Gambling Legalization in Ukraine
The legalization of gambling in Ukraine has become one of the biggest and most closely watched stories in the industry. A bill was introduced into the Ukrainian parliament - known as the Verkhovna Rada - in October 2018, with a demand from President Volodymyr Zelensky that the Verkhovna Rada pass the bill by December 1. Multiple other bills were introduced afterwards, which were consolidated into a single bill.
The initial vote on the bill fell just a few votes short of passing, but the bill has been returned to a committee for revisions. After the bill failed the vote, President Zelensky ordered a series of raids that shut down 152 illegal gambling establishments and seized $2 million worth of gambling machines and equipment.
The Ukrainian government will issue a limited number of licenses. The plan outlined in the bill will see the government issue 20 licenses for casinos in 5-star hotels, 80 licenses for retail sports betting shops, 10 licenses to provide gambling services over the internet, and 160 licenses for slot machine hall. Licenses will be awarded through an electronic auction and be valid for five years.
The Verkhovna Rada of Ukraine has passed the gambling bill at the new first reading in January 2020. The draft law, No. 2285-d, was supported by 260 members of parliament. The change has entrepreneurs asking how they can start a casino and take advantage of this new opportunity in the casino and sports gambling business.
Land-Based Casinos, Slot Machine Halls, and Retail Betting Shops
The Commission for the Development and Regulation of Gambling is expected to issue 20 licenses for land-based casinos. Casinos will only be allowed to operate in 5-star hotels with either 200 rooms (in Kyiv) or 150 rooms (in the rest of the country). Gambling areas must be at least 500 square meters. There are over 60 5-star hotels in Ukraine.
Slot machine halls will be allowed in hotels with 3 stars or more and either 200 rooms (in Kyiv) or 150 rooms (in the rest of the country). The annual fee for slot machine halls is expected to be UAH 30 million (approx. $1.3 million).
The government is expected to issue 80 retail sports betting shop licenses. License holders will be able to open no more than 10 locations. 32 of the licenses are expected to be awarded to retailers in Kyiv, 16 to retailers in Odessa, Kharkov, Dnipro, and Lviv, and 32 in other cities around the country. Betting shop licensees will need to demonstrate a bank guarantee or capital reserves of at least 7200 minimum wages, or UAH 30 million (approx. $1.3 million).
The land-based casino license comes with a significant barrier. Building a hotel/casino complex from the ground up is an incredibly expensive project. The costs of building a casino include land, permits, planning, and construction. There are too many factors involved to provide a single figure for the cost of construction, but spending tens or even hundreds of millions of dollars has become the standard. The world’s largest integrated resorts cost billions of dollars to build.
Equipping a casino is an expensive venture. New slot machines can cost anywhere from $14,000 to $25,000, so some casinos choose to lease their slot machines, which also enables them to rotate what games they offer on the gaming room floor. In most leasing situations the casino owner will likely split a large percentage of the profit with the slot machine provider.
Land-based casinos require a significant amount of staff. Lawyers, PR professionals, marketing specialists, financial experts, security experts, and, of course, dealers, will all be necessary for land-based casinos. They also require a significant marketing budget.
Additionally, license holders will have to keep in mind the costs of staffing a hotel, including reception, maintenance, and cleaning staff, as well as chefs, waiters, and busboys if there is an attached restaurant, which will most likely be the case. There are also day-to-day costs to take into account, like maintenance, repairs, and electric and water bills.
In order to apply for a license, operators will have to be in possession of capital reserves or a bank guarantee of UAH 30 million (approx. $1.3 million). The auction for Kyiv-based casino licenses will start at UAH 37 million (approx. $1.5 million) per year. The auction for licenses for casinos in other cities will start at UAH 25 million (approx. $1 million) per year. Licenses will be valid for five years.
In order to be eligible to apply for a gambling license, potential licensees will be required to have a legal address in Ukraine. Companies will have to supply tax, payment, and accounting information,as well as the identities of shareholders and the ultimate beneficiary of the business.
A separate bill has been introduced into the Verkhovna Rada to reform the tax code and lower the gambling tax from 18% to 10%.
Online Gambling Businesses
The government is expected to offer 10 licenses to provide digital gambling and betting services. Licensees will be allowed to conduct both sports gambling and casino games.
Online casino licenses will be awarded through electronic auction. The bidding is planned to start at UAH 25 million (approx. $1 million) per year.
Opening an online casino has its own set of costs. To establish an online casino, operators must address the costs of website development, adding games from a variety of different providers, and adding payment systems. Online casinos also require software support and a significant amount of marketing.
To be competitive, online casinos have to feature a variety of high-quality slots and other games. Developers often charge a monthly fee and an additional percentage of the revenues. The same is true of payment services. Online casinos need to provide a variety of payment methods to make sure their players are always able to make deposits. Payment services providers will take a percentage of each transaction as a commission.
Companies will be required to be registered in Ukraine. They will have to submit an application, a legal address, tax information, payment information, accounting information, information about their shareholders, and information about the ultimate beneficiary of the business.
Operators will be required to provide documents specifying the domain name of the online casino or betting site. The software that operators use will have to be connected to an online monitoring system, operate in accordance with international standards and certifications, and correspond to technical documents.
For now, the tax scheme for online gambling businesses is the same as the one for land-based casinos.
Launching an online casino requires several steps, starting with the procurement of investors or other funding and including software development and the integration of game content and payment systems. The process can be accelerated by cooperating with software providers and aggregators who specialize in quickly and efficiently launching online casino projects. The right software provider can handle the licensing process and paperwork, business registration, and integration of games and payment services, cutting costs and shortening the timeframe.
Do not miss: Ukrainian Gambling Market Overview
Both licenses have their own costs. Some of them seem parallel, like the need to pay marketing, financial, and legal staff.
Ultimately, however, the stipulation that casinos must be located in 5-star hotels, and slot machine halls in 3-, 4-, and 5-star hotels creates a massive barrier to entry for entrepreneurs. Starting and running an online casino already requires less investment than running a land-based one, but one a sizable hotel is thrown into the mix the contrast increases dramatically.
There are many different factors to take into account, but getting an online casino up and running often costs between $500,000 and $2 million. This is a far cry from the tens or hundreds of millions of dollars required for a land-based casino and attached hotel.
One distinct advantage of online casinos is the option to outsource significant amounts of the labor involved, such as software development and customer service. The auction for the online license will also begin UAH 12 million (approx. $500,000) per year lower than that of the offline casino.
One critical difference between opening an online casino business and an offline casino in Ukraine is the time required. Building a new hotel and casino, or adding casino space to an existing hotel, is a substantial time commitment that can last months or even years. An online casino, on the other hand, can sometimes be up and running in three months or less. An online casino can start earning returns on its investment long before an offline casino has even opened its doors.
The legalization bid is an acknowledgment on the part of the government that people will gamble whether it’s legal or not, and that it’s better for the government to safely regulate the activity and collect tax revenues than try and stop it. Estimates vary as to how much the government will collect in tax revenues once legalization goes into effect, but the estimate of $189 million is at the low end. Regardless, once the market is regulated, the high popularity of gambling - the black market is estimated to generate $1 billion in revenue annually - indicates that opening a gambling business in Ukraine is a good bet.