos Austria International are other important operators in Chile’s new casino industry. They have formed an association to further their interests, headed by Alan Cespedes, a top executive with Latin Gaming. The Sun International-led consortium and Enjoy have not joined the association.

The industry’s dramatic expansion is taking a toll on some of the older operations. Viña del Mar, the star of the pre-2005 market, is suffering from the competition from Monticello. Revenues are down, and there is concern things could get worse as a result of the openings in San Antonio and Rinconada, which also compete for Santiago’s bettors. Enjoy posted a loss of US$13.5 million in the first half, and Pier-Paolo Zaccarelli, the company’s business manager, is pushing for a renegotiation of Enjoy’s agreement with the town of Viña del Mar.

“There are three new casinos in the vicinity of Santiago, which represent not only competition, but actually unfair competition,” he said. “We pay to the town a 50 percent tax, while our competitors pay a 20 percent tax.”

There are other inequities from the standpoint of the older operators. Their casinos are licensed locally, not by SCJ, and those licenses expire on Dec. 31, 2015, under a sunset clause in the new regulations, at which time they will be put up for bid, therefore they cannot be renewed. The mayors of the seven affected towns - Viña del Mar, Iquique, Coquimbo, Puerto Natales, Arica, Puerto Varas and Pucon - are lobbying the federal government and the parliament to allow them to extend the licenses past 2015.

“The lack of such tax revenues would represent a tragedy to our towns, as they fund social programs, particularly for low-income families,” said Viña del Mar Mayor Virginia Reginato.

By lobbying for the extension Reginato also is attempting to circumvent Enjoy’s call for a new agreement with the city, which could include a request for a lower tax rate. But she can do little when it comes to protecting Viña del Mar from competition from Monticello and the other new casinos.

Enjoy, meanwhile, is taking steps to try to curb the competition from gray-market slot machines, which proliferate in venues across Chile, as they do in several South American countries. These machines, most of them imported from China, can be purchased for under $1,000 and are found in arcades and in bars, restaurants and small shops just about everywhere. Most of them have local licenses to operate. Enjoy has joined lotteries La Polla Chilena de Beneficencia and Loteria and race course operator Club Hipico in a lobbying group that is pushing the parliament to outlaw the machines.