Hungary’s Viktor Orban is facing new accusations of corruption and cronyism from local and international media, due to his recent actions that appear to favor his close allies in the casino industry. Although small in number, Hungary’s land casinos have been the subject of a number of controversies in recent years. As this latest scandal breaks, we take a look at how and why it is happening, and who are the main players.
Hungary is gearing up for a 2022 general election, which promises to be a close-run thing. Incumbent Orban has been in power since 2010, and since Hungary has no term limit restrictions he will be seeking reelection. This time, however, Orban and his ruling Fidesz party will be facing a newly united opposition alliance – and for the first time since he came to power his future is not assured.
Perhaps knowing that his days are numbered, Orban has been getting his house in order, and that seems to include looking after his friends in the public sphere. Earlier this year a bill establishing the 2021 budget was passed, and one of the provisions was to make casino operation a priority for the national economic interest. The casino operations in the country are projected to bring in around $10 million to the economy over the next three years, a relatively modest contribution.
Considering the relatively small contribution that casinos make, this could be seen as a dubious proposal, but it was another provision that allowed Orban to make his latest move.
The change in legislation allowed existing casino tenders to be renewed if they are more than half-way through their original license period. This then opened the door to renew the concessions for the country’s five most profitable sites, which was duly carried out just a few months later. The result being that the five casinos now have new contracts that will take them through to 2056, a period of 35 years.
The move was made in complete secrecy and with no fresh call for tenders. Rather than announcing the news, the Gambling Supervisory Board simply updated the information on their website to reflect the change. The news was broken by the Telex news portal, who investigated the story following a tip-off from a reader.
So, who are the ones who stand to gain from this new arrangement? Perhaps unsurprisingly the two main players in this story are both close allies of Orban. The new licenses were granted to the only five casinos operating in Budapest, all of which belong to the LVC Diamond casino group. This company is jointly owned by Kristof Szalay-Bobrovniczky and Istvan Garancsi.
Garancsi is a wealthy property magnate and businessman known to be a friend of Orban. As well as owning 60% of LVC Diamond, he also has plenty of other interests in the country including ownership of the Videoton football club. Szalay-Bobrovniczky, who owns the other 40%, is a former ambassador to the UK and the husband of government spokesperson Alexandra Szentkiralyi.
The casino industry in Hungary is not large, and the five Budapest sites are the country’s biggest earners by a wide margin. Despite a slight drop in takings during the pandemic, LVC Diamond still turned a profit of around $25 million in 2020 – a 36% decrease which is expected to return to pre-pandemic levels soon. The new concessions were granted only to LVC Diamond casinos, while the remaining six rural sites in the country remained with their existing contracts.
Gambling in Hungary has been legal since 1991, shortly after the country gained independence from the Soviet Union. The law provides for eleven casino sites around the country, and at present all of those licenses are in use. There are three in the east of the country and three in the west, the most profitable of which is the part-Austrian owned casino at Sopron. The turnover and profit from the six rural sites is far below that of the LVC Diamond-owned casinos in Budapest.
In Hungary gamblers can play tax free at any licensed casino, and all tax money comes from the casino’s turnover. Casinos with a turnover below 10 billion forint (approx $32 million) must contribute 30% of that turnover. If the turnover is more than that, the tax is 3 billion forint (approx $9.5 million) plus 10% of all turnovers exceeding 10 billion forints. The license fee is the second highest in the region at 116 million forints, but this can be fully covered by the tax contribution.
Similarly, German players are having their own issues as a new casino tax is being implemented, however this one is borne by the players. This is the reason why many want to play tax free but do not find any licensed casinos to play at, leading them to a grey zone. Both approaches in regulation do not look well. One is weakening player protections instead of strengthening it, while other is channelling casino money into the pocket of government cronies.
According to the laws of the land, only land casino operators are permitted to run online casinos. In practice, many Hungarians make use of foreign sites and are rarely taken to task for doing so.
The opposition are promising, should they get into power, that they will look for a legal way to overturn the new legislation that has allowed Orban to favor his casino friends. But this is not the first time that the government has come under fire for granting privileges to the casino industry. During the height of the pandemic, when all public places from zoos to cinemas were shut down, Hungary’s casinos were allowed to stay open.
The broad argument for keeping these venues open was that they are too important for the economy and it would be detrimental to close them. Many casino insiders also claimed that there was no real danger to patrons and that strict infection control protocols were always adhered to. Others refuted this assertion, saying that players inside were too close together and that many patrons came into contact with tables and gambling chips.
Whether or not the decision to keep casinos open was purely down to economic reasons, the latest news has compounded mistrust in the government’s interests in the sector. Allegations of corruption are nothing new in Orban’s Hungary, but we must wait until election day to see if this has an effect on the way the voting goes.