As part of a review of the LatAm experience in 2020, SBC focuses on Mexico, with Alfredo Lazcano and Andrea Avedillo, legal experts from Mexico City-based law firm Lazcano Sámano SC, revisiting some of the country’s more significant developments in the gaming sector.
With just a few days left in 2020, it’s not easy to write these words without a bit of emotion. “Challenging” and “complex” are adjectives that don’t even begin to describe what this year meant to everyone.
The pandemic caused by the COVID-19 virus achieved something that in recent decades – and also in the past few months – seemed impossible: the world stopped. More than a million people have lost their lives, health systems in many countries are on the brink of collapse, the global economy has been affected beyond anything experienced in nearly a century, our consumption habits have shifted to the point of no return, and our relationships have never been so necessary and distant at the same time. Yet, while we were at a standby, we ironically moved faster than ever. Alone, but in solidarity, many of us helped, created, respected and innovated. The gaming industry was no exception and this is the recount.
What happened in Mexico in the last 12 months?
At the beginning of the year, the gaming industry in Mexico was waiting for any regulatory change that would guarantee some kind of growth. Although the Public Administration had not made a statement regarding an update on the legal framework, in 2019 there were indications of some interest from the Legislature to change, at least some aspects, the gambling regulatory framework.
The goal was clear, as long as there were no new laws or reforms that would boost the competitiveness of the Mexican market, the aim was to maintain the stability within the sector. At the end of the first quarter of 2020, the objective was to ensure its subsistence.
Although online gambling did not come to a complete stop, the impact that it suffered at an early stage, mainly due to the cancellation of sports events around the world, was still considerable. It is also important to highlight that, as it happened in other countries, due to online gambling’s nature, it’s still something hard to achieve because the limits are easily blurred. In many cases, this situation can benefit the industry’s biggest players.
However, in a crisis like the one we have just experienced, the lack of regulation translates into a lack of protection, and therefore, uncertainty. Once again, the creativity and drive of online gambling operators continued.
Mexico launches regulation: Gaming Digital Services
In regards to creativity and new gambling modalities that were explored in 2020, it is worth mentioning that, at first, was believed to be a new gambling tax in the country. On June 1, 2020, an amendment to different provisions of the VAT Law came into effect, aimed at regulating digital services provided by foreign residents in Mexico. Among these services, the law contemplates downloading or accessing games, including games of chance, as well as other multimedia content and multiplayer environments (gaming digital services).
Although, in our opinion, the idea that online gambling operators would be forced to pay VAT is incorrect, this VAT Law reform does open the possibility of offering different types of gambling that haven’t been exploited, such as what is known as social gaming (either free or paid), or modalities not regulated by the Gambling Law, like esports, free-to-play games with pay-to-win options, among other things.
Esports are outside the scope of the Gambling Law and its Regulations (Gambling Regulations) because as such, they’re not games in which bets are made, but actually include events on video game platforms organized as contests or competitions. However, it should be clarified that the bets made on esports competitions or tournaments, constitute without a doubt a different activity that is regulated by the Gaming Law and the Gambling Law, which require permission from the local regulator SEGOB.
Now, the VAT Law reform can be the perfect regulatory framework for esports with monetization schemes other than betting (for example, registration or competition fees, sponsors, marketing, etc), as long as they comply with the requirements established for gaming digital services.
COVID-19’s impact was strong, but it opened up new opportunities
About the progress that the gaming industry showed in 2020, it’s enough to point out the capacity of adaptation it showed during one of the biggest crises in recent times. A capacity that a few years ago didn’t exist, or at least wasn’t as strong. But from a regulatory point of view, we would like to show some examples.
As already mentioned in previous paragraphs, one of those examples is the VAT Law reform and the range of possibilities that it brings. A second example, and probably one of the most important, is the recognition by SEGOB of the need to update the legal framework for gambling in Mexico. In addition, on November 27, 2020, SEGOB published the General Guidelines of the Mexican System of Equivalences for Classification of Video Game Content (Video Games Guidelines).
We consider that the publication of the Video Games Guidelines represents a milestone in the development of esports in Mexico. As we’ve already pointed out, esports don’t have specific regulations in the country, which is why organizers and participants must comply with the provisions of different regulatory bodies. Regarding the minimum age to participate in esports competitions, the organizers have to comply with the classification of a certain video game that was made in the country of origin, since there was no existing criteria in Mexico. However, the organizers will now have the certainty to respect the minimum age to participate in a certain competition.
Contrary to what we could have imagined, during 2020 there was much more movement than expected, both from the regulator and from the operators. Although there is still a long way to go in order to recover, once again the industry has demonstrated its resilience and its capacity for continuous reinvention.
What are the goals, at a regulatory level, for 2021?
Last but not least, the goal that we have been pursuing for the longest time is the publication of a new law that regulates in an express, separate and adjusted way the common practices of the most mature gambling laws, all the modalities that already exist and are being carried out successfully in Mexico.
Another pending issue in recent years has to do with the preconception that financial institutions have shown against members of the gambling sector. However, while banks seem to be more interested every day in imposing more obstacles to carry out transactions in gambling sites, at the same time, fortunately, Mexico has laid the foundations with a cutting-edge regulation (that is, the Law to Regulate Financial Technology Institutions, in force since 2018) that has allowed the boom of Fintechs throughout the country.
Fintechs, and in general all electronic payment service providers and Neobanks, attract more customers every day and offer different payment solutions that can be much more attractive to gambling operators than traditional banks’ offering.
To conclude, we ask for a wish for the New Year, that our authorities – not only Mexico’s but from the entire world – give us a 2021 with more openness towards our sector. And above all, that they get to know us first and then regulate us objectively, since we are part of an economic activity based on entertainment and fun, as we represent an important contribution to the economy, and therefore, we contribute to the well-being of modern societies.