Will a gambling zone in Sochi help to attract foreigners?

The Russian government hopes that opening casinos will help recoup the costs of the Olympic venues faster.

The Russian government hopes that opening casinos will help recoup the costs of the Olympic venues faster.

Shutterstock / Legion-Media
With the help of casinos, the Russian authorities hope to attract Chinese tourists to Sochi and recoup the costs of the facilities built for the 2014 Winter Olympics.

The buildings and venues in Russia’s Black Sea city of Sochi that less than two years ago were filled with the roar of fans cheering on Olympic athletes may soon be echoing to a different sound – the spinning of the roulette wheel.

An order signed by Prime Minister Dmitry Medvedev in late August 2016 lays out plans to create a gambling zone in the coastal resort.

According to this document, the area of the gambling zone will be 165,000 sq. m., and it will be located in the mountainous part of the city – in the area of two ski resorts: Gorki Gorod and Rosa Khutor. The opening of the zone is scheduled for late 2016.

A law on the possible opening of a gambling zone in Sochi was adopted by the Russian authorities even earlier – in 2014; this document authorized the use of the Olympic facilities built by private investors as casinos.

From July 1, 2009, all gambling in Russia has been allowed only in designated gambling zones, including the Primorsky Territory in Russia's Far East, the Kaliningrad exclave on the Baltic, the Altai Territory in central Siberia and the Sea of Azov in southern Russia.

"The opening of a gambling zone in Sochi has long been lobbied by representatives of the gambling business, as well as Sochi's businessmen," said Teimuraz Vashakmadze, an associate professor of the Institute of Business Studies at the Russian Presidential Academy of National Economy and Public Administration.

Paying for Sochi 2014

However, there are more practical reasons as well: The Russian government hopes that opening casinos will help recoup the costs of the Olympic venues faster.

"The active development of the gambling zone in Sochi will begin by the end of 2016 amid the expected improvement in the economic situation in the country as a whole," said Timur Nigmatullin, a financial analyst for Moscow investment company Finam.

According to him, the development of the zone will allow private and state-run companies to recoup the costs of the loss-making properties that were built for the Winter Olympics.

Most of the loans for the construction of the venues were provided by the state-owned Vnesheconombank, the country's main development institution. At the same time, the government allowed companies that built facilities for the Winter Olympics not to pay interest on these loans until the end of 2015.

The then chairman of the bank, Vladimir Dmitriyev, estimated the total volume of "Olympic loans" at 240-250 billion rubles ($3.7-3.9 billion).

In February 2016, the head of the bank was dismissed. Analysts cited the inability to cope with the Olympic loans as one of the reasons for the dismissal.

So who would be likely to take an interest in the Sochi casinos? Well, possibly tourists from China: In November, Tibet Airlines plans to open a direct air route between Sochi and Chengdu (Sichuan Province).

As the airline explained, the flight is designed primarily for the Chinese, who buy package tours. It is possible that in the future Chinese tourists will be able to buy chips in Sochi casinos for yuan. In June 2016, the Russian government tasked several ministries to develop a new bill that would allow the use of foreign currency in gambling zones.

Potential competition

There is already one completed gaming zone in the south of Russia – Azov City, located on the shores of the Azov Sea. The first casino, Oracle, was opened there in 2010.

The project's investor – the company Royal Time Group – had planned to invest 10 billion rubles ($154 million) in Azov City until 2018 to build two more centers with hotels and casinos.

However, it has now been decided to close Azov City due to the launch of the gambling zone in Sochi. The administration of the Krasnodar Territory – the southern Russian region where both Sochi and Azov City are located – evaluated the investor's losses at 8.6 billion rubles ($133 million).

In May 2016, Russian President Vladimir Putin extended the operation of the gambling zone until Jan. 1, 2019.

"The opening of a gambling zone in Sochi, first of all, will take customers from Azov City," said Teimuraz Vashakmadze.

In addition, there is the Georgian city of Batumi, close to Sochi, which operates its own gambling zone. "Compared to Batumi, Sochi will not present a very strong competition," said Vashakmadze. "In Batumi, in addition to the local population and tourists from Russia, there are a lot of players from Turkey, Iran and Azerbaijan."

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