Grappling with widespread poverty and the need for cash to finance multi-faceted reforms, President Mikheil Saakashvili’s administration in Georgia is pumping up gambling as a revenue solution. For now, though, foreign investors don’t like the odds of success.
Surrounded by countries where gambling is prohibited or severely restricted, Georgian officials believe that the South Caucasus country has a geographic advantage in the gaming business. They envision a steady stream of foreigners from Turkey, Azerbaijan, Armenia, and the Middle East ready to flock to Georgia to place bets.
Given a general downturn in the European gaming industry, it would seem a big gamble to place so much faith in casinos. Nevertheless, about 120 casino industry executives attended a Casino Investors’ Congress held recently in Batumi. The occasion marked Georgia’s first pow-wow for potential casino investors.
Organizers sought to tout “the Batumi miracle [7]” – the rapid-pace makeover of the city of 125,000 into a tourist destination. “Ten, 20, 40 casinos; it’s hard for me to say how many casinos I see in Batumi,” Levan Varshalomidze, the regional head of government, said during remarks that opened the September 4-6 event.
To help attract more casinos, the central government is offering a 10-year freeze on annual licenses to anyone who builds a 100-room hotel in the Batumi region, and is keeping annual fees for non-hotel casinos at a fraction of Tbilisi rates. Gaming permits are obtainable online.
Georgia also has introduced a flat tax system, so that gaming operators no longer have to pay income tax. Payouts are also no longer taxed. Quarterly fees on tables, slot machines and iGaming [8] are required, on top of an annual license for slot machines.
So far, the tax mix, along with Georgia’s reputation for low rates of crime and corruption, has not done the trick. To date, there are only four casinos operating in Batumi: Casino Peace, Casino Iveria in the Radisson Blu, the Grand Palace Casino in the Intourist and Casino Adjarabet. In 2011, gambling contributed to government coffers the lari-equivalent of just about $7.3 million.
Generating more investor interest may well require the government to offer additional incentives. “A 100-room hotel with free taxes is good, but it’s an expensive investment to open a 100-room hotel,” commented Armin Karu, chairman of Estonia’s Olympic Entertainment Group.
No feasibility study has been done to indicate how many four or five-star hotels Batumi can handle -- particularly in winter, a time of frequently heavy rainfall, when tourist numbers drop off.
Ranbir Saran Das, vice chairman and managing director of Fairwood, an Indian investing group, maintained that “weather is no problem.”
“Look at Vegas, Macau, Singapore --ugh! Horrible weather!” he said.
Yet some potential investors have questions about the Georgian government’s strategic thinking, pointing to the lack of limitations on licenses as a source of concern. “No limitations mean there is no strategy, no planning,” said Mityja Costantini, marketing director of Slovenia’s Hit casinos. “It’s a do-it-yourself system.”
Edvins Lobinsh, managing director of CTC Holdings, a Latvian games manufacturer, agreed. “There should at least be a cap of, say, six casinos for a few years, just to see how that market can handle it.”
Varshalomidze conceded that Batumi, with 4,330 hotel rooms, does not yet have the hotel infrastructure needed to sustain a viable market.
The flat tax poses another potential problem, investors said, since it can take years before a casino establishes a steady client base. “I’ve never seen a flat tax rate anywhere,” said Costantini. “It would be hard to establish a casino under this system; you have to work your way to tax increases.”
One consultant, who asked not to be named, estimated that a Batumi casino with 10 gaming tables and 200 slot machines could expect to pay, on average, the lari-equivalent of $1,740 a day.
But the city’s casino challenge has its attractions for some. Not far from the 47-story Trump Tower [9], a Turkish- built 52-story residential building is going up in downtown Batumi, with what the investors claim will contain the city’s largest luxury casino.
Teimuraz Gamtsemilidze, the general director of the Grand Hotel Kempinski, which is slated for completion in February 2013, dismisses the concerns about tax issues and lack of strategy. “Ninety-five percent of the time,” he asserted, the government agrees with local investors when there are problems.
“They are trying to create the most friendly business environment. They are eliminating bureaucracy, taxes and corruption. This government is in favor of investors,” Gamtsemilidze said.
Nino Sharashenidze, head of the Service Department of the Georgian Revenue Service, which oversees gambling regulations, readily echoed that assessment, stressing that “input from our gaming professionals” is used to “continually” amend laws.
With a “listening” government, executives like Gamtsemilidze say they have no concerns about the soundness of the government’s strategy. “Their strategy is to create the best atmosphere,” he concluded. “What more can they do?”