Gaming zones struggle with bureaucracy, lack of infrastructure

 The tenth Russian Gaming Week conference was held in Moscow earlier this month, but a promised focus on the country’s land-based industry failed to materialize.

Organizers had scheduled discussions on the often confusing and ever-shifting situation in Russia’s gambling zones on the second day of the conference, but the program was replaced by a set of marketing presentations, with no explanation given. The talk was otherwise dominated by concern over corruption in sports and the ongoing issue with Russia’s online payments system for bookmakers.

Despite the high-profile launch of Summit Ascent’s Tigre de Cristal in Primorye last year, experts say the reality is that the zones in Russia are struggling. Samoil Binder, Deputy Head of the Russian Association of Gambling Business, said the situation is “deplorable.”

Russian President Vladimir Putin banned gambling in Russia in 2009 except in four designated gambling zones that were subsequently expanded to include Sochi and the recently annexed Crimea. However, experts say the remote location of the areas, far from major population centres such as Moscow and St. Petersburg and a lack of infrastructure have been major factors in holding back development.

Instead, illegal gambling is flourishing. According to a survey carried out by the Russian Association of Gambling Business 85 percent of gamers said they would continue to play in Moscow, despite the ban.

Azov closure

Russia’s oldest operating gaming zone - Azov City - is now set to close by 1 January 2019, according to a recent presidential decree. Its three casinos received about 500,000 visitors in 2015, while their tax revenue transferred to the regional budget amounted to 230 million rubles (about 3.5 million dollars at the current exchange rate), according to local officials.

Some experts say that Azov City has fallen victim to the authorities’ decision to use the venues constructed for the 2014 Sochi Olympic Games in neighbouring Sochi as casinos. According to Russian law, two zones cannot co-exist in one region.

Despite the imminent closure Merkur Gaming this week announced the placing of Avantgarde SLT slot machines at the Shambala Casino in Azov City, which was recently expanded.

Yuriy Tkach, CEO of Casino Shambala expressed his optimism the government would reconsider the closure. “We are hopeful that a lot can change between now and then."
But if the shutdown of Azov City is settled, the timeframe for opening its rival in Sochi remains an open question. Last year, there were reports from high-profile officials claiming that it might be opened in summer 2016. However, in May the local authorities told web portal Kuban 24 that this issue is “being worked out” and that it is the Russian government that should make a final decision.

Binder, who has done consulting work for investors looking at the zone, said most interested parties in the project there are people who invested hefty sums in the infrastructure for the 2014 Olympics and are now looking for business activities to win the money back.

Crimea crumbling

Plans for a zone in Crimea have also been pushed back. Its head Sergei Aksyonov recently said that the Crimean government is in talks with two potential investors, whose names he did not reveal. However, he said the launch has been hindered by legal red tape, including the fact that the facility must be located outside of a populated locality.

The project will be presented to an investment committee by mid-July, but Aksyonov also adds that there are certain problems due to Western sanctions, as investors want the zone to be appealing to foreign gamblers.

The head of the Yalta city administration Andrei Rostenko told journalists earlier this month that it is unlikely that the project will be implemented by the end of 2016, and mentioned the end of 2018 as the more preferable timeframe. He also noted that the area of the Zhemchuzhina (Eng: Pearl) health camp is being considered as a possible location.

Binder pointed out that in Crimea there is "no money, water, electricity supply has only recently been fixed with the help of Russia, there is no infrastructure as of now."

When it comes to Siberian Coin, the management of its only casino - Altai Palace - has recently unveiled plans to build a second property there by 2018. However, if the Russian government slaps a hefty tax on gambling business, it promised to reconsider its decision.

In 2015, Altai Palace received 17,000 players and paid about 30 million rubles to the local budget. But Binder claims the resort has not lived up to expectations.

International interest

The development of Russia’s far eastern gambling zone Primorye has been the one that has generated the most interest amongst international investors, due to its proximity to northern China and its highly favorable tax structure.

However, since the opening of the Tigre de Cristal in November last year, the pace of development has been relatively slow.

In its annual report, Summit Ascent said that it continues to work to ramp up the property, which is the biggest integrated resort in Russia. It expects to be fully operational by this summer, with 1,100 employees and the company said it has been encouraged by month-on-month gains seen over the winter season.

 Primorye governor Vladimir Miklushevskiy said in March that he expects Tigre de Cristal to pay about 150 million roubles to the budget at the end of 2016 and said that the venue receives about 550 gamblers on a daily basis. No other casinos are scheduled to open in Primorye in 2016 and Summit Ascent said it expects to maintain its monopoly position until 2018.

Diamond Fortune Holdings Prim is working on a second resort, the Selena complex, that will take up to 10 hectares  of land with an investment of $900 million. The first phase will include a four-star hotel with 250 rooms, a casino with 100 tables and 500 machines as well as restaurants and bars. Construction began last summer.

Once fully complete by 2020, the Selena will include two hotels, 515 gaming tables and 2,590 machines.  

Hong Kong-listed Nagacorp, the operator of Cambodia’s Nagaworld, also began work on its casino in the zone last summer. The company has been preparing foundation work for the future hotel complex with a casino and an aqua park, with a pledged investment of not less than $350 million.

Dig-related delays

However, Betting Business Russia recently reported that the schedule has been pushed back due to archeological finds at its land lot. The company plans to go ahead with the construction by the end of June 2016 and to launch its facility by the end of 2018.

Russia’s westernmost zone called Yantarnaya in Kaliningrad finally got its first gaming facility in April - a slot machine hall named Magic Crystal. Another similar venue is expected to be opened there by the end of 2016. The zone’s main investor - Royal Time Group - expects Magic Crystal to receive about 350 people on a daily basis.

On Tuesday, President Putin also endorsed the Noviy Gorod (Eng:) New City resort project, which is a part of the Yantarnaya zone, at a meeting with Kaliningrad governor Nikolai Tsukanov. The project's investor is Russian company Afina Pallada, whose initial investments are expected to reach 1.5 billion roubles, and its first phase is expected to be built by 2018 when the 2018 World Cup will take place across Russia.