April 1, 2024

  • Eric O. de la Cruz Iglesias , Senior Attorney, Puerto Rico Department of Economic Development and Commerce

15 years of slot machines in off track betting locations in Puerto Rico



Puerto Rico may be a United States territory but the Caribbean archipelago’s regulation of pari-mutuel betting and games of chance is unlike that of other states. After 15 years of slot machines in Off Track Betting Locations (‘OTBL’), we look back at the legislation and regulations that underpin their operation. We also review and compare recent data and provide a comment on the prospect of a racino, and for slot machines in the jurisdiction.

Act 139-2004 and the racetrack’s bankruptcy

In early 2004, the owners of the El Comandante racetrack owner were in need of economic support. A solution was identified in the form of a potential partner, Spanish gaming firm Codere. As part of its proposal to operate the racetrack, Codere wanted to install 6,500 slot machines: 500 at the racetrack, and the rest at the OTBL.

In June 2004, Act 139 amended the Puerto Rico Horse Racing Industry and Sport Act (‘HRISA’). This amendment had its approval expedited without public hearings. Slot machines were not mentioned in its statement of reasons. Nevertheless, they were part of the amendment which allowed slot machines only in OTBL. The machines could only be used on race days and had to be programmed to a minimum payback percentage of .83 —which is the standard amount for slot machines in Puerto Rico. Gross gaming revenue (‘GGR’) would be distributed as follows: 15 percent for the Off-track Betting Tellers’ Commission; 15 percent to the account for race prizes; and the rest for the racetrack —as the operator— and the service provider for the slot machines and their management system.

The Horse Racing Agency, along with the Treasury Department and the Tourism Company, were given 90 days to approve the regulation of the slot machines. This was logical as the Tourism Company regulated casino slot machines, while the Treasury Department fulfilled the same role for the slot route industry.

The regulation took years before it was finally approved. Meanwhile, several months after Act 139, in October 2004, the racetrack filed for protection under chapter 11 of the United States Bankruptcy Code. The plan was to reorganize and pay off their bondholders.

With no regulation in sight for slot machines, El Comandante’s owners were unable to capitalize on the June 2004 amendments to the HRISA. In January 2007, the Bankruptcy Court ordered the racetrack’s sale to the Camarero group.

Slot machines went live after Regulation 7625

The regulation of slot machines was finally approved in December 2008. It established a cap of 2,500 machines —far fewer than the 6,500 that Codere had petitioned for, but consistent with some regulation drafts. Each OTBL can have up to 10 machines with no more than 30 super OTBLs which can have up to 20 machines. Machines from the slot route industry are not allowed in OTBL.

Under reglation 7625, each machine must have a single screen and must be able to connect to the central system contracted by the racetrack operator. There is a US$10 cap for each play, and progressive games are allowed. Machines may be played only on race days from 10:00 a. m. to 10:00 p. m. Minimum hours of operation are up to 60 minutes after the official end of the last live race. Prizes over US$500 may be redeemed only at the racetrack.

Slot machine marketing is only allowed inside the OTBL and the racetrack, and via media targeted at horse racing bettors. It requires government approval and responsible gaming disclosures. In comparison to casinos and sports betting operators, there is limited oversight over the marketing of slot machines —which include distributed gaming— and horse race betting. The publicity guidelines for slot machines also seem to be less restrictive than those for casinos —which are only targeted at for nonresidents— and distributed gaming where no marketing is allowed.

The Horse Racing Bureau can recoup monthly administrative expenses from its regulation of the slot machines. As with the other gaming verticals in Puerto Rico, the machines may be played by those who are at over the age of 18.

Scientific Games was contracted by the racetrack operator as its slot machine service provider, and in April 2009, began the installation of machines in the OTBL.

More amendments to the HRISA and the OTBL slot machines regulation

In December 2014, Act 199 was approved to amend the HRISA. The statement of motives centered on the need to support the industry which was struggling with a 20-year decline in the popularity of horse race betting. With this justification, the amendment reduced the government’s take from horse race betting, eliminated taxes on horse owners’ income from races, and doubled the cap on the number of slot machines permitted from 2,500 —as established in Regulation 7625— to 5,000.

