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State of Affairs in the Russian Gaming Industry 2012 - A Conversation with Lyubov Loginova, CEO of Moscow-based Alsart, Gaming and Leisure Magazine, Fall 2012
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State of Affairs in the Russian Gaming Industry 2012 - A Conversation with Lyubov Loginova, CEO of Moscow-based Alsart, Gaming and Leisure Magazine, Fall 2012

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The state of the Russian gaming industry has been radically modified in recent years, shifting legal casinos from highly populated cities to remote, lesser traveled areas. …

The state of the Russian gaming industry has been radically modified in recent years, shifting legal casinos from highly populated cities to remote, lesser traveled areas.


Helping shed some light on the current state of affairs in Russian Gaming is Lyubov Loginova, a highly respected industry professional and CEO of Moscow-based Alsart.

[G&L] On 1st January 2007, Federal Law № 244 took effect, creating four specific gambling zones within Russia. Five years have passed since the law took effect. Where are the four zones, and are they prepared to meet the demand for gaming in Russia?

[LL] Three years have passed since the actual ban on gambling business in 2009, and what we have today – two casinos in Azov City, several construction sites in the Altai and Far East zone. These gambling zones are planning to open their first casinos before the end of this year, whereas the gambling zone in Kaliningrad is still not functioning.

According to the Accounts Chamber of the Russian Federation, the special zones that the government has designated for gambling business development are not worth the cost of their creation, which is not surprising as creation of gambling zones was a political decision, the economic feasibility was not taken into account. In addition, the current legislation has many loopholes for illegal business.

According to the Accounts Chamber, the state has allocated over 1.4 billion rubles for the organization of gambling zones, yet tax revenues recover merely 7% of the cost. This, however, is not surprising when you consider that out of the four gambling zones planned for opening, only one has launched operations – "Azov City", where there are just two casinos.

Payoff from public funds in excess of 1.4 billion rubles spent for the establishment of "Azov City" gambling zone is now close to negative values.

In 2009, instead of relocating gambling clubs and casinos, businessmen either preferred to close up their business or to continue it illegally. Loopholes in the law allowed them to operate almost legally. It was only in August 2011 that the amendments to the Criminal Code, which allow condemning the illegal businessmen for 4-6 year term in prison were adopted.

However, that hardly discourages the illegal business, as there are many people willing to take risks for large and quick profits.

It’s worth noting a trend that the major players started leaving after the business became illegal. The number of people who are willing and ready to play is many times lower than what it was five years ago.

Limiting the illegal business opportunities didn’t make the legal gambling zones any more attractive for the businessmen because of two main reasons: the accessibility problem and rules of the game.

Gambling establishments are to be built in Altai, Primorsky and Krasnodar Krai as well as Kaliningrad oblast. Moreover, the proposed sites are located in unpopulated areas, where there is neither infrastr


