25 Feb, 2022
George Mamulaishvili’s Opinion
The development of the gambling industry is profitable for any state, although the state must choose the right approach to this type of industry. It is important to understand that a lot depends on the type of regulation and it is not necessary to put the industry in a rigid framework of regulation, this is not beneficial. But this does not mean that business does not need to be regulated, regulation, on the contrary, is mandatory, and most importantly, in the future, clear and mandatory administration of adopted laws. Any state spends taxpayers' money on administering legislation, and if the administration of legislation costs the state much more than it benefits from it, then the legislation is not developed correctly. And if we talk about the ban, especially in the gambling sector, then practice shows that
Based on this, any state should consider gambling as a branch of the economy. Since the development of gambling is directly related to the development of tourism and the replenishment of the state budget, the development of the banking sector, the development of the payment system and development, there are many other areas that are indirectly or directly related to gambling. The development of gambling is especially important for developing countries, as it is a good way to replenish the country's budget, reduce crime and corruption. To date, many state developments have chosen a liberal approach to the gambling industry and are focused on the development of local operators, which is one of the important factors in the fight against illegal online operators or underground gambling establishments. Since the development of the local operator enables people, who wish to gamble for entertainment and use the services of local operators, which are regulated by the state, focused on responsible gambling and consumer protection. They do not use different tricks and methods in relation to the consumer in order to lure them into the game.
To date, European countries have some of the most flexible legislation in this industry, which is tailored to the needs of the state, society and business. Also, until recently, Georgia had very well developed gambling legislation, which has been improved over the years and by the end of 2020, it could be said that Georgia had one of the highest standards in the industry. but since the end of 2021, the political interests of the government have changed dramatically and in Georgia they introduced severe restrictions in this industry, raised taxes and actually turned the white market into a gray one. In the end, what did Georgia get?
Illegal operators, illegal gambling establishments have appeared on the Georgian market, local operators have found themselves in an uncompetitive environment due to restrictions, and foreign legal and illegal online establishments have gained an advantage over local operas. Based on this, in the long term, the state will receive less taxes to the budget, an outflow of money will begin from the country, as players who are forbidden to play will play on various platforms illegal for the country. The state will spend millions on the administration of the adopted law, but the effect will be zero, based on the fact that with the development of technology it is impossible to prohibit access to illegal sites and to the means of monetary transactions. Even if the state prohibits local payment systems from transferring to the Merchant Category Code (MCC) 7995, the code that belongs to gambling, there are those illegal sites that use different MCC codes to receive money. Practice shows that the leading and technologically developing countries of the world have not been able to achieve this, and the ban policy is gradually changing to a liberal approach to gambling.
Any developing state will have to work hard to bring its standards closer to European or world standards, which is an important factor in the development of this industry. The system of verification and identification, which was introduced by Georgia with the help of consultations with the gambling association, has been brought to world standards and provides for the full identification of its consumers and is focused on the principles of know your client. This is also an important factor for the development of local operators. And we can say that before the restrictions on age and social status were introduced, in Georgia all operators could say that they had white lists of users. The restriction has already borne fruit, in the opposite direction, despite the fact that the law will come into force only in March. The contingent that fell under the ban, started looking for ways to access games on other platforms and people were pretty resourceful about it. Fake accounts appeared, they began to rent out data, bank accounts. So, it turns out that Georgia has unwittingly become a gray market. Gray markets are especially attractive to newly minted illegal operators, and they are interesting for operators of any size. But they are a really big problem for any state and for the business industry itself, as they create unequal rules of the game and resort to undesirable methods of attracting players. This is also confirmed by the actions of large companies. For example, due to inequity and misregulation, leading company William Hill left 55 gray markets in 2014, citing “regulatory circumstances” as the main reason. Public companies value the reputation of the market and their brand, and unstable markets create additional problems for them, and any criticism of this market or changes in legislation leads to the loss of huge amounts of money. Therefore, large public companies try their best not to enter such markets. We can also recall the saddest example of the consequences of improper taxation in the gambling industry. In Kenya, there was a worst-case scenario for the development of the gambling industry. In 2019, Kenya dramatically changed its policy towards gambling and introduced a huge tax rate of 20%. Many foreign companies revoked their licenses, and as a result, almost all gambling establishments in the country stopped working within a year. As a result, in 2020 the government abolished the tax, and later, in 2021, introduced a new tax of -7.5%. The arguments of such differences were beaten, that the government wanted to limit the detrimental impact of unregulated gambling on society and, as a result, received that legal operators left the market, and the number of illegal ones increased significantly. The same will happen in Georgia after the promulgation of new bans before the adoption of laws within a month, more than 133 illegal operators began to be interested in the Georgian market and translated their content into Georgian, clones of legal operators appeared with the brand name of the logo and training videos appeared on how to transfer money and register on one site or another. And all these operators are registered in offshore zones and do not adhere, in many cases, to the established rules in gambling. The same can be said about neighboring markets, Russian and Ukrainian. After the complete ban on casinos in Russia, illegal gambling flourished everywhere. Only in Moscow, instead of 500 closed legal gambling establishments, today there are more than 850 illegal ones. Before legalization, in Ukraine, hundreds of gambling houses were disguised as a lottery, and even now they are flourishing beautifully and hindering the development of legal business in the country. This issue has been repeatedly considered by industry experts and more than once emphasis has been placed on the fact that in such conditions there is an increase in crime and the merging of business with crime and the law enforcement system of law. Both countries lost hundreds of millions to the treasury during several years on the prohibition of gambling, spent hundreds of millions on the administration of illegal money transactions and the fight against crime, and this is all for nothing, only criminal circles profited. Even today, when Ukraine has adopted a law on the legalization of gambling, unfortunately,
