Law to clean up gambling approved in Czech Republic

In lieu of a standard corporate tax, companies operating betting, lottery and other similar games are presently required to donate a percentage of their profits to charitable causes and public benefit projects. The amount to be donated is incremental between 6 percent and 20 percent depending on the company's gross winnings. Under the amendment, donations would be harmonized at 20 percent, a move industry observers say will streamline the process but may push smaller companies out of business.

"It's also an issue of whether a higher tax will lead to more tax evasion the way excise taxes have in the past," said Erik Hegedus, a gambling industry analyst with Wood & Company. "The 20 percent tax is less damaging for larger players like Fortuna but could force smaller players out of the market, making it positive for larger companies in the midterm."

Fortuna Marketing Manager Vladan Crha said the new legislation will hinder its activities. "Having stable legislation on lotteries and sports betting is crucial for Fortuna," he said.

Hegedus says some companies tried to exploit the staggered donation system by setting up several legal entities within one company in order to slip into lower donation categories, something the new system should prevent.

The uniform donation rate will take effect from 2012, as will a new requirement that the Lottery Oversight Office approve the charitable donations, many of which have been opaque in the past, with organizations unable to show how the money was used or even describe the projects.

Out of the us$ 7 billion spent in casinos and on lotteries last year, around 100 gambling companies distributed us$ 199.1 million to "good causes," according to Karel Korynta, director of the oversight office, but the merits of some of these organizations have been called into doubt. 

The Bonver Win company sent us$ 1.1 million to the Vivacitas association, according to daily Hospodářské noviny, and though the company's attorney told the daily the donations were used for activities linked to environmental protection, the daily reported the information was at odds with official documents submitted to the Finance Ministry, which say Vivacitas spent the donation on medical aid and did not specify the type of aid or the recipient.

Though common sense suggests companies would prefer to send money to well-established charities, Vivacitas was founded in 2010, as was Nacalado, an association supporting Roma that received us$ 389,199 from the Gate Seven and Merkur Casino companies. Hospodářské noviny reported that no information was available about the charity, even at their Prague headquarters.

"Previously, some companies sent money to charities linked to them somehow, so this is a way to make sure the money really goes to charities," Hegedus said. "But you also have to evaluate how efficient this will be, and I'm skeptical. The only way to ensure the money will really go to the state budget is through a direct tax."

Korynta has spoken out in the press about the difficulty his staff of 12 will have in implementing the new oversight, but says the goal of the new law is to make the system more transparent. "It will definitely be difficult, and we will need to create an effective system of controls," he said.

Also under the new law, municipalities will be able to regulate video lottery terminals, and the licensing period for them will be reduced from the current 10 years to three.

City officials will likely flex their new muscle next year, and some cities have already started discussing the shape of their own gambling ordinances. The Constitutional Court recently upheld an ordinance in Františkový Lázně banning video lottery terminals. "I see this as positive," Hegedus said. "Just from an ethical and aesthetic point of view, if towns have an influence on what they want in the city center, then they can bring a better quality of life to their town."