Casinos in Mexico? The Formal vs. The Actual

During fairs in Mexico, some gambling operators request permits to stage gambling events that are officially illegal. By the time the permit is denied, the fair is over. Meanwhile, the operator can display a paper proving that he has applied for a permit.

This dichotomy between the formal and the actual often presents problems to the literal and legalistic mind of the Anglo businessman. It is something that could loom large if casinos are ever legalized in Mexico, and Americans and Canadians allowed to take part.

Bill Wortman, an owner of the Nevada Palace hotel-casino in Las Vegas, told me that as eager as he would be to open in Mexico, he would not do so if the regulations governing casinos were not as stringent as those in Nevada or other North American jurisdictions. (To do so could jeopardize the gaming licenses in those jurisdictions.) Also, Wortman noted, the enforcement of those regulations would have to be as vigorous as is the case north of the border.

But problems of enforcement would likely be a major sticking point if the games were legitimized. Mexico could copy verbatim the regulations of the Nevada Gaming Commission, and still operate in the shadows.

The country, for instance, has environmental laws so stringent they would warm the heart of a Greenpeace activist. But most of these are ignored (except perhaps for the ones whose violation would draw the most international condemnation), because of a lack of money, manpower, or the will to enforce them. Yet they are on the books; the line between intent and reality is very much blurred.

Again, the Mexican Constitution (which has been amended almost 200 times since first promulgated in 1917) guarantees a job at a decent wage for every citizen. Even a short visit to the country will illustrate the gulf between fact and that sort of lovely fiction. To make note of these items is not to engage in finger-pointing, nor to encourage any kind of national or cultural snobbery. (Americans are often too eager to want to reform the world in their own image.) It is merely to highlight certain realities.

This Mexican dichotomy probably explains why last year the powerful Caliente operation was permitted to introduce a keno type game into their sports books. This game, with the innocuous name of Numeros (Numbers), features 70 spots rather than 80, and players mark out from one to ten numbers, with a top payout of $50,000. One TV monitor in each book, amidst those showing sports or horse racing, is devoted to the Numeros display and results.

It may come as a surprise to some that a casino game like this would be allowed in a country that still prohibits gaming. It may be simply coincidental that the former president of Mexico, Ernesto Zedillo, who left office late in 2000, was a close friend of the recently-deceased impresario of Caliente, Carlos Hank Gonzalez.

What Kind of Regulation Could Mexico Provide?

Cozy relationships between the regulators and the regulated are not unusual in Mexico. When I was with Caliente, the operation paid for a deluxe room (usually at the Mirage) and made other arrangements whenever the director of Secretaria de Gobernacion (the federal agency that regulates gambling in Mexico) had a yen to visit Las Vegas. These arrangements were made by Caliente's San Diego office, which, however, operates under a different name and claims not to be owned by Caliente, so as to sidestep any legal problems that the parent may encounter stateside.

The nature of some of the clientele at the Baja California books may be of interest to North American gaming executives eager to bite into the Mexican market. In the late 1980s the Del Mar racetrack in San Diego began simulcasting, which cost Caliente a considerable share of their American business, as the customers wanted to watch the races on the television screens.

Caliente, year after year, had a hold of over 20 percent of each offtrack racing dollar wagered (much higher than what Nevada race books report). So this was devastating, until Caliente later set up simulcasting at its books.. But one group never deserted Caliente -- the local narcotrafficantes, narcotics traffickers. "These guys kept us going during that time," said the sub-director of Caliente a few years later. The traffickers were given their own private room, with free food and drink, and with private betting windows where they would drop $50,000 on a race without blinking.

Although Mexicans and other foreigners can own and operate a casino in Nevada, provided they pass the same rigid background checks as anyone else, no American has owned a sports book in Mexico. Bill Wortman believes none has ever tried. "I don't think they have the regulatory infrastructure in place," he says.

A few years ago, though, a group from Texas with horse racing connections did purchase an interest in the racetrack in Mexico City. This facility is a notorious money-loser, but a spokesman for the Texas group told the Daily Racing Form that he and his associates were interested in positioning themselves for casinos, which they saw as imminent.

