COSTA RICA

ONLINE SPORTSBOOK
&
CASINO BUSINESS

INCORPORATION & LICENSING SERVICES

INTRODUCTION
Costa Rica is the Mecca of on-line casinos because it has the best infrastructure available in the Caribbean basin --its reliable telecommunication system, its multilingual workers, and its lack of on-line gaming and Internet regulations.
To better understand how the on-line gambling casinos are doing business in Costa Rica, this article will address the regulations of the casinos industry in Costa Rica, and how on-line gaming industry conducts business in Costa Rica. We will also issue a warning to on-line gamblers playing at On-line Casinos hosted in Costa Rica.

BACKGROUND OF THE CASINO INDUSTRY IN
COSTA RICA
Casinos developed in Costa Rica as a draw for the tourist industry during the 1990s. As of 1999, there were 29 Casinos in Costa Rica. Costa Rica instituted Casino regulations in 1886 and 1922. Owners will usually create a corporation that is set up to manage their casinos. Casinos must be accredited and approved by the Tourist Board of Costa Rica.

They must be located in a hotel rated three stars or above, and at least 100 meters (one block)away from places of worship, hospitals, clinics, and Schools. Anyone under 18 years old is not allowed in a casino.

Failure to fulfil these requirements will cause imprisonment of the owner of the Casino and/or a cancellation of the Casino's license.

Casinos are required to pay municipality operational fees, facility health permits, and any other tax applicable just like other businesses based in Costa Rica, in addition they pay an extra 10% on the monthly net revenues and for the number of game tables that they host they usually pay 50,000 colons ($162.00 exchange rate of October 10, 2000) per table.

It is a crime in Costa Rica to earn or lose money by placing a bet on the outcome of a game/event/activity/behaviour, or by playing a game whose outcome is based on people's luck, and not on their abilities and skills to play the game. Therefore, it is illegal to collect or earn money based on the outcome of bets or games such as baccarat, dice, twenty-one, poker, black jack, lotteries - except for the national lottery managed by the Costa Rican organization called "Junta de Proteccion Social - bingo - except those organized by the Red Cross and educational organizations such as Schools - and roulettes.

It is legal to play any of the following games: billiard, card games, canasta, draughts (U.S. checker), domino, casino, rummy, dart, 13, Caribbean straight poker, or any game where the person's abilities and skills will determine the outcome of the game.

Casinos host legal games according to the law as well as illegal games and games that are not clearly defined by law. The most commonly played games are rummy, and Caribbean straight poker. Games that are not clearly defined by law and are hosted in Casinos are certain types of games using dice as well as pai gow - Chinese style poker. Casinos also host games that are prohibited by law such as roulette and gambling machines. Roulette is prohibited by the following laws: Article 3 of the "Reglamento a la Ley de Juegos," January 24, 1974 decree # 3510-G, published in "el Alcance #15 de la Gaceta #21" on January 31, 1974, and " Reglamento a la Ley #3," on August 31, 1922.

Gambling machines are prohibited by the decree number 87,229 issued on June 13, 1978 prohibits gambling machines. However, an appeal was filed against this decree, this appeal essentially allows casinos to host these machines until the appeal is considered.

Since it is against the law to either collect or pay monies for bets or gambling games in Costa Rica, the Casino industry implements a payment system to get around these laws so that casinos can hold you legally liable for what you owe them or to be able to pay you at their facilities. Casinos encourage gamblers to purchase tokens that are used at their casino facilities, or they give you a credit line by signing letters of credits, mortgages, promissory notes (I. O. U. notes), or written agreements so that instalments or collections can be performed and that they are still protected by regular business laws, and not gambling. There are no laws that protect or regulate either the gambler or the casino owner from collecting monies generated by gambling.

HOW ON-LINE CASINOS ARE DOING BUSINESS IN
COSTA RICA
On-line casinos are gambling web sites where visitors can play casino games and place bets on sports, celebrities' behaviours, lotteries, and/or relatively anything. Some of the on-line casinos assist their clients over the telephone or e-mail to handle quality assurance.

As of 2000 there were approximately 125 businesses managing on-line casinos from servers based in Costa Rica. It is difficult to determine how many gaming ventures are in Costa Rica since on-line casinos are registered as technology corporations, and not as on-line casinos. They employ about 2,500 Costa Rican citizens (1999 estimate) with salaries ranging between $480.00 and $1,200.00 (1999 estimate) per month. They receive an average of 20 thousand calls per week (1999 estimate) and generate a significant amount of tax-free money.

On-line Casinos based on severs in Costa Rica are free to do almost anything they want over the Internet as long as they ensure that Citizens of Costa Rica or legal permanent residents of Costa Rica do not access their servers to play the games or place a bet. On-line Casinos:

• Can host any type of gambling games
• Can encourage visitors to place bets on activities or events over the Internet
• Do not pay taxes on revenues generated by the gambling business
• Can not be held liable for not fulfilling their representations to their customers.
They can do all of the above because
• There are no Internet activity regulations
• No Citizens and Legal permanent residents of Costa Rica access their servers to participate in their games or bets
• All transactions are performed through an offshore bank account

SETTING UP YOUR ON-LINE
GAMBLING CASINO
First, create a corporation in Costa Rica that will provide one of the following services: network administration, or intranet administration.

