Solitaire without replay
The latest dispatch summaries from the arena of military operation against gaming business state that they would like to clear Moscow of casinos as soon as by 2008. The Moscow State Duma has registered an initiative group for collecting signatures to support the pre-term closure of gambling facilities. The idea was encouraged by the speaker of the Federation Council Sergey Mironov. That is not surprising anyway. It could hardly be expected that the politician, who had been worried by the fate of muskrats right before the previous elections, would stand back from such a tasty matter as “beat casinos – save Russia”.
The decision of the authorities was approved not only by muskrat defenders but also by real oppositionists. It was called an act of care for people, whom gaming business fat cats were poised to bleed dry. Let us remind you that the law “On state regulation of activities involved in gambling organization and arrangement” adopted at the very end of 2006 is actually destroying the gaming business in the country. On July 1st 2009, casinos, slot halls and other facilities will be closed in Russia. Gambling will only be allowed in four special zones – in Kaliningrad, Altay, and Primorie regions and on the border between Krasnodar and Rostov regions. There is not much time granted for “relocation” – two years. Gamblers will still have bookmaker offices and totalizators as a consolation prize as those are allowed to work beyond the gaming zones.
THE PAST…
The public opinion has a deep-rooted idea that gaming business is extra profitable. In fact, the profitability of mid-level casino is 20-35%. It is comparable with a thriving metallurgic enterprise, an insurance company, road construction or food production.
The poll made by “Levada-Centre” late last year reveals that gambling facilities are visited by 135 of the Russians, the frequency level variable. The idea to exile casinos to the special zones was supported by 79% of the interviewed, 11% stood against it.
By the way, the sociologists state that the fewest number of drastic measures advocates is among the military and the law enforcement employees. Probably they have a clearer vision of possible negative consequences of the legal gaming business actual liquidation.
"European experience vividly demonstrates the necessity of maintaining the gaming industry in the form of clubs with strict requirements to the level of service, security and transparency of business operations”, says Alexey Shkatula, the deputy director of “Europe” Casino. “The club principle of gaming facilities organization makes a barrier for the access to casinos of people with unstable psychics, alcohol and drug addicts, teenagers; it provides an acceptable social and material quota for visitors and prevents the population from getting irritated”.
The irritation is quite reasonable – the problem of gambling addiction has captured a lot of the Russians – from children to pensioners. And gaming “columns” and “daisies” bred everywhere made it impossible to either “sort” the public out or to establish more or less acceptable social and age quotas. It resulted in a righteous wave of public indignation. The market participants started talking about the necessity of distinct gaming rules. For instance, the CEO Storm International Michael Boettcher offered his colleagues a “Responsible Gaming” program, the standards of which introduced an age quota of 21 years of age, limitations on the size and the contents of gambling facilities; moreover, a system of help to gambling addicts was proposed.
However, the program did not go off, and the market leaders were blamed for striving to force smaller operators out and to share the market between one another. “So the gaming lobby is a myth,” says Igor Salita, the general director of “Jackpot”. “Remember Draganov’s legislation draft which laid down strict requirements to gambling facilities and proposed to quota their number, for example, one facility per 200 thousand people. The legislation was being discussed for over a year, many industry representatives were trying to push through mitigated wordings. There was a threat that the process would be dragged on for years; as a result, the President had to meddle in and draw the line. If there were a lobby, it would not have happened. The market participants are too different, and, however sad it may be, they are completely unable to reach agreement with one another”.
The gaming business opponents claim that it gravely affects the population’s moral and health, and compare it to drug trade and prostitution. However it is still not clear if the gaming business is legitimate or not. If it is not, it should be directly forbidden and equaled to criminal operations, without any “special zones”. “It should be determined whether it is legal or not”, remarked a top manager of a Moscow casino in an interview to the “Business Week Russia”. “Alcohol and tobacco do an obvious harm to the population’s health. Should the reasoning of the authorities be developed, these products are to be sold somewhere in Narjan Mar or on the spurs of the Ural Mountains”.