Wortman, like others in the North American industry, believes the ascension to the presidency of the Mexican Republic by Vicente Fox augurs well for the return of casinos, as well as for sea changes in the way business in Mexico operates. Fox, of the National Action Party(PAN), was the first to break the seven-decade monopoly of power that had resided with the Institutional Revolutionary Party (PRI). He is a former executive for Coca-Cola in Mexico, and swept into office promising liberalization and change, and an end to corruption.

Corruption in high places is a fact of life in all countries and societies, but in some, like our own, it is decried and often punished when uncovered. In the U.S. we do not normally offer a bribe to a police officer, or a tip to some low-level government worker to speed up some needed paperwork. But these things are routine in Mexico, and are very unlikely to change in the six years of Fox's term of office. And possibly not in 60 times 6 years.

Alan Riding, former New York Times bureau chief in Mexico City, wrote (in Distant Neighbors, a book published in 1985 and still must reading for English speakers who want to understand Mexico) that the pandemic corruption was the glue that held together Mexican society, and the oil that lubricates its functioning. Fox is running television commercials asking his countrymen not to participate in the corruption, but a cultural practice existent for centuries is not likely to be much altered by an ad campaign.

It is true that many Mexicans, especially those with some knowledge of the U.S., are embarrassed or disgusted with the culture of mordida (bribing), but few, I think, have opted out of it, for to do so would be to banish oneself to the margins of society. Still, one cannot fault casino people north of the border from watching and hoping.

Is It Time for the Return of Casinos?

What are the chances of the casinos returning? With the new liberalization and an apparent majority of the population favorable to the idea, now would seem the time.

But this may be one more illusion created by the play of shadow and sun. Fox may not oppose casinos, but that's a long way from actively campaigning for them. His primary focus is to bring to Mexico industrial jobs, and to pressure the U.S. into an open border policy, with free movement of labor. To make a push for casinos would muddy the waters for his main thrusts.

Powerful elements of Mexican society still adamantly stand against legalization. Periodically, some group of politicians (usually from the PRI, still very strong) or other issues a broadside denouncing the immorality of gaming. The hierarchy of the Catholic Church is almost unanimous in opposition. The marriage of Fox (a divorcee) to his former press secretary further estranged him from the favor of the Church; one prelate told the press that the President was "living in sin."

Another entity that would likely view the casino gambit with great disfavor are the American drug enforcement bureaucracies, who believe that money laundering is made much easier when there are cash-heavy legitimate businesses like casinos in place. President Fox wants to keep in place the NAFTA (North American Free Trade Agreement) pact, and obtain key concessions from the United States in other areas. Is it likely that he will risk alienating this potent U.S. bureaucracy and its political allies by resurrecting gaming?

But suppose at some future date Mexico does take the plunge. Should the American industry jump in feet first? I'd advise extreme caution. Consider that it took the U.S. gaming industry years to shed the stigma of associations with organized crime. Would it be worth gambling that hard-earned respectability for some fast profits south of the border?

The U.S. company Autotote learned a bitter lesson in 1994, when the Hank family actually set up some slot machines at their sports books in Baja, claiming they were games of skill, not chance. Autotote then announced that it had a contract with Caliente to initially import 10,000 of the machines into Mexico; this announcement greatly interested the investment community, but also opened the deal to scrutiny from financial institutions.

Meanwhile, word of the machines filtered down to Mexico City (due to a story broken by the same paper once owned by the murdered Tijuana journalist) and the storm of opposition that swirled was too much even for the Hank family to contain. The machines were withdrawn, and Autotote ended up looking foolish and careless.

Mexico is not going to change because Americans want it to. Surface changes there have been, and there will be more. Certainly, the long-suffering people of Mexico deserve better than they've received. The movement, however, is glacial, and could change direction at any time, given the country's rather volatile history.

I know Americans who have moved to Mexico, to live or to run businesses. They came with their gringo ideas of American efficiency, of how things should properly be done. And one by one, with time -- Mexico's eternal ally -- they gave up trying to impose their ways on the land of sombra y sol. As one American entrepreneur south of the border told me, "Now, I just go with the flow."

But whether a politically sensitive business like a casino firm can afford to go with the flow across the Rio Grande is another question.