Online sports betting grows rapidly in Latin America

The sports betting industry is taking off in Latin America, despite the pauses in competition due to the pandemic. For the time being, only Colombia has regulated this type of activity and has its share of this lucrative business, of which potential in the region is huge.

Advertisements from Betcris, Bet365, Latinbet, Betway, 1xBet, Bwin, MarathonBet, and dozens of other brands of online sports betting houses are constantly seen on the team jerseys, on stadium advertising panels, and on any sports broadcasts. Whether as an official sponsor of an event or as an advertiser of a television broadcast, there is no competition that is exempt from this phenomenon.

Copa América, Eurocup, Wimbledon, Formula 1 or the local leagues and many other events of lesser categories are part of the offer to the players, to “live the adrenaline” of the game.

Online sports betting is a strong global trend, which will grow 9.7% in the next four years, reaching USD$ 106,250 million, according to the research firm Technavio. And although it is a rather recent phenomenon in Latin America, it has been specially developed in other markets, which are considered as benchmarks in this industry.

Amongst the most similar cases to Latin America’s, is Spain, a country governed by the General Directorate for the Regulation of Gambling (DGOJ-for its initials in Spanish), and in which it is estimated that online gambling generates close to USD$ 23,595 million. This meant 0.9% of the country's total GDP in 2019, the year in which it closed with about 1.3 million active players.

According to the figures revealed during 2020, in the midst of the sports blackout due to the pandemic, the gross margin of operators in Spain grew 17% between April and June, compared to the same period in 2019, representing a total of USD $246.34 million.

Regarding Latin America, although there are no figures that allow us to know in detail the size of this industry, its evolution is promising, and the pandemic has favored its advance.

Fernando Garita, Betcris Business Development Director, explains that the trend for the regional market shows a sustained growth towards the consumption of sports betting and other online games, especially in the current scenario in which many players decided to move from in-person to online modality. All this is in a context where ease of access has increased with channels such as computers, tablets, consoles, or mobiles compatible with these systems.

Garita estimates the potential of Latin America will be more than 640 million people and ensures that the pattern of consumption of lotteries and traditional bingo halls, little by little, has been migrating to electronic or online channels. This together with the widespread taste for sports, led Betcris, which operates and is regulated under the Malta gaming license, to start operations in the region in 2006 with 23 employees. The manager says today there are more than 1,000 members around the world, with 140 people working at its headquarters in Costa Rica.

Colombia's figures, in fact, corroborate the potential of this industry in the region. Coljuegos, the country's gambling regulatory entity, reported that in 2020 internet bets exceeded 8.3 trillion pesos in sales (about USD $ 2,256 million), which is 73% more than what was registered in 2019. Despite the suspension of multiple competitions due to the pandemic, sports betting represented the largest contributor to the sector, with 85% of the total collected.

Meanwhile, the prizes for the players reached 7.7 billion pesos (about USD $2,093 million), which is equivalent to a return-to-player close to 93% of the total bets, an indicator that showed how advantageous this activity has become for users.

The numbers are also positive for the state, because, through the 3.7 million active accounts in the country, it was possible to collect 393,827 million pesos in 2020, about USD $102.3 million.

And the trend does not seem to be holding back, because according to the president of Coljuegos, César Valencia, in the first four months of this year the sector has reported total sales of 5.17 billion pesos (USD $1,392 million), which means a growth of 54% compared to the same period in 2020. Given all this, the Ministry of Finance predicted last month that games of luck and chance will contribute 6% to the growth of the country's economy in 2021.

However, the uneven reality of Latin America is illustrated, for example, with the case of Chile, a market where online gambling is not regulated as such, except for some specific exceptions for certain entities. "Given the lack of regulation in the vast majority of Latin American countries, it is an immature market. This means that everything still remains to be done. Also, and perhaps as a consequence of the pandemic, there is an anxious demand, which consumes whatever it finds", reflects Francisco Javier Leiva, former head of Chile's gaming regulator (SCJ, 2005-2012).

Aware of this void, in January of this year, the Chilean Ministry of Finance informed that bills that seek to modernize and make the gaming casino industry and its operations more flexible will enter Congress, in the context of the pandemic and the new reality of the industry, safeguarding the interests of the treasury in the matter.

