Gaming insider provides valuable POGO-ban context
A reader only known to me as “Van” reached out by email to provide some clarification on the POGO-ban issue, and the back-and-forth that we had was interesting enough that I asked if I could relay some of it to everyone to try and better set the scene for what is happening. Van agreed. Before we proceed, I just want to say that I don’t have any special knowledge that would allow me to vet the info that Van has provided, but I do have an indirect interest in the evolving outcome of whatever POGO-ban will be implemented through the exposure of some of my REIT holdings to the commercial office lease market.
Here is the note that Van asked I include as context for this information:
“I don’t have any interest nor involvement in IGL/POGO, but only want to provide inputs that could actually prevent (1) job loss (for Filipinos), (2) real estate market (slight) collapse and (3) legitimate foreign investors displeasure. If the argument we hear in legislative hearings always points to the Social Cost against Economic Benefit, then we can achieve a greater favorable ratio if we retain jobs for Filipinos and maintain some Leased Spaces, without compromising the strong instruction of the President. I am sure that a thorough and accurate presentation (with actual numbers) can convince even the opposing legislators to reconsider.”
All that said, let’s get into what Van had to say.
> PAGCOR licenses, generally: PAGCOR has two main categories of gaming regulation; (1) those that apply to PAGCOR-operated casinos and to PAGCOR partner casinos, and (2) all other gaming licenses. The second category is split into subcategories such as: (a) integrated resorts; (i) Entertainment City in Manila (ii) Clark (iii) Fiesta (Thunderbird) and (iv) Greenfield zone (Cebu), (b) junkets, (c) poker, (d) e-games, and (e) POGO (see Terminology). The President’s ban was to apply to 2(e) license only.
> Terminology: The POGO (
> Zoom-in on POGO: Within the POGO category, there are actually two 'Provider Services' subcategories: (1) authorized gaming content providers, and (2) authorized support providers. A company in subsection (1) “supplies or manages gaming contents for the gaming websites” (like live table games or other games that are not live), and those in (2) “supplies support services to necessary facets of gaming operations” (like customer service, marketing, registration, KYC, payments, odds making, office support, and other administration).
> The B2B/B2C question: Van said that it’s possible to make some distinctions between POGOs and the two provider services, and that it could be possible to “save” one provider from the ban. The first big distinction is whether or not a company is B2B (business-to-business) or B2C (business-to-consumer). All of the gaming companies that we usually think of when we think of “POGOs” and IGLs are those that provide gaming services directly to consumers (B2C), but there is a fairly large group of companies that exist as basically BPOs to those POGOs/IGLs that do only B2B work for the POGOs (operating within the Philippines and other jurisdictions outside the Philippines). Could it be possible to eliminate licenses for the B2C POGOs that do the actual gaming, while preserving the ability of B2B Authorized Service Providers to work?
> The “Filipino” question: The other distinction is in the makeup of the Authorized Service Providers themselves. They are (by regulation) composed of at least 90% Filipino workers, and so are not subject to the same nationalistic arguments that attach to issues involving foreign nationals like with the IGL and gaming content provider. So, if an Authorized Service Provider is made up of 90% Filipino workers and is only doing back-office work for a gaming company, should that company be excluded from the ban? That’s the big open question.
> The impact: In speaking about the potential impact of a ban on the real estate sector, Van said that “a big portion of the POGO/IGL area is occupied by Support Providers”. If the ban includes both Content Providers AND Support Providers, then there will be a lot of Filipinos suddenly without jobs and a lot of office space will be vacant. However, if the ban were to be "appealed" to exclude the B2B authorized service providers then the ban itself might have “lesser effect” due to the size of the Support Provider subset.
> Further info needed: I reached out to Leechiu Property Consultants (LPC) directly for their take on how the potential impact of a ban could be mitigated by allowing Service Providers to remain; while LPC did not respond in time for inclusion in this writing, this Esquire article based off of LPC’s data does a good job of explaining the potential size of the POGO-wide problem. The article doesn’t address the potential modification of the ban and how that might significantly lessen the impact that it might have on the commercial property sector. LPC’s assessment was that it would take 2-3 years for the commercial property sector to “absorb” the free space created by a total POGO ban.
MB bottom-line: It’s frustratingly difficult to figure out the potential impact of this ban on the real estate market. David Leechiu of Leechiu Property Consultants said that a full ban would empty 800,000 to 1,000,000 square meters of office space, and that inventory would take landlords up to three years to fill. So if we consider the 1M vacant square meters as the worst-case scenario for commercial real estate, and assume that comes about as part of a full 2(e) ban on all POGOs/IGLs regardless of orientation (B2B/B2C) or makeup (foreign nationals/Filipinos), we can have a pretty educated guess as to how the commercial lease market will react in terms of rates (it’s not going to be great), but at least the size of the impact is known. We have a lot less insight into what it might mean if Van’s open questions are resolved in such a way as to exempt Service Providers from the ban. How much of the 1M occupied space is taken up by Service Providers? While Van says that a big portion of space is held by Service Providers, investors are likely interested in knowing to a greater degree of specificity. Until we know, it’s going to be hard to figure out how potential vacant space might impact lease rates. Even if we did know some top-level number, like (completely making this up) Service Providers occupying 700,000 square meters, we’d probably get a good feel for how the property market overall would react, but left with open questions about each company’s particular exposure. A huge thank-you to Van for volunteering his time and knowledge to our pursuit of a better understanding of this evolving situation. While I feel this info drags us closer to knowing what is going on, it still feels like the Government has more work to do in terms of making this directive to eliminate POGOs/IGLs clear and definitive.
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