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Plamen MILANOV: 13 persons became millionaires in Moldova within a year due to the lottery

Plamen MILANOV: 13 persons became millionaires in Moldova within a year due to the lottery

 Interview of InfoMarket Agency

The amount of sold lottery tickets in Moldova, reached 537 million lei ($30.7 million) within 12 months (since November 2018). This is the first result of a public-private partnership introducing the state monopoly at the gambling market.
 
The state decided to monopolize the market and involve private partners in cooperation in 2016. The tender for organizing lotteries and sports betting was won by a company founded by investors from Bulgaria which signed a contract in April 2018. According to the contract 75% of this partnership belongs to the state company Loteria Nationala, and 25% to the private partner NGM Company SRL. The general director of NGM Company, Plamen MILANOV told InfoMarket agency about the results have been achieved during this time, also difficulties and opportunities have been revealed.
 
InfoMarket: Let's clarify which segment of the gambling market your company has gained due to public-private partnership?
 
Plamen MILANOV: According to Moldavian law, gambling is divided into two segments: high social risks - these are casinos and slot machines and low social risks - lotteries and sports bets. The first segment is completely controlled by the state-owned Loteria Nationala and we have nothing to do with it. Our contract involves only the organization of lotteries and sports betting.
 
Nobody developed lotteries in Moldova until last year, it could hardly be called a business before we involved in the market. I believe that if there is no interest of a private partner, then a state will gain nothing. For example, a state-owned company organizes instant lotteries in Romania, but this activity is not profitable there.
 
InfoMarket: Does the ratio of 75% to 25% also involves the respective prorated share of investments?
 
Plamen MILANOV: The state only provided us with the name - Loteria Nationala. Thus, the investments of the state in this partnership amounted to zero lei. All other investments and development are carried out by a private partner, that is, NGM Company. We got access to the gambling technologies, thanks to our parent company from Bulgaria, meaning, a contract with tickets manufacturer and software. Every lottery company in the world develops their own software which may costs at least 10 million euro. The problem is that no one is selling it. We managed to agree that we would use this software under a license agreement, as well as receive after-sales service. This costs about 1.5 million euro per year.
 
Moreover, we developed additional software by agreement with a state-owned company, so that our partner can track all the information in accordance with the requirements of Moldovan law. Logistics, marketing, development and printing of tickets are also our responsibilities.
 
InfoMarket: What is the area of responsibility of the state partner, besides the fact that it receives 75% of the revenue from ticket sales?
 
Plamen MILANOV: The state ensures pay out of winnings. Each ticket has the information about the proportion of the winnings pay outs; usually it is 62-63%. The state receives 75% of sales and pays up to 63%, but in reality the state receives more percentage because many tickets with small wins remain in the hands of players according to the statistics.
 
InfoMarket: You mentioned the contract with the tickets manufacturer. Tell us more about it.
 
Plamen MILANOV: It took two years for the Bulgarian lottery to pass certification at Scientific Games. This is the world’s leader in the production of lottery tickets for the largest lotteries in the USA, Italy and Spain. The company has several printing houses  in the USA, Canada and the UK, protected no worse than state mints. They do not work with everyone. We managed to sign the contract only through our parent company in Bulgaria and gained access to the most modern world ticket printing technologies. We provide only the design and the payoff table of winnings to the printing house. Upon receipt of the draw, no one knows where the winning tickets are. In addition, a ticket verification number is also protected by a special layer, which can only be verified after a ticket is sold.
 
High quality tickets increase the confidence of the players. For example, in Kyrgyzstan, lottery tickets are printed in India, they are cheaper at cost, but they also look accordingly. This country has a population of three times bigger than Moldova, but the state-owned company sells 1 million tickets a year there; we sell 1.5-2 million tickets a month because we know how to do this business.
 
InfoMarket: How many tickets were released and sold within 12 months?
 
Plamen MILANOV: We launched six types of lottery tickets already; some were reissued, some only once. It’s about 30 million tickets in total. But, not all of them are still sold. The principle of this lottery is that a ticket cannot be withdrawn from sale; therefore the entire draw of tickets is always sold, as it has been happening in Bulgaria for more than seven years. There are particular clients for different types of tickets; someone wants a big win and buys more expensive tickets, someone is interested just winning, albeit not much, but there are tickets with an average price and average winnings, those types of tickets are the most popular. By the way, we are preparing a limited draw (1 million tickets) Christmas edition, these will be the most expensive tickets, 50 lei per ticket, but every second will be winning.
 
We also use additional marketing strategy. We give out prizes once every two weeks among the tickets that have not won (they must be registered at a website), so a car is the main prize once a month. The site has already played 12 cars. Also, there are participations in a telecast among the winnings, each participant can win up to 5 million lei, but even if a person just got in a telecast and won nothing, it is guaranteed to receive 10 thousand lei and a lottery ticket. 13 persons became millionaires in Moldova over the year thanks to the lottery, considering less valuable prizes.
 
