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Russia: "Ka-Ching" Go The Slots


Have a lot of luck, and get rich! The jackpot is always growing! Play Jackpot, and live without worries!" Over and over, the catchy jingle plays, tempting passersby into the Jackpot slot-machine arcade at the busy Kiev railroad station in western Moscow. Every few meters, another arcade beckons. "We lived too long under the Soviet system. Now all these machines appeared and, like they say, the forbidden fruit is sweetest," says Viktor, 34, a Jackpot player.

Quite a change from communist days, when gambling in Russia was outlawed. Hundreds of casinos opened in the 1990s, catering mainly to rich businessmen. But in the past couple of years, the betting bug has bitten the man on the street. The number of slot machines nationwide has doubled in the past year, to 250,000, estimates Deloitte CIS. As recently as 1999, there were only 12,500.

Mouthwatering returns are driving the investment. Profit margins average 40%, and this year slot-machine owners will pull in $2 billion to $2.8 billion in revenues, up from $1 billion in 2003, according to Deloitte. Russia's casino tables will generate just $300 million. "It used to be 100% mom-and-pop shops, but now it is attracting the attention of serious businesspeople," says Sergei Kouzmine, president of Ritzio Entertainment Group, owner of Russia's largest arcade chain, Vulkan Game Clubs. Its revenues are set to hit $300 million this year, with net profits of $120 million.

TRIFLING TAX

Worldwide, slot machines are becoming big business. They account for around 70% of casino revenues in the U.S., for instance. But the key factor behind the takeoff in Russia is favorable regulation. There are few obstacles to acquiring a gaming license, beyond a one-time fee of $45. Operators pay a fixed tax per machine, set at $130 a month in Moscow. That's no great burden, considering that slot machines generate an average of $700 to $1,000 per month.

Parliament is debating a law that would tighten licensing requirements and hike taxes, killing off small operators. But that may encourage big investors. "It will make the market much more attractive and transparent," says Michael Boettcher, a British entrepreneur who set up Super Slots, the No. 3 chain. Big industry players from Australia and Asia already are sizing up the market. Just 4% of Russians play slot machines, compared with 25% of Americans. With odds like that, it's no wonder Russia's slot-machine operators see the market as a one-way bet.

By Jason Bush in Moscow


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