IS THE GAME WORTH THE CANDLE?

The bookmaking business is nothing new in Azerbaijan.  But in the near future, it will acquire a new form:  The country plans to legalise the operations of bookmaking offices, which will enable them to emerge from the grey sector and open respectable-looking offices instead of cellars, tea houses and markets.  It is expected that the first bookmaking offices will begin operations in the country as soon as early October 2010.  Youth and Sports Minister Azad Rahimov said that the AzIntelTek organization, which is working on this development, has prepared up to 300 POS terminals, and training courses are now under way to teach people how to operate the equipment.

The minister said that matches in the Azerbaijani Premier Football League will not be included in the totalizator.  And this is understandable too:  the risk of game-fixing would be too high, which naturally would be a very negative phenomenon for the development of football in the country.  Incidentally, 14 international offices accept bets on the Azerbaijani domestic championship, and all the betting firms accept bets on Azerbaijan's international games.

At the same time, the decision to legalize this business in Azerbaijan will enable bookmaking firms to expand their network of offices to accept bets on the eve of the 2012 European Championship (in Poland and Ukraine) and the 2014 World Cup (Brazil).

Let us note, however, that the decision to legalize this business in Azerbaijan received a mixed welcome in bookmakers' circles.  Supporters of the decision argue that the operation of bookmaking firms hardly differs from the Sportprognoz lottery or futures contracts on the stock exchange, and the business operates alongside sports competitions in most countries.  The ban on bookmaking or confinement of offices to special areas outside cities and town results, on the other hand, in a flow of money to foreign bookmaking offices via electronic payment systems and credit cards.  Opponents of the idea are convinced that this is a means of popularizing one form of gambling, an activity which has been banned in the republic for 12 years now.

Breaking the deadlock

Let us remind readers that gambling was banned by law in the Azerbaijani Republic in 1998 because it was against moral values and the national character.  According to the Administrative Code, gambling (bookmaking, casinos etc) is considered an administrative violation against public rules, security and morality.  Under Article 309 of the Code, persons involved in these types of activities must pay fines from AZN 15 to AZN 20, and the "bets" or other assets used in gambling must be confiscated.

However, this ban did not include horse racing totalizators; further, to improve that system, the Azerbaijani cabinet amended the rules of organization and operation of totalizators, distribution of the assets in circulation and prize funds, on March 17 2010.  These amendments granted authorized agents of the State Committee for Securities the right to visit the organisers of totalizators to collect the necessary information.  Instructions to address any violations discovered, whose implementation is mandatory, must be issued in written form to the organisers of totalizators.  If the instructions are not acted upon, a suit will be filed in court to halt the organization's activities and bring it to account.

In order to legalize the operations of other totalizators, Article 54 was added to the Law on Physical Culture and Sports which was passed last year - it envisages the creation of bookmaking offices.  To implement this law, the cabinet approved the rules of organization and conduct of gambling in the country on 23 August 2010.  According to these rules, sports-related gambling activities can be organized only by a legal entity (operator) which has received accreditation from the Ministry of Youth and Sports.  Accreditation is issued for a 10-year term.  The legal entity applying for accreditation will have to meet the following requirements:

-The availability of financial resources and technological infrastructure to organize and conduct gambling;

-Organization and conduct by the legal entity itself, or by its founder, of sports-related gambling activities in the last three years, using a network of, on average, one virtual or 1,000 stationary outlets; and risk management for an annual average turnover of AZN 500,000.;

-Construction of a trade network and information centre to manage gambling from a single centre;

-Design of a trademark and organization of the necessary advertising.

The operation of bookmaking offices in Azerbaijan will be monitored by an organization of the Youth and Sports Ministry, Azeridmanservice, together with the Turkish company Inteltex.  The organizational structure will be very simple.  At the top of the bookmaking pyramid, there will be Azeridmanservice.  The operator, which will work with the bookmaking offices or dealers, will operate under its supervision.

In the opinion of Azar Maharramov, Director of Azeridmanservice, there will be 50 bookmaking offices in Baku at the initial stage, but eventually this figure will increase about sevenfold.  In total, the number of bookmaking offices in Azerbaijan could reach 600.

