Banned Gambling Business: Why It Is Unprofitable for the State and What Benefits Legalization Will Bring

23.09.2019

The Ukrainian gambling market has a checkered past. It had been actively developing for almost twenty years and was banned in 2009. Only lottery operators received the green light. This led to market monopolization and shadowing of gambling and betting companies. As a result, fiscal revenue from this type of entrepreneurial activity significantly reduced.

In 2019, the President of Ukraine Volodymyr Zelensky gave a directive to adopt the law about the gambling business legalization. This decision is expected to facilitate the development of the tourism industry and economy in general.

Why the ban of the gambling business is unprofitable for the state? What benefits may legalization bring? Read in the article below.

Ukrainian gambling market before the ban

The first legal casino was opened in Ukraine in 1991. It was located in the basement of the Kyivska Rus Hotel (Kyiv). The gambling business had been rapidly developing since that time. By the middle of the 1990s, gambling facilities had been functioning in different towns of the country.

In 1996, the government adopted the law that envisaged patenting for the gambling business, among other things. At that time, the cost of twelve-month trade patent ranged depending on the type of gambling activity from 300 to 8,000 ecu (European Currency Unit used until 1998).

Gambling industry kept developing in the 2000s. The gambling market was growing year by year. According to Deutsche Gesellschaft für Internationale Zusammenarbeit GmbH, the Ukrainian gambling market reached €346 million in 2005. This figure grew to €967 million in 2008, i.e. the market volume increased by 2.8 times in three years.

Experts calculated that in 2008, the total revenue divided as follows:

Overall, over 10,000 gambling facilities of all kind functioned in Ukraine. They provided 200,000 workplaces.

The situation changed in 2009. A fire accident happened in a slot machines parlor in Dnipro. After that occurrence, Verkhovna Rada adopted the law about the ban of gambling in Ukraine.

Gambling business ban: why is it unprofitable?

After the ban on gambling activity, many casinos were closed in Ukraine. Thousands of people lost their work. Besides, patent fees no longer refilled the state budget. While businessmen paid €88 million for the acquisition of patents in 2008, this revenue entry was absent in the budget in 2010.

In 2012, lawmakers adopted the law about state lotteries. As a result, the lottery market was monopolized. Some gambling companies changed the operation structure and entered the lottery market. Most of such facilities offer customers interactive lotteries today. They are similar to the banned games of chance.

Instead of traditional slot machines, parlors use computers with installed software that imitates slots. For example, thanks to five interactive lotteries held in 2013, which were analogous to slots or betting, the total amount of placed bets reached 731.2 million UAH, accounting for 81% of the total bet volume in the lottery market.

Besides, the country has the so-called black market where casinos work without permits and offer forbidden games of chance.

The Antimonopoly Committee of Ukraine reports that budget receipts from lotteries reached 1603.4 million UAH in the period from 2003 to 2017. In 2003, this figure amounted to 46 million UAH. It reached its peak in 2013 and 2014 (321 million and 318.9 million UAH respectively). In the next years, the total amount of allocations significantly reduced and equaled to 26.5 million UAH in 2015 and 64.2 million UAH in 2016.

Online casinos are also banned. According to the head of the Ukrainian Gaming Industry Association Irina Sergienko, despite all the existing restrictions, both Ukrainian and European gambling sites work in the country. The demand for such platforms is constantly growing. For this reason, the number of gambling sites is increasing as well.

In 2017, the former head of the Ministry of Finance Oleksandr Danylyuk noted that the Ukrainian budget was losing €1 billion annually because the gambling market was in the shadow.

In her turn, Irina Sergienko stated that it was difficult to assess the turnover of the illegal gambling market, as there was no regulation and business owners did not report about revenues. However, she agreed that €1 billion was the minimal sum that the state did not get due to the illegal operation of casinos.

What games of chance are the most popular among Ukrainians?

According to social research, conducted by the Ukrainian National Lottery and the International Antidrug Association, the Ukrainians prefer the following types of gambling:

16% – slot machines;
17% – entertainment offered by casinos;
19% – betting houses;
45% – lotteries. 66% of respondents play lotteries not more than once per year, and 15% play once per 2-3 months. Analysts think that players prefer lotteries because they are the only legal type of gambling today.

At the same time, the Antimonopoly Committee of Ukraine reports that the volume of payments in the lottery market distributes as follows:

traditional lotteries account for 19.3%;
lotteries similar to sports betting – 14.3%;
lotteries similar to slot machines – 66.3%.

Figures illustrate that all kinds of gambling activities will be in-demand in case of gambling business legalization.

Gambling business legalization: what's the point?

Any business activity influences both society and the economy. Legalized and regulated gambling business provides new workplaces, a possibility to make a profit for entrepreneurs and allocation of funds to the budget.

According to assessments of different experts, if the gambling business comes out of the shadow, around 5-10 billion UAH will refill the state budget. This money could be used for different purposes including the development of sports, education, replenishment of pension fund assets, etc.

Legalization of the gambling activity will facilitate the growth of the hotel business and flourishing of tourism. Besides, the legalization of casinos will create additional workplaces, and customers of gambling companies will gain real protection from the side of regulators.

What was the Ukrainian gambling market like before the introduction of the ban in 2009? What waits for the gambling industry after legalization? Read here ►►►