And the Superintendency of Casinos and Games (SCJ) explained to AméricaEconomía, a Latin American magazine, that a bill that regulates the development of online gambling in the country is being considered, those that today do not pay taxes, including sports betting, online casino games and other gambling games. Generating a competitive market, safeguarding public faith, protecting the health and safety of the players, increasing tax collection, and making the origins and destination of the resources obtained through these platforms transparent are part of the objectives shared by the entity.

As calculated by Leiva, for Chile it can be estimated that the "win" of online gambling, meaning the profits for operators would reach USD $425 million in five years in a regulated and stabilized market.

In the same way, the Chilean analyst cites Peru as the opposite case to Colombia. And it is that while in the coffee country companies must contribute 15% of their profit to the Subsidized Health System of Colombia, in the Inca country gambling, it's not regulated, although it is considered a legal economic activity. “This explains why there are more than 17 bookmakers that use that jurisdiction as a base for their operations. In 2019 it is estimated that more than S / 2,500 million (about USD $625 million) were generated, with around 150,000 daily bets”, adds Leiva.

In addition to Betcris, Strendus is another of the platforms that intend to take advantage of the expansion processes in Latin America. Emerged in 2018 as one of the brands of the group of Mexican origin Logrand Entertainment Group, it operates today in the North American country, venturing into the gaming, betting and, entertainment market in digital format.

Although it is in their plans to grow to new countries in the region, they do not see Latin America as a single block. "They are different countries, with cultures, audiences, and users with unique preferences, which require different strategies," says Lenin Castillo, director of online operations at Logrand Entertainment Group.

"Latin America has been described as a 'land of high potential' for online gambling operators. While only a few countries have legalized and regulated the sector, they are already experiencing stable growth. Those that have not yet taken the step expect to do so in the coming years. Given that it is generally an untapped market, the potential is immense for sportsbooks, casinos, and other forms of gambling," said the Strendus representative.

To confirm this "incredible growth potential" they rely on estimates that expect a 20% year-on-year increase for the sector in the region, with revenues exceeding USD $7 billion by the end of 2021.

Luis Ayestarán, the founding partner of the international consulting firm Betpertise, confirms the growth figures close to 20% for the Latin American market, although he cites higher revenues at the end of 2021, estimated at USD $10 billion. However, the estimated figures are considering that the pandemic does not reveal a clear horizon or a reliable quantification.

For Ayestarán, who is also the consultant of the Association of State Lotteries of Argentina, the birth stage of the sector calls to pay attention to not make the mistakes of developed markets, such as Europe’s. "I believe that the lack of planning in the development of the online gambling sector, added to the demands brought by the pandemic, caused countries or regulators to grant licenses in a chaotic way, without a deep study of the subject, developing regulations with legal loopholes, unclear and not very comprehensive rules," says Ayestarán, who assures that the pandemic forced the creation of these markets without the time or adequate experience for efficient development of the regulations. Therefore, the Betpertise consultant foresees that the main challenges are the licensing regulations, their scope of application, access to reliable and consolidated electronic means of payment, and, finally, clear legislation to combat illegal gambling.

For Ron Mendelson, who has more than 20 years of experience in iGaming, a concept that brings together all the casino games that exist on the internet, the regulatory situation is divided into those markets that are regulated and those that are not. In that sense, he considers that Latin American regulators are still looking for the appropriate levels of regulation, although he maintains that the rules are reasonably clear, therefore operations are viable, and they see the region full of opportunities for creative entrepreneurs.

"As long as operators adhere to and uphold the good practices that have been defined internationally, there is no reason to expect them to face serious regulatory issues," said Mendelson, who serves as a director of Fast Offshore, a Costa Rica-based company that offers corporate consulting services to international companies.

Meanwhile, Francisco Leiva, former Chilean Casinos and Games authority, considers that it cannot be ignored that despite all the growth potential - even exponential in some cases - in regulatory matters we are far behind Europe: "Due to the lack of control and regulation mechanisms by governments, much of the potential of this industry is being lost," he said.

He adds: "I am convinced that we have an opportunity to regulate online gambling, not only because it is a reality that must be dealt with, but also because it generates tax revenue. Furthermore, it is a source of employment and that encourages vertical development since it is not only limited to the market of online gaming operators but also allows the development of the market for technology providers in that industry."

