06 May, 2022
For many years, the Georgian gambling market has been a hub for the countries of the post-Soviet space and the Caucasus region. However, at the end of 2021, the authorities began to reform the industry and introduce innovations that seriously worsened its condition and the investment climate in the country. What is the current state of the gambling industry in Georgia, how market representatives are fighting for their rights, how justified were the restrictions on the work of operators and whether the authorities are ready for a dialogue with business, said the head of the Georgian Gambling Association, Giorgi Mamulaishvili.
Serious changes took place in the legislative framework of the Georgian gambling market at the end of 2021 and the beginning of 2022. Tell us how the working conditions of gambling companies have changed?
In Georgia, as you know, the gambling business is very well developed. But, based on recent political actions, the government decided to increase taxes in the first place. We had an income tax - it was replaced with GGR . Plus introduced banned lists. Now people who work in government agencies, receive benefits and social assistance, are forbidden to play. Added to all this is that people under the age of 25 are forbidden to play with Georgian operators. Plus, we banned advertising. Just like in other post-Soviet countries: Belarus, Moldova and so on.
This greatly changed the position of Georgia. Because in Georgia there was a very good ground for working in the gambling business. We have a total of six online operators. Of the six online operators, the three largest operators in the world are Entain, Paddy Power and Betsson Group. There are 83 operators in total: online and offline.
In terms of finance, the market has lost about 18% of gross income to date. Although in the sports direction, income increased due to the fact that we had good offers for players in which they could win a lot. Now they do not win much, but the companies win, so to speak.
The biggest problem is illegal sites that try their best to enter the Georgian market and work illegally with the contingent that is currently prohibited from playing. This is about 900 thousand people who cannot play with online operators. There are also offline operators. Although I can say that after the pandemic, the overall turnover online and offline has increased.
Can you comment on such cardinal decisions of the authorities? What caused them?
These were purely political decisions. We are currently preparing a very large constitutional lawsuit against the government of Georgia in the format of an association. I think that within a month we will submit this claim to the Constitutional Court and we will defend our rights. There are many nuances, you need to be well prepared.
Here we have a lot of advantages:
We will definitely prepare these three lawsuits and hope that we will win this trial. Because one trial is already underway today - at the tax rate. And in two processes we have actually reached a big plus. I can't say that we are winning, but the judge listens more to our arguments.
A very big plus is that we have foreign companies. And these foreign companies have extensive experience in doing business all over the world. I believe that Entain and Paddy Power surpass the capitalization of the Georgian budget in terms of capitalization. Their offices are practically everywhere. The British are very big conservatives, and their laws are written very flexibly.
Georgia had a great chance to become a hub for the post-Soviet and Caucasian regions, but legislative changes prevented some processes.
Although today the processes that are taking place in Ukraine have contributed to the fact that companies that were based in Ukraine , Russia, Belarus - foreign, not local - began to transfer their business here. There is a talk about IT companies that work in this area and want to develop, develop the gambling business and provide software products. For Georgia, this is a very big plus. Today, a lot of studios from Asian countries are also trying to transfer their business to the Georgian market.
We, despite the fact that the legislation has changed for the worse, also have great benefits if you have a technology company. Both in terms of income tax and income tax, there are a lot of pluses.
That is, in general, it cannot be said that the new conditions have knocked down the gambling business, because there are many concomitant factors due to which the industry continues to develop quite actively?
The problem is that in the long run, the business can suffer very badly.
For example, let's take an 18-year-old teenager who finished school and started working, because now all young people try to work when they finish school. He has his own income, he tries to somehow enjoy entertainment and wants to play. Naturally, if he is forbidden to play in the local market, he finds another market.
So far, no country has been able to close access to illegal sites. For me, illegal sites are sites that do not have a Georgian license. There is one with a Curacao license, but they also do not have the right to work in Georgia, because according to our legislation, you must obtain a local license. There are also sites that do not have any license at all. We know this very well: 1xBet, Marsbet and many others.
Based on this, the user tries to register and play on an illegal site. Of course, he has no control there. When he has already got used to the bonus system and the pluses that he receives there for seven years, he is unlikely to return to the legal market.
Why our users did not go abroad. Because the payment system is very well built in Georgia. A user who wants to deposit or withdraw the money won can do it in a couple of seconds. On foreign sites, you will have to wait half an hour, 40 minutes. When he has no other choice, he will naturally wait half an hour. And he will get used to just waiting for these half an hour. Players have a slightly different mentality. They want to get the money they win right away, although they can return it later.
Therefore, our operators had a very big plus. Now the contingent that is forbidden to play in Georgia, of course, will all move to foreign markets. According to our calculations, this will be a loss of about 1.5-2 billion lari annually. We will know the exact figure at the end of the year.
On illegal sites, the margin is very high - somewhere around 40%, and it will definitely remain somewhere abroad. Our operators had a very low margin, the player was actually always in the black. We had a margin of 8-10%. Therefore, our players were always satisfied and tried to bet, especially on sports, with our local operators, because our conditions were much better and more attractive.
Because the government raised the tax rate like this, we had to change these conditions. Although now we are negotiating with the government. We have a sports tax of 7% of turnover - from bets. If they change this tax and transfer it to GGR, then we will return all the conditions. Because we have always funded sports from casinos. And when we raised the tax, the operators no longer had the opportunity to finance sports betting. Therefore, if we agree on a change in the tax rate and 7% of turnover is changed to 10% GGR, then we will change these conditions. Because the operators do not care there, for example, Barcelona will win or lose. If there is money left, they will pay taxes. And in this case, it turns out, it doesn’t matter if you win or lose, you still have to pay tax.