Advocates of the “big game” accentuate its meaning for economies and set amounts of tax revenues as an example. Gambling tax accounted for about 1% (7 billion rubles) of the city budget revenues in Moscow in 2006, 2% in Saint Petersburg. Throughout Russia, according to the data of Ministry of Finance, gambling tax revenues exceeded 20 billion rubles last year. This year the budget expects to receive 26-28 billion rubles. These expectations have been planned for the regional budgets. For instance, in Yaroslavl they expect gambling tax revenues to be 200 million rubles, in Saratov – about 500 million rubles, in Tchelyabinsk – 379 million rubles. Accordingly, these amounts can be crossed out in the future.
And not only these amounts – except the “industry” tax, casinos and slot halls pay the complete “set”: personal income tax and uniform social tax for their employees, VAT, profit, property and land lease taxes. All of them, but for VAT, are collected by regional and local budgets. Plus the problem of employment. Approximate estimates show that the gaming business provides 150 thousand jobs in the capital city, and 500 thousand throughout Russia.
THE FUTURE…
"We had to close a brand new facility, “Shangri La” in Saint Petersburg”, the “Business Week Russia” was told by Lavrentiy Gubin, the PR-director of “Storm International” holding. “The calculations showed it would be more reasonable to close down than to work for the remaining two years”. Such a drastic response is not an exception.
The law turned out to be so tough that many still do not believe it will be implemented in practice. The mass media are discussing options of various mitigations – for example, postponement of gaming business relocation to “distant places” for another year, or inclusion of Moscow and Saint Petersburg in the list of territories for legal gambling.
It may be asserted that the authorities will not beat a retreat before the elections. And there is not much time left till we find out what will be after the elections, if the forecasts of skeptics will come true. Still in the opinion of Evgeniy Kovtun, the vice president of Gambling Operators Association, if the law is amended, an exception being made for Moscow and Saint Petersburg, the idea to raise depressive regions due to the gaming business will be brought to naught. “We do not know yet if the authorities will go there”, says Kovtun.
And now Russian regions are introducing complete or partial gambling bans. According to the Moscow government Gambling Committee, at present there are 49 casinos, 822 slot halls and 19 totalizators and bookmakers’ offices in the capital city – about a third of the Russian gaming business. Last year about 2900 gambling facilities terminated their operations in Moscow. And July 1st is coming soon, when the new requirements forcing minor players out of the market are coming into effect.
By that day, according to the capital city authorities’ estimates, 78 facilities located in Moscow in the federal ownership properties – mainly at the railway stations and platforms – will have been closed. It is also supposed to close 159 gambling facilities located in noncapital properties (temporary stalls, kiosks, etc.). The number of slot halls will be reduced more than twice – only 366 of them meet the set requirements. 49 casinos will be reduced to the 22 which comply with the new requirements: net assets shall be no less than 600 million rubles, there shall be no less than 10 tables and 50 slot machines on the floors.
In the regions the scope of gaming business reduction will be even more impressive – the percentage of facilities able to meet the legislative requirements is far lower there. And, in addition, over 30 regions have used the right to set their own restrictions for the gaming business, and they have already banned – completely or partially – operations of casinos and slot halls of any type.
The most radical ones proved to be the authorities of Krasnoyarsk, Belgorod, Tambov, Kaluga, Kurgan, Kamchatka regions, Chechnya, Northern Osetia, Udmurtia, Cabardino-Balcaria, Karachaevo-Cherkessia, Dagestan, Adygea and Yakutia. Gambling is outlawed here as soon as from July 2007. A month later – from August 1st – the gambling ban will be effective in Ryazan. From January 1st, 2008, - in Archangel and Smolensk regions, and also, possibly, in Moscow and Petersburg, in Leningrad, Vologda, Kostroma, Kursk, Novosibirsk regions and in Bashkiria. Similar laws are being considered in Lipetsk, Kemerovo, Novgorod, Tumen, Voronezh, Sverdlovsk, Ivanovo, Stavropol regions, in Khakassia, Mordovia, Tyva and Komi.
From July 1st slot machines will be banned on the grounds of Omsk, Saratov, Smolensk, Sakhalin regions. Legislators of Amursk, Tomsk, Irkutsk regions and Tchuvashia are considering analogous drafts.