Second, find a place in Costa Rica that you can set up your office, hire the necessary personnel, and manage your web site from Costa Rica as any other business in the Internet industry.

Third, block all the IP addresses located in Costa Rica to abide by the law and ensure that no citizen or legal permanent resident of Costa Rica connects to a server in Costa Rica to place a bet with your on-line casino.

Forth, open an offshore bank account. Bahamas, Antigua, or countries in the Caribbean are the most logical places for offshore banking so that you can make your transactions outside of Costa Rica. Financial activities will be conducted through these accounts.

LEGAL CONCERNS
ARE ON-LINE CASINOS DOING SOMETHING ILLEGAL IN
COSTA RICA?
On-line casinos are not committing a crime under Costa Rican law either by hosting their servers with restricted access in Costa Rica, or by calling/e-mailing their customers overseas to ensure accurate transactions and enhance their customer services for the following reasons:

1. No Costa Rican citizens who live in Costa Rica can place a bet on the on-line Casino
2. The games or subjects of bets do not take place physically in Costa Rica
3. On-line Casino transactions take place in another country, not in Costa Rica.
4. Technically speaking, what on-line casinos do in Costa Rica is to manage their software to ensure that their transactions are properly assessed and enhance their customer services.
5. It is not a crime to call overseas to assist on a bet according to Costa Rica law, and therefore, it is irrelevant whether or not gambling is illegal in the country where the Casino is calling to assist on a bet.

Following information provides a basic introduction to the Internet Wagering industry

INTRODUCTION
The Internet Gambling or Online Casino business is currently the fastest growing business in the world. Revenue for year 2005 was estimated at over USD $8 Billion. Current projections for year 2006 are at USD $12 Billion.
There are currently over 2000 online casinos in operation at the time of writing of this website.

WHAT IS AN INTERNET CASINO?
An Internet Casino is a form of gambling over the internet. A gambler can place wagers from his home on various games using a computer and a modem connected to the internet. Internet casinos vary in what they contain, but most if not all have basic Las Vegas style games (Blackjack, Poker, Slots, Roulette), as well as sportsbooks, lotteries and other forms of gambling. A gambler uses his credit card for a cash advance, giving him virtual chips or "V-Chips." The gambler uses those chips as he would in any ordinary casino. On the screen is what you would see in almost any Virtual Casino Gaming Software that is sold in computer software stores - Only this time, the gambler is wagering for real money.

All this takes place using software and a main server that monitors all the gambling activity. Thousands of people from all over the world can gamble at the same time at one online sportsbook and casino location.

WHAT IF THE GAMBLER WINS BIG?
Most online gaming software have limits on individual bets as well as limits on daily bets. Furthermore, most online casino software is programmed to pay back a certain percentage of the money taken in. Most use Vegas Odds, or odds used in the State of Nevada for various casino games.

For example, if Blackjack Vegas odds are at 97%, for every USD $1000 wagered, USD $970 is generally paid back, leaving a profit (known as a "drop" or "take") of USD $30 (3%). So, the odds of one gambler winning big is low. Furthermore, what is commonly known as "the nature of gambling" indicates that most gamblers keep going until they are out of cash.

HOW DOES SOMEONE START AN INTERNET WAGERING OPERATION?
There are three ways to do this:

1) Design and implement all SOFTWARE for an online casino and E-commerce. Keep in mind this costs millions of US Dollars. Also necessary is a gaming license to run a casino, which requires approvals from most governments. This too, does not come inexpensively. However, one has full control of the site, and full knowledge of the software source code. In addition, no royalties are paid out to a software development company.

2) Become a Licensee of an Internet Gambling Software Provider. This is a far less expensive option and the client receives all the software and sometimes even the equipment necessary. It is also the most popular option for both licensed land-based establishments as well as entrepreneurs. Costs range from USD $ 30,000 to USD $ 350,000 (some ask as high as USD $1 Million). The average licensing fees are around USD $150,000 (this usually includes marketing costs). In most cases a royalty is paid to the software provider as a percentage of the monthly "take" or "drop" (gross profit). Usually the software provider has payment processing (merchant account providers) already set up for a turnkey operation.
3) Become a Sublicensee of a Licensee. This is the least expensive option. Costs range from USD $ 5,000 to USD $ 60,000. The Sublicensee must do all the marketing and receives a smaller percentage than a full licensee (2), because royalties paid to the licensee are much higher.

WHEN WOULD A CASINO BECOME PROFITABLE?
That all depends. Marketing is the key to success. What is required is Internet Traffic. Keep in mind one needs to spend money to make money. A reasonable expectation would be to spend about USD $ 400,000 - 500,000 (including the licensing fee above) and there should be a return on investment in approximately 9 months. Most online casinos that are new spend about USD $30,000 - $50,000 each month in marketing. There are online sportsbook and casino operations spending well over USD $1 Million per month in their marketing budget. Some online casinos are doing well over USD $1 million per month in PROFITS. Internet casino and online sportsbook companies not spending money on marketing are losing money. Do not think people just put down USD $250,000 and expect to make millions in return.

Should you have any further question, or wish to order your company, please contact us.

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