POGOs to resist political pressures

With the win from China-facing igaming operations forecast to hit RMB230.7 billion ($33 billion) in 2019, authorities in the Philippines have little incentive to curb activities of Philippine Offshore Gaming Operators (POGOs).

According to H2 Gambling Capital, a market data and analytics company, that figure is likely to rise to RMB252.9 billion next year. 

Since China urged its Asian neighbours to help stamp out online gambling targeting its nationals in August, Manila has stepped up its efforts to clean up the industry and has temporarily suspended the issuance of new licenses. However, so far President Rodrigo Duterte has resisted calls for an all out ban, unlike Asia’s other igaming hub, Cambodia. 

The Philippines is wealthier and has experienced some of the strongest economic growth in the region at 6.2 percent in 2018, according to the World Bank. It is not as reliant on Chinese trade and investment, or prone to geopolitical pressure as Cambodia.

What this has done is to increase pressure on POGOs to ensure they are paying the correct taxes and to clamp down on immigration violations among the hundreds of thousands of Mainland workers, many of whom entered on tourism visas. 

There are also proposals to increase taxes on the sector, in particular with the addition of a 5 percent franchise tax; a gaming tax of $10,000 a month per table for a live set-up casino and a $5,000 a month gaming tax for random number generator (RNG)-based games, as well as a $1,000 presumptive corporate income tax per seat for POGOs.

So where do these pressures leave the Philippines as an igaming hub for China and the Asian continent as a whole? Tax changes and employment crackdowns are one aspect of the debate, but the country is unlikely to implement any stricter or more prescriptive legislation for fear of the economic impact it would have on the igaming sector there. 

POGOs paid PHP175 million ($3.4 million) in taxes in their first year of operations. That rose to more than PHP579 million in 2018, with the figure jumping to PHP1.63 billion in the year to August alone.

One industry contact who agreed to speak to Asia Gaming Brief on condition of anonymity says: “The Philippines-based igaming companies are not going to stop targeting China. Both the Chinese and Philippines officials know that. The question is more about how far the POGOs can push their activities in China without upsetting the authorities there too much.”

And even though “the Chinese have complained publicly about the serious issues they say are caused by online gambling; such as financial security, money laundering and evasion of the country’s strict capital controls, all parties know that the industry is not going to stop”, adds the contact.

The industry itself has proposed a degree of self-regulation to calm authorities’ nerves. Oriental Game has suggested setting up POGO hubs that would offer “one-stop” solutions to help companies comply with Philippine regulations.

“Everything will be there,” Kevin Wong, general manager of Oriental Group, told the Philippine Star. “PAGCOR will have an office there. We’ll also invite the Bureau of Immigration and the BIR.”

“If you locate in a POGO hub, no one would say that you’re illegal because all the other agencies are already there. So in terms of numbers, visas, the tax identification number, income tax, all will be covered,” he said.

When it comes to product verticals, China is also evolving in line with the rest of the Asia-focused industry. Where once live casino was the dominant product for much of Asia, sports betting has now taken over as the most important igaming vertical in terms of volume and revenues, followed by casino and poker.

And while live casino is still very important for Asian casino sites, it is clear that they cost more to produce than online-only table games, or online slots. The latter have been growing consistently thanks to an influx of new suppliers, who are keeping operators in the region supplied with regular content and growing their share of the market. 

Another source who works with a leading Philippines-based gaming technology supplier adds: “All parts of the Asian igaming sector are constantly modernising and are getting increasingly sophisticated and the direct-to-consumer model is gradually replacing the agent system. 

“This means companies don’t need to have as many contacts on the ground and can market their products directly to players in their target markets. And even though Cambodia is closing down operations and there has been a big exodus of Chinese executives from Sihanoukville, igaming firms are setting up in countries like Thailand, Taiwan or Vietnam to target China and other jurisdictions. 

“That, and the fact that the Chinese market is so huge and potentially rewarding, are just some of the reasons why the igaming sector in the Philippines is unlikely to change much for the foreseeable future.”