Innovate Gaming -

A proliferation of illegal gambling in Puerto Rico is causing serious problems to the casino industry. The Puerto Rico Hotel and Tourism Association (PRHTA) estimates 25,000 illegal slot machines are operating in the country forcing two casinos to close by the end of the year, with another five on the verge.

According to a new report by the tourism association, Puerto Rico is home to 21 casino hotels that jointly offer 7,000 slot machines. About 90 percent of gamblers are local residents and new a growing number are frequenting illegal slot parlours, favouring the odds against legal casinos.

Ranging from bars to bakeries, illegal machines are setup almost anywhere with some venues openly advertising gambling with neon lights and signs. Others remain discrete, at the back of shops and behind closed doors, but the government has been slow to recognise how the sheer volume of illegal operations is affecting tourism.

Illegal betting parlours solely dedicated to slots have been sprouting throughout the nation recently, as law enforcement agencies have their resources in other areas. People rent commercial spaces in urban areas where they offer dozens of machines and sell food and drinks like a regular casino.

That’s become not only a problem for the hotels running the bulk of legal casinos but for the government, which is already struggling with gaping budget shortfalls. Overall, the government estimates it’s losing about $200m a year because illegal gaming.

Particularly hurt has been the government agency that manages tourism, which received $61m from gambling taxes over the past year. Gaming represents about 6 percent of the US territory’s GDP, as the government turns its attention to the sector as it struggles with deficits that have recently totalled more than 10 percent of its annual budget.

“The industry is not as solid as they like to pretend it is,” commented Ismael Vega, President of PRHTA, “to protect the casinos is to protect the entire tourism industry of Puerto Rico. That’s what they fail to understand.”

As the government is failing to clamp down on the growing problem, casinos are losing revenue.

Legal casinos have been forced to issue lower payouts to offset lost revenue, causing a knock-on effect that is is pushing players towards the illegal machines that are able to offer better odds.

Legal casinos invest approximately $16,000 to purchase each slot machine and permit. Meanwhile, illegal machines without paperwork cost approximately $2,500. Owners who operate the machines keep 60 percent of the profit while the casinos keep 40 percent, according to Ervin Rodriguez, owner of the Camarero racetrack near San Juan.

As the government now recognizes the importance of preventing the illegal gambling trade to flourish and continue to dent its available tax revenue, representatives from the country’s tourism industry are working on ways to prevent any further damage.

In March, the Gran Melia Golf Resort closed its casino and laid off 57 employees. In July, El Conquistador resort announced that it, too, was closing its casino and laying off 56 employees. Marketing director Lydia Feliciano said it was a financial decision but declined to provide specifics. The casino had been operating since 1993.