Ignorance of the industry or not wanting to do it no longer plays any role, the fact remains that the country is stuck at the beginning of the development of the industry. There are a number of factors that prevent Ukraine from taking the right path for the development of the industry. For the second year now, Ukraine has been unable to simplify the taxation law, which radically prevents a potential investor from entering and developing the Ukrainian market. Back in 2019, at the first Ukrainian gambling forum in Kherson, issues of legalizing the gambling industry in Ukraine were discussed. And the right direction was taken towards its legalization and the right attitude towards legislation. But later, Gulliver's steps towards the legalization and regulation of the market turned into snail steps. Of course, if Ukraine has not taken a focus only on local operators that are doing great on the gray market of Ukraine, although high taxation and underground establishments, they are also partly a problem, since at the moment the interests of investors are completely ignored due to high taxation. But there are no shifts for investors today. The tax on double taxation is not elementarily regulated. Today, Georgia is facing the same reality - with new innovations in legislation. The investor does not feel equal and eschews any market fluctuation. Since this is detrimental to its development in the future, and today everyone is well aware that any successful business is transferred to corporate governance. Even if not corporate rule, why would anyone invest in a country where corruption is rampant, laws change frequently, government is fickle in its decisions, there is an unstable or gray market, or the black market in general, crime flourishes, which greatly hinders the development of any country's economy. Any area that has development potential must solve the country's economic problems, and if the legislative framework is not stable and does not take into account the interests of business, it always brings a negative effect.
The government should adhere to a policy that listens to business, as business better understands all the nuances of market regulation. Proper regulation of gambling is a positive step for the state to develop the country's economy and the desire to eradicate crime and corruption. But the wrong approach and considering gambling not as part of the economy leads to an anti-effect, and we can end up with bad experiences in other countries. For the investor, in addition to the legislative framework, the priority is the transparency of business processes. This helps the investor to analyze the current situation in the country and make the right decision. Based on this, the regulator and the government should have a desire to adopt the right experience and always engage in a constructive dialogue with business representatives and experts, rather than listening to "pseudo experts" who make misinterpretations to suit their ambitions and interests. The implementation of the above processes and their transparency will make the processes understandable and attractive to investors. Therefore, a constructive dialogue between business and the regulatory body is needed. The state should always use the experience of developed countries to promote the legal and proper development of the gambling business, as there are many pitfalls that are difficult to take into account without direct participation in business processes. And of course, these pitfalls lead to misregulation. In such relations, an association is always a good facilitator, which always knows business from the inside and tries to direct innovations in legislation in the right direction at the stage of writing legislation.
The second and important factor for the development of the gambling industry is a minimum of corruption. Corruption is one of the important obstacle for the investor. Especially if this company is included in the company listing. Any investor wants his investments to be safe and has a guarantee that his rights will be taken into account. If the legislation is not clearly spelled out and regulated, or prohibitions remain for the local market, this will create the ground for the development of corruption. Any field of activity should be transparent, especially when it comes to the gambling business. Since the gambling business has always been attractive for populist statements and raising the rating. Many states, despite the large contribution to the country's budget, treat gambling unfairly. Operators should have equal conditions, this is important for the investor. Since any investor evaluates the risks of losing money. At one time, a quick breakthrough in the economy helped Georgia just such an approach of the government to any issue. The investor felt secure and equal in front of other market participants, and this gave him an incentive to invest in business development. This is confirmed by the fact that today out of 6 major online gambling operators, three belong to the world's leading companies.
An important factor in the development of the gambling business for its rapid development and improvement of the tourist environment is the introduction of a “free zone”. “Free Zone”, in fact, gives a considerable impetus to the development of a particular region. Similar to the cities of Batumi and Kazbegi, which changed radically after 2005 and in the formation of the local city budget, a significant part is regional fees from the gambling business. I also want to note that Yuri Gusev, the governor of Kherson, had such a project. But if license and local fees were the same as in the capital, I can say that Batumi and Kazbegi would not have escaped much in their reconstruction. It can be said that the budget of 8 large cities and municipalities in Georgia is replenished by more than 50% from the gambling business. And in Ukraine, by the way, there are Kherson and Odessa regions,
Legalization has many advantages and the state should see these advantages in order to correctly perceive the gambling business as a branch of the economy. Among the advantages, one can single out both replenishment of the budget, creation of jobs, sponsorship of sports clubs and athletes, both beginners and already successful ones, which is also useful for any state. The development of local legal operators is pushing foreign illegal operators out of the market. And this is a direct impact on reducing crime in the state. Since criminal structures are losing interest in the type of business, since illegal gambling houses and online casinos are not attractive to the local population. The development of local operators helps to develop the financial sector and strengthen local financial institutions, which also serves to strengthen the exchange rate. The development of the gambling business helps the development of tourism,
Any state should maintain a liberal approach to the gambling business, which in the future will enable the development of the industry and attract investors. Business development, despite many opponents, reduce the existence of social risks. And also, it will increase the needs in the labor market, will give an opportunity to develop related industries.