Zelensky seeking to establish gambling oligopoly

Authors

Nata Shtuka , Andrey Yukhimenko

The proposal by Ukrainian President Volodymyr Zelensky to legalize gambling will not curb already prevalent illegal gambling activities, but will lead to shake up of the gambling market, experts say.

Zelensky on Thursday last week in Istanbul said Ukraine would legalize the gambling business. According to him, casinos will be opened in five-star hotels in order to stimulate the development of a tourist cluster on the Black Sea coast.

"Civilized legalization of the gambling business will increase the tourist flow to Ukraine by at least 15%," parliament’s subcommittee on tourism, resorts and recreational activities chairwoman Hanna Romanova said. She added that tourists would be inclined to leave more money in the country.

"Now they simply have nothing to spend money on, they go to the EU for shopping, and we just relax," Romanova said.

Five-star legalization will affect not only the Black Sea coast. In Ukraine, there are about 40 five-star hotels. Six of them are in Kyiv.

The ban on gambling in Ukraine was introduced in 2009 after a fire a gambling establishment in Dnipropetrovsk (renamed subsequently to Dnipro), Batkivschyna Party faction members in parliament convinced their leader Yulia Tymoshenko at the time that the move would reduce the level of gambling in the country.

However, this was not the result. The gambling business in Ukraine changed, instead.

"Without other opportunities, Ukraine's gambling business camouflages itself as the lottery," Ukrainian Gaming Industry Association President Iryna Serhiyenko said.

Ukraine’s Ministry of Internal Affairs says that they cannot overcome the shadow business, although in Ukraine a fine of UAH 25 million is provided for, along with confiscation of property and all profits.

The costs in the gambling business are minimal now and the profits are very large, so the owners of gambling establishments can easily compensate for the losses when they are closed by the police, Interior Ministry Spokesman Artem Shevchenko said.

The new law can solve this problem, as it will complicate access to gambling establishments.

"Only rich people who have extra money can afford to play, and it won’t be too expensive for them," gambling expert Zoryana Toporetska said.

But at the same time, another difficulty court arise that leads to redistribution in the gambling market.

UGIA estimates show the threshold for entering such a business will be at least $3.5 to $4 million.

"In fact, if the casino is legalized only in five-star hotels, then it will be about creating an oligopoly for hotel operators," Serhiyenko said.

Former Minister of Finance and current National Security and Defense Council Secretary Oleksandr Danilyuk said that the state expects to receive UAH 5 billion from the legalization of the gambling business each year. He said the draft law was previously in parliament, but lobby groups prevented its adoption because they did not want to pay taxes. He added that Ukraine has more gambling establishments than pharmacies.