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  • 1. Fall12_G&L.qxd 9/10/12 8:21 PM Page 60 INTERNATIONAL GAMING Bill Healey STATE OF AFFAIRS IN THE RUSSIAN GAMING INDUSTRY A CONVERSATION WITH LYUBOV LOGINOVA The state of the Russian gam- Payoff from public funds in excess of 1.4 billion It is clear that the creation of a large entertain- ing industry has been radical- rubles spent for the establishment of "Azov City" ment center will require huge investments for ly modified in recent years, gambling zone is now close to negative values. years to come. Yet according to the law, the shifting legal casinos from land is leased for 10 years, and what will hap- highly populated cities to In 2009, instead of relocating gambling clubs pen afterwards is unknown. For example, the remote, lesser traveled areas. and casinos, businessmen either preferred to close southern zone located in two regions – Helping shed some light on up their business or to continue it illegally. Krasnodar Krai and Rostov Oblast. The latter the current state of affairs in Loopholes in the law allowed them to operate has already been liquidated, but imagine if Russian Gaming is Lyubov Loginova, a highly almost legally. It was only in August 2011 that somebody started to work and build some- respected industry professional and CEO of the amendments to the Criminal Code, which thing there. Moscow-based Alsart. allow condemning the illegal businessmen for 4- 6 year term in prison were adopted. In addition, the law provides that the land lot G&L: On 1st January 2007, Federal Law No 244 in the gambling zone may be acquired by any took effect, creating four specific gambling zones However, that hardly discourages the illegal business, so big investors fear that smaller com- within Russia. Five years have passed since the law business, as there are many people willing to take petitors will reap the fruits of their labor. took effect. Where are the four zones, and are they risks for large and quick profits. Suppose there comes an investor willing to prepared to meet the demand for gaming in Russia? invest 10 billion dollars in the gambling zone, It’s worth noting a trend that the major players build an amusement complex, but then comes LL: Three years have passed since the actual ban on started leaving after the business became illegal. a small business and opens a kebab house with gambling business in 2009, and what we have today The number of people who are willing and ready five slot machines and installs a tent with two – two casinos in Azov City, several construction sites to play is many times lower than what it was five roulette tables. Now tell me, will a big player in the Altai and Far East zone. These gambling zones years ago. invest in such projects? are planning to open their first casinos before the end of this year, whereas the gambling zone in Limiting the illegal business opportunities didn’t G&L: Are Russian and foreign investors flowing Kaliningrad is still not functioning. make the legal gambling zones any more attractive into these regions as expected? What may be for the businessmen because of two main reasons: the some of the challenges they face? According to the Accounts Chamber of the accessibility problem and rules of the game. Russian Federation, the special zones that the LL: The gambling zones are quite active in government has designated for gambling busi- Gambling establishments are to be built in search for investors, as far as I know; they ness development are not worth the cost of their Altai, Primorsky and Krasnodar Krai as well attend almost all gaming expos, investment creation, which is not surprising as creation of as Kaliningrad oblast. Moreover, the proposed and real estate exhibitions across the globe. gambling zones was a political decision; the eco- sites are located in unpopulated areas, where Recently I attended several such events: the nomic feasibility was not taken into account. In there is neither infrastructure nor transport. It press conference of the Far Eastern gambling addition, the current legislation has many loop- is clear that an owner of ten slot machines zone in Macau and the gambling zones presen- holes for illegal business. installed near the train station would not go tation at the recent Russian Gaming Week in there. Even an owner of Moscow based casino Moscow. I see quite a lot of interest from According to the Accounts Chamber, the state couldn’t afford it. Russian and foreign operators toward the has allocated over 1.4 billion rubles for the organ- zones, yet not every company will take the risks ization of gambling zones, yet tax revenues recov- Gambling zones were intended to attract large of such an investment. Russian investors are er merely 7% of the cost. This, however, is not investors who would build the city of entertainment primarily discouraged by the experience during surprising when you consider that out of the four with childrens parks, shopping malls, concert ven- the allocation of land lots in "Azov City", as gambling zones planned for opening; only one ues, and casinos. Such investors exist, however they well as the fact that local illegal business is still has launched operations – "Azov City", where are outside of Russia as the provisions of the Federal operating and growing, thus discouraging there are just two casinos. Law No.244 stand in their way. gamblers from traveling to the zones. Foreign 60 GAMING & LEISURE FA L L 2 0 1 2 702.547.4545
