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Op-ed by Bob Shead

In this second part of a two-part article on the Philippine Gaming Industry, I will focus on the country’s online gaming industry. Together with the casino sector, which was the focus of the first part of this article, the online gaming industry is of enormous importance to the country’s economy. In this article, I will also identify possible investment opportunities in this rather complicated and sensitive industry.

Background

The Philippines is an interesting and relatively new market for online gambling. There are two distinct regions in the country, for gambling purposes. The Philippine Amusement and Gaming Corporation (PAGCOR) control the majority of the Philippines where gambling is controlled by the Government owned PAGCOR. As previously mentioned in the casinos sector, PAGCOR operates their land-based casinos, and betting outlets across the country.

The second region is the Cagayan Economic Zone Authority (CEZA) and Freeport which most people just call “Cagayan Freeport.” This is based mainly at the Manila Entertainment Complex, mentioned earlier and located next to Manila Bay. This is the only area in the Philippines not under complete control of PAGCOR. In the Freeport area, there are numerous independent casinos that focus mainly on foreign tourists.

Cagayan Freeport also acts as an online gambling licensing jurisdiction, and is the only such jurisdiction in Asia. A Filipino gambling license is difficult to obtain, and does not allow operators to accept wagers from Philippine citizens. However a license from CSEZ there allows access to the greater Asian market, a rapidly expanding market, with a focus on China.

PAGCOR have said that they are currently reviewing the applications for Philippine Offshore Gaming Operator (POGO) of 44 companies that have applied for new licenses in the Philippines. This is in addition to the 45 applications already approved by PAGCOR.

In March PAGCOR announced that the issuance of additional POGO licenses, if approved, will encourage PAGCOR to reach its Peso 60 billion (US$1.17 billion) – Peso 65 billion (US$1.27 billion) revenue target for 2017. PAGCOR has also acknowledged that before fully opening the market for online gaming, the PAGCOR audit system that helps track and monitor the operations of gaming operators needs to be rapidly and extensively updated with the procurement and installation of the correct audit equipment and technology. PAGCOR has acknowledged that there is some confusion with its audit facilities, mainly between the differences in operations between CEZA and PAGCOR as to who handles the monitoring. This is currently being resolved, according to PAGCOR.

It has been reported previously that PAGCOR have already collected over Peso 1 billion (US$19.63 million) from its licensing and processing fees, as revenue from 35 offshore gaming licenses issued in 2016. These charges for each license application amount to US$50,000 for application and processing of e-casino operators, and US$40,000 for separate sports betting, charged by PAGCOR. When a license is approved, an additional fee of US$200,000 for e-casino and US$150,000 for sports betting is charged. It is estimated that by 2018 revenues will increase to Peso 3 billion (US$58.9 million) with the issuance of the additional licenses.

According to gaming analysts, there is an optimism in the growth of the Philippine gaming sector in the future, on the back of its improving domestic economy, which contributes to the growth of the Gross Gaming Revenues (GGR) of the sector. The Philippines is a primary market for on line gaming due to the increasing inflow of investment and gaming funds into the economy. Observers have also said that the growth in inbound Chinese funds is rapidly increasing, though the online gaming industry, and that it will lead to the increase of the volume of the GGR. PAGCOR’s financial data states that revenues increased by 18% from the third quarter of 2015 figure of Peso 98.6 billion (US$1.93 billion) to the third quarter of 2016 when revenues were Peso 118 billion (US$2.31 billion).

Legal Aspects of the Philippines Online Gaming Industry

The laws for online gaming in the Philippines do need to be examined. In both gaming regions of the Philippines (PAGCOR and CEZA), it is illegal for an independent gaming operator to offer online betting to Philippine nationals. However, offshore gaming providers, with no connection to the Philippines may offer online gaming services to Philippine nationals.

Briefly, there are two different sets of legislation operating in the Philippines. Philippine Nationals are not subject to any laws that ban online gambling. However, there has been much Congressional and Senatorial debate on the legality of placing bets through the internet. A Philippine Supreme Court ruling in 2012 found that there was no part of Philippine law that made it an offense to place gaming bets. Therefore Philippine nationals can theoretically use the online gaming facilities.

However, online gaming operators must comply by different legislation. All online gaming sites with a license to operate in the Philippines cannot offer its services to Philippine nationals. PAGCOR issues the licenses and monitors all existing licensees for compliance. Any registered company can obtain a license, providing it pays the due fees mentioned above. License holders can therefore offer their services to anyone outside the Philippines. The advantage to the Philippines, is the close proximity of the rest of Asia and its improving level of development, that make it an attractive base of operations for potential investors with an interest in accessing the Asian online gaming market.

All gaming systems must be examined and approved by PAGCOR, and the gaming company must hold an adequate amount of funds in cash, to cover all player balances. The PAGCOR Licensing Commission has a strong reputation for strictness in enforcing these regulations.

The gaming industry introduced by the Philippine Government does have currently conflicting legislation, and obviously professional legal advice is essential to enter a very promising investment sector. However, maneuvering around the legal challenges is proving to be complicated for both investors and Philippine Government regulators. The terms online gaming or offshore gaming are interchangeable, and refer to internet based gaming activity, that involves clients who register and establish accounts with the gaming operator.

Under PAGCOR regulations, only foreign nationals based in a different country, and over 21 years of age are permitted to take part in online gaming, that is based in the Philippines. PAGCOR also states that Philippine Nationals here or abroad, or foreign nationals legally based in the Philippines are legally not permitted to access Philippine based online gaming operators. Gaming operators may be either Philippine based companies, or foreign companies based outside of the Philippines. It is presumed that the latter means gaming companies who can offer gaming services in the Philippines, or foreign operators who set up part of their operations here. It is acknowledged that this legislation can be considered ambiguous, which currently adds to