And Tatarstan has modeled the federal law. Slot halls and casinos have already been offered to move to two “reservations” – a half-deserted town of Kamskiye Polyany, remaining from the incomplete Tatar Atomic Power Station, or to the territory of Kazan horse racing complex. As a result: a single casino and a single slot hall are operating in Kamskiye Polyany. From July 1st a similar system will be introduced in Samara regions: special zones there will be two districts – Volzhskiy and Krasnoyarskiy.
WHAT WILL EASE THE MIND
The Mayor of Moscow Yuri Luzhkov and the State Duma deputy Alexander Lebedev have suggested putting bookshops and libraries in the place of liquidated gambling facilities. The Vice Mayor Joseph Ordjonikidze, unlike his boss, does not overestimate the Russians’ passion for reading and appeals to open bowling halls and entertainment centres in the vacated venues. It is more pragmatic: as one of the book business owners said in public, it would be hard to find a bookshop having enough funds to lease the venue, for instance, of Moscow casino “Shangri La”.
The public discussion touched upon alternatives offered to gamblers as well. Poker fans turned out to be the luckiest: not long ago the order by the head of the RF Federal Agency on Physical Culture and Sports announced club poker to be a kind of sport. According to the PR vice president of the Sports Poker Federation Gennadiy Khvorykh, poker is a game of skill, such as chess, checkers and backgammon. The Russian Games of Skill League is, in its turn, promoting sports preference – it arranges regular tournaments in it. And it reminds that by the number of chess players having sports categories has reduced 15 times in Russia – from 3 million to 200 thousand. Therefore games of skill should be encouraged.
Another opportunity to satisfy the passion for gambling is stockjobbing. Its simplified version, Forex, is getting more and more popular.
Internet casinos still remain an outlet for gamblers. Although the Russian legislation bans using the Internet for gambling organization as soon as from July 1st, 2007, this prohibition will hardly have legal effect. No one will be able to prevent players from visiting Internet casinos registered beyond Russia. Still the question of transferring money to virtual casinos is open. Russian electronic payment systems, such as “YandexMoney”, work with Russian legal entities only. And they cannot deal with casinos registered somewhere in an offshore zone. Except perhaps straw parties.
As for the social use, many specialists doubt it. Oleg Zykov, the president of the Russian charity fund “No to Alcohol and Drug Addiction” believes that the actual ban of gambling operations in Russia will not solve the problem of gambling addiction. “No positive revolution will happen”, stated Zykov in the interview to the “Business Week Russia”. “Any attempt to mechanically forbid the forms of destructive behavior does not solve the problem. Certainly, it is no good enlarging the space for negative choice as it occurred when gaming business was developing uncontrolled. However, to drive gambling underground is a direct way to even more uncontrol”.
LONG-RUN
The time goes on, and nothing has been heard about amendments to the legislation yet. Gaming business owners are deciding what is to be done. Or, rather, to be or not to be?
According to Lavrentiy Gubin, “Storm International” is not planning to relocate its gambling facilities to the zones. “The perspective of these zones, due to them being remote from megapolises, is considered to be extremely low by the business community”, he explains.
"We are carefully observing the actions of administration in the regions of the future zones, having meetings with their representatives,” says Igor Salita from “Jackpot”. “That’s what we can say so far: local authorities are working out their own vision of the future. The most advanced are making working groups and involving experts from all over the world. It seems to us that this work will take at least a year. In a year concepts will appear, then they will determine the sources of financing, then the construction will be launched. I think by the end of 2008 everything will be clear – what, who, where, how and when. By now we cannot say if we will go to the zones, and, should the answer be “yes”, to which ones.
In his turn, Alexey Shkatula from “Europe” believes that the project of setting up gaming zones by July 2009 is unfeasible. “I estimate the minimum term to be 8-10 years, under the condition of active investment and timely creation of the required legislative base,” explains Shkatula. “In my opinion, only the Primorie zone has future due to serving tourists from China, Korea and Japan. As for other zones, I think it is unreasonable to set them up. At present I do not see investors interested in and able of inspiring life in the zones, and I cannot outline the target audience who would be interested in gambling so far away from the places where they live and work”.
