Deciphering Mexico's Gaming Industry Decree: An In-Depth Analysis of Carlos Portilla, Managing Parter at PR&A

Gain valuable insights into the multifaceted implications of Mexico's gaming industry transformation through an expert analysis provided by Carlos Portilla, Managing Partner at PR&A

Apr 12, 2024

On November 16, 2023, the Decree that amends, adds, and repeals several provisions of the Federal Gaming and Raffles Law (the “Decree”) was published in the Federal Official Gazette (the “Official Gazette”) directly affecting the gaming industry in Mexico, through the de facto prohibition of slot machines, elimination of sub-licensors, and limiting the acquired rights of permit holders for the exploitation of land-based and online casinos.

Gambling.Re had the opportunity to delve deeper into the ramifications of the Decree with Carlos Portilla, Managing Partner at PR&A. With his extensive expertise in gambling law, Portilla provided valuable insights into the potential implications of the regulatory changes on the gaming industry in Mexico.

I. Constitutional Background.

(a) The legislative process that led to the Federal Gaming and Raffles Law (the “Law”) began with a initiative from the President of the Republic submitted to Congress on December 29, 1947.

(b) Congress enacted the Law, which was published in the Official Gazette on December 31, 1947.

(c) The transitional second article of the Law empowered the Federal Executive (the “President”) to issue the regulations. However, these regulations (the “Regulations”) were not issued until September 27, 2004, with the corresponding publication in the Official Gazette.

(d) As a result of a certain constitutional controversy 97/2004, filled by the Mexican Lower Chamber of Congress, the Mexican Supreme Court, resolved on January 22, 2007, recognizing and declaring the constitutionality of the Regulations.

(e) Amendments to the Regulations were made in 2013, regulating the drawing of numbers or symbols through machines (the “Slot Machines”). This led to another constitutional controversy 97/2004, filed by the Chamber of Deputies of the Congress of the Union, who argued that the Regulations were unconstitutional, for being contrary to or going beyond what was established and authorized in Articles, 1, 2 and 3 of the Law.

This new proceeding was resolved by the Mexican Supreme Court declaring the following:

“…the Federal Law admits the possibility of the existence of sweepstakes, without any restriction; therefore is clear that the "sweepstakes of numbers or symbols through machines", being a species of the genus of them, are allowed by the law itself…”. (visible on page 61)
“…Now, upon carrying out this exercise of confrontation between both provisions -the legal and the regulatory- there are no solid arguments to declare the unconstitutionality of the latter, derived precisely from the fact that the law, which dates from 1947, in its article 2o, section II, when enumerating the activities permitted by the Law, refers in a generic manner to "DRAWINGS"; in this sense, the fact that the Regulation has established a new section, specifying that it is a different form of raffle, in addition to the different modalities of raffle already defined in the Regulation itself, does not violate, in the opinion of this Supreme Court of Justice, the principle of reserve of law. (visible on page 62)…”

II. Situation prior to the Decree.

Under such precedents, the gaming and gambling industry in Mexico (the “Gaming Industry”), including permit holders for land-based casinos (the “Permit Holders”), sub-licensors authorized to jointly operate permits (the “Sub-licensors”) and slot machines manufacturers, importers and/or distributors (the “Manufacturers”), legally exercised their corporate purpose for which they were incorporated.

Under the Law, Regulations and jurisdictional precedents, the Gaming Industry activities, directly or indirectly promoted, and continue promoting, (a) the creation of formal employments, with the employment of the workforce required for the operation of more than 450 land-based casinos in Mexico, and required supply chains, (b) the payment of millions pesos to the Mexican Treasury from taxes (including the Special Tax on Production and Services), (d) combating and reducing illegal gambling, and (e) to promote and ensure responsible gambling.

III. The Decree.

Overnight - after more than 10 years of the regulation being in force and its constitutionality being upheld by the Mexican Supreme Court of Justice – the prohibition of the number and symbol draws through machines and seeks to revoke the permits granted by the Ministry of the Interior at that time.

Under the Decree the Mexican Ministry of Economy have been issuing “Rejection of automatic notice of importation of machines, of electric, electronic or mechanical operation or combination of them, through which drawings are made with numbers or symbols, which are subject to chance”, considering that slot machines are prohibited, leaving hundreds of slots machines stuck in customs in the main ports of entry to the country.

As a consequence of the Decree, the administrative authority annuls, revokes, or reconfigures the act or omission that generated legitimate confidence; this occurs unexpectedly or suddenly and without granting the governed individual the time and mechanisms necessary to adjust to the new legal situation.

IV. Amparo Lawsuit.

Under such circumstances, almost all sectors of the Gambling Industry have filled an amparo lawsuit against the Decree amending various provisions of the Regulations of the Federal Law on Games and Lotteries. The amparo process allows individuals to challenge governmental actions that infringe upon their fundamental rights, such as freedom, property, or due process.

Although the amparo lawsuit contained an extensive analysis and argumentation of the violations suffered, the main ones may be resumed as follows:

●       The Decree is contrary to the provisions of the Laws by creating a series of prohibitions and restrictions on Human Rights, such as freedom of trade, free competition, equality, freedom of work, and property.
●       The President does not have the legal authority to limit and/or revoke the modalities under which lotteries can take place in Mexico, such limitations can only be implemented through a legislative process amending the Law.
●       The content of the Regulations cannot establish restrictions on rights.
●       The Decree intends to violate rights that were acquired by individuals when they began operations under the previous Regulations.
●       There is no justified reason for the Mexican State to deviate from previous criteria, much less a weighing of the impact on individual interests against the interest of the community, more over when according to two different supreme court rulings Slot Machines are legal.
●       It seeks to overlook various precedents of the Mexican Supreme Court of Justice of, which have established the legality of the Slot Machines.
●       The Decree failed to consider that the Gaming and Gambling industry makes significant contributions to the State through taxes, in addition to being a major source of employment.
●       The Decree aims to disregard the fact that the gaming and lottery activity is lawful under the Federal Law on Games and Lotteries.

V. Current situation.

The first steps of the amparo lawsuits have concluded, this is the suspension of the applicability of the contested act have been granted by federal courts to almost all the permit holders and to some authorized operators and manufacturers, so the enforcement or application of the challenged governmental legal provision will temporarily halt while the amparo lawsuit is being processed. This suspension is granted by a judge to prevent irreparable harm or damage to the petitioner's constitutional rights until a final decision on the case is reached.

As the amparo lawsuit is being resolved through federal courts scattered in the different districts into which Mexico is divided judicially, and as per the different criteria of judges (even in the same district) a mixed bag of resolutions regarding the suspension of the contested act have been granted. Some of them granting such temporary halt so entities can continue with their normal activities, and some other denying suspension.

This is an early instance of the amparo lawsuits, final resolutions shall be granted within a timeframe of 6 months. In the meantime, Gambling Industry have closed ranks and have been and will continue to prepare different alternatives in order to legally continue with their activities.