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The gambling business is on the rise

Gambling operators have already received the first licenses in Ukraine. Anton Kuchukhidze, CEO of the Gambling Association of Ukraine, says the first wave of their work has already begun. We discussed with him things determining its success, prospects awaiting the gambling business and how attractive this area would be for investors.

For 12 years the gambling business in Ukraine was banned. What was happening to the business during all those years?

— We can say that we were dealing with the relative closure of the gambling business. It turned into shadow schemes. For example, somewhere in the yard, they opened a club, which was legally designed for one story, and under sublicenses, it began to engage in completely different activities. Gray and black schemes helped shadow operators to create a negative image of the gambling business so that it would not be legalized. Because the earnings were very high. Besides, they often had the support of certain law enforcement agencies, which could also benefit from such transactions. This unhealthy phenomenon arose as a result of an ill-considered and populist decision to ban this type of business in 2009.

According to various sources, after the closure of the gambling market in Russia in 2006, in 3 years up to 30 billion USD moved from the Russian market to the Ukrainian, as long as it existed legally in our country. So, I think we were dealing with the political pressure of the neighboring country and the populist desires of some of our politicians of that period, which led to the aforementioned decision to ban.

Why has the government’s attitude to the gambling business changed now?

— I think today it is not from a populist, but from a state position, caring for the protection of state interests and the interests of its citizens. The demand for the entertainment industry is ubiquitous, and if gambling is banned in Muslim countries, illegal gambling establishments still appear. Therefore, from a political point of view, the decision to legalize the gambling business is in line with the course declared by the current government to de-shadow the economy and fight corruption.

On the other hand, today the Internet has become widely available, you can play online. So even technically it will not be possible to remove this type of business. Therefore, the state should create the necessary mechanisms not to ban, but to control and protect against unwanted risks.

Market control, its adequate functioning will reduce criminal factors. And this is a global trend.

Do you think this industry is being revived or reborn now?

— I am inclined to believe that we are re-creating a socially responsible industry.

In the late 90’s — the early 2000s, when this business was completely legal, slot machines could be played by anyone. They were even placed in shops near educational institutions and many students played with these toys. The operators did not care that this was a dishonest game. When adults play, they act consciously; understand the game, its rules, and possible consequences.

The problem of access to gambling establishments was then the biggest challenge, which created a negative public attitude towards the gambling business. The new law addresses this issue. For example, registers of people who abuse gambling (ludomaniacs) and who cannot be admitted to the game are created. There are also opportunities for self-restraint for such people. That is, the safeguards are clearly designed, and now the task of public authorities is to ensure compliance with the provisions contained in the relevant law.

How capacious can the domestic gaming market be? How many participants will unite, how many funds can circulate within the market?

— OK, let’s go step-by-step. Regarding participants, 20–30 operators applied for licenses and about half of them have already received them. I think that the rest will soon overcome all bureaucratic issues and will also be able to operate.

This is the first wave. I call it the wave of the beginning. And the wave of development can rise only with the arrival of foreign investors and especially — large Western brands. But this can only happen if there is an orderly and standardized tax policy for gambling. I communicate with many Western investors, they are very interested in entering the Ukrainian market legally, but they are not satisfied with the “mathematics” of the process. Taxes are so insane under such expensive licenses that the Western world is not willing to pay them. It all depends on how effectively the Parliament will work out the tax issue.

The volume of money — public information that may be a lower marker for understanding the size of the market is the data of the Antimonopoly Committee of 2018 when they noted that the volume of illegal gambling in Ukraine reached 31 billion UAH. This is equal to 1 billion Euros. The second figure was given by Boris Baum (the First Deputy to the Head of the Expert Council of the Commission for the Regulation of Gambling and Lotteries. — Ed.) in an interview with “Livy Bereh”. He said that there were mathematical calculations about the volume of the market for the model that would be in Ukraine. It is about 560 billion hryvnias (approx. 17 billion euros. — Ed.). We calculated the figure to be included in the budget. However, a mistake was made by the Ministry of Finance: they pledged UAH 7.4 billion only as revenue from licenses. And economists counted 7.4 billion as revenue from licenses plus all taxes and other expenses of the gambling business.

I think that 31 billion UAH is a very narrow figure from the Antimonopoly Committee. The more realistic figure is 7.4 billion, which is planned in the budget. Although I repeat, it involves more than just license fees.

I would like Ukraine to reach the level of Italy. There are more than 70 global gambling brands in this market. According to various statistics, including Eurostat, Italy collects about 19 billion euros a year (about 21 billion dollars) in the form of taxes on gambling. At the same time, the cost of licenses is very small: a general gambling license costs 262 thousand euros. That’s not a $ 10 million license to open a casino in Kyiv.

Are foreign investors ready to invest a lot of money in the Ukrainian gambling business?

— These are mostly companies that are selling content. Of the eight global companies, 3 are very interested in the Ukrainian market. But many of my colleagues work with other companies, so it is difficult to name a specific figure.

Operators of gambling equipment and slot machines should also be considered. In particular, there is some interest in Turkish business, which operates successfully in Batumi (Georgia. — Ed.) and Belarus. For them, Ukraine is a more interesting territory for the introduction of tourism, hotel business, because the tourist flow from Turkey to our country is much bigger. I think that in general 10–15 large western companies show significant interest in the Ukrainian market, although they have many questions about it.

Can a non-resident of Ukraine who has a foreign license to operate in the field of gambling automatically become a member of the domestic entertainment industry?

— No. The law stipulates that the operator can only be a resident of Ukraine who receives a license for this type of activity.

How can a foreign company get a license?

— Two main requirements for a foreign company: it must open its representative office in Ukraine, become its resident, and it must not have ties with the aggressor state (Russia. — Ed.). Everything else is part of the procedure that everyone goes through. We are talking about the preparation of licenses in all areas — online poker, land-based casinos, online casinos, slot machines, backing activities. There are no problems here. The Ukrainian government is interested in involving them more, but some political decisions have yet to be made by the Parliament. So, you know, no one will create subjective problems for them here.

Do the same requirements apply to Ukrainian companies?

— Yes. The main thing is that a resident of Ukraine receives a license.

The law provides for the creation of the Register of casino gambling organizers, the Register of bookmaking organizers, the Register of poker organizers, the Register of persons with limited access to gambling establishments and/or participation in gambling. What is the real need for these registers?

— They are needed for the market and the regulator. For example, the register of addicts. It provides a basis for operators to responsibly fulfill their obligations to the state regarding social protection — not to allow such persons to play, not to use their money. Such a register allows the state to control this area.

The register of gambling operators allows the state not only to control the work of legal market participants but also to detect illegal ones, to pass such information to law enforcement agencies. Legal operators are also interested in identifying “shadowy” and dishonest gambling organizers. Therefore, it is a mechanism for in-depth cooperation between business, the regulator, and law enforcement.

To what extent will the domestic gambling market be regulated, given the specifics of its activities?
Will this interfere with its work?

— From many professionals who work with global brands, I hear that the gambling business in the world is quite regulated. I’m not talking about offshore territories, but Germany, Italy, Britain, which receive a lot of money in the budget from the gambling business, while setting strict conditions. Everyone understands that such an area requires the participation of both the national bank and the state regulator, as well as the need to address many technical issues, the need to control Internet sites, and so on. Therefore, for foreign companies, the main problem with the gambling business in Ukraine, which I hear from them, is taxes. And the rest they perceive with understanding.