Ukrainian gaming industry

Ukraine bets on return of gambling

Can legal gaming sector provide struggling Ukrainian economy with timely tax tonic?

Business Ukraine magazine
Thursday, 01 October 2015 14:02

The Ukrainian government is currently preparing to reverse the 2009 ban on the country’s gaming industry, paving the way for a new wave of casino and online gambling expansion that could provide a significant boost to the state budget. The return of legal gambling to Ukraine will be welcome news for the thousands who previously ran gaming-related businesses in the country or worked in the gaming sector. However, it will also inevitably run into opposition from those who regard gambling as a social blight likely to exasperate the problems of poverty and addiction already prominent in today’s Ukraine.

The gambling industry initially flourished in post-Soviet Ukraine, with casinos cropping up rapidly throughout the 1990s and serving as one of the cornerstones of the country’s fledgling nightlife scene. This growth suffered from a lack of regulation characterized by the twin presence of glitzy high-end casino clubs alongside a plethora of seedy low-end gambling dens packed with slot machines. A tragic fire in one of these low-end emporiums in Dniropetrovsk in 2009 led to the introduction of a blanket ban imposed by then-PM Yulia Tymoshenko, forcing the industry to shut down virtually overnight.

Advocates for the return of legal gambling argue that the ban has not succeeded in preventing Ukrainians from actually gambling, merely leading to the creation of a shadow economy of unlicensed casinos operating with impunity while robbing the state of a potentially lucrative income stream. They claim that a properly regulated gaming industry could serve as a considerable asset for Ukraine, generating budget revenues while boosting hospitality sector employment and attracting tourists to the country. These supporters of a legalized gaming industry face opposition from activists who regard the ban on gambling as a significant social policy victory that helped millions of ordinary Ukrainians struggling with the effects of gambling addictions and its associated ills.

Advocates of a renewed Ukrainian gambling industry clearly enjoy the support of many in the current Ukrainian government. Support has come from senior figures such as Prime Minister Arseniy Yatsenyuk and Finance Minister Natalie Jaresko, both of whom will be among the keynote speakers at a major forum on the gambling industry scheduled to take place in Kyiv in mid-October. The forum, entitled ‘Game On! Bringing the gambling industry back to Ukraine’, is the brainchild of British expat Glyn Thomas. Mr. Thomas has been based in Kyiv since 2007 and has over 20 years’ experience in the international gambling industry. He currently serves as Publisher and Chief Editor of Casino Life magazine, a role that he says puts him in touch with gambling organizations worldwide. Business Ukraine magazine spoke to Mr. Thomas about the agenda for the upcoming forum and his vision for the return of legal gambling to Ukraine.         

 

What is your assessment of the current state of gaming in Ukraine?

Let’s be perfectly clear about one thing - gambling is here already. However, it exists either as an illegal industry in hidden-away casinos, or as a grey industry in the form of sports betting, which is taxed and therefore tolerated. Then there are the unregulated, untaxed online casinos, and the poker clubs that are legal one minute and illegal the next. The whole idea of regulating the industry is one I have advocated for some time. This is partly to bring tax revenue, but also to make sure that the people get what they deserve and are treated fairly. I’m talking about a proper industry offering jobs and entertainment. It will bring investment directly and indirectly through tourism.

Something not mentioned often is the fact that the state of the gaming industry in any given country is often a good barometer of the maturity of that society in general. In France, the casino is part of the community. It is often where you get your first job. It sponsors the local football team. It hosts art exhibitions, not drug-fuelled car chases in the car park.

 

What is the goal of the ‘Game On’ event?

We aim to bring international speakers to Kyiv so that the government can hear about good practice. We also want to enable investors and operators to gauge the Ukrainian business climate. Nobody can realistically expect politicians to make laws for an industry they know nothing about. They cannot be expected to know how gambling works, so this will be a great opportunity to meet people who are practitioners. I have seen the draft legislation that has been prepared, and in its current state, I would describe it as ‘warmed-up soup’. What Ukraine needs is a spicy new Borscht. There is still time to change it.

 

What are the main options open to Ukraine as it considers opening up the national economy to the gaming industry?

There are many avenues and a number of taxation options, but in essence, Ukraine has two choices. The country can follow the well-worn path of corruption and nepotism by dishing out gambling licenses to whoever pays under the table, then allowing the local oligarchs and criminal elements run the businesses and pay off the tax police, fire service, and health authorities. Then they can bring in fake slot machines, pay bad wages, falsify all the records and repeat. For Online gambling, the same principles can be applied, but operators of sites can also be permitted to keep all the revenue as somebody conveniently ‘forgot’ to include a requirement for servers to be based in Ukraine. This is what everyone cynically expects to happen.

