Russia Reshuffles Cards On Gaming Zones
Lorien Pilling, Head of Research, Global Betting and Gaming Consultants
It has been six years since legislation was passed in Russia which banned gambling – casinos and slot halls – across the majority of the country. On 1 July 2009 the legislation was implemented and all gaming facilities had to be closed. Since then, the Russian gaming market has not developed in a way that either operators or politicians might have expected.
Under the new regulations, gambling is now only allowed in four designated areas. The four initial areas were: Kaliningrad Oblast, Azov-City in Rostov Oblast, Altai Krai and Primorsky Krai. But since 2009 there have been petitions to move the location of some of these zones and some of these petitions have been successful.
One initially designated gambling region was the Azov City gambling zone in Rostov Oblast. The region borders the Ukraine and is situated along the Sea of Azov which borders with the Black Sea. Azov City was actually the first gambling zone to open a casino under the new regulation.
In December 2010 Russian President Dmitri Medvedev approved the move of the designated zone. The new area hopes to feature a shopping centre, restaurants, several hotels and a Las Vegas-style casino. The area is situated only five minutes from the airport and has a good connection with the railway network too. No definite deadlines have been set for the commencement of construction, but the project seems to be in the early phases of development.
Azov City gambling zone was finally closed down in April 2011 by Prime Minister Vladimir Putin.
The moving of a gambling zone to an area with better infrastructure and links to the rest of Russia is an interesting move because one of the intentions of “banishing” gambling to remote zones was precisely to try and make it less accessible to Russian citizens. The initial idea was to allow gambling in deliberately remote areas to minimize the negative effects of gambling.
In light of these zonal and regulatory changes, the authorities in the Kaliningrad gambling zone also proposed that their zone should be moved closer to the city of Svetlogorsk where a well-established resort is located.
The Primorsky Krai gambling zone, close to China and Japan, is still working developing its gambling plans. The vision is for four casinos with 1,000 slot machines, 45 gambling tables, 20 poker tables and 10 VIP tables in each casino, as well as 3 hotels with 600 rooms in each, shopping malls and other entertainment.
In the same region, Vladivostok has recently been labelled by Russia as a potential gambling hub and has formally commenced plans to attract foreign investors. The Integrated Entertainment Zone has the potential for around five large casino resorts with total of 12 casinos between the resorts.
The first phase of a three-phase development is expected to be completed by 2016 with the value of the total investment estimated at US$ 2 billion.
In August 2012, the government announced that seven companies will take part in the casino development in Primorye. One of these is First Eastern Gambling who will invest US$ 30 million in a casino & entertainment facility, while a Cypriot company Houmuoks Primorye, owned by the Noutelico Trading Limited will develop a US$ 200 million five-star hotel and casino complex.
These developments might make a success of the eastern gambling zone in the coming decade but, so far, the Russian gambling regulation has not been a success. A report by Russia’s Audit Chamber at the end of 2011 claimed that the designated gambling zones had failed to succeed. The study said that public funds have been squandered on the creation of the gambling zones. So far, the government has received only around RUB 100 million in tax revenues from the zones, just 7% of its development cost.
The new gambling zones have also failed to combat the problem of illegal gambling in Russia.
The Russian police anticipated the move by the operators and continue to battle illegal gambling. In December 2010 Moscow’s city government re-committed to enforcing the gambling ban by being more active in shutting down illegal operators. Authorities agreed on creating a new task force to act against underground casino operators.
In April 2012, the Russian Prosecutor General’s office reported that 28,000 gambling houses and 414 illegal casinos have been closed since the federal law banning gambling in Russia came into force. The prosecutor’s office also confiscated US$ 1.8 million of illegal gambling proceeds and 450,000 gambling machines and collected over US$ 4.5 million in fines. But corruption remains a big problem in battling illegal gambling in Russia.
It is clear that the initial Russian gambling zones have not fulfilled their brief. This is not a surprise to the operators who were involved in the Russian market prior to 2009, who predicted the loss of legal jobs and the rise of underground gambling venues in major cities. Investors will be hoping that the second phase of the zones, including their relocation to areas of more appeal, will bring greater success and stability to the sector.