We need a strategy: How can Ukraine legalize gambling business?

Author : Oleksiy Kushch

Source : 112 Ukraine

At the business forum in Istanbul, Ukraine's President Zelensky made a statement on the possible restoration of the gambling business in our country
19:32, 20 August 2019

Open source

At the business forum in Istanbul, President of Ukraine Volodymyr Zelensky made a statement on the possible restoration of the gambling business in our country. Years have passed since its ban, and, according to analysts, the state budget missed billions of hryvnias. On the other hand, the specificity of the gambling business makes it very toxic to society. Of course, this social toxicity manifests itself on the condition that the state cannot or does not want to apply effective regulatory filters to restrict access to gambling for young people and vulnerable groups.

In the case of a real, rather than a fictitious ban, the thought of lost billions would not be so severe: the financial minus would be compensated by the positive recovery of society from total gambling. But in Ukraine, the most negative scenario was just implemented. On the one hand, gambling is prohibited, and the budget does not earn anything from its functioning. On the other hand, the whole country is flooded with gambling halls disguised as sports lotteries and other surrogates, so there is no need to talk about the recovery of the nation.

On the eve of the election, some pro-government influence groups implemented several “approaches” to monopolize the legal lottery business. Everything is clear here: the election campaign needed megatons of cash, and lotteries, as well as other gaming surrogates, were suitable for this like no other "businesses." But the power has changed, and even billions of droppers to saturate the political corpse with the juices of life did not bring the expected effect. 

The piquancy was also added by the presence of Zelensky's circle of economists who knew firsthand what the gambling business was and what to do with it. According to the experts, the legalization of the gambling business in Ukraine can additionally bring up to 10 billion UAH (400 million USD) per year to the treasury. 

Based on the statements of Zelensky, only a general outline of future gambling liberalization can be formed. The statement, frankly, was somewhat confusing. At first, the president announced that gambling facilities would be located in five-star hotels, then added that the location would be limited to the southern gaming zone in Odesa. Considering that the state is now a smartphone, it seems that the president received a message about the legalization of gambling from one device, but two different people typed in text.

Why is clarity in voicing the concept of a gambling business so important? Yes, because this type of commerce, like no other, depends on the format of its implementation. For example, in Belarus, which picked up the casino idea after the ban in the Russian Federation, there are no strict geographical restrictions; the gambling business is controlled by strict regulation of fiscals and law enforcement agencies. There are age restrictions for visitors. The average cost of a license is the so-called five hundred basic units, the amount of which is determined annually in the state budget. Now it is a little over six thousand dollars. In addition, you have to pay for each gambling facility: game table, slot. One casino can pay the state from 100 000 dollars to a million. Now Minsk plans to introduce a unified tax. But Belarus has a rigid power vertical and can afford such a format.

In countries such as Ukraine, it is necessary to close the so-called corruption windows as much as possible. The casinos’ location in five-star hotels is an ideal corruption loop since we do not have clear criteria for classifying hotels by stars, and the introduction of such classifiers will require the formation of an army of officials who will check the business for “compliance”. And then a roadside eatery with the name "Five stars" will receive a license, but a decent hotel - no. Because the owners of the first "will bring money", and the owners of the second, for example, the same Turks - will not. That is why the geographical localization of gambling zones is ideally suited for us, since even in Kyiv they will not issue a license to open a casino in the Odesa gaming zone for a bribe, despite the fact that the facility itself is located in Kropyvnytskyi.

Related: Lutsenko proposes to lift ban on casinos in Ukraine

The very principle of the development of local geographic gaming zones suggests that they are located either in tourist regions, with a large flow of tourists and vacationers, or in depressed regions, for which casinos become a source of filling local budgets and a mechanism for creating new jobs. In relation to Ukraine, such gaming zones could be located in Odesa (southern gaming zone) or on Shatsky lakes in the Volyn region (western gaming zone). Near Kyiv, such a gaming zone could be Chernihiv. An important role is played by logistics and assessment of tourist flows. You must either have an airport and/or a sea harbor (in Odesa there are both), or proximity to the border and convenient access roads (typical for Shatsky Lakes). As a contributing factor, one can assess the proximity of a large metropolis and the convenience of automobile communication with it (typical for Chernihiv - 140 km from Kyiv). Another important “watershed” is the separation of gambling zones for “our people” and foreigners. Maybe a mixed option. The Western (Volyn) local geographical gambling zone may be accessible only to foreigners, and Chernihiv - for citizens of Ukraine. Odesa is more profitable to make it mixed, both for Ukrainians (with certain social restrictions) and for foreigners.

For example, in South Korea, there are local geographical gambling zones, both for citizens of the country and separately for foreign visitors: Busan, Seoul, Jeju on Jeju Island, Incheon Airport. The country has the largest international gambling developers, for example, Hard Rock International. The total income from local geographical gaming zones for foreigners in 2018 increased and amounted to $ 1.38 billion, while gaming zones for Koreans showed a decrease in financial flows to $ 1.18 billion.

Geographically isolated sites for the development of the gambling business, such as Las Vegas or Macau, attract 30-40 million visitors a year, and their annual income is tens of billions of dollars.

It is worth noting that any geographic local gaming zone goes through several stages of development: initial, intermediate, mature. At the first stage, the main income is direct income from the casino. On the second - the positive effect is multiplied by attracting investment in real estate. At a mature stage, secondary lines of business are developing: tourism, finance, the service sector. The period from the first phase to the mature format can take from five to ten years. Initially, government revenues will amount to tens of millions of dollars, after attracting investments – to hundreds of millions. At a mature stage, one local geographic gaming zone can generate a financial flow that fills the local and central state budgets in the amount of up to one billion dollars a year. It is worth noting that, with the right approach, the economic structure of the gaming zone will resemble a multi-layer "cabbage" in which the casino is the foundation, and the "leaves" are hotels, office centers, conference rooms, restaurants, all kinds of service facilities, yacht clubs, shopping centers, banks, insurance companies. One dynamically developing local geographic gambling zone can generate the creation of 20 000 and more new highly paid jobs.

The Russian Federation also went along the path of creating local zones, where the gambling zone is a special administrative and territorial object that specializes in organizing activities. Such zones now include the Sibirskaya Moneta in the Altai Territory, Primorye in the Far East, Yantarnaya in the Kaliningrad Region and Krasnaya Polyana near Sochi. That is, the principle of their stratification is right enough - they are either regions characterized by a significant flow of tourists (Sochi, Kaliningrad), or remote depressed regions.

Of course, the development of the gambling business at the system level, with the involvement of international structures is possible only against the background of a general improvement in the quality of the business environment. That is, we again return to the topics such as protecting property titles, reform of the judicial system, and minimizing corruption. 

Related: Zelensky pledges to legalize gambling in Ukraine

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