Casinos debut amid talk of new zones

Russia’s southern and western gaming zones have seen a flurry of activity over the past few months, while reports have emerged of new areas being considered for casino investment.

Moscow designated four zones for casino gambling in 2009 in remote locations on the fringes of the country and outlawed gambling anywhere else. Since then, the zones have been expanded to six to include the Crimea and Sochi, the home of the 2014 Winter Olympics. While one of the original zones -- Azov City -- is expected to be closed down.

According to reports more zones may be on the cards, raising question marks over the shifting sands of Russian regulation for foreign investors. Initially, when adopting the law in 2007 the authorities pledged to not introduce changes to the locations of the zones for the next 10 years.

Russian gambling expert Nikolai Oganezov, who previously chaired one of Russia's self-regulating organizations -  the Bookmaker's Self-Regulatory Organisation - and is currently constructing a hotel complex in Rostov-na-Donu, said the original law setting out the zones was flawed.

“The gaming business itself cannot be a growth driver for a certain territory. It only works in conjunction with the tourist one. The reality showed futility of the law, which we saw a couple of years ago, when the gaming zone was set up in Sochi.”

“If one carefully studies the story [of Azov-city’s planned closure] from the legal point of view, it becomes clear that each of the zones, either already functioning or the ones being projected are at risk. And any investment in them may be considered a high risk, because the legislator did not ensure the consistency of the legal framework,” he says.

According to reports, a port in Russia’s southern republic of Dagestan, which is considered a strategically important facility, is to be turned into a gaming zone with two casinos backed by a powerful Russian senator.

The port itself has been in debt for quite a while and is up for privatization in 2017-2019. The construction company supposedly tied to the senator denied media reports about the plans.

For a territory to get gaming zone status, it needs the supreme executive authority of the region where the zone is to be established to submit an application to the Finance Ministry, which tables the proposal to the government, which can then introduce amendments to the law.

Stavropol Territory governor Vladimir Vladimirov has also asked Russian senators to support the idea of setting up a gaming zone in the Caucasus Mineralniye Vody (Rus: Mineral Waters).

He even set the date for its opening in October 2017, saying that it would have a positive impact on replenishing the budget, projecting annual profits at 1.5 billion roubles.

Oganezov says a gaming zone in Dagestan is “unlikely” despite the powers of the senator in question because of its predominantly Muslim population. But he believes that Stavropol may be more successful.

“Hypothetically, this territory may become a gaming zone as it is in a dire need for a tourist leap at the federal level, and the state has invested big money in social and transport infrastructure, as for instance before the 2018 World Cup, and this infrastructure cannot be regarded as self-sufficient and badly needs consequent maintaining and financing.”

“If these two aspects coincide, then the creation of a gaming zone in the Caucasus Mineralnye Vody region is quite likely,” he said.

Meanwhile, a document on the development plans for the town of Kislovodsk, in the mountainous area in southern Russia, 600 kilometres away from Sochi, through to 2030, which was signed by Prime Minister Dmitry Medvedev in January 2017, says that it may be included in the list of territories for gaming zones.

Russia has also seen a flurry of new openings in its existing zones. Two large casinos were officially launched in two gambling zones near the Black Sea resort of Sochi and the Baltic Sea port of Kaliningrad. 

The Sobranie casino in the Yantarnaya (Rus: Amber) gambling zone, dubbed “one of the biggest casino in Europe," by Russian media, opened its doors at the beginning of February.

Its main room occupies an area of 3,600 square metres and, as of now, involves 350 slot machines and 14 gaming tables, with plans to increase the number threefold. 

The current amount of investment in the project totals 2.5 billion roubles and is expected to top 3.5 billion roubles, according to Valery Saparin, marketing director of the Uni Management company in charge of the casino.

It became the second gaming facility in the zone, where the slot machine hall Magic Crystal was launched in April 2016. Its profits are not known, but the local authorities said in October that they expect state coffers to receive just 9 million roubles in taxes, instead of the planned 40 million, from the zone in 2016. 

The Sobranie Casino was opened by the previously unknown Uni Management company, which, as it appeared, is owned by a former director of the Royal Time Group company. The latter in turn owns the Oracul casino in Russia’s oldest operating gaming zone, Azov-City, and has interest in the Primorye- and Altai-based zones. 

Despite generating 236.5 million roubles in taxes in 2016 and receiving large-scale investments, Azov-city is supposed to be closed by 1 January 2019, according to a government decree. That’s because according to the law two zones cannot exist in the same region and Sochi, whose facilities were financed by state banks during the Olympics, has taken precedence.

The Krasnaya Polyana (Eng: Red Meadow) gambling zone in Sochi saw the grand opening of its first casino on 5 January 2017. It has 569 slot machines and 70 gaming tables and is expected to bring 433.57 million roubles in taxes in 2017. According to Russian media, investments in the project amounted to 4 billion roubles.

Progress is also being made in the construction sites of Primorye in the Far East. The zone, with its close proximity to northern China, is seen as the most viable of Russia’s gaming areas. 

Hong Kong-listed Naga Corp has started the construction of its first gaming facility, Mayak, local media reported on 1 December. According to regional official Andrei Folomeyev, at that time the company was carrying out “preparatory excavation works for setting a construction site.” 

The facility, whose construction is expected to cost about $70 million will include a 279-room hotel and a casino with 300 slot machines and 30 gaming tables. It is expected to be operational by the end of 2018.

Summit Ascent Holdings' G1 Entertainment is currently preparing the design project of its second gaming facility, which it is developing in partnership with South Korean casino operator Kangwon Land.

There were also reports about an upcoming opening in Crimea in 2017, but no specific date has been set and no investor named. No new developments have been recorded in the Altai-based Siberian Coin gaming zone.