Ilya Machavariani, Associate, Head of Russian and CIS Gambling practice, Dentons
The 14th of July 2020 revealed itself as a turning point in the history of Eastern European gambling – Verkhovna Rada (Ukrainian parliament) managed to adopt Ukrainian Gaming Law. There is a rather long road ahead before this law will enter into force, but this road is nothing compared to the events preceding the successful July voting – I would not be exaggerating if I say that no one was absolutely sure that Ukraine will manage to finally legalise the gambling industry. In other words, adoption of the new gaming law is great news and a very positive sign for everyone involved.
It is still highly likely that the status of the law will remain unchanged by the time this piece is live, but nevertheless it might be interesting to slightly change the general mood and direction of industry-wide discussion and assess the possible impact of the new gaming law on Ukraine as a country and economy rather than dig into legalised verticals, license fees, taxes and other aspects of the law itself. It seems that, given the Rada’s recent success, it won’t be long until we will be able to do such an analysis on the basis of the full picture (contrary to our regular bits and pieces that everyone is used to analyse since the start of the legalisation) knowing answers to many additional questions: who has joined the regulator, what are the final tax framework and how the new law is unfolding itself as the base for a brand new 40 million population market.
But before we try to draw up our view on the new gaming law’s impact on the country (heads-up: it does not bear much of a local perspective as there are rather foreseeable and mostly positive consequences of gambling legalisation for any country) Still, there are some interesting local aspects,it is important to run down the main pillars of the new law.
The law provides for the following eight verticals that will become regulated upon its entry into force:
land-based sports betting;
online sports betting;
slot machine halls;
License fees vary from annual EUR 160,000 for online poker license to annual EUR 2,880,000 for sports betting license;
License term is five years;
Only Ukrainian legal entities are able to apply for a license;
Taxation system is going to be GGR-based and enforced by means of a country-wide online monitoring system that will be created from scratch by 2024.
It is evident from the above bullets that Ukrainian legalisation is huge; especially compared to the initial plans of President Zelensky to allow for the creation of casinos in 5-star hotels on the Black Sea Coast. I believe that the main reason for such difference is that Ukrainian authorities managed to look past the regular set of prejudices surrounding the gambling industry and see that gambling in 2020 is a cutting-edge technology industry that is capable of creating a stable increase in government revenue and workplaces and simultaneously keep obvious gambling-related harm at bay by means of responsible gambling instruments. In other words, the current level of our industry allows us to keep the entertainment element intact without sending vulnerable people into a spiral of losing everything they own.
As I have touched upon above, the main advantages of gambling legalisation are mostly similar for any country and might differ slightly in certain local aspects (for instance, sometimes governments tend to focus the gambling-related increase of revenue on the national sports support (e.g. Russia or Uzbekistan); hence, the legalisation might be able to boost local sports to a new level), but the overall picture is usually the same: the state receives a lot of gambling-related taxes and levies, creates new jobs for the locals and allows the industry to grow on the home soil putting the country on the global gambling map. Ukraine is no exception.
Potential increase of the state budget was already announced by the Ukrainian officials: previous PM of Ukraine, Oleksiy Honcharuk, believed that the creation of a regulated industry can add at least EUR 105,000,000 to the country’s budget. Such figures alone would be the reason to think about legalisation, but there are additional considerations that are worth mentioning.
First, Eastern Europe - and Ukraine in particular - is well known as a homeland for lots and lots of brilliant IT and gambling specialists. Up until the new law, they did not have any prospect of working for businesses in their own country (aside from ones who managed to work for gambling companies originated from Ukraine, but not operating there for obvious reasons of the gambling ban) – adoption of the legislation allows them to reinforce local operators therefore increasing the industry-wide competition and pushing the overall industry level to the new limits.
Second, to add to the above, it is also important to remember that the gambling industry does not exist in a vacuum; its existence in the country stimulates foreign and local investments not only in the gambling sector per se but in the adjacent sectors as well. For instance, on 15July 2020, Ukrainian government started the auction for the sale of the Dnipro Hotel in Kyiv (the auction itself is not related to the new gaming law in any way, it was a part of the on-going privatisation process) and managed to sell this hotel for around EUR 35,000,000 – the sale would not have happened if there were no prospect of opening a casino in this hotel. It would be fair to anticipate more such stories in the future.
However, it should not be forgotten that gambling alone cannot create a healthy and attractive environment for foreign investments. In the case of Ukraine, the surroundings might jeopardise existing and increasing international interest in this market – Ukraine is ranked 64th in 2020 World Bank “Ease of Doing Business” ranking and is sitting between India (63rd place) and Puerto Rico (65th place), while its geographical neighbors Russia, is 28th, Belarus, 49th, and Poland, 40th. Not good, right? But don’t let these rankings create a false impression of the country and its investments perspectives – Ukraine managed to get to today’s 64th place from 152nd place in 2012, which is rather impressive and shows the desire of the officials to improve existing weak points despite the constant political turbulence in and around the country.
To sum it up – Ukrainian legalisation is going well (which is not what everybody anticipated, honestly speaking) and the hopes for this market are really high. As soon as the gambling law exits the spotlight (I believe that this is going to happen in the very near future), the fate of this new market will not be in the hands of politicians anymore and hopefully will be handled by professionals of our industry who will be able to make everyone's hopes a reality, possibly giving a huge boost to Ukrainian economy or shattering all hopes and dreams into pieces despite all the good signs.