Amendment and Potential Challenge to the Regulations of the Federal Law on Games and Lotteries

Mexico City, November 22, 2023.

Amendment and Potential Challenge to the Regulations of the Federal Law on Games and Lotteries

The “DECREE amending, adding, and repealing various provisions of the Regulations of the Federal Law on Games and Lotteries” was published in the Official Gazette of the Federation on November 16, 2023, (the “Decree”). The Decree took effect on November 17, 2023.

1. Amendments Imposed by the Decree
   
   1. Prohibition of Slot Machines. The Decree broadens the definition of “slot machines” to include any device in which a person “bets by inserting cash or any other form of payment with the aim of obtaining a prize.” Accordingly, essentially any device allowing bets is now prohibited in Mexico, except for devices of those permit holders who had a valid permit for such activities before the issuance of the Decree. In any case, once the permit expires, such bets will no longer be allowed.
      
   2. Retroactive Reduction of Permit Validity. The Decree reduces the maximum duration of permits from 25 to 15 years. Additionally, it provides that the validity of existing permits will remain valid, except in cases where their current validity surpasses 15 years. In such cases, their validity will be considered for just 15 more years.
      
   3. Operators. Under the Regulations in effect until November 17, 2023 (the “Previous Regulations”), an Operator was ” a commercial entity that permit holders could contract or collaborate with to utilize their permit”. This arrangement was advantageous for permit holders who engaged multiple operators, allowing for separate or joint management through service contracts or joint ventures, all subject to approval by the Ministry of the Interior.
      
      The Decree eliminates the role of Operators, disallowing the establishment of new Operators. Current Operators are required to cease operations within a maximum period of 15 years. Moreover, a strict interpretation of the Decree indicates that operators with valid permits cannot add new establishments. Additionally, all permits held by operators currently inactive are invalidated.
      
   4. Prohibition of Relocation of Establishments. To relocate an establishment, acquiring a new permit is necessary.
      
   5. General Prohibition on Operating Multiple Establishments under a Single Permit. While the Previous Regulations prohibited operating multiple establishments under a single permit, this prohibition was limited to permit holders of racetracks, dog tracks, frontons, remote betting centers, and rooms for number or symbol draws.
      
   6. Expansion of SEGOB’s Powers in Determining Shares. The Decree introduces significant changes by (i) removing adherence to industry customs for racetracks and dog tracks, making them subject to SEGOB’s Regulations and provisions, and (ii) grants SEGOB with the broad authority to establish guidelines for imposing special taxes against the revenue or profit, its unclear. During the regulatory enhancement process, the sector expressed concern regarding these broad powers, the limit is unclear.
      
2. Preliminary Elements of Unconstitutionality
   
   Preliminarily, we estimate that the Decree contradicts various constitutional principles and fundamental rights, including:
   
   1. Legal certainty in its predictability and legitimate expectations aspects;
      
   2. Legal certainty in its reasonableness and prohibition of arbitrariness aspects;
      
   3. Legal certainty in its non-retroactivity of legal provisions aspect;
      
   4. Legality in its normative hierarchy aspect;
      
   5. Freedom of trade and business;
      
   6. Free economic competition;
      
   7. Free development of personality;
      
   8. Equality before the law.
      
3. Amparo Procedure as a Means of Defense against the Decree
   
   We estimate that the appropriate means of defense against the Decree is the indirect amparo procedure.  Depending on the specific circumstances of each company or individual intending to challenge it, the initial complaint must be filed within 30 business days from the Decree’s enactment or within 15 business days from its first application.
   
   This note is for informational purposes only.  For any questions or comments regarding the above, we are at your disposal.
   

*. *. *