The alternative is to do it properly by setting up an arms-length Gambling Commission remote from government. Let businesses pay a fair license fee to finance the Gambling Commission. Tax businesses a reasonable amount. Offer guarantees of no tax increases for 3 years, and then only by amounts linked to inflation. Appoint a Gambling Ombudsman. Enforce laws against illegal operators, regulate the business, and educate the public.

 

What kind of impact could the return of the gaming industry have on the Ukrainian economy?

If the government chooses the corrupt model, they will be lucky to generate USD 10 million per year in additional tax revenues. If they opt for a properly regulated industry, budget revenues could be USD 100 million per annum while generating at least 250,000 jobs. If these additional tax revenues are employed to fund schools, hospitals and other socially important initiatives, then the positive impact will more than offset the fears over the negative social impact of problem gambling. However, I must admit that the danger exists of someone killing the golden goose – and eating it.

 

Which countries can Ukraine learn from when it comes to getting gaming regulations right?

Georgia is not a bad example, with licenses issued quickly and fees and taxes that are all very clear, albeit a little too high in my opinion. Ukraine should seek to adopt a hybrid approach. It is all too easy to dust off old laws restricting casinos to five-star hotels, or to borrow from other countries, but such approaches fail to take into account how much the industry has evolved. The world of gambling has moved on, and Ukraine needs to move forward too. 

 

Gambling became a major social problem in post-Soviet Ukraine. What steps can be taken to make sure any renewed gaming industry avoids creating a new generation of addicts and associated social problems?

I am asked this question all the time. At this very moment, your son could already be gambling illegally in a basement club, or online via an unregulated gambling website based in Russia. If you regulate the industry, it becomes a lot more transparent and controllable. Modern gambling businesses tend to be run as proper companies. Some are even stock market listed. They don’t want to squeeze every last kopek out of someone. Hopefully the industry will also be regulated by a Gambling Commission, which will be responsible for education on responsible gambling and for addressing social issues.

Gambling is not a zero sum game. It is not a question of either having James Bond glamour or drugs and misery. There is a happy medium where people are able to gamble for entertainment. The politicians who cry populist slogans about how gambling destroys families are doing so to win votes. I want to give Ukrainian people a choice. Let them grow up and be responsible for their own decisions. Problem gamblers are here already and are already in trouble, but nobody can currently help them. Gambling, after all, is illegal.

 

How can transnational internet gambling benefit the Ukrainian economy?

Easy. Legalise online gaming and sports betting, but insist on strict license conditions that include the requirement to have a physical presence in Ukraine and to pay tax in Ukraine. All other internet gambling companies from outside Ukraine would be banned.

 

The Ukrainian gambling industry was closed down without warning in 2009. How can potential investors be convinced that this will not happen again?

Many in the international gaming industry are concerned about this issue. Ultimately, it is a question of good faith and appreciating why the gambling industry is returning to Ukraine, which is to generate tax revenues. The fact that the government is seeking dialogue with the gaming industry is a good indication that the return of the gambling industry is not being viewed as a short-term fix for budget shortfalls. Theoretically, any future government could choose to close the industry down again, but the chances of it happening again as it did in 2009, ‘purely coincidentally’ at the same time as Russia closed down its own gambling industry, are remote.   

 

How could the Ukrainian gaming industry stand out from similar gaming options in other regional countries?

If the government listens to industry experts then Ukraine could become the best gambling jurisdiction in Eastern Europe. Reasonable taxation and strong enforcement against illegal operations will create an environment where gambling becomes part of the normal landscape and not something dirty. Ukraine has great IT and game developers already. These sectors will flourish in a legalized gambling environment.

 

What will be on the agenda at the ‘Game On’ forum?

We expect a number of senior government speakers including a business breakfast with Prime Minister Arseniy Yatsenyuk. On the casino side, we have Olympic Group CEO Madis Jaager, and Michael Boettcher of Storm Entertainment. Legally we will have the team at DLA Piper on hand to give pan-European views on legislation and tax. There will also be plenty of networking opportunities. We kick off in style with a delegate reception hosted by Macallan Whisky on the opening night. Our lead sponsor Parimatch will be hosting a VIP reception at a newly built sports betting complex in the heart of Kyiv that is already prepared for instant opening once Ukrainian legislation changes.

 

About the interviewee: Glyn Thomas is the Chief Editor of Casino Life magazine and the organizer of the ‘Game On’ gambling forum in Kyiv

 

EVENT INFORMATION

Game On! Bringing gambling back to Ukraine

13-14 October

Hilton Hotel Kyiv

www.ukrainegaming.com

This email address is being protected from spambots. You need JavaScript enabled to view it.

 

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