Where will bad gambling regulation take us?

On the eve of the entry into force of the law on changes in the Georgian gambling business, the head of the Georgian gambling association (GGA), Georgy Mamulaishvili , on the website of the organization on the development and regulation of the gaming industry published an article. Innovate Change quotes the translation of this material.

The development of the gaming industry benefits any state, although initially you need to choose the right approach. It is important to realize that a lot depends on the type of regulation, and putting the industry in a rigid framework is simply not profitable for the country. But that doesn't mean the business doesn't need regulation. In the future, the administration of the adopted laws is clear and mandatory. Any state spends taxpayers' money on regulation, and if it gets less than it spends, then the legislation is poorly drafted.

If we talk about a complete ban, especially in our area, practice shows that any state should consider gambling as a branch of the economy. The development of the game is directly related to the development of tourism and the replenishment of the state budget, the development of the banking sector and payment systems. There are many other areas that are indirectly or directly related to the game. This is especially important for developing countries, since gambling is a good way to replenish the country's budget, reducing crime and corruption.

To date, most countries have adopted a liberal approach to the gaming industry and focus on the development of local operators , which is an important factor in the fight against illegal online operators or clandestine gambling establishments. Regulation of local markets allows people who want to play for fun to use the services of local operators that are controlled by a state focused on responsible gambling and consumer protection. They do not use different tricks and techniques towards the consumer to attract him to the game.

Today, dollarpean countries have one of the most flexible laws in the industry , which is adapted to the needs of the state, society and business. In addition, until recently, Georgia had a really well-developed gambling legislation that has improved over the years, and by the end of 2020, it could be stated that the industry in Georgia was at the level of the highest industry standards. But since the end of 2021, the government's political interests have changed dramatically, and the country has imposed strict restrictions, increased taxes and, in fact, turned the white market into gray. After all, what did Georgia get?

Illegal operators and gambling institutions appeared on the Georgian market. Local operators were not competitive due to restrictions, and foreign legal and illegal online establishments had an advantage over local ones.

In the long term, the state will receive less taxes in the budget; departures from the country will increase, since players who are banned from playing will do so on various illegal platforms in Georgia. The state will spend millions on a similar regulation, but the effect will be zero. The improvement of technology has led us to the fact that it is impossible to restrict access to illegal sites and funds of monetary transactions. Even if the state prohibits local payment systems from transferring the seller category code (CCV) 7995, there are many illegal sites that use other CCV codes to get money.

Practice shows that no country in the developed or developing world has been able to achieve this, and that is why the prohibition policy is gradually shifting to a liberal approach.

Any developing state will have to work hard to get closer to world standards. The verification and identification system implemented by Georgia after consultation with the gambling association (AJA) has been brought to the highest level of standards and ensures the complete identification of its customers, focusing on the principle of "knowing your customer". It is also an important factor for the development of local operators. And we can say: before the introduction of age and social status restrictions in Georgia, all operators could claim that they had whitelists of users.

The restrictions have already paid off, just the opposite, despite the fact that the law will only come into force on March 1. Customers who fell under the ban began to look for other ways to access the games. Fake accounts appeared, the transfer of accounts for rent and the opening of new bank accounts became common. So it turns out that Georgia involuntarily turned into a gray market. Gray markets are particularly attractive and interesting for any illegal trader. They pose a huge challenge for any state and for the gaming industry itself, as uneven gaming rules, incorrect and undesirable methods of attracting players arise.

This is also confirmed by the actions of large companies. For example, due to inequality and poor regulation, William Hill , one of the largest representatives of the industry, left 55 gray markets in 2014, citing "regulatory circumstances" as the main reason. Bookmakers value the reputation of their brand and the industry as a whole, and unstable markets create additional problems for this. Any criticism of this market or Georgian-like changes in legislation leads to the loss of huge amounts of money. Therefore, large public companies are struggling not to enter such markets.

We can also recall another sad example of the consequences of incorrect taxes is Kenyan . In 2019, the authorities drastically changed gambling policies and introduced a huge tax rate of 20%. Many foreign companies withdrew their licenses, as a result of which almost all gambling establishments in the country stopped working within a year. As a result of this, in 2020, the government eliminated the tax. A year later, the tax was introduced again, only this time it was 7.5%. The government justified the decision because it wanted to limit the harmful effects of unregulated gambling on society. As a result, legal traders left the market, and the number of illegals increased significantly.

The same will happen in Georgia. After the enactment of new bans during the first month, more than 133 illegal operators began to take an interest in the Georgian market and translated their content into the Georgian language.

There were "Mirrors" of legal operators with a brand name and logo, there were also educational videos on how to transfer money and register on a particular site. And all these operators are registered in Offshore zones and in many cases do not adhere to the rules established in gambling.

