Overview of the Russian Gaming Market: History and Future

Written By:

Ilya Machavariani, Senior Partner, 4H Agency and Ivan Kurochkin, Partner, 4H Agency

History

The regulated Russian market was established by the Russian Gambling Law of 2006. This first edition provided for a rather basic level of regulation of gambling in Russia without digging deep into many details. Its main feature was that it allowed for casinos, poker clubs and other gambling establishments to be located anywhere in Russia – from mega resorts, in the style of Las Vegas, to small and remote cities.


The next important year in the history of Russian gambling was 2009 when the Russian Gambling Law was seriously reformed in such a way that gambling became permitted only within five specially designated territories termed “Gambling Zones”, most of which are currently located in relatively remote regions and could be considered underdeveloped, aside from the gambling zone located in the Sochi region, especially in comparison to the best international resorts.


This restriction was not applied to sports betting and totalisator verticals, which managed to continue their status as allowed both within and outside the gambling zones, as well as being allowed, openly, online with additional online concepts being introduced to the law in 2014.

Owing to the 2009 overhaul of the land-based gambling business in Russia, sports betting and totalisators received widespread attention and started to develop rapidly. The more relaxed regulatory framework helped shape the industry towards the status it has achieved today.


Overview: Core highlights of betting & gaming in Russia


Regulated gambling verticals


The permit for casino, slot machines, and poker (the “Casino permit”) is used for the following verticals:

· Casino

· Slot machine halls

· Poker


The licence for betting shops and totalisators (the “Sports betting and totalisator license”)1 is used for the following verticals:

· Sports betting

· Totalisator


How does the legal online regime work? What measures against illegal operators?

Online offerings are available only for sports betting and totalisator verticals, whilst online casinos in any form are explicitly banned.

As regards measures of combating illegal operations, the mechanisms are quite standard: (1) administrative and criminal liability; (2) website blocks; and (3) financial blocks.


Operators, including foreign gambling operators, who operate without a respective license are subject to administrative liability resulting in the imposition of fines. At the beginning of 2020, Russia’s Media Service (the “Roskomnadzor”) initiated administrative proceedings against Facebook and Twitter for the carriage of promotions and ads relating to illegal operators.

Russian law also provides for criminal liability for offshore organisations without a respective local license, however, prosecutions on this basis are not common aside from the recent 1xBet case, which is technically considered as an offshore operator, although those being prosecuted are local Russian nationals who are alleged to be 1xBet partners.

Along with the imposition of administrative and criminal liability, the Russian gambling regulator, the Federal Tax Service (the “Regulator”), is able to initiate blocking of certain websites. The Regulator may specifically issue the decision to block websites that violate gambling regulations and on the basis of such decisions, Russia’s media authority, Roskomnadzor, includes this site in the “prohibited websites register”. Upon receiving notice from Roskomnadzor, the owner of the website or the hosting provider has to immediately remove the content that caused the site to be included in the register or restrict access to the site. This blocking solution is known to not be effective as it takes a snapshot of the historic breaches by offshore operators and does not allow for real-time or revenue-focused blocking as the Yield Sec solution, for example, does.

Another prosecution option against offshore gambling operators’ activity is financial blocking. Starting from 2018, Russian banks may no longer knowingly facilitate payments between individuals and operators included in the “prohibited websites register”, which is maintained by the Regulator.


License requirements

In order to obtain a sports betting and totalisator license the applicant should have (i) minimum required net assets of approximately €11.1m and charter capital of approximately €1.1m paid using an entity’s own cash funds; (ii) having a standing bank guarantee in the amount not less than approximately €5.6m covering a sports betting operator’s obligations.

For a casino permit - offline only - the applicant should have only a minimum required net asset value of approximately €6.7m


Taxes

The rates of gambling tax are established by laws of the constituent entities of Russia whilst federal legislation provides for a range of such rates, across:

  • Gambling table games (offline): between €600 and €3k per month

  • Slots (offline): between €30 and €200 per month

  • Each retail sports betting and totalisator processing centre (offline) between €600 and €3k per month

  • Each online sports betting and online totalisator processing centre (online): between €30k and €37k per month

  • Each sports betting shop and each totalisator (offline): between €100 and €170 per month


Contributions

Sports betting operators are obliged to make a contribution to the Russian sports federations and professional sports leagues of at least €185K per quarter, based upon offering bets on Russian sports events and as agreed between certain operators and sports.

Starting from the 1st October 2020 sports betting operators which accept bets on non-Russian sports events must also pay into this contribution to local sports federations and professional sports leagues on the same basis.

Effectively, these “good causes” contributions may be viewed as another form of tax and treated as a GGR deduction of around 5%.

Sports betting and totalisator operators must also pay a one-off sum of €330K to fund the self-regulatory organisation covering all licensed bookmakers in Russia.


Advertising

Advertising of gambling is allowed only for operators holding a relevant licence or permit, with a range of restrictions being applicable to the advertising materials.

Broadly, gambling advertising should not:

  1. use images of humans or animals (but is permitted for ads within a gambling zone);

  2. be addressed to children and minors;

  3. create an impression of gambling being a reliable source of income

  4. create an impression of guaranteed winnings

Gambling advertising is allowed only on TV and radio between 22:00 and 7:00, in gambling establishments or in designated print mediums: either specialised advertising print media or gambling zone media.

Sports betting advertising is allowed during sports broadcasts, provided it constitutes no more than 20% of all advertising during such a broadcast (and in some other cases related to sports, such as highlights).


Advertising of sports betting is also permitted online, however, Russian law provides a finite list of cases when this type of media channel for advertising is permitted - for example, across websites registered as online sports media, and the websites of professional sports federations and leagues etc..


Russian law prohibits the advertising of any illegal services, and of licensable services without the relevant licence or permit in place. As such, advertising the services of offshore gambling operators is “illegal” in Russia, but despite this de juris prohibition, advertisements by the offshore, illegal operator Azino 777 during 2018 were so widespread, and popular, that the brand finished the year as the most-watched content across gambling operators, legal or illegal.


The future

It should be noted that Russian public policy has tended towards conservatism, particularly in recent years, and regulatory initiatives reflect a restrictive and paternalistic approach. One example of this is the recent adaptation of law (effective from 1st October 2020) which limits the variety of events on which sports betting operators and totalisators can accept bets.

This year, the Russian government introduced reviews to the law across many industries, including betting and gaming.


This review is happening with the involvement of key stakeholders to the Russian gambling industry. There is hope that this review will be able to create new opportunities for international operators since the main aim is to make the law and processes more transparent.


The Russian gambling market is certainly challenging for all who enter. However, given the ongoing convergence between the ex-USSR and international gambling communities, it is vital to stay on top of any challenge in this region for the clear opportunities that can arise. Aside from learning the basics about how to operate in Russia, it is important to have hands-on knowledge of the market - Eventus International is providing one such opportunity with the Russian iGaming Summit & Expo (RiSE) in May 2021. This event is going to be truly international and will bring a long-overdue focus to the fluid and dynamic Russian gambling market. I hope to see you there!



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