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CEZA disowns Jack Lam; Pagcor’s P6B losses from online gaming ‘exaggerated’

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Attention: Atty. Trixie Cruz Angeles
To the Desk Editor:

The Cagayan Economic Zone Authority wishes to react on the story published on your website,  today entitled, “Gov’t losing P6B a year from CEZA’s online gaming –Pagcor”. On the allegations made by the Chairman of Philippine Amusement and Gaming Corporation (PAGCOR), Andrea Domingo, during the Senate probe on bribery scandal today, specifically on her claims that (1) “the government has been losing at least PhⱣ6 billion annually from unregulated online gaming franchises granted by CEZA such as the shuttered operations of fugitive Jack Lam”, (2) that the government “should have collected roughly PhⱣ60 billion in revenues from 84 licensees of CEZA in the last 10 years”, and (3) that “PAGCOR would have charged triple what CEZA had collected from its franchisees that wanted to evade paying higher taxes”, we wish to clarify the following:

(1) CEZA did not license, accredit or authorize Mr. Jack Lam or any other online gaming operator or support company to operate within the Clark Freeport Zone or any other companies connected to him. On this note, may we also clarify that CEZA also never registered, accredited or authorized Next Games Outsourcing, Inc. to operate as an online gaming support service company within the Clark Freeport Zone. These facts have already been clarified to the Department of Justice through a letter dated December 15, 2016. While Next Games signified its intent to register with CEZA through a letter dated September 26, 2014, it did not push through with its registration nor did it submit any documents and other requirements to complete the registration process. This issue was also already clarified to the Senate Blue Ribbon Committee through a certification and a letter dated February 15, 2017 addressed to the Committee Chairman, Senator Richard Gordon. On the same note, CEZA is not authorized to issue licenses and/or accreditations to companies that intend to operate within the Clark Freeport. This is stated through Legal Opinion No. 152 issued by the Office of the Government Corporate Counsel, which was communicated to CEZA by the Clark Development Authority in a letter dated October 21, 2016.

(2) The supposed PhⱣ6 billion annual revenue is exaggerated. If we are to check our facts, a research made by H2 Gambling Capital* revealed that the whole Asian and Middle East market for online gaming in 2015 was just PhⱣ136 billion. The market share of CEZA in this industry was just 55%, which amounts to PhⱣ74.8 billion. From this amount, CEZA charges a hosting fee of 2%, which, if based on this figure, would amount to PhⱣ1.496 billion. Even with revenue of Ph1.496 billion for 2015, the claim of PhⱣ6 billion supposed revenue annually would not be viable in a 10-year span. CEZA started with 6 offshore companies under this industry in 2005. This number gradually increased, reaching 80 offshore companies just in 2014, 102 in 2015, 91 in 2016. PhⱣ60 billion is too big an amount, even for CEZA, which is the pioneering online gaming jurisdiction in Asia.

(3) The operations of CEZA are far from being unregulated. In fact, CEZA has become one of the most stable and respected i-gaming jurisdictions in the world with its clear policy and regulatory framework. It has been very competitive with the top i-gaming jurisdictions in the world, which include the Antigua and Barbuda Gaming Commission, Alderney Gaming Control Commission, Curacao I-gaming Commission, Kahnawake Gaming Commission, Isle of Man Gambling Supervision Commission, Gibraltar Gaming Commission and Lotteries and Gaming Authority of Malta, among others. Significantly, CEZA was able to remit billions of revenues to the national coffer mainly because of the online gaming industry. This would not have been possible if our operations were unregulated.

(4) CEZA and PAGCOR have different fee structures and operate differently in generating gaming revenues. Unlike PAGCOR’s land based casino and e-gaming operations, there are no actual bets or gaming transactions that enter the Philippines under CEZA’s local gaming support services locators. Rather, CEZA charges 2% hosting fee based on gross wins from foreign companies that tap our the gaming support services of our local locators. There are no wagers entering into or payouts coming out of the Philippines, since CEZA is purely an online gaming regulator and not an operator and regulator like PAGCOR. Furthermore, all gaming support services locators undergo stringent screening, company probity checks as well as software checks before they are allowed to operate. The 2% hosting fee being charged by CEZA on foreign companies is well within the gaming industry standard and is a competitive rate compared to other online gaming jurisdictions in the world today. This is totally different from the kind of income generated by a gaming operator like PAGCOR which accepts bets and makes payouts in gambling transactions. Under PAGCOR’s current online gaming setup, their fees are considerably higher as compared to the industry standard, and are the reason why some locators have chosen to leave and register under other online gaming jurisdictions.

May we also take this opportunity to state that we, at CEZA, take pride in our achievement in the last decade, and the online gaming industry has played a major role on this. From a losing corporation in 2004, CEZA has turned into an earning and even a self-sufficient government entity. In the last 5 years, CEZA has become a consistent top taxpayer in Region II and a consistent dividends remitter. A big percentage of the multi-billion pesos revenue that CEZA has remitted to the national coffer came from the 2% hosting fee that CEZA has collected from the online-gaming industry. From 2005 to 2016, CEZA has been able to earn around PhⱣ4 billion, half of which has been remitted to the national government, as it is mandated to remit half of its earnings as stipulated under its Charter.

Likewise, over PhⱣ19 billion worth of direct and indirect investments have been generated by CEZA and other agencies in the same period through this industry. This includes over PhⱣ405 million generated by the Department of Labor and Employment (DOLE) in fees and processing of alien employment permits, over PhⱣ283 million generated by the Bureau of Immigration (BI), and over PhⱣ10.6 billion in direct investments through infrastructure development. This is on top of the infrastructures developed by locators, among which include the state-of-the-art telecommunications facilities, internet data centers and a disaster-and-data-recovery center set up in the Zone, and also an international airport developed in Lallo, Cagayan to improve accessibility in the Cagayan Freeport. This industry has also generated 14,594 jobs as of 2016. Needless to say, the online gaming industry has played a very significant role in the success of CEZA not only as a developer of the Cagayan Special Economic Zone and Freeport but also as a revenue earning corporation.

At present, there are about 500 illegal online gaming operators in the country. If PAGCOR will regulate the online gaming operations not covered by CEZA and the Aurora Pacific Economic Zone and Freeport Authority (APECO), this industry will generate more revenues for the government. This is the purpose of the Executive Order No. 13**, which is an effort of the Malacañang Office to rationalize and regulate the online gaming industry. These government entities, including CEZA, are meant to work together, not to compete against each other, to generate billions of revenues from the online gaming industry.

In our desire to uphold transparency and accountability, we have opened our books of account and remittances for further scrutiny; we also encourage the operators and other gaming authorities to do the same. On the same note, we are issuing this official statement to help the public gain more knowledge about the issues at hand. In the interest of impartiality and objectivity, we expect that you will also publish our side of the story to clarify the allegations raised on your news story.

Should you have more inquiries on this matter, please let us know via e-mail or through telephone number (02) 635-2392.
Thank you very much and more power!

Sincerely yours,
Joyce Marie Jayme-Calimag
Public Relations Chief

*H2 Gambling Capital is the gambling industry’s leading market data, intelligence and bespoke consulting team with a track record of over 15 years focused on all aspects of the sector and the leading quoted source regarding the value of the global gambling sector in company reports and investment banking analyst’s notes
** Executive Order No. 13 dated February 02, 2017 has ordered that all online gaming support operations in the country outside CEZA and other economic zone jurisdictions will now be managed by PAGCOR.