Everyone who applies to the operator can become a dealer.  But there will be conditions.  Before receiving a terminal, which will resemble a cash register, free of charge, several conditions will need to be met.  First, the person should have a checking account.  Second, the terminal must be installed in a respectable location:  cafes, restaurants, movie theatres, shops or other public places.  Third, there are conditions on the positioning of the terminal - it is desirable to install it on the first floor and for it to be visible to visitors.

According to the rules approved, the maximum payment on any ticket is set at AZN 250,000.  If the winnings on a ticket exceed this limit, no amount in excess of the limit will be paid to the winner.

Profit distribution

And now the most interesting point:  where and how will the money from the sports totalizators be distributed?  Naturally, all the revenues from the operation, namely, bets that are paid by gamblers, will be managed by the operator (the legal entity accredited by the Youth and Sports Ministry to take part in this activity).  But only after the operator pays taxes to the national budget, pays some amount for the development of physical culture and sports and, of course, pays off the winnings to participants.

Naturally, with the legalization of sports totalizators, the national budget will acquire yet another source of tax revenues, and quite a lucrative one at that.  However, one unresolved issue is defining the mechanism for taxation of the bookkeeping offices.  Let us note from the outset that because the revenues from this activity are difficult to keep track of, the government plans to include the bookmaking business in the group of businesses which are taxed by a simplified method.  Considering the high profitability of the bookmaking business, the Finance Ministry proposed the introduction of a fixed 10% tax rate, which would be the highest tax rate employed under the simplified taxation system.  However, the Ministry of Youth and Sports Ministry proposed a reduction to 6%, and Mr. Rahimov said that the Tax and Finance ministries have reached agreement on this rate.

In the mean time, the country's cabinet decided on 23 August 2010 that 4.2% of the revenues from sports totalizators will be used for the development of physical culture and sports.  In the opinion of the head of Azeridmanservice, 70% of the revenues will be spent on the development of Azerbaijani football and 30% on other sporting disciplines.  "We decided to adopt the practices of bookmakers in Turkey and former Soviet countries.  The revenues from bookmaking companies play a huge role in the development of sports there.  It will be up to the ministry to decide which other disciplines besides football will benefit," said Mr. Maharramov.

Plus and minus

So, legalization of the bookmaking business will be profitable for the state anyway.  If we add up all the bets made at the illegal bookmaking offices in Baku, they come to a very large sum.  Several million dollars are spent at those places and this kind of secret activity leaves a lot of money untaxed.

But what about the reaction of the dozens of illegal operators who have developed this business - still grey to a considerable extent?  Are they rejoicing that they will have the opportunity to do business legally?

According to some of them, Azerbaijani bookmakers hope that legalization of the football totalizators will make the business more civilized.  At present, their offices operate near metro stations, major shopping centres and other places (cafes).  According to some assessments, there are about 100 illegal bookmaking offices in Baku at present, and there are similar offices in Sumqayit and in a number of cities in the south of the country.

At the same time, the local bookmakers consider the heavy taxes which the state is going to impose on them to be the fly in the ointment.  That is why they note that the best way of legalizing the football totalizator would be to equate the business with ordinary entrepreneurial activity, under which illegally operating bookmaking offices would create commercial enterprises, pay taxes etc.  They say that this is the way it is done in practically all European countries.  Incidentally, there are about 2,000 football bookmaking offices which accept bets and, most importantly, set the winning odds for the games themselves.

Experts argue that Azerbaijan has in large part borrowed the Turkish system of operating football totalizators, which is totally under state control, and the controlling and regulating organization was chosen by tender. Access to foreign bookmaking offices is blocked there, so that the funds circulating in the totalizators remain within the country.  The state itself sets the odds which, naturally, are much lower than those in international bookmaking offices.  For example, the games whose coefficient in Turkey is 1.25 have the coefficient of 1.8 in Europe and North America.  The same analysts maintain that the Turkish version of totalizator does not operate effectively because the population simply lost interest due to the low winnings.  By the way, today's  illegal Azerbaijani bookmakers do not set the odds and mainly use those set by two foreign companies, Marafon (Russia) and Gamebooker (Canada).

In the mean time, in countries without a centralized system and with open access to international bookmaking offices, the football totalizators flourish, yielding considerable profits to the state in the form of taxes.

One way or another, experts hope that the work of the football totalizators in Azerbaijan will be effective, because the country will probably keep the business internal if bookmakers and the state hit the golden mean in their relations.