Why Duterte won’t fold on Chinese gambling

Rodrigo Duterte

Online gambling is big business in Asia, and China wants to stop it.

Cambodia seems to be playing ball with Chinese President Xi Jinping, but the Philippines, the region’s most developed cross-border gaming center, has resisted China’s call to shut it down.

For now, about 60 Philippines Offshore Gaming Operator (POGO) licensees continue taking bets that mainland China authorities consider illegal.

In fact, the crackdown in Cambodia is likely benefiting Philippine businesses and fattening Philippine state coffers, adding another layer to the archipelago’s complicated relationship with Beijing.

Property shares tumbled on the Manila stock exchange in August when Pagcor declared a moratorium on POGO applications, but industry participants report an influx of workers from Cambodian, buoying rents and industry revenue.

The Philippines pioneered cross-border online gaming in Asia. The Cayagan Special Economic Zone, established in 1995, authorized subsidiary First Cayagan Leisure Corporation to license remote wagering operators for overseas players.

First Cayagan expanded as fast as technology allowed, from sports betting by phone to full-fledged live streamed casino games earlier this decade. The sparsely populated province in the northeast corner of Luzon, about 550 kilometers (330 miles) from Manila, lagged in telecommunications power for live dealer online (LDO) operations, a situation it continuously bids to addresses. It also lacked a sufficient supply of competent dealers.

So First Cagayan licensees migrated outside the economic zone to Metro Manila, with live dealer studios and support services clustering in Makati.

When anti-gambling President Rodrigo Duterte took office in mid-2016, First Cagayan’s move out of its assigned territory gave Duterte a reason to knock it out of online gaming.

The idea that there are about 60 POGOs – there were 58 licensees and three pending applicants when Pagcor declared its moratorium – is misleading because each POGO can have dozens of “service providers” operating under its license, all independently offering games to players.

The service provider model arose partly due to Pagcor steeply increasing its fees, quadrupling them in some cases. Application and initial licensing for an online casino requires an outlay of $650,000, plus $270,000 to include sports betting.

Pagcor also collects a 2% fee on POGOs’ gross gaming revenue – the difference between bets and payouts, commonly known as GGR – with a monthly minimum charge of $150,000 for online casinos and 40,000 for sports betting.

Based on those fees, authorities expect a POGO casino to generate GGR of $7.5 million a month, or $90 million a year, to cover the monthly fee. That’s incentive to minimize the risk of a margin-eroding shortfall by using multiple service providers.

Based on the fees, Pagcor pegs the minimum GGR for current POGOs at more than $5 billion, at least 25% more than GGR for the nation’s land-based casinos last year.

No wonder POGOs attract attention. With tens of thousands of Chinese nationals working in POGOs, Manila residents have complained about rising property prices and multiplying enterprises catering to Chinese that make some Filipinos feel like outsiders in their own country.

Security officials, meanwhile, have openly worried about potential POGO-related Chinese espionage; the Philippines and China have ongoing disputes over islands in the South China Sea and economic issues.

When Presidents Xi and Duterte met in Beijing in late August, they discussed online gambling. A Duterte spokesperson told reporters the president “would most likely” study a cross-border gaming ban.

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