Almost 2 years later —in November 2016— Regulation 8859 replaced 7625. It raised from 30 to 50 the number of super OTBL, which can now have up to 30 machines —up from 20 in the previous regulation. Machines may be played whenever there are local and simulcast races — in effect this means almost every day. Although the minimum hours of operation were kept the same, there is now no limitation on the maximum hours of machine operations on a race day. Prizes up to US$1,000 —up from US$500— can now be redeemed at the OTBL.

OTBL slot machine numbers, comparisons and racino analysis

The number of OTBL (taken as a monthly average) increased from 394 in 2021 to 410 in 2023. The number of slot machines followed a different curve: 3,018 in 2021; 3,263 in 2022; and 3,241 in 2023. During this 3-year period, the average handle per machine was US$88,765, and average GGR was US$20,720.

For comparison, during the same 3-year period, casinos in Puerto Rico grew from 16 to 20 along with machine numbers: 4,669 in 2021 to 5,336 in 2023. During this 3-year period, the average handle per machine was US$520,455, and average GGR was US$73,949.

There are still almost 1,700 fewer machines in OTBL than the 5,000 cap that HRISA established in December 2014. Although El Comandante and Codere’s original proposals are now 20 years old, the idea of a racino still persists. The most recent iteration consists of 200 machines in the racetrack — down from the 500 that Codere requested.

The casino industry traditionally views a racino as a threat to its business model. Their reasoning — in public at least — seems to be that allowing slot machines in the racetrack —which now has sports betting kiosks but not the card and traditional games of chance only allowed in casinos— will attract the tourists that the Games of Chance and Gambling Devices in Casinos Authorization Act (‘Act 221-1948’) is supposed to funnel towards the hotels with casinos.

In reality, however, gaming trends reveal that slot machines are played mostly by locals. This is exemplified by the unregulated slot route industry, which is estimated to be the biggest gaming vertical in Puerto Rico.

A better argument for the casino industry is the big difference between the government’s take from slot machine verticals. During the 3-year period between 2021 and 2023, the Puerto Rico Gaming Commission (‘PRGC’) took an annual average of $31,855,555 as operational costs for regulating slot machines in casinos. Many government funds detailed in Act 221-1948 took an annual average of $166,867,722.

By contrast, during the same period, the PRGC took an annual average of just $221,367 as operational costs for regulating slot machines in OTBL. Even slot route operations are supposed to allocate a portion of GGR to certain public funds.

Another obstacle that the racetrack faces with the latest racino proposal —which would constitute a substantial expansion in slot machines compared to the trend over the last three years— is that horse race betting has rebounded substantially since the near collapse of the industry in 2017. In that period, handle has grown considerably from almost $79,000,000 to approximately $157,000,000 in 2021, and $144,000,000 in 2022. The most recent numbers were last seen in fiscal year 2012. On the regulatory premise that slot machines in OTBL are a complement to horse racing, the growth of the machines will be inextricably tied to the betting handle.

The final hurdle is the fact that the racetrack owes millions to the Puerto Rico Administration of Mental Health and Anti-Addiction Services. Although not directly tied to slot machines in OTBL, this horse racing debt could be used as an equitable defense against the racino proposal

Conclusion and industry forecast

The factors noted above indicate that the most likely path to slot machine expansion is through OTBL maximizing the allotted regulatory caps per location. However, there could also be more casinos in the next years. This begs the question as to how many slot machines can legally be allowed in Puerto Rico before growth stalls.

There is currently a lack of interest in approving more igaming after the government allowed sports betting and fantasy contests. This, along with demographic traits, favors the continued success of slot machines. The territory’s brain drain means that the population is dominated by retirees and pensioners. This majority prefers to play traditional and retail games of chance like lotteries and slot machines. For them, is not just the games and their psychological effects, but the experience of getting out of their homes and meeting up with their contemporaries in safe spaces where they are treated well.

These trends could also signal an investment opportunity and a wave of consolidation, akin to what has happened with distributed gaming in some US states. As such, there’s a lot of interest in the unregulated slot route industry in Puerto Rico. Slot route machine locations and OTBL could present a similar opportunity for investment trusts and funds.









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