Licensing tender: Real progress in lottery regulation or temporary stabilization?

Over the past several years, lotteries have been the subject of active discussion within the gambling sector. Unfortunately, these discussions have not focused on industry development or investment potential, but rather on the illegal activities of lottery operators, imitation of gambling, non-payment of taxes, and avoidance of licensing fees. Finally, the newly created regulator, PlayCity, has paid attention to this situation and announced an open tender for obtaining lottery licenses. This has undoubtedly become a step toward establishing regulation of the sector; however, given its specific nature, much work still lies ahead.

Only three players took part in the open tender: M.S.L., the Ukrainian National Lottery, and PJSC “Patriot.” In other words, three existing lotteries that are effectively monopolistic players in the market. When you look at the general requirements, it becomes quite clear why other companies were unable to participate in the tender. The main ones include:

• The presence of branches in megacities with a population of over 500,000;

• 5,000 points of sale and proprietary terminals;

• A 29-day timeframe to prepare the documentation package for obtaining a license.

  
  

Looking at just these three requirements, it becomes obvious that only companies that have long been operating in the sector and have an extensive distribution network can apply. This, in turn, blocks market entry for new national players as well as foreign businesses, thereby reducing competition.

On the one hand, we finally see the state attempting to fill the regulatory vacuum that has existed for more than 11 years. Throughout this entire period, lotteries effectively operated without proper oversight and did not pay any licensing fees or taxes. The licenses of lottery operators expired back in 2013–2014. Therefore, the fact that existing lotteries will finally obtain licenses and begin operating within the legal framework is already a certain achievement. At the same time, this does not ensure a real reset of the market, since new players are not yet appearing.

It appears that PlayCity has a vision for solving this problem, as the regulator has announced a three-year transitional period (martial law + one year, but no more than three years) for updating lottery legislation by the Ministry of Digital Transformation and for conducting re-licensing with access for foreign companies. This gives hope that in a few years the regulatory conditions will become more flexible, and that the Ukrainian market will be able to attract a larger number of lottery operators and, accordingly, investments.

One can only hope that this period will be sufficient to prepare viable regulatory legislation. Otherwise, if nothing changes, these three years may turn out to be merely an extension of the monopolistic status quo of the existing lotteries, without any real prospect of change. In such a case, conditions for the development of genuine competition will not be created, leading to further stagnation of the lottery market.

The open tender is only the first step, which made it possible to close a significant regulatory gap and oblige at least the existing operators to obtain the appropriate licenses. Going forward, systematic work will be required to ensure stable development of the regulatory environment. It is important that all stakeholders be involved in this process—the state, operators, and consumers of services. Only under such conditions can one hope for successful market liberalization that will benefit all participants, rather than only a selected trio of lottery operators. We expect active steps that will ensure real market access for a wider range of operators and introduce clear and transparent rules of the game, rather than merely temporary solutions.