The advocates of the “reservation” idea traditionally refer to the American experience and Las Vegas. However, these traditional references are unjustified: there are gambling facilities not only in Las Vegas but in 48 of 50 American states, and gambling is absolutely banned only in Utah and Hawaii. Moreover, setting the example of Las Vegas, fighters against gambling make a bad shot – the construction of the “global gambling capital” was a consequence not of the gambling restrictions in the country but, on the contrary, of legalization of gaming business developed in Nevada at that time. By the way, the Russian Gambling Operators Association appeals to the parliament members to study the legislation of the developed countries once again and prevent the mistakes many states have made: legal gaming business is always better than illegal.
MONKEY BUSINESS?
Despite the skepticism of the gambling operators, the authorities are sure of the success. From the viewpoint of Vladimir Medinsky, vice chairman of the State Duma Committee on Economic Policy, Entrepreneurship and tourism, new investors, most likely, foreign ones will agree to invest money in the gaming zones. No investments to the zones have been observed yet, and, to our knowledge, the only Russian gaming business representative to have invested funds in the construction of an entertainment centre within the special gaming zone in Kaliningrad region is the owner of a local casino.
So the gambling passion is seizing the most venturesome local residents: to the extent possible they are buying land in the hope to hit the jackpot when gambling tycoons come to the territory. In some places the pioneers of local las vegases are even building restaurants, bars and shops. However, the exact borders of the zones have not been determined yet.
Generally, there is much more optimism about the infrastructure of the zones then about their contents. But, to tell the truth, it is slightly reminiscent of Ostap Bender and his New Vasiuky. For example, Altay authorities have already developed and even presented at the exhibition of "MIPIM-2007" in Cannes a draft project of the gaming zone, at the same time having promised to call special militia units to maintain the order on its grounds. The project of building a new airport between Biysk and Belokurikha – with a view to gamblers and tourists – is being considered. In Rostov region the Legislative Assembly has decided to allocate 100 million rubles for buying out municipal lands of Azov region for the gaming zone. The local authorities, like those in Primorie and Kaliningrad regions – are hopeful for the interest of foreigners, following the Duma members.
Nothing has been heard about foreign investors yet. In mass media, there’s been just a flash of information that the South African corporation Sun International applied for a long-term lease of 2 thousand hectares of land in “Rostov” zone” – for construction of a resort including a casino. By the way, it was Sun International that was often mentioned in connection with fallen asleep in the Lord idea of a gambling complex in Moscow region.
However, there are a lot of reports of local residents’ protests. For example, Rostov regional committee of the RF Communist Party demanded to drive gamblers out the farther the better, and the budget 100 million to be allocated for provision of hot meals for schoolchildren or for solving the problem of medicines with reduced price. In Kaliningrad, in the regional Public Chamber there were hearings called “Gaming zone: danger markers”. To stand together against the pending threat to the public peace, representatives of civic organizations, religious faiths, parliament members united in the movement “For Moral Renascence”.
"Any project can look magnificent on the paper,” says Evgeniy Kovtun from Gambling Operators Association. “Still once the real work starts, the desired often fails to become real. It may happen to gaming zones as well. Investors are not the only matter. We need ideas, non-standard solutions, not just copying foreign experience”. In his opinion, the zones do have prospects, but not all of them and not in the nearest future.
IRON HOUSE
The deputies of the Moscow State Duma have developed the system of liability for participation in gambling arranged without permit. Single owners of gambling dens are threatened with a fine of 200-500 thousand rubles, and an extreme measure is imprisonment for up to 4 years. If an illegal gambling facility is opened by a group of people, the fine raises to 1 million rubles, and the imprisonment – to 5 years. Gamblers are supposed to pay fines of 1-4 thousand rubles.
The first illegal gambling den has been found in Tatarstan recently. Probably, reports on similar “finds” will soon become a common thing for criminal newsreel.
Yan Art, Olga Senatorova
BusinessWeek, ¹22, 11 June 2007