Head of Kherson Regional State Administration Yuriy Husyev: About the Draft Law on Gambling Legalization and Market Prospects

Head of Kherson Regional State Administration Yuriy Husyev: About the Draft Law on Gambling Legalization and Market Prospects

What changes should be introduced in the main draft law on the regulation of the gambling business? How will the legalization of gambling influence the tourism industry and economy of the country? Head of Kherson Regional State Administration Yuriy Husyev discussed these issues in the interview for Kyiv iGaming Affiliate Conference.

Yuriy worked in different government agencies. He was the Deputy Minister of Defense of Ukraine, the head of the adviser group of the Minister of Economy of Ukraine, the director of the department of national projects. Besides, he was the adviser to the Minister of Finance, the Minister of Infrastructure, the Minister of Ecology and Natural Resources of Ukraine.

Interviewer: Kyiv iGaming Affiliate Conference (KiAC)

Respondent: Yuriy Husyev (Y.H.)

KiAC: How can you assess the main draft law on the legalization of the gambling business?

Y.H.: With the adoption of the draft law on the gambling business offered by the Government, this activity will be, first, licensed and the obtained funds will be sent to finance medicine, sports, and culture. Secondly, the number of market players will be limited and added to specialized registers.

A very important provision of the draft law is the development of an online system, to which the gambling hardware and every slot machine of Ukraine have to be connected. This system must control all betting, depositing, withdrawal procedures, cash flows, and transfer all information to the new authorized body – Commission on Gambling Development and Regulation that will have a possibility to disconnect the violator from the system remotely.

The draft law quite clearly specifies provisions about the procedure and control over the operation of facilities, including the grounds for the conduct of unscheduled inspections. This means that the activity will be supervised, as real regulation mechanisms will be implemented. A rather wide list of legislative requirements is envisaged, for the violation of which facilities will be financially responsible.

In my opinion, the text of the project generally embraces the whole complex of legal relations that have to be regulated for the sake of unshadowing of this sector. At the same time, to ensure the adoption of high-quality legislation that would take into account the interests of the society, the state, and businesses in a balanced way, it is necessary to improve the text of the draft law in the process of preparing for the first reading.

KiAC: Which aspects of the draft law should be reconsidered?

Y.H.: Primarily, the draft law excludes foreign gamblers from participation, as players have to provide the taxpayer ID number. To identify problem gamblers and underage players, it is sufficient to check the personal identity documents that contain the required data and a photo. By the way, the restricting mechanism for people suffering from gambling addiction and underage players is written rather well, but without real penalties for violation, it will remain declarative.

The legalization of the gambling business in Ukraine should not center around slot machines, lotteries, and totes, which will attract neither tourists nor investors on their own. In great quantities, they will even detrimentally affect society. Financial instability and low standards of living often become an impulse for the attendance of gambling facilities with the intention to win and thereby improve the material status of the family. However, this leads to even bigger financial inability, the growth of debts, and as a result, to the destructive behavior.

To struggle against gambling addiction, it is important to:

  • ban people under 21 years old from gambling;

  • introduce restrictions for gambling advertising and ban the use of gambling ads in mass media;

  • introduce restrictions for the distance between gambling facilities and educational institutions;

  • draft the rules that restrict player participation in gambling aiming to prevent gambling addiction;

  • develop and approve criteria for the recognition of gambling addiction;

  • introduce the principle of responsible gambling, which envisages measures taken by the gambling operator to prevent and minimize the negative consequences of participation of individuals in gambling and to create an anti-problem gambling mechanism.

Another important aspect is to ensure that there is no fraud from the side of the gambling operator. To protect the player against such actions, the draft law envisages that hardware, slot machines, etc. have to undergo certification. I think that the law has to specify not only the general mechanism of certification but also the percentage of secured winnings, as without guaranteed winnings the game will turn into the fraud from the side of the gambling facility owners. For example, in the USA, the slot machine has to give away players 83% of what they deposited.

KiAC: Will the current version of the draft law facilitate the transparent development of the industry?

Y.H.: I believe that the fact of gambling market regulation and legalization is a positive signal saying that the state does not pretend that this business does not exist but acknowledges it, tries to minimize its negative impact, and to obtain benefits for the budget.

At the same time, the offered draft law plans to issue only 20 casino licenses. In other words, it envisages that 20 facilities will be functioning on the whole territory of Ukraine. As for slot machine parlors, there are plans to issue 160 licenses with 60 of them in Kyiv, 40 in Odesa, Kharkiv, Dnipro, and Lviv, 60 in other towns, but not more than 20 parlors in 1 town.

Obviously, not all gambling market participants will find “space” in the offered framework. I think that it is necessary to issue licenses to all market players for the start, as only in such a way, you can unshadow the business. However, this initiative is primarily intended to trigger the development of tourism.

To form a favorable business climate and competitive environment for the sector’s development, it is necessary to:

  • specify in the draft law the clear distinction between conditions for casinos and slot machine parlors, lotteries, totes;

  • provide the right to open online casinos only to the operators that have acquired licenses;

  • extend the “gambling zone” notion and allow the conduct of gambling outside three, four, and five-star hotels, which will allow unshadowing the market;

  • introduce differentiated licensing fees, depending on the economic progress of regions and envisage an assurance system for investors in the case of changes in the gambling legislation.

