In Ukraine, the gambling business (except for lotteries) has been completely prohibited by law since 2009. However, as often happens, despite the ban, the market continued to exist, but, already in a semi-legal and sometimes illegal format. Market participants chose different methods to continue their activities. Some even found ways to circumvent the law, such as slot machine halls that functioned under the guise of lotteries. The rest simply went into the shadows and continued their activities underground.
As a result, a particularly negative public response was caused by such slot machine halls, which concealed their true activities under a lottery license and simply flooded cities, despite the official ban.
The ban left all sides of the market in a very unfavorable legislative and financial situation. On the one hand, the state lost significant tax revenues and could neither control nor regulate the market. On the other hand, the market players were deprived of any kind of protection from the state. Operators have also been forced to invent and apply circumvention schemes of law, thereby increasing their risks in doing business.
Realizing the ineffectiveness of the ban, the presence of obvious demand, as well as the need to return the market to the legal field, the upper echelons of government began to discuss the possibility of legalizing the gambling business. However, due to various circumstances, the matter did not go anywhere beyond conversations and discussions.
With the election of Volodymyr Zelensky as president in 2019, ideas began to be embodied in concrete steps in this area. The development of a comprehensive legal framework has begun, and the best experts and industry specialists have been attracted.
The concept taken as a basis for the development of the law was to focus on the large players in the gambling business who will be socially responsible and able to ensure the high standards of the industry.
As a result, on Aug. 11, 2020, Zelensky signed the Law “On State Regulation of Activities for the Organization and Conduct of Gambling,” according to which the gambling market in Ukraine was legalized.
The importance of legalizing gambling business
One can treat the legalization of gambling in different ways, but one cannot deny a number of advantages that the legalization of the gambling business creates for the country.
Firstly, the law has a great social orientation, which is expressed through the fight against gambling addiction and limited access to gambling establishments for persons under the age of 21.
Secondly, an entire industry in the economy is being created, or rather, a whole industry is being restored. This can not only replenish the country’s budget but also become a catalyst for attracting foreign direct investment both in the gambling sector itself and in a number of related areas, creating additional high-paying jobs. Moreover, the Law provides for mechanisms to attract investors to Ukraine. In particular, it provides for the possibility of obtaining a special investment license subject to the construction of a 5-star hotel or the creation of an investment project approved by the Cabinet of Ministers of Ukraine. An investment license is issued free of charge for 10 years.
The successful privatization of the Dnipro hotel in the center of Kyiv can be considered an example of the favorable effect of the law “already today.” Due to the legalization of gambling and the possibility of accommodation in a five-star hotel, interest in the privatization object has grown significantly.
The legalization of the gambling business is of particular importance for the tourism industry. Ukraine has great potential in the development of tourism in the Black Sea region, and it is the gambling business that can thus become the impetus for the intensification of the development of the region. Moreover, Zelensky announced plans for the development of the regions, including through the development of the gambling business.
In addition, there are large investment projects, in particular, between Sasyk Lake and the Black Sea in the Odesa region, it is planned to build a new year-round resort with a gambling zone. It is assumed that the resort will include about 80 hotels.
There are many examples of successful development of tourist facilities with permits for running a gambling business. A striking example of the transformation of Las Vegas, where, with an underdeveloped tourist city with a small flow of tourists, undeveloped infrastructure, the city has turned into a tourist Mecca with a highly developed infrastructure.
The potential of the tourist regions practically in the center of Europe is comparable and, in many respects, higher than that of the American example.
The potential of the gambling market in Ukraine
Before the ban on gambling, Kyiv was rightfully considered one of the centers of the gambling business in Eastern Europe and the CIS, especially with regard to poker. The capital of Ukraine hosted significant tournaments, which gathered the most titled players from all over Europe and Asia.
According to experts, after the opening of the gambling market, Kyiv and Ukraine in general have good chances to become one of the centers of the gambling business in Europe and Asia.
Undoubtedly, there is every reason to achieve such a goal. First of all, it is a very advantageous geographical location of Ukraine, which can attract more players from Eastern Europe, the Baltic States and Western Asia.
Moreover, the adopted gambling market model is progressive and very liberal. In particular, the Law regulates the activities of gambling on the internet, the possibility of placing premises for gambling not only in certain zones, but throughout the country, and the best world experience in the field of responsible gambling is applied.
Output
Undoubtedly, the adoption of the law is an important and positive event for the country, opening up new opportunities for attracting investments and increasing the welfare of the country.
Despite the thorniness of this path, there is no alternative to this kaw, because the history of gambling is as long and deep as the history of mankind. The only question is who will set the rules in this market and distribute income – the state or the shadow economy and crime. This law allows the state to finally take control and regulate a phenomenon that already exists, and, taking into account world experience, give the gambling business a civilized look.
However, this is only half the way to a full-fledged market launch. An extremely important task for creating a truly competitive and attractive market is a balanced and well-thought-out taxation system, which will be developed taking into account the rather high cost of licenses and the specifics of taxation of this market segment.
In the case of balanced tax rates and really clear and transparent rules of the game for the market, the potential of the gambling market in Ukraine can be really high.
In these conditions, Las Vegas can get nervous.
Andrey Astapov is managing partner at Eterna law firm in Kyiv.
