Ukraine’s leading gambling operator Parimatch’s ads are a common sight in Kyiv. The company’s ubiquitous black and yellow colors adorn every corner of the Ukrainian capital, making it difficult to believe that gambling was still illegal a year ago.
Ukraine officially banned gambling in 2009 after a fire killed nine people in a gaming hall, but casinos found legal loopholes to continue operating despite the ban, creating a de facto grey market riddled with corruption schemes.
The grey turned to white when President Volodymyr Zelensky signed legislation last year to legalize gambling in a bid to get rid of the market’s shady side and fill the state’s coffers.
Most estimates put the value of the Ukrainian gambling black market at $1 billion, which makes it a promising source of income for the government.
Gambling operators, who were in the grey zone for years, are going all in to be legit. The commission has already issued 18 licenses for $20 million in total since the beginning of 2021, including to seven high-end hotels in Kyiv such as the Fairmont Hotel overlooking the Dnipro River.
However, gambling operators complain that the law is not sufficient for the industry to become a market. It needs further legislation, technical regulation and proper administration for the market to emerge, they say.
Heavy taxations also create setbacks for operators, Maksym Liashko, a partner at Parimatch, told the Kyiv Post. “We are waiting for the government to finish implementing gambling as a sphere of economy,” Liashko said.
No Vegas overnight
The legal market is “under construction,” but the transition is far from smooth. For instance, while casinos have already paid for and received licenses, they can’t fully operate because regulations to certify betting equipment haven’t been adopted yet.
The law didn’t provide for online monitoring of problematic players — those who can get addicted and need psychological help — nor certification of randomizing mechanisms in slot machines.
While Liashko praised Zelensky’s team’s initiative to legalize gambling, he called on parliament and ministries to “normalize taxation in this sphere and resolve technical issues.”
For Anton Kuchuhidze, head of the Gambling Association of Ukraine, these are normal growing pains. The most important thing was to finally get the law in place; the market will appear in time, he told the Kyiv Post.
Ukraine has the potential to become a promising gambling territory for all of Eastern Europe, but it won’t turn into Las Vegas overnight. “We have the potential, but we’re still at the first phase of the market. And it’s difficult,” he said.
This massive potential attracts unexpected players to the industry. Recently, Igor Smelyansky, head of state postal service Ukrposhta, said he’d turn the postal service’s historical building on Independence Square into a hotel with a casino.
Smelyansky told the Kyiv Post he had in mind Washington D. C.’s main postal building that became a hotel after being sold to former U. S. President Donald Trump.
“Why not do the same in Kyiv?” he said. “We are converting old infrastructure to a new, modern use. You cannot constantly live in the past.”
Hefty taxes
But Smelyansky will need massive investments to convert the building. Under the law, gambling halls are only permitted in five-star hotels, recreation sites outside city limits or gambling buildings specially approved by the government.
To open a casino, businesses have to buy a license valid for five years. Depending on the city and type of building, the cost can vary.
For example, for a five-star hotel in Kyiv with over 150 rooms, the cost is $10.4 million paid over five years. Every year, the casino must also pay $30,500 for each game table and over $2,000 for each slot machine.
The Ukrainian government’s licensing fees are the highest in the world, up to $2 million to open a casino in a 150-room hotel, restricting opportunity to the wealthiest people.
Operators pay 18% income tax as any other businesses, but also the gross gambling tax, which varies from 10% to 28% for different types of gambling.
The tax load oscillates from 28% to 46%, which adds up to 22% of each employee’s income.
European countries use a simpler approach: Either expensive licenses and low taxes, or cheap licenses and high taxes — but not both.
Because licensing and taxation of gambling is the highest in Europe, it deters investment in the emerging betting market, Victoria Zakrevskaya, a consultant for gambling operators, told the Kyiv Post.
“Ukraine adopted both, which creates an unbearable financial burden on operators at the moment,” Zakrevskaya said.
Kuchuhidze agreed: “We have to adopt tax amendments to attract companies.”
At the same time, expensive entry and strict regulations ensure the market won’t slip into people just putting dirty slot machines in establishments centered around metro stations, like it had been before all of them were shut down in January 2020.
An employee of state postal operator Ukrposhta talks over the phone in the backyard of Ukrposhta’s Central Post Office in Kyiv on April 12, 2021. Part of this building may soon be turned into a hotel with a casino. (Kostyantyn Chernichkin)
Controversial topic
More than 900 illegal gambling halls disguised as lottery offices were closed at the beginning of 2020 to put an end to illegal gambling in the country.
Ukrainians still remember slot machine halls surrounding public transport stops in big cities, with their cohort of shady characters spending their last dime in smoke-filled hallways.
Such places shaped the public opinion that the gambling market was something antisocial and dirty, which makes it harder for operators to come out of the woods, according to Zakrevskaya.
“Gambling is not a popular topic in Ukraine,” she said.
In the mind of the public, gambling is often associated with poverty or corruption schemes, which makes it challenging for lawmakers to address issues in the industry because it costs them rating points.
After the parliament voted the law in July 2020, former Prime Minister Yulia Tymoshenko and her 26-member Batkivshchyna faction in parliament strongly opposed the bill and tried to cancel it, saying it would destroy “spirituality” in Ukraine.
Other lawmakers have a different agenda, Kuchuhidze said. Some representatives of the gambling market have vested interests in keeping the market in the grey economy to avoid paying taxes.
Those who want the industry to stay in shadows are close to criminal groups and are used to corruption schemes rather than paying taxes to the government, he said.
“They don’t understand how to work without police ‘protection,’” he said. “They’re from the other world.”
An aerial view of the Dnipro Hotel in central Kyiv on Nov. 30, 2020. Ukraine’s gambling and lottery commission has recently denied a casino license to Kyiv’s central Dnipro Hotel over paperwork issues. This hasn’t deterred Alexander Kokhanovskyy, the esports entrepreneur who owns the hotel, to continue his efforts to take part in the now-legal industry. (Oleg Petrasiuk)
Addiction
For Zakrevskaya, the topic of gambling still seems relatively taboo among Ukrainians because it’s linked to gambling addiction which explains the reluctance of policymakers to approach it.
“In our modern society, the government will have to deal with the outcomes of someone losing his household over gambling,” she said.
Once legalized, operators have to provide the state with information on addicted players to protect them. Casino operators will also have to provide players with information about medical facilities and organizations that treat gambling addiction.
Unlike illegal gambling establishments, which have been operating in Ukraine for the last 12 years, legal gambling operators will be forbidden to have ATMs or currency exchange offices on their grounds.
The way to implement all these provisions is still vague, however. The regulator hasn’t created any register for addicted players so far, Kuchuhidze said.
So far, operators and the state still need to find a way to monitor and help the addicted players, but at least the law is already in place, he said. “This all is just a matter of time,” Kuchuhidze said.
