Pulse

Chile: licence-holders revolt as government reneges on terms

By Lewis - 19 November 2020

In 2005, the Chilean Congress passed its most significant gaming law in the nation’s history. The law, known as Act N° 19.995, created the Superintendencia de Casinos de Juego (SCJ), which is now responsible for regulating the industry. Licenses for the new casinos were granted for 15 years, operators invested around US$1.4bn, which included not only casinos, but also hotels, restaurants and improving tourist infrastructure as well. There are now 19 privately run casinos in Chile.

Ten years after the establishment of the first privately-run casino, the SCJ was given the task of developing the licensing process for the municipal licences – casinos which had been run by the local municipal governments – and put them under the supervision of the board.

Now that this is complete the SJC is currently launching the third major licensing process. A number of the casino licences granted in 2005 are up for renewal in Chile, meaning that licence-holders can apply for a renewal while competitors may put in a bid. Up to 12 gaming casinos can be authorised, corresponding to the quotas that will be made available between July 28, 2023 and May 13, 2024.

Current gaming/casino operating companies may choose to participate in the process by applying for a renewal of their permits. According to the SJC current casino operators “will not have priority in the evaluation of the bids,” but will have some preferential rights during the tender.

Online gaming is expressly banned under Chile’s gaming laws of 2005. Offshore operators target the market and Chileans are not prosecuted for gambling online.

IMPACT

Before Covid-19, Chile was already facing turbulent times. In the last year, two months of violent protests left 26 dead. A number of cities in Chile were placed under a state of emergency while protestors took to the streets to protest against economic inequalities, rising living costs and debt.

Chile has since suffered one of the worst outbreaks in the world, with more than 20,000 cases and 770 deaths per million inhabitants.

As of 26 August 2020, Chile has the fourth largest number of cases in South America, after Brazil, Peru, and Colombia, and the ninth largest in the world. Given a drop in new cases, the Chilean government has begun to gradually lift restrictions in the country in an attempt to reactivate the economy, though areas with a high level of new cases remain under quarantine.

Covid cases have concentrated in the Santiago metropolitan area, with outbreaks in other regions in the country. At the end of September, Chile registered more than 100 deaths from Covid-19 in a single day, for the first time since the end of July.

No national lockdown was established in Chile, although a nightly curfew was implemented throughout the country. Quarantines were established locally in different cities and neighbourhoods. However, in May 2020, the whole city of Santiago was put under mandatory quarantine due to an increase of cases and similar situations were extended to most of the largest cities in Chile.

About 2.5 million people are out of work. Chile’s GDP decreased by 14.1 per cent in the second quarter, according to the Central Bank after the coronavirus pandemic impacted economic activity with the exception of the mining sector. Among the worst-hit sectors were manufacturing, construction and the hotel and restaurant sectors. Casino operators were forced to suspend all operations on March 18.

In August, South African company, Sun International, announced that it would leave Chile. The company said that the pandemic has had a “major impact” on its business in Latin America as well as South Africa.

Sun International owns 64.94 per cent of Sun Dreams, while Chile’s Nueva Inversiones Pacifico Sur Limitada Pacifico holds 35.06 per cent. In August Nueva Inversiones Pacifico Sur Limitada agreed to buy the 64.94 per cent stake in casino operator Sun Dreams for $160m (R2,76bn) from Sun International to take full ownership of the business.

Sun Dreams faces several challenges, including the need to renew casino licences, political and social reforms in Chile and the need to secure funding for its new casino project in Iquique, Chile, Sun International said.

According to Reuters this, plus the impact of the Covid-19 pandemic on the group, and the length of time, uncertainty and costs associated with arbitration proceedings in a foreign country, had convinced the firm to sell its stake.

The crisis could, however, finally pave the way for online gambling, albeit temporarily.

Undersecretary of finance, Francisco Moreno, announced on that the government will send a transitory bill to Congress proposing the automatic renewals of 14 casino operating licenses scheduled to expire this year. The renewal would also grant the casinos permission to develop ‘remote gaming’ during the extension period. In exchange, Moreno wants casinos to agree to a five per cent increase in their gross income tax rate.

POST-COVID OUTLOOK

It is unlikely that casinos will be reopened until later this year. An increasingly acrimonious row looks imminent over the licensing terms of the new tender. Despite the pandemic, the new licensing process went ahead in July for 12 casinos that will be made available between July 29, 2023 and May 14, 2024.

The Chilean Association of Gambling Casinos (ACCJ) wants the new operating permits to be governed by the same rules that existed 15 years ago, when the concessions were first awarded. This would be in accordance with the regulations in force when their casino permits were granted. Licensed operators argue that they were granted certain rights when it came to to the renewal of their licences and these rights are being ignored.

The association said in a statement: “Over a decade ago, we received a bona fide invitation from the government of Chile to invest in the local casino industry… what truly sealed the deal for us was that the bidding conditions granted a licence term of 15 years, with a true option to extend such term for another 15 year period provided that high impact projects were developed and significant investments were made across the country… we do not comprehend why, in a puzzling and damaging move, the SCJ is implementing a license renewal process that violates the law, does not comply with the regulatory framework in force, and unilaterally changes the terms that had been already agreed.”

Head of the SJC, Vivien Villagrán Acuña, has defended the move saying that laws were modified in 2015 as part of the municipal tender process, meaning that new operators will be able to bid for the licences that are now up for renewal.

“It is clear that the economic uncertainty that has been triggered in the framework of the pandemic generates a complex scenario. For this reason, the undersecretariat of Finance has convened a space for dialogue and analysis to which all actors have been invited, with a view to presenting a bill that protects in the best possible way both the development of this industry and the income fiscal and municipal that this contributes,” she said in a recent statement.

The association announced that it will commence legal proceedings against the Chilean State before an international court of justice. Via a statement published in September the ACCJ announced that after being invited by the Finance Ministry to address the effects of the pandemic and the model for the new tender for the 12 operating permits, that the talks have been abandoned.

Meanwhile, the heads of the Chilean municipalities that house casinos in their territory are considering requesting compensation from the government, due to casino closures during the pandemic.