Therefore, business is developing, technologies are developing, in Georgia it is very good and very flexible, all this is happening.
We have a very good verification and identification system. In Georgia, it was brought to the level of world standards. I can tell you that today in Georgia this system, this legislation, in the adoption of which our association participated from beginning to end, is actually one of the best in the world. We knew all the clients behind their screens. Although this ban brought its drawbacks. Because today we do not know who is behind the account. Because, for example, if I'm 26 years old, I can lend the account to my friend and he will play the same way as he played before.
The practice of prohibition, we have seen more than once, does not bear fruit. And I really hope that within a year the Georgian government will realize that it has made a big mistake and return everything as it was. We had very good control.
In 2019, we also changed the money laundering legislation. And today I can say that there has not been a single case in Georgia when money was laundered. We constantly request various statistics in the association format and can state that there has not been a single case of money laundering. Although there is a risk factor, but that system of identification and verification, plus work with the National Bank, helped to achieve that the whole process can be identified: from depositing money to the account to receiving it.
That is, the person who deposited money and who withdrawn is fully identified. Regardless of whether it was from a plastic card, an electronic wallet or from a POS terminal , where in fact the person is not identified. But with us it was all built in such a way that when a person approached the terminal, he had to enter his personal number, he received an SMS on his phone, he entered the data from this SMS and after that he could deposit money.
Now, if a person gives someone his personal number, phone number, and so on, you, of course, cannot control the process, there is no 100% control. But you still find the person on whose behalf it all happens.
In Georgia, all this was well built and there were very great prospects. Several companies were also very interested in investing in Georgia, but after these changes, this process has stalled for now, and I do not know how it will be further.
How did the changes affect the investment market in general?
According to our calculations, the business should have received about 1 billion lari of investments, which is, roughly speaking, about $350 million. This was the first tranche, but because of these changes, the deal was suspended.
Although the business is still developing, the IT sector is developing well, because there are very good changes in it. I can’t say that everything is so bad and destructive with us. Business is trying to get used to new changes.
The only thing is that we now have a lot of work to do with the government to stop the access of illegal websites and illegal advertising to the Georgian market. If we succeed, then the business will feel more comfortable than today.
In your opinion, how ready is the government for dialogue now? Are you ready to meet business needs and change the working conditions of the gambling market?
Today, in relation to advertising, the government is ready for dialogue - so that foreign sites do not enter Georgia. Although they do not understand how to do this and what resource can be attracted here. World practice shows us that this is almost impossible. A lot of work is needed here and a lot of resources need to be spent.
But, in order to change, the government does not go to this dialogue, because it was a purely political decision. Therefore, we do not expect changes. The only thing is that we very much hope for the Constitutional Court. Plus, we hope that at the end of May, when the government receives the figures and understands how much budget revenue it has lost, it will change this seven percent rate to 10% GGR.
If the government does not agree to this and does not begin to soften the conditions for the market, what will happen to the Georgian gambling business in the future? Can the market adapt?
If you build the right line of work, the market will always adapt. Operators will simply have to use additional resources to figure out how to return those users who are already in the foreign market in the future. You can always come up with something, work and get results.
But I will tell you that today, the only thing we have lost is 18% of gross income. Although the income itself is not too noticeably lost. Due to the fact that the market is developing and Georgia has a very large resource for development, I think that at the end of the year we will get even more profit than last year.
What is the real situation with gambling addiction in Georgia? Are such restrictions really justified? Have studies been conducted on the level of addiction among the population of the country?
I'll tell you, I have studied this topic well. I had a lot of consultations with both psychiatrists and psychologists. To date, no qualified research has been conducted in Georgia.
During the consideration of our legislation, I officially requested statistics, this was recorded both on television and during the discussion in parliament. I was promised such statistics, but until today I cannot get it, because in fact it is not there. It was a purely political decision. My opinion is that you can't stigmatize people who play and enjoy it.
According to world statistics, on average, gamblers make up 6% of the players. I don't think that the situation in Georgia is that all the people who play are gambling addicts. Of course, there are such cases. And I have repeatedly suggested to our opponents: let's not think about banning something, but let's work with these people.
Psychological groups were created in companies. They had projects that they financed. A group of psychologists gave free psychological sessions to people who thought they were addicted. There were positive moments when people got out of this state. To date, all projects have stopped due to the fact that the tax rate is very high.
Another proof of our words that not all people are gambling addicts. We have adopted an additional law stating that family members can receive the status of a gambler for a player without much trial and trial within two days. Since March 1, when the legislation came into force, a total of 110-112 applications have been registered. That is, if there are more than 2-3 million players in Georgia, in terms of percentage, 100 people out of 3 million are practically nothing. Therefore, I do not think that all players in Georgia are gamblers. People play for pleasure, and there was more than one proof of this.
When it comes to online gaming, I can tell you that there has been more than one study. Of particular interest is a recent study by the Australian University of Psychology and Brain Activity, which suggests that addiction to online games appears less frequently than offline, because people control themselves more.
And if you take the latest situation around the world, I mean the pandemic, people have been playing online for actually two years because everything was closed. Therefore, I do not recognize these statistics, because these statistics do not exist at all. All psychiatrists, who have a special position in Georgia, declare that such studies have not been carried out.
