The gambling sector in Ukraine will be experiencing some big changes in the near future due to the recent announcement of new gambling regulations. In this academy article, the experts at Slotegrator take a close look at the Ukrainian gambling market in order to better understand the implications of the upcoming changes.
History and Ban
The Ukrainian government began deliberating a ban on gambling during the worldwide economic recession of 2008, which had significantly impacted Ukraine. Government officials claimed that gambling corrupted the country’s youth and worsened the economic situations of already-poor families. In 2009, the Parliament of Ukraine passed a law titled “On the Prohibition of the Gambling Business in Ukraine” in the wake of a fire at a casino that killed 10 people in the city of Dnipropetrovsk (now called Dnipro).
Before the ban, the gambling business had been thriving. According to information from Ukrainian Gaming Week, revenues increased from €246 million to €967 million between 2005 and 2008. The year before the ban, slot machines accounted for €705 million in revenue, casinos for €37 million, lotteries for €66 million, and betting companies for €158 million. Operators were paying hundreds of millions of dollars in taxes and tens of millions in gambling permit fees.
Thousands of people who had been employed in the gambling industry lost their jobs when the ban was enacted. The prohibition on gambling also created a sizable and infamous black market, which we’ll look at later in this article.
The scope of the ban was soon expanded to prohibit online gambling. A loophole that allowed Ukrainian operators to move their servers beyond the physical borders of the country was quickly closed. The only form of gambling that remained legal after the ban was the lottery.
At the time of the ban, government representatives claimed that a significant amount of gambling revenues were already generated in the shadow economy. Experts at the time estimated that 60% to 70% of gambling establishments operated illegally due to weak legislation, lax enforcement, and abundant loopholes. Reportedly, only 2% of the industry’s $5 billion in revenues were paid in taxes every year.
While a large percentage of Ukrainians supported the ban at the time - one poll showed that 82% of citizens agreed with the measure - it was also widely criticized as a populist maneuver on the part of then-Prime Minister Yulia Tymoshenko.
The 2009 law specified that any activity wherein participants staked a bet and stood to win a prize, and where the result depended entirely or in part on chance, qualified as gambling. The law also included a list of activities that did not constitute gambling in the eyes of the government or were excluded from the prohibition. The first item on that list is the lottery.
The government had put a hold on issuing new licenses in 2005, and after the 2009 ban, the number of licensees remained at four - Patriot Limited, MSL LLC, the Ukrainian National Lottery (UNL), and Oschadbank, which does not conduct lottery activities.
The market leader is UNL, which benefited from sanctions leveled against its two main rivals due to their Russian connections. Nearly all of the lottery offices in operation are licensed through the UNL. One common criticism of the current regulatory landscape is that the lottery business is effectively a monopoly.
Since the ban was enacted, government revenues from gambling have predictably dropped. According to international accountancy and business advisory network Baker Tilly, the government raised UAH 321 million ($13 million) in revenue from lottery activities in 2013, compared to the $88 million raised in 2008 from licensing fees alone.
Poker in Ukraine
Until the ban was enacted, poker had been classified as a sport. However, soon after the law was passed, poker was removed from the list of recognized sports, making tournaments and cash games illegal. Poker club owners objected and took their case to the Supreme Court, which ruled in 2013 that tournament poker would be allowed, but ordinary games played for cash were still prohibited. This lasted until 2018, when poker was added to Ukraine’s Register of Recognized Sports. It is currently possible to find poker rooms in cities across Ukraine.
The Black Market
As is so often the case, the prohibition on gambling pushed the activity underground and in some cases entwined it with organized crime. Underground establishments opened their doors as soon as legitimate ones closed theirs - and often, the establishments were the same.
One common practice is for lottery centers to double as gambling establishments by housing illegal slot machines and offering sports betting services. Electronic casino game machines are placed alongside electronic video lottery terminals, and taxes are paid only on the legitimate lottery machines. According to the Ukrainian Ministry of Finance, 80% of all bets are placed on the black market.
There have been countless cases of the Ukrainian police raiding illegal gambling establishments, but black market operators are undeterred. According to the local prosecutor’s office in Odessa, the police raided and shut down 188 illegal gambling establishments during one 18-month period stretching from 2017 to 2018. The police seized a total of 3350 computers and pieces of electronic gaming equipment, along with nearly UAH 900,000 ($36,000).
It’s difficult to pin an exact number to the revenue generated by any black market. Some experts have an estimate of around $300 million, but most estimations put the value of the Ukrainian gambling black market at $1 billion. The higher figure is more often cited by authorities.
The Situation Now
A 2015 attempt to legalize casino gambling and sports betting failed to garner sufficient support, particularly from operators who objected to what they viewed as inflated fees and taxes.
In 2017, the Ukrainian government issued a letter of intent to the International Monetary Fund which outlined a plan to raise tax revenues by legalizing and regulating the gambling industry. The plan was part of an effort to enact economic reforms in order to qualify for nearly $18 billion in financial assistance from the IMF. The government did not meet its goal of legalizing gambling by 2018.
As part of a push to improve the economy, the Verkhovna Rada (Ukrainian Parliament) has been ordered by President Volodymyr Zelensky to introduce a draft law on the regulation of gambling by October 1 of this year, and pass the law by December 1. The decision was announced at a joint Turkish-Ukrainian economic forum in Istanbul. The planned law will legalize casinos in 5-star resorts in order to stimulate the tourism sector near the Black Sea. No plans to legalize online gambling have been announced. Estimations for how much revenue the legalization of gambling could add to the Ukrainian national budget range from $200 million to nearly $400 million.
Whether or not the proposal will curb illegal gambling is hard to predict, but some experts don’t think so. Entering the market will still require millions of dollars in start-up costs including licensing fees and casino equipment, creating a high barrier to entry for operators without access to such substantial amounts of funding. Operators who are unable or unwilling to pay the required fees and taxes may remain in the shadow economy.
The change will likely be welcomed by the populace. A recent survey by the Razumkov Center found that 47% of Ukrainians are in favor of legalizing gambling, while only 34% are against. Players and operators alike are looking forward to how the planned changes are enacted, and what changes could follow.