The legalization of gambling in Ukraine: All you need to know

For the past week, whilst I have been on vacation trying to think less about work, every third post in my feed on Linkedin was dedicated to an event that I personally have been looking forward to for a very long time. On July 14 the Verkhovna Rada of Ukraine approved a bill (number 2285) which made a large step towards the legalization of gambling.

Since 2009, any gambling has been legally prohibited and over the past 11 years, four explicit attempts have been made to return gambling to legality. Only now it has been crowned with success. As it stands not all current or potential market players are overly optimistic, some of them see the adoption of law as imperfect and even contradictory. However, everyone agrees that this is certainly a great start to the journey towards legalizing gambling in Ukraine.

Since the beginning of the year, more than 3,800 amendments have been made to the bill, of which almost 3,300 have been considered. Not only the general COVID-19 pandemic but also specific individuals have tried to delay the adoption of the law. To begin with, the law was signed by the Chairman of the Verkhovna Rada of Ukraine, but this was not done right away due to two amendments made. Then there were fears that it would not be signed until September because the Legal deputies have a Summer holiday, but despite this, it did make its way to the President's table.

When all is said and done everyone should benefit from regulation and control - operators, players, and society as a whole. Ukraine is a large market with huge potential: 42 million inhabitants, with a nominal GDP of more than 135 billion dollars. I would like to believe that the country has a happy future ahead. That is why everyone has been watching the development and the consideration of the bill with such interest.

Despite the fact that the bill has been passed by the Verkhovna Rada, there are still some unanswered questions (for example how will the various industry authorities operate) and crucially there is still no final clarity on taxes. Without getting into details which surround the ground-based business, we will talk about online gambling only and go through the key points of what is currently known:

Licensing

All online licenses will be issued on these conditions: 1) the gaming platform is certified; 2) the casino games are certified; 3) the operator is connected to the monitoring system.

There is nothing unusual here. As I understand it the monitoring system will not be ready by the time the market opens and there will remain a certain transitional period, during which the third point can be ignored. The monitoring system is primarily created for better control over the collection of taxes. I would like to believe that it will also become the basis for AML (anti-money-laundering) and RG (responsible gambling) controls.

The embargo for Russian bookmakers

The operator cannot be directly or indirectly associated with residents of designated aggressor countries. It will be interesting to see how Eastern operators will try to get around this.

Geographic Segmentation

The Ukrainian gambling license does not limit the operator to work exclusively with residents of Ukraine. This is a logical step - there is no need to artificially limit your licensees.

The prohibition of certain types of bets

In sports betting, it is prohibited to accept bets on the outcome of events based on the RNG (Virtual) model, as well as on the outcome of lotteries. We still need to learn whether it will be possible, for example, to launch a platform of virtual sports, with a casino license.

Age restrictions

The legal age of players shall be set at 21 years old, and substantial fines are in place for a violation of this rule. There is always controversy around an age limit. On the one hand, there is the right to have a driving licence and the right to vote at 18 so why would gambling be three years later. I can see a weak-link here, not in these arguments, but in the fact that the grey market will not go anywhere with the entry of the new law, and I think it is not worth giving the unlicensed operators any additional advantages whilst the industry is not in order.

The most interesting and what will also be the most controversial thing is taxes. Ukraine took an interesting path and divided the products into its verticals: Betting, Casino and Poker. Most of the global giants you know: Bet365, Unibet, 888, William Hill, etc. - work on the model of a "One-Stop-Shop" . Their flagship brands are built on the principle that everything a gambler's heart may desire is available in one place. This allows them to build a strong brand and cross-sell their products. In the case of Ukraine, in order to go the way of the " One-Stop-Shop" , you will be taxed heavily. The taxes are high and there are many, both fixed and revenue-based.

From the information that is available today (the amounts are tied to the minimum wage in UAH, so we will convert and roughly round them), the tax burden is as follows:

• Sports betting - $1.05 M per year after the introduction of the monitoring system (before - $3 M + an annual revenue tax).
• Casino - $230 K per year after the introduction of the monitoring system (before - $700 K annually).
• Poker - $ 175 K per year.

The standard for most countries includes a bank deposit - in the case of Ukraine, it is $1.3 M. While the monitoring system is not introduced, multiply all fixed taxes by three. In addition, the industry-standard GGR - 5% for sports betting and 10% for casinos and poker. There are no details yet so there are concerns that a significantly higher rate will apply. Corporate income tax is set at 18%. The only positive is that there will be no tax on winnings for individuals.

It was the large fixed tax rate which has had the most reaction. Fixed costs at such a high level will become an insurmountable obstacle to potential small and medium operators and negatively affect competition in the industry. Competition, as you know, is the driver of progress. Such an expensive entrance ticket (especially to the sports betting sector) gives obvious preferences to players with already known brands within Ukraine. There were open accusations against "Parimatch" and "Favorit" that they had openly lobbied for their interests and the gambling law as it stands is the payoff. In recent years, the European online gambling market has been consolidating quite rapidly. It will be easier to enter such a controversial market as Ukraine, through the purchase of a ready-made business, than to build it from scratch. Large operators are ready to overpay for a takeover. Therefore, getting a large market share at the start is very important, as it will be easier to keep it. This only applies if we are talking about online gambling, where the number of people and companies should be very minimal. In the case of offline gambling, the high cost for the licence has its pros and cons. The general director of Parimatch, Sergey Portnov, has already stated that they received the license and they value it and will conduct activities in the legal field.

First of all, the license and its reputation should be valued regardless of how much money you spend on it. A licensed market with transparency will bring a ton of challenges to large operators used to working in the shadows. The phrase that "Everything that is done is for the better good" is just the way to go.

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