Like clockwork: an overview of the Estonian gambling market in 2021
While most post-Soviet states take a cautious approach towards the gambling industry, often treating it as a scapegoat, the Baltics are different. Also, instead of just adopting the stance of other European Union countries, the Baltic states created their own legal and economic framework.
Estonia is an example of the Baltic approach to gambling regulation, which aims to create a safe and legal environment while boosting the community with tax revenues. The regulations weren't a complete success right off the bat, but every revision delivered optimizations and improvements, creating one of the most exciting European markets.
Let's look at how the Estonian gambling market evolved, what the legal landscape is like, and how iGaming and traditional gambling compare in 2021.
Trial and error — history of Estonian gambling law
Before 1991, Estonia used to be a part of the USSR, where all forms of gambling were banned. The national lottery was established following independence, and in 1995 games of skill, games of chance, totalisators, and betting were legalized by the Gambling Act.
While that was the beginning of the legal gambling market, Estonia had a flourishing underground gambling scene, with secret casinos and gaming halls. These establishments got a chance to move out of the shadows — provided they were able to comply with the regulations.
As the law required establishments to host a minimum number of slots and tables, smaller venues couldn’t function legally, and the number of casinos in the country dropped almost by half in the following years.
The Gambling Act of 1995 and the Lottery Act 1994 were crucial in transforming Estonia into a regulated market, but technological evolution quickly made them obsolete.
The Gambling Act of 2008 is a more comprehensive law that replaced the previous two acts, but, curiously enough, it still didn’t address online gambling.
The period that followed wasn’t particularly favourable for the Estonian gambling industry. The global economic crisis and the newly introduced restrictions caused the land-based market to shrink. For example, according to Tallinn’s Price and Consumer Protection Division, the number of casinos in the capital dropped from 91 to 33.
Not to miss out on the massive source of potential tax revenue that was still unregulated, Estonia finally legalized online gambling in 2010. The government also launched a campaign against unlicensed websites offering their services to Estonian citizens.
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Current regulations and requirements
At the moment, Estonia is a mature, regulated market. The country follows the general European trend in working with the industry to ensure it can thrive. As Estonia Ministry of Finance Advisor Sören Meius puts it:
The best gaming regulations diminish the negative socio-economic impact associated with excessive gambling while ensuring that the service – a form of entertainment – is available through a legal and regulated offer to responsible gamblers.
To operate in Estonia, operators must hold a license.In accordance with EU law, Estonia exercises its right to manage the gambling industry locally and doesn’t recognize licenses issued by other jurisdictions.
There are two types of licenses: one for casinos, the other (“toto license”) for betting and totaliser services. Both require a company to be a “trustworthy legal person” without a criminal record or history of previous illegal gambling activities.
Companies that apply for the license should have a certain share capital: €130,000 for sportsbooks, €1,000,000 for casinos. However, there is no requirement to retain this capital on the bank account.
Establishing an Estonian company is not required, but it’s a desirable step since the operator has to open a physical office anyway.
Each license is subject to a one-off state fee and an operating permit fee. For sportsbooks, these amount to a combined €35,200; for casinos, €51,200.
As specified by the Gambling Tax Act, operators are subject to taxation on their net gaming revenues (total wagers placed minus winnings paid out). For both betting and online games of chance — which includes cards and slots — the tax rate is 5%, calculated on a monthly basis.
Land-based operators are taxed at 10% of the net gaming revenues, plus €1,278.23 per gambling table, €300 per game-of-chance machine, and €31.95 per game-of-skill machine.
The tax revenues are used to finance various public projects: 47.8% of the income goes to the Cultural Endowment of Estonia (which funds cultural buildings and the work of fine arts and folk culture teachers), 24.2% to culture, sports, and education, 15.3% to social projects like healthcare, welfare, support of people with disabilities, and treatment of problem gambling, and 12.7% to regional investment programmes.
Besides the Gambling Act and the Gambling Tax Act, the licensing process is affected by the Money Laundering and Terrorist Financing Prevention Act and the General Part of the Economic Activities Code Act.
All in all, Estonia’s regulatory requirements are in line with European standards, and it’s comparatively cheap for prospective casino and sportsbook operators to enter the market.
The licenses are issued by the Tax and Customs Board and have no fixer duration or renewal costs.
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The dawn of the online market
According to the data provided by Estonian analytics firm Kantar Emor, the local gambling market is very active. The company collected data in 2012, 2014, 2017, and 2019, studying the trends of the Estonian gambling market. The vast majority of respondents, 70%, gambled at some point in their lives, and a quarter of all online players and one-fifth of the offline players do so weekly.
These surveys suggest that the typical gambler in Estonia is a male between 30 and 39 years old, but older and younger demographics are represented as well. Offline gambling attracts more players, but the gap is shrinking: while the number of brick-and-mortar customers remains stable, online participation grew twofold between 2014 and 2019.
The lottery dominates offline gambling in Estonia and is operated by a monopoly, Eesti Loto. Before 2010 there were several smaller operators, but their licenses expired and were not renewed, leaving Eesti Loto with 100% of the market.
The lottery segment has a very different relationship with the government. For starters, the legal age for participating, set at 16, is lower than for other forms of gambling. Furthermore, the blanket ban on gambling products advertising (introduced by the Advertising Act of 2008) doesn't apply to lotteries, as the Tallinn Circuit Court ruled in a dispute between the Consumer Protection Board and Eesti Loto. However, lotteries can only be organized for charitable causes and are subject to a much higher tax rate — 18%.
In general, players from rural areas tend to prefer lotteries and offline gambling, whereas people from metropolitan areas tend to gravitate towards poker and casino games.
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The levels of problem gambling didn’t increase significantly in 7 years, proving the validity of the Estonian model. The incidence of the problem is quite low (around 7%), yet the government funds organizations that offer psychological and financial counseling to those affected.
The Estonian market has been growing at a steady pace, and the pandemic accelerated the shift from offline to online. Due to the impact of COVID restrictions on the land-based sector, tax revenues have fallen, creating a problem for the local government as it counts on gambling income to fund small social and health projects. Moreover, to help the casino operators most affected by the closures, the government discussed retrospectively amending Gambling Tax Act and introducing additional tax breaks, which would result in even lower revenues.
The only way the government has to compensate for the loss of income is by stimulating the online market, which wasn’t affected negatively by the closures and had been growing even before 2020. According to the Estonian Tax and Customs Board, the online gross gaming revenue (GGR) grew from €60 million to €78 million between 2019 and 2020, making up for the €16 million shortfall in revenue from land-based operators.
The government has put a lot of effort into the fight against illegal gambling websites ever since the market was first regulated. However, with these new developments, ensuring that the online environment is fully compliant and safe is an even bigger priority. After all, it's apparent that, at least in the government’s eyes, the online sector is the future of the Estonian gambling industry.
How can Slotegrator help?
Navigating regulated markets is not easy — the legal landscape is complex, and regulators’ expectations are very high. Rewards, however, are equally high: Estonia is one of the low-risk markets considered to be a golden opportunity by many international investors.
Slotegrator’s team has been monitoring the situation in the region very closely, and our verdict is positive. The regulatory landscape is favourable, the market is poised to grow further, and the government is interested in encouraging the establishment of a healthy iGaming environment in the country.
If you are as excited as we are about the Estonian market and need help obtaining a license or simply have some questions about it, our team of legal professionals will be happy to help. Just drop us a line at [email protected] or contact us for a free consultation.