Scientific Game

All Change?

Philippines gaming investors ponder whether a new regime at Pagcor will really improve their lot

Wednesday, 14 July 2010 19:14
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An ally of recently inaugurated President Benigno Aquino III has been lined up to be the new chairman of the Philippine Amusement and Gaming Corporation (Pagcor), the country's gaming regulator-cum-operator.

At the time Inside Asian Gaming went to press, the new man was identified as Cristino 'Bong' Naguiat, described as a close friend of the nation's new chief executive.

To add spice to the story, Mr Naguiat was in the past reportedly fired from a junior post in the treasury-finance department at Pagcor by retiring Pagcor chairman Efraim Genuino. Dr Genuino announced his departure as Pagcor boss in mid-June only days before President Aquino was sworn in following his May election victory. It was, however, an open secret in political circles that the new national president—known popularly as 'Noynoy'—wanted Dr Genuino out, despite his so-called midnight reappointment by outgoing president Gloria Arroyo.

The Pagcor job is a politically important and sensitive one. Pagcor had a declared income from gaming taxes and operator licensing fees of P29.78 billion (US$640 million) last year. That makes it the third biggest raiser of cash for public use after the country's Bureau of Internal Revenue and the Bureau of Customs. Critics say Pagcor should be contributing more to the public coffers and that a lot of money is either wasted or disappears from the books.

Charity begins at home

In theory, Pagcor's revenues are supposed to contribute specifically to public spending on socially deserving causes such as the Philippine Sports Commission. In practice, Pagcor has for years been mired in allegations of unauthorised spending, loose accounting and cash being diverted to party political causes.

In mid-June, an anti-fraud campaigning group called Kontra Daya produced what it claimed was documentary evidence that Pagcor money had been used to fund a political party founded by Dr Genuino. That anti-narcotics party, Batang Iwas Droga (BIDA), put Dr Genuino's daughter, Sheryl Genuino-See, at the top of its nominee list during the May national elections. Kontra Daya claimed that between December 2008 and March 2009, Pagcor wrote cheques totalling P28.2 million (US$610,000) to BIDA Foundation Inc and BIDA Production Inc. Dr Genuino has denied acting improperly.

As well as sports training, pre-school education and the President's Social Fund are by law funded from Pagcor remittances. But payments to political parties are technically outside Pagcor's official remit.

Hybrid role

Attempts to improve transparency in the financial affairs of Pagcor are arguably not helped by the organisation's dual role as a gaming operator in its own right (in parallel with a number of private operators) and as the regulator of the country's land-based gaming industry. The country's lawmakers and the public spending watchdog, the Commission on Audit, do in theory have oversight of Pagcor. In practice, they have found it very difficult to impose their authority over an organisation that in the past has regularly appealed direct to the presidential palace for political protection over the heads of lawmakers when the political heat is turned up.

President Aquino ran a campaign based principally on cleaning up corruption in the country. Whether his ascent to office and his appointment of Mr Naguiat as Pagcor chairman will benefit private and overseas investors in the Philippines gaming industry remains to be seen.

The main complaints expressed by foreign investors in Philippines gaming to IAG have been lack of transparency on investment terms, constant requests by numerous third party agents for facilitation fees on projects (effectively bribes) and accounting irregularities.

If Pagcor chairman in waiting Mr Naguiat is to have a hope of reforming gaming administration in the Philippines, then looking at Pagcor's hybrid operator-regulator role would probably be a good place to start.

Real change

If the new administration decides Pagcor should be classified as operator 'fish' rather than regulator 'fowl', it may then wish to think about whether it needs to set up an independent regulatory body for the industry like most of the world's major gaming jurisdictions. It may also be necessary to hand gaming tax collection and redistribution powers to another body, perhaps similar in structure to the UK's National Lottery Commission. The NLC collects and distributes the duty raised on the sale of the UK's National Lottery tickets to charitable causes.

Without some genuine structural reform, the Philippines risks being sidelined as a boutique gaming market of strictly limited interest to overseas investors. That's despite the market's strong potential in terms of demand from domestic players (who have free access to domestic casinos, unlike the locals in South Korea and Singapore) and from tourists.

The early signs are that the Philippines will resort to the default position of many decades—talking a good game regarding reform, but continuing with business as usual. Dr Genuino has apparently been rewarded for his controversial tenure at Pagcor with a threehectare plot of land at Clark Freeport Zone, the former US Air Force base site near Angeles City, 40 miles from Metro Manila. It could potentially be used to develop a casino. Clark is already home to the Stotsenberg Hotel and its Casino Casablanca.

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