  • 2. Fall12_G&L.qxd 9/10/12 8:21 PM Page 61 STATE OF AFFAIRS IN THE RUSSIAN GAMING INDUSTRY A CONVERSATION WITH LYUBOV LOGINOVA investors are primarily looking for guarantees of safety of their investments, transparency of tax- ation, laws, and activities in the zones. However such guarantees are not widely available. Construction of zones and search for investors is additionally complicated by the fact that the investors are essentially offered to pioneer in vir- gin territories at their own expense, to develop the entire infrastructure, to build everything from scratch: roads, power plants, etc. G&L: Federal Law No 244 set 30 th June 2009 as the time when gambling outside these four zones should end. In Moscow alone it must have had a significant impact on revenue collection? Lyubov Loginova, CEO of Moscow-based Alsart. LL: Yes, of course. Tax revenues from gambling business were a substantial supplement for the the same. It has just withdrawn into the shad- LL: Yes, of course. The Far East Zone is pri- public treasury, and not just in Moscow but in ows and the former tax revenues are now marily aimed at attracting gamblers from all cities. We have a joke that now they have accordingly used to bribe the officials. China and Japan. With a convenient geo- become a substantial addition to the police graphical border close to China, it is just a wages, so they celebrate the day of ban on gam- G&L: How has the Russian casino worker been three-hour plane ride away from Tokyo, so it bling business as a holiday. impacted by the significant change? Have there may facilitate the influx of players from these been efforts to assist them in finding alternative countries. Its obvious that the existence of a large-scale work or shifting to the new zones? underground business would not be possible Kaliningrad is bordering on EU countries, without the help from the authorities, so now LL: In 2009, after the ban on gambling busi- “Azov City” – on Georgia, Ukraine, Armenia these former tax revenues are flowing into ness, according to various estimates, from 350 In fact, the whole concept of gambling zones their pockets. to 500 thousand people were left on the street would be successful even without attracting without means of support and alternative foreign tourists and focusing instead on domes- According to estimates before 2009, the figures employment opportunities. Government tic players, if the authorities could provide the were as follows: promised to create an employment office and necessary infrastructure for tourism and combat help them find a job, but in fact it is very dif- the illegal business in the cities where in fact • $6 billion – an annual turnover of Russian ficult to find a job for the former staff of casi- the target gamblers are playing, though gam- gambling business nos or slot machine arcades. In the labor mar- bling is banned there. • $5.9 billion - turnover of the Russian ket, there are vacancies for porters, carpenters, gambling business in 2005 estimated low skill workers and other blue collar work- G&L: What is the status of state-owned by PricewaterhouseCoopers; ers, but the people who are used to earn their casinos in Russia? Would that provide a • 26.4 billion rubles – revenues from tax on living by intellectual work will have a hard means to bring legal casinos closer to the gambling business for consolidated budget time readjusting. After all, what skills does a Russian gambler? of Russia in 2008, according to the Federal professional croupier have? Communication Treasury skills, ability to calculate quickly, sleight of LL: There are no state-owned casinos in Russia. • 6 billion rubles – expected drop in revenues hand, knowledge of foreign languages, con- Now there are rumors about upcoming nation- from tax on gambling business for Moscow flict management, and practical psychology. alization of all lotteries, but no discussions budget in 2008 about state-owned casinos. • 3.5 billion rubles - revenues from tax on Their personal traits include endurance and gambling business for St. Petersburg budget stress resistance in any situation. Gambling We wish to thank Lyubov Loginova for her in 2008 staff are generally night owls. Is such a person thoughtful insight into the status of Russia’s • 7.2 billion rubles - revenues from tax on suitable for an office job? Therefore, it turned gaming industry. gambling business for the Russian budget out that most people either found a similar job in January-May 2009 abroad or continued their career in illegal casi- Based in Bali, Bill has been consulting, installing nos and gambling halls. and supporting solutions in the global golf and Source: Report of the Federal Treasury, Moscow budget leisure industry since 1982. He has been involved G&L: These gambling zones are placed along with over 1000 systems installations in 40+ coun- According to my estimates, the business the Russian border. Are they intended to target tries from North America to Africa to Asia & turnover has not decreased, but rather remained international gambling tourists? Australia. V I E W T H E G A M I N G & H O S P I TA L I T Y R E S E A R C H C E N T E R AT W W W. G A M I N G A N D L E I S U R E M A G A Z I N E . C O M 61

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