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Russia’s new gambling zones: a sucker’s bet?

11 Jun '09
Oleg Kouzbit, Online News Managing Editor

After July 1 gambling in Russia will be restricted to the country’s four exclusive gambling zones. This Marchmont feature highlights one of them, Azov-City in Russia’s South. Dubbed the “Russian Las Vegas”, the Azov complex has reportedly attracted a hefty $2bn+ investment. Although the deadline is right around the corner, the facility still lacks water and decent roads and will look nothing like its glitzy brochures. A key investor has folded his hand and others are getting anxious. Some are questioning whether the whole idea of dreamy, distant gambling zones ever made sense in the first place.

In January 2008 the RF government decreed the creation of the Azov-City gambling zone, one of the four such territories to be established under Law 244 on gambling. After July 1 this year, gambling will only be allowed in these areas.

The Azov “gambling paradise” is being set up on a piece of borderland between Krasnodar and Rostov Regions. The other three zones are located in Primorsky (Far East), Altay (Southern Siberia) and Kaliningrad (North-West) Regions. Azov-City has been hailed as the most developed of them all.

“Russian Vegas,” a dream of dreams

The new complex is eventually expected to cover 2,000 hectares on the Azov Sea coast. The resort of Yeisk is just 50 km away. Southern Russia’s larger cities of Rostov-on-Don, Krasnodar and Taganrog are within 200-km distance.

Planners envisioned building a comprehensive infrastructure to support the zone, including a toll highway, a landing strip for small private planes, a sophisticated yacht basin, upgraded water, gas and power lines.

When the project was announced last year there were no hard roads or railway lines direct to this future “Russian Las Vegas.” Analysts claimed it would take a $2bn+ investment to realize the project and backers said the investors were lining up.

In December 2008 construction of Azov-City’s first casino reportedly kicked off.

“Azov-City will be able to successfully challenge Vegas, Macao or Atlantic City in a few years,” Krasnodar Vice-Governor Alexander Remezkov boasted in June 2008.

There will even be a special children’s entertainment complex, to be called Lukomorye, which has promoted observers to nickname the project “a Russian Disneyland.”

The original forecast was that Azov-City would draw up to 25 million tourists a year. However, tourist sector experts are now much less optimistic, citing the fact that only 23 million tourists visited the entire country last year

Azov-City or the Emperor’s New Clothes

A week ago Krasnodar Governor Alexander Tkachov announced Azov-City would open on July 1 as planned. He also publicly stated that infrastructure was firmly in place. Officials are upbeat, claiming that there are investors for all 16 land sites to be initially developed.

But the glitzy drawings of skyscrapers and sleek hotels remain a distant dream. Azov.Info quotes locals as saying little has changed over a year. Investors are in a wait and see mode and the prospects do not look promising.

According to IRN.ru, Azov-City has only got electricity; a road and a water supply system are still reportedly being designed.

Regional officials are scrambling to put on the best face, but all that appears to be happening is that “residents have been active in little more than shifting deadlines.”

RIA Novosti wrote that only Tatarstan-based Royal Time is actually building casinos in the gambling zone. There’s reportedly zero construction activity in the Rostov part of Azov-City. Austria’s ASATI, once a “golden” investor in the Krasnodar part of the project, announced that it was quitting the project last week.

The Austrian developer is not the first company to bow out of the risky investment gambling. Last year ASATI teamed up in its Azov-City endeavor with Casino Austria, a gambling operator. However, the latter backed out later on, pleading Russia’s legal haziness and no clear prospects for the gambling zone operation.

ASATI president Alex Kogan explained that neither developers nor casino operators have any idea of how the gambling zone is going to develop. “It takes infrastructure, it takes understanding how tourists will be brought in here; none wants to visit an empty grassland…we still don’t know if we are expected to build a casino for a hundred people or for a thousand,” Mr. Kogan told Interfax.

He believes international operators would be far more interested in backing Azov-City if the complex had a track record and analysts could project more realistic tourism data.

Promises aplenty, but where’s the beef?

“We’ve been in talks for a year with international casino operators and have listed terms and conditions on which those operators can enter Azov-City. So far Krasnodar regional authorities have given us zero response.”

According to international gaming outfits, Russia’s law on the gambling sector still needs work. Foreign investors want assurances of when and on what conditions their casinos will be connected to communications; government guarantees as to construction of transportation infrastructure, including the promised airport and railroad.

Gambling moguls have long aired doubts regarding the possibility to create the zones in Russia by July 1, 2009 and asked the RF government to postpone the ban on gambling outside such zones until late 2012. However, the plea has been falling on the Cabinet’s deaf ear.

“Russian Monaco” or Russians in Monaco?

Nikolai Oganezov, director of a regional gambling association, complains about the lack of comprehensive, all-inclusive approach to construction of a “homebred Atlantic-City.” He feels this threatens to wreck or at least cripple the whole idea. “Once people see one or two gambling spots that bring no gains, no business will go there, and will lose interest in the idea entirely.”

It’s obvious that the two regions have no muscle to persuade world-level gambling leaders that Azov-City is a good bet. To their dismay, word has recently come that international competitors, such as Monaco and Baden-Baden, are considering paying for free charter flights to bring Russian gamblers to their tables.

Russia’s new gambling zones will be hard-pressed to develop alternatives to free gambling junkets overseas. Some are saying maybe it’s time to throw in the cards and start with a fresh deck. Gambling on distant, dreamy gambling zones doesn’t seem to be a winning hand.
Oleg Kouzbit, managing editor: “I’m glad you join us here and take The Bridge walk for Marchmont’s weekly review of the Russian regions’ innovative present and future. Stay close and you’ll find out more of how Russia is bridging the existing gap between its researchers and businesses.”
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