Leiva, who is currently working as an independent consultant in the field of gambling, sees another consequence of the lack of regulation. In most countries it has caused the offer to be covered by offshore operators, meaning that companies that have licenses from a jurisdiction such as Curaçao, Malta, Jersey, Isle of Man then offer their products online in countries that lack regulation. This explains, to a large extent, the increase in advertising of these sites in our region, since competition in a young market like this lies in making themselves known.

These offshore bidders, validated by a license in one of the aforementioned jurisdictions, manage to operate in countries such as Latin America, for they believe that since there is no regulation they are therefore not violating any regulations. However, if they want to operate in jurisdictions that have regulations, most of them adhere to that framework and process the corresponding license. This is another reason for countries to issue regulations.

Consequently, taking the case of Chile as an example, since there is no legislation that prohibits this type of activity, there are no blocks from internet providers (ISP) or payments, for instance, so the operation of bookmakers is relatively safe.

Ayestarán refers to the current situation of legal licenses, which must compete with illegal or gray ones, without clear protection of acquired rights or providing legal security for investments. Due to this reason, the director of Betpertise maintains that companies that operate in tax havens should not be able to operate: “I firmly believe that there should be a global decision to combat these companies with the technological tools that are available today, where clearly the blocking of said illegal or gray portals could be carried out without any inconvenience.” Popular platforms that have gained ground in Latin America such as Betsson, Betmotion, Coolbet, Wplay, Rushbet, and the local ones Rojabet, Inkabet, and Latribet were contacted but did not respond to AméricaEconomía's comment request for this article.

Regarding this dilemma, Ron Mendelson does not see problems in the constitution of these companies or their operation in financial centers and free zones due to their tax benefits. "In fact, Latin American countries could consider creating or expanding their free trade zones to attract this type of business, which creates new jobs and helps the growth of local economies," he said.

Regarding the regulation, Betcris considers that it is something positive that it is starting, "as long as the business models and characteristics of what is regulated are clear", in a joint effort between the Government and the private sector. In this sense, they value what is in force in Colombia, by developing a regulatory framework with the main aspects and having approached operators, associations, and consumer protection entities.

Esports, a new source of income for betting

Thinking about the future of this business, further encouraging its development, experts agree on a growing source of income that will also attract new users for bookmakers.

“For the moment, and on a general level, online sports betting still dominates the market. However, esports and various casino games have seen impressive growth. One group within the industry predicts that esports betting will exceed sports betting in the future,” says Ron Mendelson of Fast Offshore.

Ayestarán explains that this situation is due to the fact that esports and sports betting are seen as a bridge to reach an audience that cannot be accessed today: young, fresh people and technology fanatics. "More and more brands want to get involved in this new business, where the main target is young people who no longer consume traditional media," he added.

Betting on the winning team in one of the many electronic sports competitions seen by millions of users these days has already been of great support for the sector.

The second quarter of 2020 meant a decrease of almost 80% of the total volume of bets for Strendus. This impact which was due to the pandemic as well as the cancellation of sporting events around the world led them to accelerate the search for new markets, such as simulated reality leagues (SRLs), which offer full-time sport match simulations, including fouls, corner kicks, offside, etc.

“Virtuals, which contains simulated games that occur quickly to place sports bets, esports where you can place bets on games such as League of Legends, Dota2 or Counter-Strike. All this content gave support to increase the volume of bets to 30% of the volume that was had at the beginning of the year,” said Lenin Castillo, from Logrand Entertainment Group.

“Esports are going to start to have more space. The fact that football clubs, new players from outside the industry, important athletes, large agencies, and the media are already participating, gives an important boost,” said Lenin Castillo, from Strendus.

The sports betting market in Latin America is still being shaped. But it is a very accelerated one where competition increases due to the ease of entry of global, regional, and local players.

According to Fernando Garita, from Bectris, "the interesting thing about the current market or trend is that companies are becoming highly specialized in some products and later they are commercially associated with others, giving the end consumer a product of very good quality in general." This is why he concludes: "Suppliers of not a very good reputation or of a non-competitive product will definitely be displaced in a few years."