KiAC: How will the legalization influence tourism in the regions and Khersonshchyna in particular?

Y.H.: Tourism is an economic driver. This field can be viewed as both an independent industry and a cross-industry complex. It has a significant impact on the economic growth of the country and the world economy in general, forms a sizeable part of the gross domestic product, mobilizes substantial financial and production resources of the population. The share of tourism in the global GDP is over 10%. Every tenth employee works in the field of tourism.

The establishment of cluster gambling zones, where the main revenue is generated not by games directly but thanks to related incomes and associated investments, is considered a profitable model of the gambling industry legalization aimed to develop the tourism business.

For this purpose, we initiate a pilot project in Khersonshchyna, intended to create a special zone on the coast of the Black Sea, where hotels and casinos, as well as restaurants, yacht clubs, office centers, utility companies, will be built. Service and tourism industries are developed in such a way. For example, several special zones were established in South Korea and each of them brings billions of dollars every year.

Besides, the experience of Cyprus is interesting, where the general concept of gambling legalization is in the last stage of discussion, viewing two future models: casinos as gambling facilities and casino resorts based on existing hotels and recreation zones. The majority of experts and researches say that the second model is preferable and can significantly improve the tourist product of this country.

Khersonshchyna is a unique territory for tourism, leisure time, and recreation. Every year, a growing number of tourists is coming to the region to get bright impressions and unforgettable emotions. This year, almost 4.5 million guests visited the region and over 58 thousand of them were foreigners.

Tourism also has a multiplier effect on the development of other economic sectors, which have a connection with the satisfaction of tourists’ needs. In particular, it relates to transport, trade, food, culture, art, sports, cottage industry, education, science, finance, communication, construction, agriculture, consumer products, which refill the budget.

In such a way, the development of tourism zones together with the gambling industry will undoubtedly have a significant synergetic effect.

KiAC: Are the authorities of the region ready to encourage the development of the gambling industry? How?

Y.H.: The resort season lasts four months at our coasts (June – September) and the number of tourists has been growing annually, but the growth of the tourist flow has stopped this year due to the lack of accommodation. Our hotels and recreation camps can accept only 4 million tourists per year. In other words, the Kherson region needs to increase the number of accommodation facilities primarily by the seashore and the length of the resort season.

Gambling business legalization will facilitate the shift to the whole-year functioning of our hotels and the construction of new hotels.

The governmental draft law defines special gambling zones for the operation of casinos and slot machine parlors – the territory of hotels from three to five stars.

Besides, it states that the operator is exempt from the gambling licensing fee if he builds a new five-star hotel. This provision gives a possibility to attract significant foreign and national investments from the construction of hotels and other tourism infrastructure primarily in the region’s resorts.

Undoubtedly, the local authorities of every region will facilitate the development of the gambling industry and even fight for every investor, offering favorable conditions.

We offer global operators land lots for the construction of hotels and casinos, including right on the coasts of the Black and Azov Seas. We are ready to provide comprehensive assistance to every investor until the final realization of the project and complete support after its implementation.

KiAC: What advantages will the gambling business legalization bring to the country’s economy?

Y.H.: Overall, the world’s legal gambling market gets over $500 billion of revenue annually. Ukraine’s budget has not been getting anything: all revenue from the gambling industry, which has been illegal all this time, goes to pockets of shady entrepreneurs.

In the European Union, gambling business is allowed in almost all countries except San Marino and Liechtenstein. There are no prerequisites for its ban, as not a single politician will not take the responsibility to argue the undeniable fact of the economic benefit for any state budget.

Undoubtedly, there are countries in the world that ban gambling business similarly to Ukraine, but many of them are already considering draft laws intended to legalize it, for example, Turkey, Israel, Thailand, Vietnam, and Cyprus.

Before the introduction of the gambling ban, around 13,000 gambling facilities operated in Ukraine and brought approximately 16 billion UAH annually.

Presenting the draft budget for 2020 in the parliament, the Minister of Finance Oksana Markarova stated that the draft law on gambling legalization was one of the top priorities, as its adoption would allow getting a significant additional resource for the state budget.

According to estimates of the Ukrainian Minister of Finance, the potential revenue from the gambling business could reach 5-9 billion UAH at the very least and depends on the final model that will be adopted. Prime Minister Oleksiy Honcharuk is somewhat more cautious in his forecasts. In his opinion, around 2-2.5 billion UAH will go to the budget, but once again, everything depends on the chosen gambling industry model: if the number of licenses is not restricted, the budget revenue will exceed 3 billion UAH only from selling them.

The governmental draft law envisages that a special fund intended to support medicine, sports, and culture will be created within the state budget of Ukraine. All government revenue from gambling licensing fees will go there. In such a way, gambling business legalization will positively influence the development of the social sector.

Besides, the draft law envisages that a minimum of 50 people have to work under an employment agreement at a casino. The additional financing of the governmental budget, allocation of these funds to real needs of the state, the increase in the number of workplaces and monitoring of the existing but unregulated gambling business are the obvious advantages in the case the Act of Ukraine “On State Regulation of Activities in the Organization and Conduct of Gambling” is adopted.

On December 18, Yuriy took part in the panel discussion dedicated to the transformation of the Ukrainian gambling market at Kyiv iGaming Affiliate Conference. Together with other speakers, he analyzed draft laws about gambling regulation and discussed the advantages and prospects of the legalization.

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