Ilya Machavariani: With clear, transparent, and somewhat restrictive regulations, operators are happy to inject money into the economy

Over the past few years, in the post-soviet countries, gambling has become regulated — and in some countries has undergone substantial changes. 

Ilya Machavariani, Senior Partner and CEO at 4H Agency, SBC CIS Brand Ambassador, told us about the current situation in the region, about problematic jurisdictions and differences in gambling regulation between the post-soviet and the Western jurisdictions.

There are various types of regulations aimed at ensuring the legal operation of the betting and gambling industry. Would you briefly explain the differences between gambling and betting and how they are regulated by law?

The legislative landscape in countries around the world varies significantly. This, in particular, is influenced by the very essence of the activity. It is believed that betting is extremely closely related to sports (which is true), while gambling is not.

The regulation of these areas varies by country, also due to dissimilar product requirements and their own diversity.

Some states like Poland, Russia, Kazakhstan are less restrictive in their approach to betting. They allow betting in retail shops as well as online, but prohibit online casinos, and in some countries, land based casinos are off limits as well.

Unfortunately, legal restrictions for online casinos are often difficult to comply with, despite the existence of tools to combat offshore operations such as blocking access to sites or banning of the financial transactions — these work completely inefficiently.

Moreover, such bans lead to the creation of all kinds of synthetic products for betting operators, like betting on table tennis, mini-football, darts, etc. They essentially equate a betting product with a gambling product, since events in synthetic games occur many times a day.

In situations similar to the above, states often outright ban the online sector, when trying to regulate gambling. Apparently, this is dictated by the prevailing negative attitudes towards the industry in general and towards gambling in particular due to negative consequences for the general public, as it’s perceived by the statesmen.

Such bans exist in Poland, Russia and Kazakhstan. Moreover, in Uzbekistan the state officials are going to regulate only betting, while maintaining a ban on online casinos in all its shapes and forms.

In a number of other countries like Ukraine and the Netherlands, however, it was decided to regulate absolutely all verticals.

According to EGBA,  on the European continent, in 2021 the share of betting in the total volume of the gambling market is 40%, for gambling/online-casinos it’s 34%. The remaining shares are divided between poker (5%), bingo (3%), skill gaming (1%) and lotteries (17%).

Therefore, when regulating, it is important to take into account the peculiarities of all verticals, and not just betting or just gambling.

Let’s discuss legal aspects of betting and gambling regulations in Western Europe as compared to the post-Soviet countries. What are their similarities and differences? 

The difference is huge. There are several reasons for that, starting with the economic one and ending with the fact that in Western countries they began to pay attention to the legalization of the gambling business much earlier.

An example of such a developed gambling mindset is the regulation of B2B licenses and a wide range of tools to enforce responsible gambling.

As for B2B licenses, only two countries in the post-Soviet space recognize the very existence of such a vertical in the gambling industry — Georgia and Ukraine (although partially).

But responsible gambling in the post-Soviet countries is given almost zero attention. Today, what we see most often is extremely restrained attempts to regulate this issue, usually by means of self-exclusion tools.

At the same time, in the Western Europe, there are a lot of tools to enforce responsible gambling, and they are regulated in detail. The UK, Denmark or Sweden are good examples.

At the same time, we should not forget about the historical past of the countries of our region. The regulation is seriously influenced by both the Soviet legal school, the Soviet traditions of lawmaking, and the position of statesmen who, due to historical inertia, continue to deem gambling industry an absolute evil that does not and cannot have any advantages for society and the state.

However, I am unequivocally pleased with the fact that, for example, in Ukraine, Uzbekistan, Georgia and Kyrgyzstan, a public understanding of the advantages of the legal market is gradually growing. I believe that in the next five to ten years the number of such countries in the region will only increase.

Regulated gambling industry may have a huge positive impact on the economy. However, what disadvantages do you see in the industry and how can society be protected from the negative aspects of gambling?

In my opinion, the risks associated with the industry arise only in cases where there is no sane regulations — the black market grows, there is no control over underage players, there is no support for national sports from the industry, and no tax revenues  for the state, no guarantees to cash the winnings, and so on.

It is possible to manage risks created by unscrupulous elements only when the entire perimeter of the industry is under regulation and when this regulation is reasonable and efficient, when it meets modern standards and the level of technological development of the industry.

In other words, if the industry is regulated, but those regulations are inadequate, more questions arise for the state, indicating that it hasn’t taken care of all the legal norms.

Could you tell us more about the structure of regulatory bodies, their rights and obligations? What are the functional differences between the regulator as such and the government?

As a rule, in the countries of Western Europe, for the quality and professional regulation of the gambling industry, a specialized body is created — a regulator, which is given some of the powers from a higher executive body — most often either the Ministry of Finance or the Ministry of Sports.

If we take the post-Soviet space, then the creation of a separate regulator is provided for by the legislation of Ukraine, where part of the powers to regulate the gambling industry is transferred from the executive branch to it.

But in Kazakhstan, for example, or partially in Georgia, they prefer to retain all powers precisely within the executive authorities: the Ministry of Finance or Culture and Sports.

In general, we can say that in the European tradition, a separate regulator is always allocated for the industry. Because the industry is complex and includes many aspects that cannot and should not be dealt with by a single tax service or a ministry.

In your view, which countries were the most successful in regulating gambling? Who can serve as a good example for others to follow?

EU countries are perhaps the most successful in terms of the magnitude of the economic effect, achieved largely due to the correct and comprehensive regulation of the gambling industry.

Among the advantages are the increase in state tax revenues, the growth of foreign investment, the creation of new jobs in the tourism sector, entertainment and IT industry, the development of both the IT and crypto industries, the development of social infrastructure and sports through financial support  from gambling .

In other words, in the presence of transparent, understandable and slightly restrictive regulation, operators are ready and happy to inject funds into the economy of a particular state in the form of taxes, financial support and other mandatory regulations for the legal implementation of gambling activities.

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