Investors rush to sow Lithuanian market

  • 2004-01-22
  • By Darius James Ross
VILNIUS - Though the debate on legalizing gambling in Lithuania had been heated, in the end even the conservatives realized that the headaches caused by underground poker and roulette tables necessitated the introduction of a law legalizing the industry.

The Gaming Act thus went into force on July 1, 2001, which put Lithuania as a significant disadvantage to its neighbors. Poles, for instance, have been gambling for a decade already, while Estonians have had casinos for seven years and Latvians for five.
Still, many insiders, such as Ceslovas Blazys, president of Lithuania's State Gaming Commission, see the advantages of entering the industry last.
"Some people say that it is better for Lithuania that the gaming industry is just arriving now as the country has had time to mature and the state has become stronger. We've had the time to form stronger policing mechanisms," he says.
Numerous foreign companies have jumped at the chance to invest in Lithuania's newest growth market. The latest is Great Canadian Casinos, which is betting that its 18 million litas (5.2 million euro) investment in a swanky 3,000 square-meter Vilnius casino and entertainment complex will earn it a huge payback.
Walter Soo, operations vice-president for Great Canadian Casinos, spent six months in Lithuania overseeing the construction of Grand Casino World in downtown Vilnius.
"We're a public company, we have to build share value," he says when asked why Great Canadian Casinos decided to invest in the Baltics.
Soo, whose appearance defies the image of casino execs - the 46-year-old often wears relaxed designer sweaters and jeans to the office - explains that with revenues around 185 million euros per year and 1,500 employees, the company has begun looking for growth opportunities in markets outside Canada.
One of Soo's unique products has been the installation of low-denomination - 5 centas (0.01 euro) - slot machines (they're even considering 1 centas machines), far lower than the previous 20 centas standard in Lithuania.

There are already 16 companies in Lithuania that hold gaming licenses, 12 of which have begun to operate. The largest is Estonia's Olympic Casino Group, which posted 13.5 million litas in revenues in the first three quarters of 2003 and operates the casino at the Reval Lietuva Hotel.
On the pinnacle watching over this rapidly growing industry is watchdog Blazys, a towering man with the pleasant manners, neat attire and the steely eyes of a former police commissioner and interior minister. He was about to retire before President Valdas Adamkus invited him to take his present job in 2001.
He says that the first six months were spent putting together a team of regulatory specialists who could handle the licensing and technical aspects required by the new law.
"I can say that we were pleasantly surprised to find a commission that is very, very stringent in an industry that is so new and young," Soo says, adding that GCC's governance policy requires that strong legislation exist in any country where it becomes involved.
To obtain a gaming license in Lithuania an investor needs to set up a corporation that is not involved in any other business besides gaming. The minimum investment required for a casino (which includes, for example, roulette wheels and card tables) is 4 million litas, while the minimum necessary to operate a slot machine parlor is 1 million litas.
In Lithuania, state revenue takes the form of a fixed gaming device tax. Corporations pay 12,000 litas each fiscal quarter for every single card and roulette table. "A" category slot machines (those with no maximum payout) cost 1,800 litas per quarter, and "B" category ones (those with a 200 litas maximum) cost less at 600 litas.
Today the gaming commission oversees nine casinos, 15 slot-machine salons, 50 betting shops and one bingo hall. Lithuania presently has 94 gaming tables, 450 "A" category slot machines and 200 "B" category in the country.
In the first nine months of 2003 the government took in 5.7 million litas from equipment taxes and 575,000 litas in paperwork fees.
"A lot of people in this country find the very idea of entering a casino intimidating," says Arune Stirblyte, marketing director for Casino Planet, a Polish-Lithuanian joint venture that operates one of the smaller casinos in Vilnius.
"They almost think there is someone at the door waiting to take their money. But I'm not allowed to encourage the public to go into a casino, as it would get me in trouble [with the gaming commission]."
And there's the rub. Casinos and gaming houses are restricted in the amount and type of advertising they are allowed, as their business is considered "non-promotable" in accordance to the law.
Still, casinos need more than just black-jack tables and slots to attract clients, many of whom want to eat and be entertained between games. But since they are restricted from engaging in any other business, Great Canadian Casinos' way of working around the law was to find a local partner to handle entertainment venues built into the same property. As a result, Grand Casino World presently includes a nightclub and Japanese restaurant operated independently by Tadas Karosas, the man behind the Cili Pica food chain.
"Gambling time is entertainment time," Soo says.