Challenges and Peculiarities of Gambling in Russia. Expert Opinion of First SRO Representative Nikolay Oganezov

Nikolay Oganezov, the Chairman of the Subcommittee for Betting Activity and Totes of the Chamber of Commerce and Industry of the Russian Federation and member of the First Self-Regulatory Organization of Russian Bookmakers, knows well the state of the gambling market in Russia. In the interview for championat.com, he shared his vision of what is going on at betting offices.

He mentioned the reason of the last year’s 70% market growth, explained what problems were up-to-date for betting houses, and shared peculiarities of legislative initiatives in the industry.

Market growth and its reasons

In 2018, the gambling market grew by 70% in Russia. On one side, growth is a good thing. However, if we look at facts that lie behind it, we will see that the growth does not have any significant underlying economic reasons. Such reasons may include the development of business infrastructure, automation, increased labor productivity, adoption of innovations. Russian companies have all these components but not in the quantity needed for 70% growth.

The reason for growth lies in the FIFA World Cup. Sport fans from all over the world came to the country increasing the interest in betting. Besides, betting offices conducted aggressive marketing campaigns that helped as well. However, this one-time event influenced the market only in the short-term perspective.

One can observe that the number of customers has decreased after the championship. The share of new players that appeared in the period from May to July 2018 and are still actively playing is just 20%. From January to April – not more than 30%.

Another aspect is that such a surge in the market growth encouraged the interest of public officials in the sector. They are starting to think that the business is going out of control and strengthen the requirements, for example, increase taxes and introduce new regulation norms.

About challenges of the market

Betting offices have three main problems in Russia. Firstly, the lack of fair competition in the market. Like in the fable "Swan, Pike and Crawfish”.

Secondly, too complicated tax legislation. We need to change the range of responsibilities for personal income tax agents and simplify the management of such allocations.

Thirdly, it is still unclear on what kind of events the bookmaker has the right to accept bets. This list should be defined. This will hardly influence the revenue of betting houses, but will improve their reputation instead.

The lack of individuality is one of the other problems worth mentioning. Several big companies have their own design and behavior strategy. Smaller companies just copy these elements not creating anything new.

Besides, there are problems with the service at land-based facilities, from the interior to adequateness of employees. However, this segment is gradually reducing due to online companies. Some people think that the number of land-based betting houses will reduce twofold in the next three years. One of the reasons is the high maintenance cost of facilities. The optimal network comprises 250-300 betting shops throughout the country. In case there are more of them, expenses will exceed revenues.

About two-factor identification

Today Russian players face the problem of two-factor identification. This process has to boost the business rather than harm it. Therefore, a new simplified system is required.

But the law that would simplify the procedure was halted. Before the World Cup, public agencies were actively discussing it, but as soon as the championship ended, the interest in the law faded away. Most of public officials involved in the organization of the World Cup think that the idea has lost its relevancy now.

The Federal Financial Monitoring Service also has a critical attitude. It did not support the simplification of the identification process for bookmakers. The reason is that betting activity is considered risky and seedy. Many people think that betting offices are simply laundering money.

In other countries, gambling falls under the low-risk category, as it is strictly regulated. But lawmakers have another, conservative opinion in Russia. Members of the SRO regularly meet with public agencies, but these meetups do not bring wanted results for now.

Simplified identification is undoubtedly beneficial for legit betting offices. And the shadow sector does not need it at all. However, there is a fifty-fifty chance that the two-factor identification will be cancelled in Russia in 2019.

Judicial cases: examples and a typical plaintiff

Betting offices have enough of problems with lawsuits. It often happens that a beauty salon or a swing is built near the betting house. In this case, the court considers it a childcare facility and fines the betting house for standing near it. However, the betting house could appear there earlier.

This shows the attitude of judges to gambling. Earlier the situation was different: courts were aware that this is primarily entrepreneurship. Now arguments in support of betting houses are taken extremely negatively. Some judges even do not want to get to the heart of the matter – the bookmaker is fined hundreds of thousands rubles straightaway.

There was such a precedent in the judicial practice: the betting house was fined half a million rubles for the fact that the strip club located in the same building had a children's menu. Due to this menu, the plaintiff claimed that the strip club was a childcare facility. Everything was explained as follows: yes, women get naked there for money at nights, but a family with children can come for a dinner at daytime. The situation is comical but the fact remains.

It happens that players file action against the betting house. Around 70% of them are unfair players that initially have the plan to deceive the bookmaker. The rest are fair players that faced a kind of mistake or a betting house that is not willing to pay out winnings. In most cases, such mistakes are resolved by the bookmaker or the SRO, where all complaints are resolved very quickly.

In 2018, the First SRO processed 527 complaints, 312 of them were motivated. The organization requests additional information about unmotivated complaints. Overall, the First SRO conducted 205 verifications.

About blocking of payments

Today Russia blocks settlements made between citizens and online bookmakers that do not hold license of the Russian Federal Tax Service. This ban is realized not in 100% of cases, but banks take a big risk if they conduct such a transaction – you can hardly find the institution that will run such a payment.

