You're reading: Legalized Gambling May Be Winner Again

After a six-year prohibition, gambling looks to be on its way to becoming legal again in Ukraine.

The Finance Ministry is in favor of legal, regulated gambling as a $200 million tax revenue boost next year alone.

The chances of parliament eventually legalizing gambling look good, but exactly how gambling will be legalized, who will benefit, and how the industry will be regulated is still unclear.

That’s because at least 11 different versions of a law on gambling have been proposed in parliament for debate by lawmakers.

According to Deputy Finance Minister Olena Makeeva, the proposed legislation takes into account all types of gambling businesses – lotteries, casinos and sports betting.

The Finance Ministry version “also sets up a uniform system of state monitoring, which distinguishes this bill from the others,” she told the Kyiv Post, adding that the new measures adhere to best international practices. Odds betting and lotteries are currently legal, but not casino gambling.

Still, promoters of casino gambling are critical of the ministry’s bill.

“I think this bill will not be adopted, because it is purely lobbying” for certain businesses, said Yuriy Kozhema, the chairman of the Kyiv Union of Gambling Enterprises. The ministry’s law supports a narrow circle of businesses that are close to the state, while ignoring the principles of fair competition, he said.

“It does not give (some) Ukrainian enterprises the right to resume their activities,” Kozhema said.

The Kyiv Union of Gambling Enterprises is a nonprofit organization that now represents entrepreneurs who lost their licenses and are hoping to legalize their businesses once again. It provides legal advice and cooperates with the government on gambling issues.

Banned in 2009

Casino gambling was banned in 2009 by the government of then-Prime Minister Yulia Tymoshenko.

Many gambling businesses, including ones with electronic slot machines, promptly went underground, despite the imposition of hefty fines of $440,000 and the confiscation of gaming equipment.

The legalization of gambling has now found support from some influential voices.

“I’m convinced that it is necessary to permit gambling in Odesa, no matter what people say,” Odesa Governor Mikheil Saakashvili told the Interfax news agency on July 16. “In Odesa, there are several illegal casinos, as there are in Kyiv. Who are we going to cheat?”

Hennadiy Kryvosheia, a lawmaker of the People’s Front party led by Prime Minister Arseniy Yatsenyuk, is a co-author of a rival bill. He estimates the illegal gambling business in Ukraine to be worth $400 million.

Illegal gambling remains

Illegal lotteries “are still selling tickets, although we say that they’re not,” Kryvosheia told Channel 5, adding that police and prosecutors are protecting the business.

To oversee the issuance of licenses and collection of taxes, the Finance Ministry proposes to create an independent regulator known as the National Service of Gambling. The Cabinet of Ministers and Finance Ministry will oversee the regulator’s operations for the first six months of its existence, after which it will become a fully independent agency.

The Finance Ministry anticipates $200 million in tax revenues next year alone through legalized gambling. Deputy Finance Minister Makeeva says that this money should be earmarked for developing culture, sports and the arts.

Other proposed measures include digital monitoring to protect gamblers’ rights and promoting principles of responsible gaming. No money is foreseen for fighting gambling addiction, however, which is why some think it’s not the right time to reintroduce gaming in the country.

Psychologist Olha Pavlova considers the legalization of gambling to be “a barbaric solution,” saying it would be “unacceptable to do this now, because the mentality of the people is very broken, even in those who are not connected with” Russia’s war against Ukraine, she told the Kyiv Post.

She said there are three factors that could prompt people to gamble irresponsibly.

The first is anxiety from the unstable economic situation and war in Ukraine.

The next is a desire to be successful. “A slot machine gives the illusion that you are successful,” Pavlova said. An addiction to gambling reduces motivation for career development, with people thinking only about winning.

And the third factor is a simple desire to get rich quick and effortlessly. “People go there and lose their last money, taking out loans,” she said.

Casinos

Only four- and five-star hotels with at least 100 rooms will be allowed to set up casinos in Kyiv and other cities, although they will also be permitted in the waiting lounges of international airports.

The restrictions on locations for casinos have been criticized. “There are no rules about placing casinos only in hotels in any legislation of the European Union, Georgia, Belarus, and the United States,” said Kozhema.

But Makeeva said luxury hotels are able to provide security and are natural places for such businesses, as they attract clients with lots of disposable income.

“The people who go to these hotels … have a higher than average level of prosperity,” she said.

Before the ban, slot machine venues were widespread in Ukrainian cities. But the bill in parliament proposes that they be allowed only in casinos. “It is essential for us that vulnerable people do not have such (easy) access (to gambling) because it puts a strain on their wallets.”

A one-year license is expected to cost $330,000 to $1.1 million, while a license for an online casino would cost its operators approximately $1.65 million.

Criticizing the draft, Kozhema says that only three or four hotels in Ukraine could afford to open casinos under such conditions.

In 2009, there were 73 licensed casinos in Ukraine.

Lotteries

So far, there are three lottery operators in Ukraine. Two (MSL and Patriot) are Russian businesses that face sanctions. The assets of these businesses have been frozen, preventing the withdrawal of capital from Ukraine. But a ticket for MSL’s Loto Zabava lottery can be bought with no difficulty at any of their offices in Kyiv.

The Ukrainian National Lottery is now the sole lottery operator permitted to work unrestricted in Ukraine.

The proposed new gambling law considers the lottery a form of gambling, while under current legislation it isn’t, according to attorney Alina Plyushch of the Sayenko Kharenko law firm. “It can be conducted online as well as offline,” she said.

However, the lottery business will be restricted to a single operator, which will be granted a license by the National Service of Gambling in a competitive tender. The selected operator will then award sub-licenses to other lottery businesses. To become the single operator, a business will have to have recorded a turnover of $3.29 billion over five years of operations in the gambling sphere. It will also have to have conducted such business in three foreign countries – a stipulation that effectively excludes any Ukrainian company from taking part in the selection tender.

“We want to have a foreign operator because they have a gambling business culture,” Makeeva said.

Makeeva held a meeting with potential investors on Dec. 14. At that meeting, representatives from the U.S. company International Game Technology said they were ready to enter the Ukrainian market and invest “millions of euros” in Ukraine’s lottery business.

“They are honest, transparent, and their financial statements are open,” Makeeva said of the international operator. “They will not get involved with shadow business because they care about their image on the market.”

Bookmaking

Bookmaking activity will be sanctioned in betting parlors and online. Their offline premises must be located in non-residential premises with an area not exceeding 300 square meters.

Iryna Sergienko, CEO of the All-Ukrainian Union on Bookmaking Development, says that this draft is optimal, but requires revision. “We cannot expect that it is going to be a flexible market with many competitors,” she said. “Under these conditions, only big strong players will come to the market.”

Bookmakers will have to pay $1.64 million each year for a five-year license, plus an additional fee for each betting parlor, depending on the population of the city where it’s located. However, Sergienko says licenses should be valid for at least 10 years “because Ukraine has a reputation as a country with unstable legislation.”

Bookmakers’ gross revenues will also be taxed 17-18 percent, according to Sergienko.