Gaming

With casinos mushrooming everywhere and online gaming proliferating, it is probably a good time to drastically review the governance framework for gaming in the country.

We have two distinct agencies supervising gaming: the Philippine Amusements and Gaming Corporation (Pagcor) and the Philippine Charity Sweepstakes Office (PCSO). The former supervises the casinos and online gaming activities. The latter oversees lottery operations, including (rather notoriously) various “small town lotteries” often accused of being fronts for illegal gambling.

In addition, Congress passed several laws creating special economic zones. The special economic zones are empowered to issue permits and licenses for gaming activities. They are justified as necessary for encouraging tourism even as, in fact, they have created a backdoor for the boom in Philippine online gaming operations (POGOs) and the entry of tens of thousands of Chinese workers manning them.

Among the special laws Congress passed are: RA 7922 creating the Cagayan Economic Zone Authority (CEZA); RA 9490 (Amended by RA 10083) creating the Aurora Pacific Economic Zone and Freeport Authority (APECO); and, RA 9728 creating the Authority of the Freeport Area of Bataan (AFAB).

All of these special laws created “authorities” that may issue permits or licenses to “tourism-related activities” such as games and amusements. These “tourism-related activities” overshadow whatever other things these “authorities” might have done to spur economic activity in their respective jurisdictions.

“Amusement and gaming” operations (actually a euphemism for gambling) are, as a result, poorly governed. A Babel of authorities and jurisdictions exercise regulatory and supervisory functions over a wide variety of gambling operations.

Recognizing the problems of overlapping and sometimes contradictory jurisdictions, President Duterte issued in February 2017 Executive Order No. 13. The Order is principally concerned with the proliferation of illegal gambling and directs the PNP, the NBI, the DOJ, the DILG and the DICT to better coordinate their efforts.

The Order, however, does not address deficiencies in the existing governance structure for “gaming.” Nor does this Order arrive at a clear-cut policy on the new varieties of “gaming” that cater to foreign markets.

Only recently, for instance, did it strike our revenue authorities that the tens of thousands of foreign workers for the POGOs have not been paying proper taxes on their wages. The potential tax revenues from these guest workers could add up to a rather substantial P40 billion.

We are not sure, too, if the appropriate tax methodologies are employed in collecting from the online gaming operations.  These are, after all, newfangled businesses catering to an unseen foreign market. Surely, these operations could yield much more revenues for government than they currently contribute.

The churches have warned against the rise of a gambling culture among our young. We have to look at ways to protect our young from the downside effects of gambling proliferation.

Disparities

There are sharper disparities in the quality of management of Pagcor and PCSO that need some looking into.

Pagcor is the more professionally managed of the two agencies. Month-on-month, this public corporation breaks revenue records. This adds to the social fund available to support the poor.

For 2018, Pagcor posted about P200 billion in gross gaming revenues. This is 13% over the preceding year, considering 2017 was not a bad year either. For 2017, Pagcor posted gross gaming revenues of P152.55 billion, a hefty growth of 15% over the year before.

Pagcor chairman Andrea Domingo, in a recent interview, forecast an 8.5% growth rate in gross gaming revenues. This should bring the Pagcor’s earnings to about P217 billion.

By contrast, the PCSO reported a 56% drop in charity assistance last year. From P416,663,375 in charity assistance in October 2017, the funding dropped to only P181,956,434 in October 2018. This means less than half the number of beneficiaries was served compared to the year preceding.

That is not the worst news. Former PCSO general manager Alexander Balutan reported that sales for the month of February 2019 declined by 39.19% compared to the same month in 2018. Lottery sales declined in all categories, with the Ultra Lotto 6/58 registering the biggest drop of 60.11%.

There is no indication the dramatic drop in PCSO earnings will reverse in the foreseeable future. Nor is there any explanation offered by officials of this agency on why sales are so dramatically heading south.

We need to look more closely at the sales figures for small town lottery operations (STL). One credible hypothesis is that the lottery market is being drained by illegal gambling operations.

Balutan, we will recall, was removed from his post some months back under a cloud of corruption charges. Since then, bitter accusations have been traded between the warring officials of this agency.

If the decline in sales continues, the PCSO could end up a failed agency. The hundreds of millions it once contributed to the charity fund that served sick and indigent clients will evaporate. The poor who depend on the charity fund will be the final victims of this failure.

It is hard to imagine the lottery market is dissipating at the rate PCSO earnings are falling. The phenomenon must be investigated more closely, using both operations as well as statistical analysis.

It is easy to blame the PCSO’s growing failure on plain mismanagement. The nature of this agency does need a strong professional staff complement to ensure it thrives.

The more dreadful possibility is that this agency has been undermined from inside in some perverse form of regulatory capture. Instead of eradicating illegal gambling, the PCSO, either by incompetence or by design, appears to have abetted it.