What are POGOs and How Do They Work in the Philippines?

Philippine Offshore Gaming Operators, or POGOs, are online gambling companies based in the Philippines that offer services to customers outside the country.

These entities are licensed and regulated by the Philippine Amusement and Gaming Corporation (PAGCOR) to operate legally.

POGOs fall under three main categories:

E-casinos – Online casinos that operate in real-time, usually offering a variety of games
Sports betting – Gambling that involves predicting results and placing bets on sporting events
Sportsbetting on Regulated Wagering Events (SBRWE) – Regulated by other jurisdictions and provides live audio/visual feeds of events to consumers

Under Philippine law, only foreigners based outside the country and over 21 years old can participate in POGO gambling.

Filipinos residing abroad and foreign nationals in the Philippines are prohibited from playing. The majority of POGO customers are Chinese, as gambling is illegal in China.

The Rise of the POGO Industry in the Philippines

POGOs began operating in the Philippines in the early 2000s, but it was only in 2016, under the Duterte administration, that the government started officially regulating the industry through PAGCOR.

The number of POGOs rapidly expanded after 2016, especially in Metro Manila. By 2019, there were nearly 300 POGO licensees, employing over 100,000 Chinese workers.

This sudden growth was attributed to rising Chinese influence under Duterte.

POGOs became a ubiquitous part of daily life, with many Chinese-run establishments sprouting up.

The industry generated significant revenues for PAGCOR, increasing by 497% from ₱657 million in 2016 to ₱7.365 billion in 2018. In 2019, POGO contributions peaked at an estimated ₱104.5 billion or 0.67% of GDP.

Economic Benefits and Costs of POGOs

The POGO industry provides several economic benefits to the Philippines:

Tax revenues – POGOs pay 5% tax on gross gaming revenues and 25% income tax on non-gaming revenues. From January-August 2022, the BIR collected ₱4.4 billion in taxes from POGOs.
Employment – As of June 2022, POGOs directly employed 16,700 Filipinos and indirectly supported 20,000 more jobs in related industries. During the 2019 peak, direct and indirect employment reached 46,000.
Real estate demand – POGOs occupy around 1 million sqm of office space and 2.4 million sqm of residential space, mostly in Metro Manila. Annual office and housing rents amount to ₱18.9 billion and ₱28.6 billion respectively.
Ripple effects on other sectors – POGOs drive demand in the retail, food service, transportation and utilities industries. Their total economic contribution in 2019 was estimated at ₱104.5 billion or 0.67% of GDP.

However, there are also economic costs and risks associated with POGOs:

Potential real estate crash – A complete POGO exit would result in large amounts of vacated office and residential space, and ₱18.9 billion in lost annual office rents alone. This could negatively impact the property sector.
Crowding out other industries – The rise of POGOs may come at the expense of attracting investments in other job-generating sectors. Chinese-dominated POGOs are seen as operating through government favor.
Money laundering risks – Around 26% of the ₱54 billion in POGO transactions from 2017-2019 were flagged as suspicious by the Anti-Money Laundering Council. Illicit financial flows could undermine the business environment.
Foregone Chinese tourism – China’s crackdown on cross-border gambling puts at risk Chinese tourist arrivals, which hit 1.74 million in 2019, the 2nd largest market. Beijing may impose a travel ban to pressure the Philippines to stop POGOs.

Social Costs and Illegal Activities Linked to POGOs

Apart from economic considerations, POGOs are also associated with various social ills and criminal activities:

Prostitution and human trafficking – The influx of Chinese POGO workers drove up cases of prostitution and trafficking, with women recruited or forced into sex work.
Kidnapping and violent crime – Police data links rising incidents of kidnapping, illegal detention, and homicide to POGO-related disputes, often victimizing Chinese nationals.
Tax evasion and illegal labor practices – Many POGOs fail to properly pay taxes and social security contributions for workers. Some employ Chinese without valid permits or in poor working conditions.
Corruption – The rapid growth of POGOs allegedly involves corruption in the processing of permits and shielding of illegal operators.
Threat to national security – Legislators warn that the proliferation of Chinese-run POGOs, their physical proximity to military camps, and lax immigration controls pose security risks.

These social costs have prompted calls from lawmakers, government agencies, and the Chinese embassy to ban POGOs as the harms outweigh economic gains.

China brands POGOs as the “most dangerous tumor in modern society” that undermine China-Philippines relations.

Stricter Regulation and Uncertain Future of POGOs

Facing pressure to address POGO-related issues, PAGCOR and other government bodies are moving to impose stricter regulations on the industry. Some key measures include:

Crackdown on illegal POGOs – PAGCOR has stepped up closure of unlicensed operators. In 2019, nearly 200 illegal POGOs were shut down. Authorities have also deported thousands of errant Chinese workers.
Improved tax collection – The BIR has begun more stringent collection of withholding taxes and VAT from POGOs and service providers. From late 2021 to early 2022, it garnered ₱709 million in POGO taxes.
Re-evaluation of all licensees – PAGCOR is requiring all existing POGOs and service providers to reapply under a new regulatory framework with stricter standards for beneficial ownership and accountability.
Harsher penalties for violations – POGOs found to be exceeding their license terms face endorsement for cancellation. Those failing to reapply properly may lose their authorization to operate.
Interagency coordination – PAGCOR is boosting cooperation with tax, immigration and law enforcement bodies for better monitoring and investigation of POGO hubs and employees.

Despite efforts to clean up the industry, the future of POGOs remains uncertain.

Continued crime incidents and social backlash, China’s strong opposition, and global economic headwinds exacerbated by the pandemic have led to a decline in POGO numbers and revenues.

As of May 2022, only 34 POGO licenses remain active, down from a 2019 peak of around 300. Revenues plunged to just ₱1.67 billion in 2022 from over ₱7 billion pre-pandemic. Office vacancies are rising as POGOs downsize or exit.

Moving forward, the Philippine government must carefully weigh the shrinking economic benefits against the social and reputational costs of the POGO industry.

Stricter and more transparent regulation is crucial to addressing harms and restoring trust. But some observers believe that an outright ban may be inevitable.

As legislators and citizens continue to scrutinize POGOs, the coming months will be critical in determining the long-term viability and impact of online gambling in the Philippines.

Only time will tell if this experiment in offshore gaming will be deemed a success or failure in the nation’s development.