Mexico Draft Decree Sparks High-Stakes Lobbying Battle

September 25, 2023
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Mexican operators, union groups and local and international associations are pushing back hard against a draft regulatory decree that would ban all gaming machines and casino-style games in the country.

Mexican operators, union groups and local and international associations are pushing back hard against a draft regulatory decree that would ban all gaming machines and casino-style games in the country.




The Mexican Ministry of the Interior, or Segob, unexpectedly published a draft regulation on September 7 to dramatically amend a 2004 regulatory decree by removing “drawings of numbers or symbols by machines” from a list of permitted gambling activities.




The draft decree would also expressly ban any games played through slot machines or with dice, cards or roulette wheels, essentially eradicating Mexico’s network of more than 400 de facto casinos once their operators' permits expire and the legal changes take full effect.




As of Friday (September 22), the draft regulation published with the national regulatory reform commission (Conamer) had received more than 140 comments, with the vast majority expressing strident opposition to the proposal that threatens a mass extinction event for the industry. 




In a series of comment letters, various divisions of leading Mexican gambling brand Caliente warned that the changes would not reduce demand for casino gaming.




“The prohibition of drawings of numbers and symbols through machines will merely result in their illegal operation … . They will not be regulated in any form by any authority, it will not be possible to control their operation, verify that they have not been altered, much less collect any taxes generated by the operation of these machines,” Caliente warned in a September 18 submission.




Similar comments have been submitted to Conamer by representatives of more than a dozen Mexican operators, including El Palacio de los Números and local divisions of Spain’s Codere.




Mexican gaming industry association APPJSAC warned the draft decree would disadvantage legal operators that “would not be able to offer attractive games for players”, while favoring organized crime groups that would inevitably step in to cater to that demand.




Instead of the proposed changes, APPJSAC said Segob should strengthen its gambling department with new powers to tackle illegal machine operations in non-gaming locations such as bars and grocery stores — operations that the department “has not been able to stop … because it lacks an appropriate structure, in no way because the current regulation is not clear enough.”




Representatives of union groups representing services industry workers have sent comment letters warning that the decree would likely cause the loss of many thousands of the estimated 50,000 direct and 120,000 indirect jobs that are supported by Mexico’s licensed gambling halls.




Meanwhile, several comments have been submitted from Las Vegas, where various international gaming suppliers that service the Mexican market are located.




In a September 19 letter, the Association of Gaming Equipment Manufacturers (AGEM) said major gaming suppliers were not consulted prior to publication of the draft decree.




The interests of machine providers should be taken into account, AGEM said, as manufacturers pay both income and import taxes in Mexico and have many employees there in sales, administrative, analytics and technical support roles.




University of Nevada, Las Vegas professor Bo Bernhard and renowned Nevada gaming attorney Frank Schreck also urged the Mexican government to look to the examples of the United States, Japan and other countries to evaluate the economic benefits of a well-regulated casino market and the adverse consequences of prohibition.




Segob’s decree “will have a significant negative impact on the commercial gaming industry in Mexico and eventually destroy it,” warned Schreck, a partner at the law firm of Brownstein Hyatt Farber Schreck, who has previously advised Caliente and Codere as well as U.S. investors eyeing acquisitions in the Mexican market.




In its initial September 7 filing, Segob said its proposed regulatory amendments were necessary to protect against gambling addiction and to address the legal uncertainty of license-holders being authorized to offer gambling games that are prohibited under a 1947 federal gambling law.




In response, operators and industry associations noted that the nation’s Supreme Court has twice ruled that the term “drawings”, as permitted by the 1947 law, encompasses a wide range of games, including those involving numbers or symbols through machines.




Industry groups also highlight a contradiction in Segob’s proposed prohibition on dice games when these are expressly authorized by the 1947 law, while fiercely rejecting the ministry’s formal assessment that the impact of the changes would only be “moderate”.




Trade association AIEJA, which represents various operators and suppliers active in Mexico, said Segob’s draft decree would be “unconstitutional in several aspects”.




As drawings of numbers or symbols have been upheld as legal by the Supreme Court, “then what is left is to regulate them … not to prohibit them as this reform intends to do,” AIEJA wrote in its submission to Conamer. 




Whether Segob will move forward with enacting the draft decree remains to be seen.




Under a Mexican regulatory reform law of 2018, new regulations cannot be published in Mexico’s official gazette until Conamer publishes a non-binding final opinion on the proposal.




Conamer is also able to reject Segob’s regulatory impact analysis, or request additional information, based on comments submitted on the proposed reforms.




         

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