InfoMarket: What are the financial indicators of your business over 12 months and government revenues both state-owned companies and the budget?
 
Plamen MILANOV: I will provide you with a table of our calculations which is based on the simple distribution of the profits from the lottery, the partnership agreement and transparency of the entire business. It is very easy to calculate. I only note that the state’s share is not only the revenues of a state-owned company, it is also a profit tax that we pay as a private partner; as well as taxes paid by our distributors (the state company pays them a commission on sales, there are about 3,500 points of sale throughout the country); it’s VAT on advertising which is not refunded, also the profit of state enterprises from the distribution of tickets.
 


Entitlement

 

Data for
12 months*

(in million lei)

1

Lottery Ticket Sales

537,00

2

State-owned company share — 75%

402,75

3

Payouts of winnings for 12 months (due to the share of the state company)

305,00

4

Commission rates paid to distributors

59,07


State-owned company profit in partnership (= 2-3-4)

37,68


Additional budget revenues from VAT



VAT on distributors commission rates

9,85


VAT on advertising (preliminary)

2,00


Profit of a private partner (forecast)

40,00


Profit tax and dividends of a private partner (forecast)

6,80


Profit of state enterprises from distribution of tickets

5,50


Total state revenue (state-owned companies and budget revenues)

62,83

* The data for reference only.
 
InfoMarket: The lottery fever decreased this summer, since the Parliament decided to introduce a tax on income from each winning the lottery and sports bets. Each winner will have to pay 12% from January 1, 2020.

Plamen MILANOV: The problem is that the state thereby taxes its citizens, not us, so the market can react very negatively: people are sensitive when they are forced to pay, not understanding the nuances; they will believe that the state is deceiving them. We have calculated and submitted calculations to the parliament and tax authorities. According to our estimates, the state will receive only 8 million lei as a result of the introduction of a tax-on-winnings; it could be even less sales. Moreover, this market is growing and may grow in the coming years. The state, as a lottery partner, received almost 38 million lei within 12 months; another 20 million lei were received as taxes to the budget, and about 5.5 million lei from ticket distribution. If we undermine confidence in business, then the state and we will lose the trust of players. The consequences, including for the budget, may be negative if people stop buying tickets. In addition, everyone knows how to calculate profits. Let's say a person bought 10 tickets of 30 lei and, finally, one of the tickets brought a win of 300 lei. But, this does not mean that the person returned the money invested in the game earlier, since 36 lei (12%) from the winning should be paid to the state, thus, the winner get 274 lei only at an expense of 300 lei.
 
The situation is even worse with sports betting, the betters will be taxed by 12%. We had to launch the sports betting website under the agreement with the state. There are not only software costs incurred, but also monthly costs for the purchase of sports betting odds. This should be done either by a team of professional analysts or they can be bought from companies specializing in this kind of business. We have chosen the Swedish company KAMBI to buy betting odds from them. But, we will not be able to afford to maintain the site and it will have to be closed due to the introduction of an unjust and illogical tax to the players in our opinion.
 
InfoMarket: What is the point of playing in Moldova, where players should official fees as taxpayers, since there are lots of international online gambling platforms?
 
Plamen MILANOV: Exactly! According to the agreement, the state had to fulfill only one condition, close the illegal sports betting market, meaning, the access of players to all foreign sites and ways to withdraw money from the country. More than 200 million lei withdrawn from Moldova every month at sports and online casino bets; there are more than 60 thousand active players in the country according to some calculations. A company like us, which pays taxes, can never compete with those engaged in illegal business. Nevertheless, more than 4 thousand players are registered at our site already, we might lose them unfortunately.
 
We will be forced to announce that legal bets in Moldova are unprofitable for the players from January 1, 2020. The average betting odd is 1.08 for winning, if a player invests 1000 lei for example planning a win of 1080 (i.e. plus 80 lei), in fact the player will have to pay a tax of 12% from the total amount, so the final winning is 950 lei.
 
In my opinion, these legislative changes do not have logic and push the people into illegal activity, which is not prohibited in Moldova, moreover, it’s advertised. That is, the state violates its laws via officials who issue advertising permits to such sites. There is illegal gambling activity via foreign sites in Moldova, such as online casinos which have no age limit to play there, that means children can play on these sites.
 
We are trying to explain that the state has found the easiest way to earn money without investments. The state makes a profit and additional taxes to the budget. According to our estimates, if the state fulfills its part of the contract, then only sports bets can be raise the income to the budget in the amount of approximately 100 million lei next year ( in addition to  60 million lei profit from the lottery) in the form of dividends and taxes on business from sports bets. This public-private partnership project can bring the state at least 160 million lei per year (the subject to the conditions of cooperation between the public and private partners). The partnership is not taken into account by the state authorities of Moldova for some reason. // 07.11.2019 - InfoMarket.
 

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