However, there is a demand for “grey” payouts. The player risks losing all funds in this case though. Therefore, most people think that paying taxes and providing personal data is a better option to get winnings for sure than risking the whole amount. Everyone decides for himself or herself.

About entrance of Bet365 to the Russian market

Some media were reporting that the well-known British Bet365 would enter the Russian market. But this is not quite the case. This is not about full-scale expansion. There are affiliate schemes, but this is not the entrance to our market, rather something intermediary. The company can present its brand or certain tools in Russia. But when a company really wants to establish itself in the jurisdiction of another country, it primarily makes large investments.

It is unlikely that Bet365 is entering our market. It would rather define its presence in order to check out prospects.

Indeed, strict legislation in Russia decreases the competitive ability of the Russian bookmakers as compared to foreign operators. But Roskomnadzor (the Federal Service for Supervision of Communications, Information Technology, and Mass Media) blocks foreign bookmakers in order to channel players to the national market.

About shutdown of betting shops in standalone regions

The Russian Government has recently proposed an initiative to close betting shops, forbidden back in 2009, in certain regions. The initiative has not been discussed with the business community.

An interesting situation arises: the region that has particular religious and mental principles has the right to ban betting offices on its territory. But it is impossible to hold responsible those who violate the ban.

Therefore, the initiative is logical, but it has taken too long to implement it. Today it does not meet modern realias. Why to open land-based offices if online facilities are available? In addition, this step will not influence the market overall.

Besides, citizens of remote regions, where betting companies can operate legally, face a new problem – user identification. It is quite difficult to undergo it for a village dweller.

About simplification of licensing

Thanks to the Subcommittee for Betting Activity and Totes of the Chamber of Commerce and Industry of the Russian Federation as well as members of the First SRO and Association of Totalizers, the Russian Government passed the decree of 21 March 2019 № 291. Now licensing requirements do not contain the demand to pay out winnings with money taken not from the settlement account. This means that winnings can be paid directly from the sum of accepted bets.

The step was preceded by the lawsuit of the First SRO and Association of Totalizers. They demanded to hold invalid some paragraphs of the Central Bank’s Decree about cash payments. The Supreme Court turned down the appeal, but organizations continued their battle. As a result, an unusual situation took place – the court case was lost, but the needed result was achieved.

About the ban of slots machines

The Subcommittee for Betting Activity and Totes of the Chamber of Commerce and Industry of the Russian Federation fights to make sports betting only legal. This is a classical type of bookmaking – offices accept bets on sports events only and pay taxes.

However, there are companies that do not offer betting on sports at all. Instead, they offer a range of “quick games” that resemble slot machines. Such companies earn money faster and simpler than classical bookmakers, but do not pay taxes. In addition, they harm reputation of fair companies by encouraging gambling addiction among the population. The problem arises: responsible bookmakers are forced to offer the same games to be able to compete in the market.

There is a legislative initiative that suggests banning the business conducted in a similar way to slot machines. The Ministry of Finance and the deputy of the State Duma, the LDPR (Liberal Democratic Party of Russia), Andrey Lugovoy work on the initiative. However, the initiative is confronted by the gambling lobby. The latter is trying to add foreign lotteries and quizzes, the realness of which is extremely hard to check, to the list of allowed events.

There is an opinion that the probability of the initiative being accepted is 90%. However, in case the gambling lobby introduces its amendments to the initiative, there will be no point in it.

About efforts for the liberalization of regulation

Besides, the Subcommittee for Betting Activity and Totes of the Chamber of Commerce and Industry speaks in favor of softening the requirements to licensing of betting companies. It keeps negotiating with the Federal Tax Service and the Ministry of Finance that have been always toughening the market regulation, in such a way hindering the market development. Sometimes their measures cannot be called otherwise than repressions.

The First SRO supports the Subcommittee’s initiative. However, there are nuances here: if licensing conditions are made too loose, this will open doors to unfair companies.

About gambling addiction and self-exclusion list

It is hardly likely that gambling addiction has relation to the classical bookmaking. It arises only in cases when winnings are defined by chance, as it happens with slot machines. Classical bookmaking, i.e. sports betting, is an intellectual activity, calculating different outcomes and probabilities. This means that winnings depend on the intellectual skills of the player.

However, gambling addiction exists as a fact, and for this reason, every player has the right to come to the First SRO with the request for self-exclusion, the situation when betting offices will not accept bets from the player. This service is not very popular.

About the monopolist in the market

Bookmakers keep discussing the meeting of the Committee for Sport of the Chamber of Commerce and Industry of the Russian Federation held on 19 April. In short, Telesport received exclusive rights to stream sports events for bookmakers thanks to the meeting. Not for other entrepreneurs, not for individuals, but for bookmakers.

In such a way, a monopolist was artificially created in the market. If a bookmaker needs the right to stream some match, he has to turn to Telesport. The latter has pushed prices for streaming too high, making those several times higher than NTV Plus or Tricolor TV. And there are no alternatives.

The First SRO sent letters to the Federal Antimonopoly Service and the Ministry of Sport of the Russian Federation asking to reconsider the legitimacy of this transmission of rights to streaming. The Committee for Sport of the Chamber of Commerce and Industry also tapped into this issue.