The same can be said about the neighboring markets - Russian and Ukrainian. After the total ban on casinos in Russia, illegal gambling flourished everywhere . In Moscow alone, instead of 500 closed legal gambling institutions, 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 feel good and interfere with the development of legal business in the country.

This issue has been repeatedly examined by industry experts, more than once the emphasis was placed on the fact that in these conditions there is an increase in crime. Business is spliced with crime, corrupt representatives of the law enforcement system. Both countries lost revenues in the treasury worth hundreds of millions and spent hundreds of millions on the regulation of the sphere and the fight against crime. But everything is wasted.

Ignorance of the industry or reluctance to do so no longer plays any role: the fact is that in such conditions, the industry gets stuck in one place. There are a number of factors that prevent the Ukrainian gambling industry from taking the right path for development. For the second year, the country is unable to simplify tax legislation, which radically prevents potential investors from leaving and developing the Ukrainian market.

In 2019, at the first Ukrainian gaming forum in Kherson, the problems of legalization of the gaming industry were discussed. And the right direction was taken - the legalization of the market and the corresponding changes in legislation. But later Gulliver turned into a Snail, of course, if Ukraine did not focus only on local operators, who are already successful in the gray Ukrainian market, despite high taxes and clandestine establishments, which are also partly a problem, since the interests of investors are completely ignored by high taxes at the moment. For today, there are no changes for investors. Double taxation is not regulated.

Today, Georgia is faced with the same reality - with the upcoming innovations in legislation. The investor does not feel the same and avoids any market fluctuation because it impairs its development. Today, everyone perfectly understands that any successful business is managed corporately in market conditions.

Why would anyone invest in a country where corruption flourishes, laws change often, the government is not constantly in its decisions, there is an unstable or gray market, crime flourishes?

The government should listen to companies, as companies better understand all the nuances of market regulation. Proper regulation of gambling is a positive step by the state to develop the country's economy and try to eradicate crime and corruption. But the wrong approach and consideration of gambling not as part of the economy leads to the opposite effect. For the investor, beyond the legislative framework, the priority is the transparency of business processes. This helps you to analyze the current situation in the country and make the right decision.

On this basis, the regulator and the government should have a desire to learn the right experience and always engage in constructive dialogue with business representatives and experts, rather than listening to pseudo-experts who make misinterpretations in accordance with their ambitions and interests. The implementation of the above and transparency will make the processes understandable and attractive to investors. Therefore, a constructive dialogue between companies and the regulatory body is needed.

The state should always use the experience of developed countries to promote the legitimate and correct development of the gambling business, since there are many pitfalls that are difficult to address without directly participating in business processes. And, of course, these pitfalls lead to poor regulation. In this type of relationship, the association is always a good intermediary who knows the business from the inside and is trying to channel possible changes in legislation.

The second important factor in the development of the gaming industry is minimal corruption. Corruption is one of the important obstacles for the investor. Any investor wants his investment to be safe and should have a guarantee that his rights will be taken into account. If the legislation is vague and unregulated, or the prohibitions concern only the local market, this sets the stage for the development of corruption. Any field of activity should be transparent, especially when it comes to gambling.

The gambling industry has always been attractive in terms of expressing populist statements and raising the rating. Many states, despite the large contribution to the country's budget, treat gambling unfairly.

Traders should have a level playing field, this is important for the investor. At one time, the rapid breakthrough in the economy of Georgia was due precisely to this approach of the government to any problems. The investor felt protected and equalized in front of other market participants, which gave him an incentive to invest in the development of the business. This is reinforced by the fact that today, of the six largest online gaming operators, three belong to the world's leading companies.

An important factor in the development of the gambling business and the improvement of the tourist environment is the introduction of the free zone. The "free zone", in fact, gives a significant impetus to the development of a particular region, for example, Batumi and Kazbegi, which radically changed after 2005. In the formation of the local city budget, an important part is the regional tariffs of the gambling business. I also want to note that Yuri Gusev, the governor of Kherson, had such a project.

If local royalties and mandatory payments were the same as in the capital, then I will tell you that Batumi and Kazbegi would not be far from their development. It can be said that the budget of eight large cities and municipalities of Georgia is replenished by more than 50% through the gambling business.

Legalization has many benefits, and the state must see them in order to perceive gambling as an important branch of the economy. Among the advantages can be noted: the replenishment of the budget, the creation of jobs, the sponsorship of sports clubs and athletes, both beginners and already successful.

The development of local legal operators is driving foreign illegals out of the market. And all this has a direct impact on the decrease in crime in the state, as criminal structures lose interest in this type of business. The promotion of local operators helps to develop the financial sector and strengthen local financial institutions, which also helps to strengthen the exchange rate. The development of the gambling business contributes to the development of tourism.

Any state should maintain a liberal approach to the gambling business, which in the future will make it possible to further improve the industry and attract investors. The development of the gaming industry, despite many opponents, reduces the presence of social risks, as well as increases needs in the labor market, provides an opportunity to develop related industries.