Picking apart PIGOs – cost vs benefit

Solaire Resort & Casino
The Philippines’ decision to allow online gambling within its borders is a major step forward for igaming in Asia, but restrictions on operations mean it’s unlikely to be a game changer, at least initially.

That was the view of igaming expert Mark Gilbert, speaking on Asia Gaming Brief’s “Life After POGOs” webinar. The session addressed problems facing the current Philippine Offshore Gaming Operators (POGOs) and discussed how the new onshore licenses will work.

The Philippines has been the pioneer of online gambling in Asia, whether through its network of eCafes catering to locals, or its efforts to create a hub for online companies offering services overseas. However, it’s shifting political sands and changing regulation have created serious issues for the industry. 

POGOs are leaving the country in droves, with only 35 reopening after the pandemic compared with 61 before as business costs rise, including a controversial 5 percent franchise tax on turnover. Issues with visas for employees and soaring rental costs in the capital Manila have eaten into margins, with Covid-19 becoming the final straw.

To recoup lost revenue from POGOs and from the land-based sector, which is struggling with social distancing and closed borders, the Philippine Amusement and Gaming Corp. (PAGCOR) has decided to allow land-based companies and two gaming platforms to accept online bets.

Stamping out illegal gambling

Speaking on the webinar, PAGCOR Chair Andrea Domingo, also said the decision was motivated by rampant illegal gambling in the country.

A license has already been issued to Bloomberry Resorts’ Solaire Resort and Casino in Manila and Okada Manila and City of Dreams Manila have also been approved, as well as a casino operating in Subic Bay, Domingo said without naming the property. Two further licenses have been granted to igaming platforms, with one to a unit of DFNN.

Solaire Resort & Casino

All land-based casinos in the country are eligible to apply for the license, but will only be able to accept bets from registered VIP players within the Philippines and this is perhaps the primary factor that will limit the appeal of the new licenses. 

“You cut out the players from China, cut out the players from overseas and then cut out all retail players just to get to the VIP and I’m venturing you’re probably looking at 10 to 15 percent of the business,” said Gilbert, who is a 29-year industry veteran in both land-based and online. “So if we can get back that 15 percent, it’s something better than nothing scenario, but it’s not going to be the bandaid to stop the bleeding for the operators.”

Gilbert argues that the option should be available to all registered players in the country, with the correct know-your-customer and regulatory procedures in place. The Philippines is one of the few markets in Asia where locals are permitted to gamble in the country’s casinos and the mass market provides a strong base for the operators. 

“I don’t understand why you wouldn’t open up to the retail base in this time of need for revenue, as the KYC is already in place.”

Any games being offered need to have PAGCOR approval and need to be GLI classified, while online gaming servers need to be hosted in the casinos, Domingo says.

New market for suppliers

For the land-based gaming suppliers, the decision offers interesting potential, providing there is absolute certainty that the Philippines can be geo-fenced to stop players from outside of the country placing bets.

“Once a mainstream company gets into this playing field, if there’s any possibility that a Vietnamese player, or a Chinese player gets through this geo fence then they are out of the game,” he said. “They are not going to put their licenses worldwide at risk to generate some kind of revenue out of the Philippines, so that’s huge.”

At present, most of the major suppliers have been building up their digital businesses, but are only operating in regulated markets and are not seen offering their services in Asia. 

“Now you give them an opportunity. They are dealing with customers who are used to their games on the casino floors.” he said.

Another potential sticking point with the new licenses is payment systems. At present, clients need to physically deposit funds in their accounts and withdraw winnings from the casino.

“If something could be done to allow people to fund their accounts from home that would be huge.”

Gilbert said this cuts down initial costs for the operators, however doesn’t offer a true online gaming experience.

“If PAGCOR could address payments that would be huge. Not only do you have to go, if you’re on  a losing streak you have to go back again,” Gilbert said. “If something could be done to allow people to fund their accounts from home that would be huge. That ability to do those payments is the essence of online gaming.”

Domingo suggested that there may be room for future movement on payments, saying the main concern is that the bet is registered and the government gets its share of revenue.

Fees and taxation model

The new licensees will be required to pay an application fee of PHP100,000. They will pay 25 percent of gross gambling revenue in tax and will also be required to pay a 5 percent franchise tax to the Bureau of Internal Revenue.

However, Domingo said that the franchise tax will be on GGR and not on gross bets, as is the case with the POGOs. It was this latest imposition, signed into law by President Rodrigo Duterte in September, that was a step too far for many of the online businesses.

“If you are charging 5 percent off turnover, there is no way of making money,” Gilbert said. “As long as it’s on the GGR number that’s fine.”

When it comes to the POGO exodus, Domingo was keen to stress that the situation has stabilized and that business was picking up, enabling PAGCOR to meet its revised revenue targets. 

“By the end of the year we will be positive on the bottom line and will make 33-34 billion pesos ($685.4 million – ($706 million) despite being only open for four or five months,” she said. “By the second quarter of 2021 we will be doing as well as we were doing in 2019.”

She said four new POGO license applications have been received and PAGCOR is focusing its attention on markets outside of Southeast Asia, in particular in South America.

Taking sabong overseas

PAGCOR has also recommended to the government that online gambling should be permitted on cockfighting, known as “sabong” in the Philippines and whose popularity is nearing that of a national sport.

“We are focusing on countries outside of southeast Asia and we think that we might be able to penetrate the cockfighting arena in the South American countries and Southern U.S. in one or two years from now,” she said, but gave no further details.

In December, the Philippines House of Representatives passed a new tax on online cockfighting and said it expects to raise at least P1.25 billion in the first year. 

Wrapping up, Gilbert welcomed the introduction of the new license class in the Philippines even though it’s unlikely to be a major driver for growth. There are few capital costs at the outset and it will provide an additional revenue stream for the operators. 

“The Philippines has a great opportunity with the model and can improve on what they did with the POGO progress,” he said. “It’s all about making it easy for the player. If you put in too many hoops the players go bye, bye. You obviously have to look at it from a regulatory perspective but bear in mind the player.”

Interview with Mark Gilbert