What to anticipate from Ukrainian legalisation: The bigger picture

It is now widely known within the industry (at least in Europe) – but to set the stage let’s state this one more time – Ukraine is set to adopt legislation regulating all kinds of gambling activities, thus lifting the ban that was imposed almost a decade ago.

The law to be adopted is broad in scope, with licences being issued for running of casinos, sports betting and poker (both offline and online), as well as slots parlours and lotteries.

There is a limited number of licences available, which will be sold through electronic auction for a five-year term. The starting annual fee for each licence has already been set (eg. the starting bid on an auction for a licence to run (i) sports betting (online and offline), and (ii) online casinos will be €930,000).

The draft law is still under discussion in the Ukrainian parliament, but one aspect is already clear from the proposed outline of the licensing process (auction plus limited number of licences): Ukraine is aiming to cash in in a major way.

Next door

Aside from Ukraine itself, the interesting thing is how these amendments (which are unexpected to say the least) may affect Ukraine’s neighbours.

The prevailing government view in the post-Soviet states was (and to some extent still is) that gambling and all associated activities (except for lotteries) are pure evil. This mindset was behind the gambling bans in both Russia and Ukraine, which were put in place in 2009. Interestingly, Belarus took advantage of these prohibitions to develop its own gambling mecca right under the nose of its larger neighbours.

The Belarus example showed that it is possible to build a countrywide gambling infrastructure and benefit from it (jobs, taxes, tourism etc.) while simultaneously avoiding a gambling ‘overdose.’ At the same time, we would be remiss not to mention that the Belarusian gambling industry is oriented toward foreigners rather than its own people, so it may be overly ambitious to draw any broad conclusions from this example.

Nevertheless, one of the benefits of being in an emerging economy is the ability to learn from the experiences of the developed economies and the challenges they have already faced and overcame. Naturally, this is also applicable to the gambling industry. In other words, one can surmise that the legalisation of gambling is inevitable, as it has happened in the developed economies all over Europe; the only questions are when and to what extent such legalisation will happen. Otherwise, illegal operators will be springing up here and there without any benefit to the country and its economy or protections for players.

Applying this mindset to the modern state of the gambling industry, Eastern European countries are facing a tough decision: either wage a never-ending battle with illegal operators or take the political hit that comes from erecting legal boundaries for them.

Political promise

New Ukrainian president Volodymyr Zelensky (who is responsible for the upcoming legalisation) tried to avoid such political pitfalls by starting the legalisation process from the promise that the only gambling venues that are going to be legalised are casinos in five-star hotels on the Black Sea coast.

This promise was soon abandoned in the first drafts of the law, which included regulation of all sorts of gambling. Nevertheless, the Ukrainian establishment generally accepted gambling as a concept and the draft is now moving quickly through the parliament, with a possibility of the first auctions to be held in the beginning of 2020.

However, it is early yet for any definitive conclusions, since the legalisation framework could still change entirely (and even be put on ice). Nevertheless, if successful we can certainly see that Ukraine has a chance to become an important flag on the map (given the saturation of the European market) by enabling operators to distribute their product in a nearly similar environment.

This outcome will only be attainable if Ukraine resists the temptation to open its market only to Ukrainian and other neighbouring operators due to enormous lobbying by the local players. This desire is indeed understandable, but the Ukrainian market can only become truly important for the region if international operators are permitted to enter.

To make this happen, best international practices should be adopted, a process which is already underway. For instance, the Ukrainian Council of Ministers, in its recent review of the draft law, indicated that it should be consistent with European and international practices. The Council considered the draft law provisions regarding the seizure of illegal gaming equipment and the blocking of illegal websites without a court order as contradicting international practices and recommended that both of these provisions be amended.

If (and this depends on many other “ifs”) Ukraine succeeds in creating a modern gambling environment that is interconnected with other European markets, the perception of gambling in Eastern Europe (in particular, in Russia) could change, with gambling finally losing its longstanding stigma and becoming much more profitable for the state and gambling operators alike.

Ilya Machavariani is a gambling and gaming lawyer for Europe, Russia and the CIS. He has extensive experience advising on gambling issues and advises clients on operating in the Russian Federation and the CIS, on the full range of regulations relating to the activities of gambling operators, as well as drafting the necessary contracts and internal documents.