A number of significant events have taken place in the Ukrainian gambling industry in recent months. Early in May, the government announced its intention to dissolve the Commission for the Regulation of Gambling and Lotteries (CRGL), opting for an automated process for issuing gambling licenses. Earlier, sanctions were introduced against leading operators Parimatch and PokerMatch.
Ukrainian gambling reform expert, Viktoriya Zakrevskaya, discussed these and other issues with SBC CIS.
Could you please share the current market situation for Ukrainian gambling, considering the ongoing war? Are companies and operators facing difficulties, particularly after the recent sanctions imposed on several Ukrainian companies?
The first important peculiarity of the recent developments in the Ukrainian gambling market is the fact that the state is wary of the possible operations in the Russian Federation of all companies operating in the black and legal markets of Ukraine. Additional inspections were carried out and as a result, connections with Russia were found in companies such as 1xbet, Fansport, Joker, Melbet. And among the illegal ones, numerous websites connected with Russia are discovered and blocked every day.
Although the mistake with Parimatch throws a shadow on this complex and impressive work, nevertheless, the public opinion is now being formed that this error of the law enforcement authorities should be resolved as soon as possible and through dialogue with company representatives.
At that, it should be said that the work of the state against companies with Russian ties leads to the natural shrinking of the market. Technically this means that if the company`s license is revoked, the legal market becomes smaller in size. But this is not a problem, because today, the operation of Russian companies is being blocked throughout the world. They will be replaced by others.
The other peculiarity is the negative effect of the war. At present, operators in the online segment, due to various systemic and non-systemic reasons, have not reached pre-war performance indicators: in relation to the number of users, traffic, generated income, etc.
The state of the offline segment is even worse – there are very few players (especially in cities close to the frontline), and until the war is over, the number of gambling halls will continue to drop; at best they would somehow renew operations in Kyiv and in the western parts of Ukraine.
In some sense, the western Ukraine region is now a more favourable location than the capital city and large cities in the Central and South-Eastern parts of the country: there are many internally displaced individuals, and people travelling from Ukraine to EU countries and back. Besides, the matter of security is crucial for business, and from this point of view, the western regions of Ukraine are much better: the main point being that the situation with power supply has been resolved. This is one of the critical factors for the gambling business, not only land-based business, because during power cuts, the problem of communications (including mobile connection) becomes crucial. All this inevitably had an impact on attendance, traffic, proceeds, settlement of winnings, etc.
The third spectrum of difficulties, definitely, relates to the expectation of systemic decisions of legislators: the passing of draft law 2713-d and the introduction of the State Online Monitoring System (SOMS). While such decisions have not been made yet, politicians from various fractions are attacking the legal business, the illegal business operators are pushing smear campaigns in the media, making the industry toxic. Although, apart from taxes and license fees (UAH 5 billion for less than three years of reforms), legal operators have donated over UAH 1 billion in cash for the needs of the Armed Forces of Ukraine. Not to mention purchased equipment.
What do you believe led to these sanctions, and what measures can be taken to improve the situation? Is the government in negotiation regarding this issue?
The only mistake in the sanctions policy is with Parimatch. It really is a regrettable fact, which risks becoming one of the systemic threats not only for the development of the legal gambling market in Ukraine, but for its existence as such. If such an error was made with the most systemic, transparent and patriotic Ukrainian company, what are the chances of survival for a foreign investor?
This is slowly becoming clear in Ukraine, the decision was neither essential, nor publicly justified: there still is no information available as to the grounds on which the sanctions were imposed. Most probably, the error was made at the level of law enforcement authorities. Perhaps some rivals of the company and its competitors submitted false information misleading the National Security and Defence Council and the President himself. There were always a lot of rumours, envy and speculations around Parimatch, but no competitive judicial proceedings in relation to the sanctions, for sure.
In a worst-case scenario, how might a ban, such as the long-time ban received by major operators like Parimatch and PokerMatch, impact the domestic gambling market?
It may have a destructive systemic effect together with the potential dominance of illegal operators, the question of taxation of the industry remains unresolved, and the online monitoring system is yet to be launched. These four factors can fail the legal gambling in Ukraine. But I am sure that the above issues will be resolved, including the cancellation of the erroneous sanctions against Parimatch.
The presence of illegal operators has become a significant and growing issue during the war. Can you provide any updates on the efforts made by the Ukrainian Gambling Council (UGC) or the government to address this problem?
The land-based and online segments should be differentiated.
For the land-based segment, it is important to understand that isolated measures are taken, from time to time dozens of illegal halls are being closed, but there are a couple thousands of them, and they have become stronger during the war. For example, in March 2022, when legal operators ceased activity, were saving people and funding volunteer movements, illegal operators were opening up and promoting their activity. This is the difference in the attitude to social responsibility, the state and Ukrainians.
For the online segment, it is important that the Commission for the Regulation of Gambling and Lotteries, the National Bank and law enforcers have undertaken several inspections and discovered over 1800 black market websites on the Internet, which are operating in Ukraine. 720 of them have been closed, they cannot return through mirrors or other methods of bypassing the ban. Here, there certainly is progress.
Recently, the Ukrainian government made the decision to dissolve the Commission for the Regulation of Gambling and Lotteries, opting for an automated process of issuing gambling licenses. In your opinion, is this the right decision? Does it make sense to remove the regulating body while maintaining a legal and unobstructed market?
Presently, the government has introduced a bill on the dissolution of CRGL. No decision has been made yet, and CRGL continues its work.
It is easy to assess the efficiency of CRGL. For example, UAH 78 million was allocated toward the work of the Commission in 2022, and the state received UAH 1.16 billion. During the war, 98% of obligations on replenishing the budget were fulfilled, with the norm set during pre-war times. Besides, CRGL was one of the most efficient state authorities in the implementation of anti-corruption measures.
It all will be taken into consideration when the initiative on the national regulator`s dissolution is considered. My opinion is that it is a harmful initiative for an emerging market, especially in times of war.
Ivan Rudy and the Ukrainian Gambling Council have repeatedly emphasized the importance of resolving the issue of taxation for gambling businesses. What factors contribute to the slow progress in the government’s adoption of this law, and to what extent does the ongoing war impact this matter?
I do not comment on the statements of state bodies and UCG. However, as a market expert, I can say that some political forces are getting benefits from the incompleteness of the reform, while attacking the imperfections arising from such incompletion, they gain in political ratings.
Moreover, there is a powerful lottery lobby, which systematically blocks draft law 2713-d, in order to bargain favourable conditions for their lottery business. The attack on systemic decisions in the gambling sector was and remains the instrument of pressure of the lottery business on the government.
Of course, the lobbying of the black market is working against the reform of the legalisation of the gambling business as is. I also cannot ignore the systemic element of the demonization of the gambling market, which causes the creation of a negative background and plays against the transparency, accountability, and rationalisation of this sphere of the economy.
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