In a candid interview, Darren Keane, CEO of Storm International, managing company for Casino Shangri La brand, shared his insights on the challenges facing Georgia’s casino industry, particularly in Batumi and Tbilisi. As the sector grapples with declining revenues and shifting player demographics, Keane provides a critical perspective on the factors affecting its sustainability.
The Current State of the Casino Industry
Keane paints a concerning picture of the casino industry in Georgia, stating, “Unfortunately, the industry in Georgia is in decline for the first time in the last 13 years.” He attributes this downturn not only to the aftermath of COVID-19 but also to ongoing economic pressures that impact tourism—a vital component of the casino revenue stream.
The Importance of Foreign Players
Foreign players are crucial for the success of Georgia’s casinos. Keane notes that “90-95% of casino revenue comes from foreign players.” In Tbilisi, foreign visitors account for 92% of patrons, while in Batumi, this figure rises to 97%. “It’s obvious to see that the foreign players are the only reason casinos can work in Georgia,” he emphasizes.
The Impact of the 5% Cash-Out Tax
One of the most significant challenges discussed is the recent introduction of a 5% tax on cash-outs. Keane argues that this tax could “ultimately destroy the gaming business in Georgia.” He elaborates, “It’s a cash-out tax, not a winnings tax. A foreign player can buy in for $10,000, lose $5,000, and still have to pay the 5% tax on the $5,000 he cashes out when he is still in minus.” Keane advocates for the elimination of this tax for foreign players, suggesting that a more balanced approach—like taxing local players on their winnings—would be more effective.
Competitiveness in the Region
Keane warns that Georgia’s tax policies has put it at a competitive disadvantage. “Players will just decide to visit other countries nearby where such taxes do not exist,” he explains, referencing Northern Cyprus, Armenia, and Belarus as alternatives. This competitive gap could deter potential visitors and further threaten Georgia’s position in the gaming market.
Observing Changes in Player Behavior
Since the implementation of the cash-out tax, Keane has noted a “decline in foreign visitation” across both casino locations. He emphasizes the broader economic implications, stating, “These foreigners also spend money in hotels, restaurants, spas, and shops. The impact won’t only be in the casinos, but in the economy of Georgia too.” He mentions a trend of players traveling to Yerevan, where there is no cash-out tax, highlighting that even local Georgians are making the trip to avoid the fee.
Potential Casino Closures and Economic Implications
Looking ahead, Keane predicts that without intervention, casino closures could become a reality. “All Tbilisi casinos’ profit margins have greatly been reduced,” he explains, noting that many establishments that were barely profitable are now facing losses. This could lead to significant job losses, which would further strain the local economy. “The government will end up with less casino license payments, less individual quarterly tables and slots taxes, and of course, less salary taxes,” he warns.
A foreign player can buy in for $10,000, lose $5,000, and still have to pay the 5% tax on the $5,000 he cashes out. If this tax remains in place, there will be serious consequences for Georgia’s casino industry
The Link Between Casinos and Hospitality
Keane stresses the interconnectedness of the casino and hospitality sectors in Batumi. “As gaming tourism slowly goes down due to this tax, more casinos will close. This will also impact possible new hotel and casino openings,” he asserts. The decline in casino patronage could stifle growth in related industries, compounding the economic challenges facing the region.
Engaging with Regulators
Keane emphasizes the need for ongoing dialogue with government officials about the implications of the cash-out tax. “The effect of the decline will be slow but gradual,” he notes, suggesting that the government may not fully grasp the critical nature of the situation. “We have tried to explain the difference between cash-out tax and winnings tax, but to no avail,” he says, calling for a reconsideration of current tax policies.
Proposed Solutions for Industry Growth
To revive Georgia’s gaming market, Keane proposes significant revisions to the existing tax structure. He suggests aligning the GGR tax on land-based casinos with the lower 5% rate applied to online casinos. Furthermore, he reiterates, “The 5% cash-out tax should not be applied to any foreign players,” to ensure that Georgia remains competitive as a gaming destination.
The Long-Term Outlook
If the 5% cash-out tax remains in place, Keane predicts serious consequences for Georgia’s casino industry. “If the tax structure does not change for land-based casinos, Georgia will cease to be a gaming destination within three years,” he asserts. He believes that casinos may need to absorb the cash-out taxes for foreign players to keep them coming, but acknowledges this is not a sustainable solution.
A Call to Action
In conclusion, Keane delivers a clear message to government stakeholders: “This tax is driving foreign players away.” He cites the example of a regular Arab player, who came with an entourage of six family members, who bought in for $100,000. After two days playing, while his family were shopping and eating out in restaurants, he lost $30,000. Before his flight, he cashed out the remaining $70,000 and was taxed the 5% cash out to a total of $3500. He was outraged because he lost $30,000 overall on his visit and had to pay $3500 in cash out tax on top of that. Needless to say, he has not returned to Georgia and now plays in Cyprus or Yerevan. This highlights the potential fallout from the current tax structure and reinforces Keane’s urgent call for change. As Georgia navigates these challenges, the future of its casino industry relies on strategic decisions regarding taxation and player engagement. Without proactive measures, the state risks losing its position as a competitive player in the international gaming market.
